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2018
Interpretation and Construction in Contract Law Interpretation and Construction in Contract Law
Gregory Klass
Georgetown University Law Center
, gmk9@law.georgetown.edu
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Part of the Contracts Commons
Interpretation and Construction in Contract Law
Gregory Klass
*
January 2018 - DRAFT
When faced with questions of contract interpretation, courts
commonly begin with the principle that “[t]he primary goal in interpreting
contracts is to determine and enforce the parties’ intent.”
1
The maxim
affirms that contractual obligations are chosen obligations. Parties acquire
them by voluntarily entering into agreements whose terms they control.
Contract interpretation therefore begins by seeking out the choices parties
made. The maxim is of a piece with a picture of contract as a form of
private legislation. Contract law gives parties the power to undertake new
legal obligations when they wish. That power requires giving parties the
obligations they intend. And the maxim serves to allocate responsibility.
When a court enforces a contract, it is not imposing an obligation on a
party, but merely giving effect to her own earlier choice. If a party is now
unhappy with the contract terms, she has only her earlier self to blame.
But of course contractual obligations are not only a matter of party
choice or intent. Sometimes when parties enter into the agreement, they do
not have or do not express an intent one way or another on some issues—
say whether the seller warrants the quality of the goods or the remedy for
breach. Thus the importance of default rules in contract law, which
determine parties’ contractual obligation in the absence of evidence of their
intent. Alternatively, the parties’ expressions of their intent might be
ambiguous. When this occurs, a court might apply a rule like contra
proferentem, interpreting against the drafter, or the preference for
*
Agnes N. Williams Research Professor, Professor of Law, Georgetown
University Law Center. I am grateful to John Mihail, Ralf Poscher and
especially Lawrence Solum for helpful comments on earlier drafts.
1
Old Kent Bank v. Sobczak, 243 Mich. App. 57, 63 (2000). A few other
examples: “The fundamental, neutral precept of contract interpretation is
that agreements are construed in accord with the parties’ intent.” Greenfield
v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002). “Under statutory rules
of contract interpretation, the mutual intention of the parties at the time the
contract is formed governs interpretation.” AIU Ins. Co. v. Superior Court,
51 Cal. 3d 807, 821 (1990) (citing Cal. Civ. Code § 1636). “The cardinal
rule for interpretation of contracts is to ascertain the intention of the parties
and to give effect to that intention, consistent with legal principles.” Bob
Pearsall Motors, Inc. v. Regal Chrysler-Plymouth, Inc., 521 S.W.2d 578,
580 (Tenn. 1975).
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interpretations in the public interest, neither of which looks to party intent.
There are also cases in which the parties’ intent is clear, but a court will
decline to give it legal effect. This is so when their agreement runs contrary
to a mandatory rule, such as minimum wage or civil rights laws, the penalty
rule, or the more general prohibition on enforcing agreements against
public policy. Courts also often apply interpretive rules that predictably
sometimes fail to capture what the parties actually intended. Plain meaning
rules, for example, exclude context evidence that can be essential for
understanding the parties’ intent. Finally, “the parties’ intent” is itself
ambiguous. Does it refer to parties’ intent with respect to their legal
obligations? Or does it refer only to their intended exchange, from which
those legal obligations flow?
In order to understand the relationship between parties’ expressions
of intent and their contractual obligations, one needs to distinguish two
activities: interpretation and construction. Interpretation identifies the
meaning of words or actions, construction their legal effect. Legal
interpretation employs linguistic and other social abilities that originate
outside the law. To live in a social world means to be constantly
interpreting the words and actions of others. We interpret what people say,
both expressly and by implication; the reasons for their actions; their beliefs
and their intentions. Legal interpretation engages those interpretive skills,
though it sometimes shackles them in one way or another. Rules of
construction, in distinction, originate in the law. Rules of construction
translate the output of interpretation into legal effects. Rules of construction
therefore govern the relationship between the ordinary and the legal
meanings of parties’ words and actions, or between the parties’ intent and
their contractual obligations.
Although the distinction between interpretation and construction is
easy to state in the abstract, a complete account of the two activities and
the relationship between the two is no easy thing—even if one restricts the
inquiry to interpretation and construction in contract law.
2
One reason is
that contract interpretation takes several different forms. Depending on the
details of the transaction and the legal question at issue, it might aim at the
plain meaning of the parties’ words, at those words’ contextually
determined use meaning, at subjective or at objective meaning, at an
agreement’s apparent purpose or purposes, or at what the parties believed
or intended. Rules of contract construction also come in several varieties.
They include the familiar categories of mandatory and default rules, as well
2
The interpretation-construction distinction has recently received
considerable attention from constitutional theorists, and especially
originalist. See, e.g., Lawrence B. Solum, The Interpretation-Construction
Distinction, 27 Const. Comment. 95 (2010); Randy Barnett, Interpretation
and Construction, 34 Harv. J.L. & Pub. Pol’y 65 (2011); Jack M. Balkin, The
New Originalism and the Uses of History, 82 Fordham L. Rev. 641 (2013).
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as the less familiar category of altering rules—rules that govern when
parties words or actions suffice to contract out of a default legal state of
affairs. And while some altering rules require interpretation of the parties’
words and actions, others employ formalities that need no interpretation.
Finally, the relationship between the activities of interpretation and
construction is itself complex. In the order of application, interpretation
comes first, construction second. One must often interpret the parties’
words before one can determine their legal effect. But because legal
interpretation is always in the service of construction, the correct approach
to legal interpretation depends on the applicable rule of construction. And
rules of construction sometimes affect the meaning of what parties say—
both because acts of judicial construction can give words new conventional
legal meanings and because parties often intend their words to have certain
legal effects.
This Article provides a descriptive theory of interpretation and
construction in the law of contracts and the interplay between the two
activities.
3
Part One traces the history of the concepts in US law and legal
theory, which provides the basis for a clearer understanding of each. The
history focuses on three figures: Francis Lieber, Samuel Williston and Arthur
Linton Corbin. Tracing the development of the concepts of interpretation
and construction through these three authors suggests two different
conceptions of them. In both Lieber and Williston, one finds a
supplemental conception of interpretation and construction. For both,
construction appears only when interpretation either runs out due to gaps
or ambiguity or gaps or runs up against a higher-order rule. Corbin, in
distinction, articulates a complementary conception of the two activities.
According to Corbin, rules of construction apply throughout the process of
contract exposition, operating also in the absence of gaps or ambiguities.
Part One argues that the complementary conception provides the better
theoretical account of the two distinct activities.
Part Two provides a systematic account of the rules of contract
construction. Rules of construction include mandatory rules, default rules
and altering rules. Over the past thirty years, contract theorists have had
much to say about both mandatory and default rules. They have paid less
systematic attention to altering rules, which govern what it takes to change
3
Although Keith Rowley and Edwin Patterson each refer to the distinction
between interpretation and construction in the title of an article, those
works do not provide analyses of the distinction itself. See Keith A. Rowley,
Contract Construction and Interpretation: From the “Four Corners” to Parol
Evidence (and Everything in Between), 69 Miss. L.J. 73 (1999); Edwin W.
Patterson, The Interpretation and Construction of Contracts, 64 Colum. L.
Rev. 833 (1964).
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a default legal state of affairs.
4
Part Two describes the structure of contract
altering rules and provides a typology of them. Altering rules determine
among other things what types of meaning are legally salient, and thereby
also how the parties’ words and actions should be interpreted.
The description of altering rules provides the groundwork for Part
Three’s discussion of contract interpretation. The rules of contract
construction call on several different types of meaning. These include plain
meaning, use meaning, subjective meaning, objective meaning, purpose,
and belief and intent. The correct approach to contract interpretation differs
according to the facts of the case and the legal question at issue.
Part Four examines the interplay between interpretation and
construction. Because legal actors often take account of the law when
deciding what to say and do, interpreting their words and actions
sometimes requires understanding the rules of construction they mean to
satisfy or avoid. I term this the “pragmatic priority” of construction. Official
acts of construction can also give words or entire clauses technical
meanings, turning them into legal terms of art. This I call the “semantic
priority” of construction. Consequently, whereas interpretation typically
precedes construction in the order of exposition, there instances in which
the interpreter must know the legal rule of construction in order identify the
meaning of the parties’ words or actions. The law of contract is designed to
take advantage of this interplay.
Before proceeding further, a few words about method. This Article
is about the structure and content of legal rules. My interest is therefore in
the legally authorized activities of interpretation and construction. When I
say that interpretation precedes construction in the process of exposition, I
am saying something about the relevant legal rules. This is not to say that
parties, judges or other legal actors always play by those rules. Legal actors,
consciously or unconsciously, sometimes look to results before rules. And
the rules themselves are loose enough to allow some play at the joints. Thus
Corbin, ever the Legal Realist, observed:
Just as construction must begin with interpretation, we shall find
that our interpretation will vary with the construction that must
follow. Finding that one interpretation of the words will be followed
by the enforcement of certain legal effects, we may back hastily
away from that interpretation and substitute another that will lead to
a more desirable result.
5
4
The first attempt at a systematic account of altering rules can be found in
Ian Ayres, Regulating Opt-Out: An Economic Theory of Altering Rules, 121
Yale L.J. 2032 (2012).
5
Arthur Linton Corbin, 3 Corbin on Contracts: A Comprehensive Treatise
on the Rules of Contract Law § 534 at 11 (1951) (hereinafter “Corbin (1st
ed.)”). Eyal Zamir makes a similar point in The Inverted Hierarchy of
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This is an enormously important point, not in the least because the ability to
substitute an interpretation that will lead to a more desirable result suggests
that meaning is, to some degree and in some cases, indeterminate. The
determinacy or indeterminacy of meaning has long been a topic of
discussion and disagreement among legal theorists.
6
And the degree to
which legal texts have stable, predictable and precise meanings is crucial to
the justification and critical appraisal of rules of construction that take one
or another form of meaning as their starting points.
That said, this Article is about the internal logic of legal rules that
assume that words and other legally relevant acts often have sufficiently
determinate meanings to bind future actors. From that point of view,
outcome driven forms of interpretation are ultra vires. They do not belong
to the internal logic of the law. This is not to say that they are not interesting
or important. Only that they are not my topic here.
1 The Interpretation-Construction Distinction
Like all concepts, the ideas of interpretation and construction have a
history. This Part traces the distinction from its origin in the work of Francis
Lieber to the first edition of Samuel Williston’s treatise, and then on to the
first edition of Arthur Linton Corbin’s treatise. That history shows a
movement from a supplemental conception of interpretation and
construction, according to which interpretation alone can answer some
legal questions, to a conception of the two activities as complementary,
according to which a rule of construction must always be applied to arrive
at a legal result. I argue that the complementary conception of the
distinction is the descriptively correct and more theoretically productive
one.
1.1 Francis Lieber
The interpretation-construction distinction is commonly traced to
Francis Lieber’s 1839 book, Legal and Political Hermeneutics, or Principles
of Interpretation and Construction in Law and Politics,
7
though Ralf Poscher
Contract Interpretation and Supplementation, 97 Colum. L. Rev. 1710
(1997).
6
See, e.g., Gary Peller, The Metaphysics of American Law, 73 Cal. L. Rev.
1151 (1985); Lawrence B. Solum, On the Indeterminacy Crisis: Critiquing
Critical Dogma, 54 U. Chi. L. Rev. 462 (1987).
7
Francis Lieber, Legal and Political Hermeneutics, or Principles of
Interpretation and Construction in Law and Politics (enlarged ed.
1839/1970). The book is a reworking and expansion of two articles that
appeared in The American Jurist in 1837 and 1838.
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has suggested that Lieber’s approach is rooted in Friedrich Schliermacher’s
earlier work on hermeneutics.
8
Lieber understands successful communication to be the
transmission of ideas from one person to another through the use of words
or other signs. Interpretation is the activity of discovering those ideas.
“Interpretation is the art of finding out the true sense of any form of words:
that is, the sense which their author intended to convey, and of enabling
others to derive from them the very same idea which the author intended to
convey.”
9
Lieber suggests that with respect to authoritative legal texts,
successful interpretation suffices to identify the text’s legal effect, which is
the effect intended by the authority that authored or authorized that text.
Although Lieber does not articulate a command theory of law, this account
of interpretation is consistent with one.
10
The correct interpretation of a
command identifies the intent of the authority who issued it—precisely how
Lieber describes the correct interpretation of a legal text.
Lieber observes that sometimes interpretation alone is not enough to
identify what the law is. In the course of Legal and Political Hermeneutics,
he identifies several situations in which the “true significance,” of a legal
text might not fully determine what the associated law is: (1) when the text
contains internal contradictions;
11
(2) “in cases which have not been
foreseen by framers of those rules, by which we are nevertheless obliged,
for some binding reason, faithfully to regulate, as well as we can, our
8
Ralf Poscher, The Hermeneutical Character of Legal Construction, in Law’s
Hermeneutics: Other Investigations 207, 207 (Simone Glanert and Fabien
Girard eds., 2017).
9
Lieber, supra note 7 at 23.
10
See H.L.A. Hart, The Concept of Law 18-25 (2d ed. 1994); H.L.A. Hart,
Commands and Authoritative Legal Reasons, in H.L.A. Hart, Essays on
Bentham: Studies in Jurisprudence and Political Theory 243-268 (1982).
11
Lieber, supra note 7 at 55-56. Today many theorists would also say that
construction is necessary when a legal text is ambiguous. Lieber’s intent-
based understanding of meaning, however, leads him to conclude that a
legal text cannot be ambiguous.
No sentence, or form of words, can have more than one ‘true
sense,’ and this only one we have to inquire for. . . . Every man or
body of persons, making use of words, does so, in order to convey a
certain meaning; and to find this precise meaning is the object of all
interpretation. To have two meanings in view is equivalent to
having no meaning—and amounts to absurdity. Even if a man use
words, from kindness or malice, in such a way, that they may signify
one or the other thing, according to the view of him to whom they
are addressed, the utterer’s meaning is not twofold; his meaning is
simply not to express his opinion.
Id. at 86.
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actions respecting the unforeseen case”;
12
and (3) when the simple meaning
of the text contravenes “more general and binding rules, [such as]
constitutional, written and solemnly acknowledged rules, or moral ones,
written in the heart of every man.”
13
In each of these instances,
interpretation alone cannot determine the legal outcome.
Lieber does not discuss contracts, but contract law includes rules
that address each of the situations Lieber identifies. The Mirror Image Rule
and section 2-207 of the Uniform Commercial Code (UCC), for example,
each provides a rule to resolve potentially authoritative but conflicting
contractual texts. Under the Mirror Image Rule, the terms in last document
sent control (the “last shot rule”).
14
Under section 2-207, conflicting terms
drop out entirely and are replaced by Article Two’s default terms.
15
In
neither case does the rule turn on further interpretation of the meaning of
the parties’ words or intentions. Lieber’s second category, “cases which
have not been foreseen by the framers,” describes both situations that
trigger contractual defaults and the implied duty of good faith. Defaults
apply when a contractual agreement is silent on a subject—when, in effect,
the parties have not agreed on a relevant term.
16
The implied duty of good
faith constrains a party’s actions when a contractual agreement gives her
discretion or does not fully specify her obligations, often due to unforeseen
circumstances.
17
Finally, the doctrines of unconscionability and public
policy both generate cases in which a text’s legal effect is limited by “more
general and binding rules.”
18
In each of these situations interpretation alone fails to specify the
correct legal rule. We require supplemental rules or principles to determine
the legal state of affairs. Lieber terms these rules of “construction.”
12
Id. at 56.
13
Id. at 166. Or again: “But it is not said that interpretation is all that shall
guide us, and . . . there are considerations, which ought to induce us to
abandon interpretation, or with other words to sacrifice the direct meaning
of a text to considerations still weightier; especially not to slaughter justice,
the sovereign object of laws, to the law itself, the means of obtaining it.” Id.
at 115.
14
See E. Allan Farnsworth, Contracts § 3.21 (4th ed. 2004).
15
The above statement of the section 2-207 rule for different terms
oversimplifies, but is in the author’s opinion the best reading of this poorly
drafted statute. See 2 Anderson U.C.C. §§ 2-207:102 & 103 (3d. ed.). Other
readings of section 2-207 provide alternative rules of construction for cases
in which writings conflict.
16
See, e.g. U.C.C. §§ 312, 314 & 315 (implied warranties of title,
merchantability and fitness).
17
See Daniel Markovits, Good Faith as Contract Law’s Core Value, in
Philosophical Foundations of Contract Law 272 (G. Klass, et al. eds., 2014).
18
See Restatement (Second) of Contracts §§ 178-185, 208 (1981).
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In politics, construction signifies generally the supplying of
supposed or real imperfections, or insufficiencies of a text,
according to proper principles and rules. By insufficiency, we
understand, both imperfect provision for the cases, which might or
ought to have been provided for, and the inadequateness of the text
for cases which human wisdom could not foresee.
19
Construction is unavoidable because “[m]en who use words, even with the
best intent and great care as well as skill, cannot foresee all possible
complex cases, and if they could, they would be unable to provide for
them, for each complex case would require its own provision and rule.”
20
Construction for Lieber therefore serves a gap-filling and equitable
function. On Lieber’s theory, “interpretation precedes construction”
because construction steps in when interpretation runs out or runs up
against a higher-order legal rule or principle.
21
For this reason, Lieber also
sees a continuity of purpose between the two activities. “Construction is the
drawing of conclusions respecting subjects, that lie beyond the direct
expression of the text, from elements known from and given in the text—
conclusions which are in the spirit though not within the letter of the
text.”
22
This supplemental conception suggests that, at least when extending
a legal text to unforeseen cases, one should look for parallels covered
cases. “Construction is the building up with given elements, not the forcing
of extraneous matter into a text.”
23
That said, Lieber recognizes that to arrive
at the correct legal rule it is sometimes necessary to go beyond the “spirit”
of the text. This is so when construction is required to cure some injustice
in the law or conform it to a superior authority, as when a statute is
construed to conform to constitutional requirements.
24
The most interesting feature of Lieber’s theory for the analysis that
follows is this supplemental conception of interpretation and construction.
Lieber describes construction as operating only in what Larry Solum calls
the “construction zone”: “the zone of underdeterminacy in which
construction that goes beyond direct translation of semantic content into
19
Id. at 57.
20
Id. at 121.
21
“Since our object is to discover the sense of the words before us, we must
endeavor to arrive at it as much as possible from the words themselves, and
bring to our assistance extraneous principles, rules, or any other aid, in that
measure and degree, only as the strictest interpretation becomes difficult or
impossible, (interpretation precedes construction) otherwise interpretation is
liable to become predestined.” Id. at 113.
22
Id. at 56.
23
Id. at 124.
24
Id. at 58-59.
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legal content is required for application” of the rule.
25
According to Lieber’s
supplemental conception, construction steps in when interpretation fails to
determine the text’s legal effect.
26
1.2 Samuel Williston
It would be interesting to trace the influence of Lieber’s distinction
between interpretation and construction throughout the next century of
legal thought. Poscher suggests that it appears in somewhat different guise
in Friedrich von Savigny’s 1840 System of Modern Law.
27
William Story
employs the categories in his 1844 A Treatise on the Law of Contracts Not
under Seal, as does Theophilus Parsons in his 1855 Law of Contract.
28
Lieber’s distinction also appears in the 1868 first edition of Thomas
Cooley’s treatise on the US Constitution, the same year Lieber’s concepts
first appeared in John Bouvier’s legal dictionary.
29
James Bradley Thayer, in
his 1898 Treatise on Evidence, expressly declines to adopt the distinction,
arguing that “neither common usage nor practical convenience in legal
discussions support [it],” and the concepts do not appear in Wigmore’s
1905 or 1923 discussions of interpretation.
30
For my purposes, things
become interesting with the 1920 first edition of Samuel Williston’s The
Law of Contracts. In section 602, “Construction and interpretation,”
Williston makes what I view as two improvements on Lieber’s theory.
25
Solum, supra note 2 at 108 (2010) (internal punctuation omitted).
26
What I am calling the “supplemental conception” is akin to what Solum
calls the “Alternative Methods Model.” Lawrence B. Solum, Originalism and
Constitutional Construction, 82 Fordham L. Rev. 453, 498-99 (2013).
27
Poscher, supra note 8 at 207.
28
William W. Story, A Treatise on the Law of Contracts Not under Seal, §
228, at 148 (1844); 2 Theophilus Parsons, The Law of Contracts 3 n. a
(1855); 4 John Henry Wigmore, A Treatise on the System of Evidence in
Trials at Common Law, §§ 2458-2478 (1905); 5 John Henry Wigmore, A
Treatise on the Anglo-American Law of Evidence in Trials at Common Law,
§§ 2458-2478 (2d ed. 1924).
29
Thomas M. Cooley, Treatise on the Constitutional Limitations which Rest
upon the Legislative Power of the States of the American Union 89 n. 1
(1868); John Bouvier, A Law Dictionary Adapted to the Constitution and
Laws of the United States of America 337 (12th ed. 1868).
30
James Bradley Thayer, A Preliminary Treatise on The Law of Evidence at
the Common Law 411 n. 2 (1898).
John Austin indicates something like Lieber’s distinction in his
Fragments, where he distinguishes between “[c]onsequences expressed by
parties, and consequences annexed by law in default of such expression.”
John Austin, Fragments—On Contracts, in Lectures on Jurisprudence, or
The Philosophy of Positive Law 939 (Robert Campbell ed., 4th ed. 1879).
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First, Williston suggests a narrower conception of construction. The
drawing of “conclusions that are in the spirit, though not in the letter of the
text,” Williston argues, is not different in kind from interpretation and
“seems of no legal consequence as far as the law of contracts is
concerned.”
31
For example, when a court reads a written agreement “as a
whole to determine its purpose and intent,”
32
it is engaging in a form of
interpretation, even when the result supplements or even supplants the
literal words in the agreement.
33
One must interpret an agreement to
determine its purpose and the parties’ likely intent. Better then, Williston
suggests, to limit “construction” to activities entirely distinct from
interpretation. For example, “when it is said that contracts which affect the
public are to be construed most favorably to the public interest, it is
obvious that the court is no longer applying a standard of interpretation,
that is it is not seeking the intention of the parties.”
34
Similarly when a
guarantee is interpreted in favor of the guarantor. Construction, for
Williston, is the category of rules whose function is not to realize or extend
the parties’ intentions, but that serve some other principle or purpose.
Although he advocates a narrower conception of construction,
Williston follows Lieber is in conceiving construction as supplemental to
interpretation. “[A] rule of construction can come into play only when the
primary standard of interpretation leaves the meaning of the contract
ambiguous.”
35
Construction again appears only when interpretation runs
out.
Williston’s second innovation is to suggest that neither
interpretation nor construction suffices to determine the legal state of affairs.
Each concerns itself “with the legal meaning of the contract, not with its
legal effect after that meaning has been discovered.”
36
The legal effect,
31
Samuel Williston, 2 The Law of Contracts § 602, 1160 (1920) (hereinafter
“Williston (1st ed.)”).
32
W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990).
33
See, e.g., McCoy v. Fahrney, 55 N.E. 61, 63 (Ill. 1899) (“Particular
expressions will not control where the whole tenor or purpose of the
instrument forbids a literal interpretation of the specific words.”).
34
Williston (1st ed.) at 1161.
Interestingly, Williston suggests that contra proferentem—the rule
that ambiguities are to be interpreted against the drafter—is a rule of
interpretation, “since it should be anticipated that the person addressed will
understand ambiguous language in the sense most favorable to himself, and
that his reasonable understanding should furnish the standard” Id. I would
say this is at best a majoritarian rule of construction, and better supported
by considerations of fairness and incentives than by the logic of
interpretation.
35
Id.
36
Id.
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Williston suggests, is a function of “substantive law of contracts which
comes into play after interpretation and construction have finished their
work.”
37
Williston served as the Reporter for the first Restatement of
Contracts, and a similar claim appears again in the comments to section
226: “Interpretation is not a determination of the legal effect of language.
When properly interpreted it may have no legal effect, as in the case of an
agreement for a penalty; or may have a legal effect differing from that in
terms agreed upon, as in the case of a common-law mortgage.”
38
Williston therefore distinguishes three activities: (1) interpretation,
which aims to get at the author’s intention; (2) a supplemental activity of
construction, which applies purely non-interpretive principles and steps in
when interpretation runs out, such as in cases of irresolvable vagueness or
ambiguity; and (3) the substantive law of contract, which specifies legal
effects based on the work of interpretation and construction.
1.3 Arthur Linton Corbin
Corbin’s 1951 treatise on contract law marks an important step
forward in understanding the activities of interpretation and construction.
Corbin provides the first clear account of construction as complementing,
rather than merely supplementing, interpretation. He describes
interpretation and construction as interlocking activities, each of which is
necessary to determine what the law is.
By “interpretation of language” we determine what ideas that
language induces in other persons. By “construction of the
contract,” as the term will be used here, we determine its legal
operation—its effect upon the action of courts and administrative
officials. If we make this distinction, then the construction of a
contract starts with the interpretation of its language but does not
end with it; while the process of interpretation stops wholly short of
a determination of the legal relations of the parties.
39
37
Id.
38
Restatement of Contracts §§ 226 cmt. c (1932).
39
Corbin (1st ed.) § 534 at 7. Those interested in the development of
Corbin’s thoughts on the interpretation-construction distinction should
begin with a passage he added on the subject as editor the 1919 third
American Edition of Anson’s Principles of the Law of Contracts. William
Reynell Anson, Principles of the Law of Contract: With a Chapter on the
Law of Agency, 14th English ed., 3rd American ed. § 353, 405-06 (Arthur L.
Corbin ed. 1919) (reprinted in Arthur L. Corbin, Conditions in the Law of
Contract, 28 Yale L.J. 739, 740-41 (1919)).
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Whereas Williston distinguished between, on the one hand, legal rules that
resolve ambiguities or fill gaps and, on the other, rules that determine the
legal effect of an unambiguous text or other speech act, Corbin recognizes
that those two activities are not different in kind. Both determine the legal
effect of what the parties said and did, including what they did not say or
do. Both should therefore be classified as rules of construction.
This more expansive view of construction—the activity of
determining the legal effect of a legal actor’s words and actions—allows
Corbin to view construction as complementing, rather than supplementing,
interpretation.
40
Both Lieber and Williston conceived of construction as
stepping in only when interpretation runs out. Corbin suggests that
determining the parties’ contractual obligation always requires a rule of
construction.
41
“[T]he process of interpretation stops wholly sort of a
determination of the legal relations of the parties,” because interpretation
tells us only what some persons said, meant or intended. We require a rule
of construction, or what H.L.A. Hart called a “rule of change,”
42
to
determine which sayings or meanings or intendings of what legal actors
have what legal effects.
Suppose, for example, an unemancipated minor and an adult each
signs an identical enforceable agreement, each clearly evincing her
intention that it be binding. Under US law, only the adult thereby acquires
a nonvoidable contractual obligation.
43
The agreements and signatures have
the same meaning; but meaning alone does not determine legal effect. That
requires a rule of construction. Here the relevant rule provides that the
adult’s signature results in a nonvoidable contractual obligation, whereas
the same act done by a minor creates an obligation that the minor can later
disclaim. Rules of construction determine not only unintended legal
consequences, as Lieber and Williston maintain, but also intended ones.
This broader conception of construction casts new light on the
maxim that the primary goal of contract interpretation is to ascertain the
parties’ intent.
44
Although often treated as a rule of interpretation, the rule is
in fact one of construction. It says that when adjudicators are determining
contracting parties’ legal obligations, they should look first to evidence of
the parties’ shared intentions. Generally speaking and ceteris paribus,
contract law enforces the agreement that the parties intended. Such a rule is
a rule of construction.
40
What I am calling the “complementary conception” of interpretation and
construction is similar to what Solum calls the “Two Moments Model.”
Solum, Constitutional Construction, supra note 26 at 498-99.
41
Thus Corbin could expressly reject Lieber’s account of interpretation and
construction. Corbin (1st ed.) § 534, at 11, n.11.
42
Hart, The Concept of Law, supra note 10 at 95-96.
43
See Restatement (Second) of Contracts § 14 (1981).
44
See supra note 1
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But that is only generally speaking. When parties have
memorialized their agreement in an integrated writing, for example, their
contractual rights and obligations might turn on the writing’s plain
meaning, even if one or both parties had a different understanding of its
content. And other rules of construction—the ones Lieber and Williston
emphasize, and that Corbin also discusses—hew even less closely to the
parties’ expressed intent. Examples include generic rules of construction
like contra proferentem and the rule favoring interpretations that accord
with public policy. Also in this category are the many default rules that
determine parties’ legal obligations absent their contrary expression, as well
as mandatory rules that parties cannot contract out of, such as the duty of
good faith. The rules of contract construction also include rules that deny
enforcement based on the substance of an agreement, such as the rules for
illegal agreements or the unconscionability doctrine. These and other extra-
interpretive rules of construction apply when the object of interpretation is
ambiguous, contradictory or gappy, when the situation is one that we
believe lawmakers did not foresee, or when the text’s meaning or parties’
intent contravenes a higher legal authority or principle.
The important point, however, is Corbin’s recognition that a text’s
meaning never suffices to determine its legal effect. Even when the text
appears to fully determine the legal rule, it does so only by virtue of a rule
of construction. Construction does not supplement interpretation, but
complements it.
1.4 Interpretation and Construction
Corbin’s complementary conception of interpretation and
construction can be restated as follows: interpretation identifies the
meaning of some words or actions, construction their legal effect. Rules of
interpretation are used to discern the meaning of what parties say and do;
rules of construction determine the resulting legal state of affairs.
One might think of rules of interpretation and rules of construction
as two types of functions. A rule of interpretation takes as its input some
domain of interpretive evidence. That evidence necessarily includes the act
or omission whose meaning is at issue, which I will call the “interpretive
object,” as well as the interpreter’s background linguistic and practical
knowledge. Depending on the rule being applied, the interpretive input in a
contract case might also include dictionary definitions and rules of syntax,
testimony or other evidence of local linguistic practices, what was said
during negotiations, any course of performance under the agreement at
issue, any prior similar transactions between the parties, testimony as to
how participants in the transaction meant or understood the interpretive
object, evidence of the parties’ reasons or motives for entering into the
exchange, and so forth. A rule of interpretation maps that input onto a
meaning, which interpretation ascribes to the interpretive object.
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The output of legal interpretation—the meaning ascribed to the
interpretive object—serves as an input for construction. Construction might
take other input as well. A rule of contract construction might, for example,
condition legal effects not only on what the speaker says—the meaning of
her words and actions—but also on who she is, on the form in which she
expresses herself, or on her use of conventional words or acts. And as will
be discussed below, sometimes rule of construction requires no
interpretation, as when parties employ a formality. A rule of construction
maps those inputs onto a legal state of affairs. That is, it identifies their legal
effect.
I will use “exposition” to refer to the entire process of determining
the legal effect of a person or persons’ words or actions. Exposition
commonly involves both interpretation and construction. In the process of
exposition, interpretation comes first, construction second. The reason is
not, as Lieber and Williston suggest, that construction steps in only when
interpretation runs out. It is that one generally must decide what words or
actions mean before one can know their legal effects. As Corbin says, “A
‘meaning’ must be given to the words before determining their legal
operation.”
45
Or as I have put the point, the output of legal interpretation
serves as the input for construction. That said, later parts of this Article
identify other senses in which construction is sometimes or always prior to
interpretation.
Although the interpretation-construction distinction has been
around for over a century and a half, it is often ignored. Many contract
scholars use “interpretation” to refer to the activity of construction. Ian
Ayres: “Algebraically, one could think of interpretation as a function, f(),
that relates actions of contractual parties, a, and the surrounding
circumstances or contexts, c, to particular legal effects, e.”
46
Richard
Posner: “Contract interpretation is the undertaking . . . to figure out what
the terms of a contract are, or should be understood to be.”
47
Alan Schwartz
and Robert Scott: “[A] theory of interpretation . . . ‘maps’ from the semantic
content of the parties' writing to the writing's legal implications.”
48
Contrariwise, and especially among British jurists and scholars, it is not
uncommon to use “construction” to refer to the search for objective
meaning, which is a form of interpretation as I am using the term.
49
45
Corbin (1st ed.) § 534, 8.
46
Ayres, supra note 4 at 2046.
47
Richard A. Posner, The Law and Economics of Contract Interpretation, 83
Tex. L. Rev. 1581, 1582 (2005)
48
Alan Schwartz & Robert E. Scott, Contract Theory and the Limits of
Contract Law, 113 Yale L.J. 541, 547 (2003).
49
For example, in his treatise, The Construction of Commercial Contracts,
J.W. Carter defines “construction” as “the process by which the intention of
the parties to a contract is determined and given effect to,” and argues that
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These façons de parler are fine as far as they go. The technical
definitions of “interpretation” and “construction” depart from those words’
everyday meanings, and there is nothing wrong with using common words
in accordance with common usage. But there is a difference between the
activities of interpretation and construction. Corbin again: “there is no
identity nor much similarity between the process of giving a meaning to
words, and the determination by the court of their legal operation.”
50
Attention to the difference, and to the different rules that govern each
activity, is essential to a clear understanding of how law translates words
and actions into legal effects. The advantage of adhering to the terms’
technical meanings is that it forces one to keep in view the difference
between the two activities, and to be clear about what one is talking about
when.
2 Rules of Contract Construction
Having distinguished the activities of interpretation and
construction, it is now possible to take a closer look at the rules that govern
each. This Part provides an account of the rules of contract construction;
Part Three discusses varieties of contract interpretation.
The rules of contract construction divide into three broad
categories: mandatory rules, default rules and altering rules. A mandatory
rule specifies a legal state of affairs that applies no matter what legal actors
say and do. Thus when the Second Restatement observes that “[e]very
contract imposes upon each party a duty of good faith and fair dealing in its
performance and its enforcement,” it states that the parties who have
entered into a contract have a duty of good faith no matter what.
51
The duty
cannot be disclaimed. Other examples include the minimum wage and
civil rights laws, the penalty rule for liquidated damages, and the
nonenforcement of contracts contrary to public policy. A default rule
specifies the legal state of affairs absent evidence the right person’s or
persons’ contrary intent. Familiar examples in contract law include the rule
that an offer on which the offeree has not relied is revocable;
52
the implied
“since even a decision on the linguistic meaning of words may determine
the legal rights of the parties, there seems little point in seeking to
distinguish between a process called ‘interpretation’ and one which is
termed ‘construction.’” J.W. Carter, The Construction of Commercial
Contracts 4 & 6 (2013).
50
3 Corbin (1st ed.) § 534, 11.
51
Restatement (Second) of Contracts § 205 (1981). This is not to say that the
parties cannot alter the specific requirements of that obligation through
their words and actions. The point is only that they cannot escape the duty
altogether.
52
See Restatement (Second) of Contracts § 42 cmt. a (1981).
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warranty of merchantability that attaches to a merchant’s sale of goods;
53
and most rules governing the calculation of damages for breach.
54
An
altering rule specifies whose saying of what suffices to effect one or another
change from the default legal state of affairs.
55
Thus a merchant selling
goods can make her offer irrevocable for up to three months by expressing
her intent to do so in a signed writing;
56
a seller can disclaim the implied
warranty of merchantability by using words like “as is” or “with all faults”;
57
and parties can generally agree to liquidate or limit damages for breach by
expressing their shared intent to do so.
58
This Part focuses on default and altering rules, which together
translate parties’ words and actions into contractual obligations.
2.1 Default Rules
Contract scholars often speak of default rules as “rules of
interpretation,” and commonly use terms like “default interpretations” or
“interpretive defaults.”
59
One reason for this way of speaking is inattention
to the interpretation-construction distinction. The inattention is fine so long
as everyone is clear that “interpretation” is being used to include
construction. If one attends to the difference between the two activities, it is
clear that default rules are rules of construction. A default rule determines
the legal state of affairs absent the parties’ expression to the contrary. As
Corbin observes, “[w]hen a court is filling gaps in the terms of an
agreement, with respect to matters that the parties did not have in
contemplation and as to which they had no intention to be expressed, the
judicial process . . . . may be called ‘construction’; it should not be called
‘interpretation.’”
60
Another reason why contract scholars might associate defaults with
rules of interpretation is that defaults rules are often designed to get at what
53
U.C.C. § 2-314(1).
54
See Restatement (Second) of Contracts §§ 346-52 (1981).
55
I take this term from Ian Ayres’s important work, Regulating Opt-Out: An
Economic Theory of Altering Rules, 121 Yale L.J. 2032 (2012). See also Brett
McDonnell, Sticky Defaults and Altering Rules in Corporate Law, 60 SMU
L. Rev. 383 (2007). In earlier work, I have analyzed altering rules under the
heading of “opt-out” rules. Gregory Klass, Intent to Contract, 95 Va. L. Rev.
1437 (2009).
56
U.C.C. § 2-205.
57
U.C.C. § 2-316(3)(a).
58
Restatement (Second) of Contracts § 356 (1981).
59
A search of Westlaw’s JLR database finds 85 articles using “default
interpretation,” 88 using “interpretive default,” and 52 using “default rule of
interpretation.” Search run on January 2, 2018.
60
3 Corbin (1st ed.) § 534 at 9.
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parties probably intended, or would have intended had they thought about
the matter, and these can look like interpretive questions. Thus Richard
Posner writes: “Gap filling and disambiguation are both . . . ‘interpretive’ in
the sense that they are efforts to determine how the parties would have
resolved the issue that has arisen had they foreseen it when they negotiated
their contract.”
61
I do not want to claim a monopoly on the word “interpretation.” But
neither setting a majoritarian default nor seeking what particular parties
would have agreed to requires interpretation in the sense in which this
Article uses the term. Predicting parties’ probable preferences or intentions
is not the same as interpreting what individual parties said or did in a
particular transaction.
62
Moreover, not all default rules are or should be
majoritarian ones or correspond to what the parties would have agreed to.
63
Lawmakers might set the default to accord with public policy or other
social interests as a way to guide parties to socially desirable outcomes. Or
they might adopt a penalty default that is designed not to get at the terms
most parties want or would have chosen, but to give one or both parties a
new reason to share information by opting out of the default.
The above paragraphs barely scratch the surface of the extensive
literature on default rules in contract law. This Article’s primary
contribution to that literature is simply to clarify how one should
understand of default rules. Default rules are not rules of interpretation, but
rules of construction. Once one recognizes this fact, it is not surprising that
they might be designed with a view to factors other than parties’ probable
intentions or hypothetical agreement. The social interests in the
enforcement contractual agreements extend beyond party choice.
2.2 Altering Rules
Every default comes with an altering rule. To describe a legal state
of affairs as a default is to say that some person or persons might change it
by saying the right thing in the right way. Who must say what how is
determined by an altering rule. As Ian Ayres writes, “[a]n altering rule in
essence says that if contractors say or do this, they will achieve a particular
61
Posner, supra note 47 at 1586.
62
For a variation on this point, see Seana Valentine Shiffrin, Must I Mean
What You Think I Should Have Said?, 98 Va. L. Rev. 159, 163 (2012);
Gregory Klass, To Perform or Pay Damages, 98 Va. L. Rev. 143, 145-47
(2012).
63
Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An
Economic Theory of Default Rules, 99 Yale L.J. 87 (1989).
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contractual result.”
64
Because altering rules describe the legal effects of
what parties say and do, they too are rules of construction.
All altering rules share a tripartite structure specifying actor, act and
effect. An altering rule provides that if (1) the right actor or actors (2)
performs a specified act, then (3) a certain nondefault legal state of affairs
will pertain. Article Two’s rule for firm offers not supported by
consideration provides a useful example. The default rule for offers is that
they are revocable. Section 2-205 provides an associated altering rule:
An offer by a merchant to buy or sell goods in a signed writing
which by its terms gives assurance that it will be held open is not
revocable, for lack of consideration, during the time stated or if no
time is stated for a reasonable time, but in no event may such
period of irrevocability exceed three months.
The rule establishes (1) whose acts are relevant: those of a merchant buyer
or seller of goods; (2) what acts are sufficient to displace the default: a
signed written assurance that the offer will be held open; and (3) the term
that substitutes for the default: irrevocability for the time stated or, if no time
is stated, for a reasonable time, but in no case for more than three months.
This Article focuses on the second element of altering rules: the
identification of acts that suffice to displace the default. I call these “altering
acts.”
Altering acts can have multiple salient features. Consider again the
section 2-205 rule for firm offers. In order to be irrevocable under the rule,
a merchant’s offer must satisfy three requirements. It must (a) “by its terms
give[] assurance that it will be held open,” (b) be in writing, and (c) be
signed. Determining whether the first requirement is met—whether the right
sort of assurance was given—requires interpretation, even if only to
ascertain the literal meaning of the merchant’s words. Determining whether
the second and third requirements are satisfied—whether the assurance was
in writing and whether it was signed—does not require interpretation. The
first requirement is that the offer perform an act with the right meaning, the
second and third that the act be of the right form.
I will call rules that condition legal outcomes on the meaning of
what the parties say and do “interpretive components” of altering rules, and
rules that condition legal outcomes on facts that can be ascertained without
64
Ayres, supra note 4 at 2036. I do not think that Ayres gets things quite
right when he writes that altering rules are “the necessary and sufficient
conditions for displacing a default legal treatment with some particular
other legal treatment.” Id. at 2036. It is more helpful to think of altering
rules as specifying acts sufficient to displace a default, but not necessary to
do so. Contract law often provides several separate paths to effecting a legal
change.
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interpretation “formal components.” An interpretive component requires
interpretation of the parties’ words and actions to determine whether they
have effected a legal change. A formal component requires examination of
formal qualities of the parties’ words and actions.
Any given altering rule might have only interpretive components,
only formal components, or a mix of the two. I will say that an altering rule
that includes only formal components is “formalistic,” and the altering acts
such a rule specifies “formalities.” Consider section 2-319 of the Code,
which provides that, “when the term is F.O.B. the place of shipment, the
seller must at that place ship the goods in the manner provided in this
Article . . . and bear the expense and risk of putting them into the
possession of the carrier.” According to this rule, the letters “F.O.B.” plus
the name of a place suffice to effect the legal change. No further inquiry
into what the parties or their words meant is required. The rule is a
formalistic one, establishing “F.O.B.” as a legal formality. The section 2-316
rule for “as is” and “with all faults” is similarly formalistic. It provides that,
ceteris paribus, the mere use of those words is enough to exclude all
implied warranties. So too, famously, the common law and statutory rules
governing the legal effect of the seal.
65
I will say that altering rules that are not formalistic are “interpretive.”
Interpretive altering rules always contain an interpretive component. The
application of an interpretive altering rule requires interpretation of the
parties’ words and actions. Interpretation enters the process of legal
exposition by way of interpretive altering rules.
An interpretive altering rule might or might not include formal
components. I will call altering rules that do not include formal
components “pure interpretive altering rules.” The Second Restatement
defines an offer, for example, as any “manifestation of willingness to enter
into a bargain.”
66
The rule requires interpretation of a party’s words and
actions to determine whether there has been an offer. But it does not
condition the legal effect of those words or actions on their formal qualities,
such appearing in a writing or with a signature. Similarly, UCC section
65
Altering rules can specify legal effects that are either defeasible or non-
defeasible, depending on whether the resultant legal state of affairs is
default or mandatory. Most modern formalistic altering rules establish
defeasible effects. The Second Restatement, for example, provides that
“[t]he adoption of a seal may be shown or negated by any relevant
evidence as to the intention manifested by the promisor.” Restatement
(Second) Contracts § 98 cmt. a (1981). See also 1 Williston on Contracts
§ 2:2 n.11 (4th ed. 2016) (citing cases); Eric Mills Holmes, Stature & Status
of a Promise Under Seal as a Legal Formality, 29 Willamette L. Rev. 617,
636-37 (1993) (discussing the modern requirement of a party’s intent to
deliver the sealed instrument).
66
Restatement (Second) of Contracts § 24 (1981).
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2-204’s formation rule: “A contract for sale of goods may be made in any
manner sufficient to show agreement, including conduct by both parties
which recognizes the existence of such a contract.”
67
Determining whether
the parties have agreed to a sale of goods requires interpreting their words
and conduct. The rule is an interpretive one. Because section 2-204 does
not impose any formal requirements, it too is a pure interpretive altering
rule.
68
I will call interpretive altering rules that that have one or more
formal components “mixed interpretive rules.” The section 2-205 rule for
firm offers is a mixed interpretive rule. It requires both that a merchant
seller say words with the right meaning—that the offer “by its terms gives
assurances that it will be held open”—and that those words be in the right
form—“in a signed writing.” A merchant’s offer must satisfy both the
interpretive and the formal components to be a firm offer pursuant to the
rule.
The distinction between formal and informal components therefore
produces a typology of altering rules that can be represented in a two-by-
two table.
Types of altering rules
Interpretive Component
Yes
No
Formal
Component
Yes
mixed
interpretive rules
(UCC rule for firm
offers)
formalistic rules
(“as is,” “F.O.B.”)
No
pure
interpretive rules
(generic rules for
agreement)
Part Three discusses interpretive altering rules. Formalistic altering rules
figure into the discussion of Part Four.
Lastly, it is worth nothing that altering rules themselves can be
mandatory or default rules. Contract law grants parties broad powers not
only over their first-order legal obligations to one another—roughly, the
67
U.C.C. § 2-204.
68
Other sections of the code add formal requirements for some contract
types, most obviously the Code’s Statute of Frauds. U.C.C. § 2-201.
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obligations whose nonperformance constitutes a breach
69
—but sometimes
also over the framework rules that determine when those obligations come
into existence and what their content is.
The mailbox rule provides a simple example. The rule establishes
precisely when an acceptance effects a legal change, and is therefore a
component of the effects-prong of formation altering rules. A mailed
acceptance is effective “as soon as it is put out of the offeree’s possession,
without regard to whether it ever reaches the offeror.”
70
That rule, however,
does not apply if “the offer provides otherwise.”
71
The mailbox rule itself is
a default rule. An offeror has the power to stipulate, for example, that an
acceptance shall be effective only upon receipt.
The parol evidence rule provides another, somewhat more complex,
example. The contemporary default rule is that writings are given no special
weight in determining parties’ contractual obligations.
72
If, however, parties
agree that a writing shall serve as a final expression of some or all of the
contract between them—that the writing shall be “integrated”—parol
evidence of contrary or additional terms is generally excluded.
73
Integration
alters the default legal effects of the writing and of extrinsic evidence. U.S.
courts generally recognize two ways parties can effectively express or
evince their shared intent that a writing be integrated. They can include in
the writing an integration clause, which expressly states that it is the final
statement of some or all terms. Or, absent an integration clause, a writing
will be judged integrated if “in view of its completeness and specificity
reasonably appears to be a complete agreement, it is taken to be an
integrated agreement.”
74
These are altering rules. Each specifies how parties
can effectively express their intent that the writing serve as a final statement
of terms.
Although many rules of construction are defaults, there are also
mandatory limits on the parties’ ability pick and choose those rules. A
clause that requires modifications to be in writing might be ineffective
69
In addition to first-order duties, a contract might provide for first-order
permissions, powers and other legal relations. Here and in much of the rest
of this essay, for the sake of simplicity I ignore these other types of contract
terms.
70
Restatement (Second) Contracts § 63 (1981).
71
Id.
72
This was not always the case. Under the old best evidence rule, a writing
automatically excluded all oral evidence of contrary terms. The best
evidence rule established an evidentiary hierarchy: written evidence, which
was commonly under seal, could not be contradicted by oral evidence.
See, e.g., Salmond, The Superiority of Written Evidence, 6 L. Q. Rev. 75
(1890).
73
Restatement (Second) of Contracts § 213 (1981).
74
Restatement (Second) of Contracts § 209(3) (1981).
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under common law, though effective under the Uniform Commercial
Code.
75
Courts do not enforce provisions that purport to alter the rules
governing waivers.
76
And integration will not prevent a party from later
introducing parol evidence of “illegality, fraud, duress, mistake, lack of
consideration, or other invalidating cause.”
77
* * *
The analysis so far can be summarized as follows. Legal exposition
involves two separate activities: interpretation, which identifies the meaning
of the parties’ words and actions, and construction, which identifies their
legal effect. Rules of construction include mandatory, default and altering
rules. A mandatory rule says what the legal state of affairs is no matter what
the parties say or do. A default rule says what the legal state of affairs is
absent the parties’ contrary expression. An altering rule identifies contrary
expressions sufficient to effect a change from the default. Altering rules can
have interpretive and formal components. Interpretive components
condition legal change on the performance of acts with the right meaning.
Formal components condition legal change on the performance of acts of
the right form. Formalistic altering rules have only formal components. Pure
interpretive rules have only interpretive components. Mixed interpretive
rules have both formal and interpretive components.
Conceptual distinctions and taxonomies are of value when they
shed new light on old questions. The argument for the above categories can
therefore be found in the remainder of this Article. That said, it is already
possible to identify an example of their utility. Eric Posner has suggested
that “[a]n interesting aspect of the Statute of Frauds and other contract
formalities is that they do not fit easily into the default-immutable rule
dichotomy frequently used by contract theorists.”
78
The reason is that the
default-immutable rule, or default-mandatory rule, dichotomy is
incomplete. Statutes of Frauds and other formal requirements belong to a
third category: altering rules. A writing requirement like a Statute of Frauds
is not itself an altering rule, but is sometimes a component of other altering
75
See Samuel Williston, 29 Williston on Contracts § 73:22 (4th ed.) (no-
oral-modification clauses ineffective); U.C.C. 2-209(2) (no-oral-
modification clauses effective).
76
See 13 Williston on Contracts § 39:36 (4th ed.) (“[A] provision that a term
or condition of any sort cannot be eliminated by a waiver, or by an
estoppel, is ineffective, and a party has the same power to waive the
condition, or to be estopped from asserting it, as though the provision did
not exist.”).
77
Restatement (Second) Contracts § 214(d) (1981).
78
Eric A. Posner, Norms, Formalities, and the Statute of Frauds: A
Comment, 144 U. Pa. L. Rev. 1971, 1981 (1996).
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rules. In the transactions to which it applies, a Statute of Frauds adds a
formal component: the parties’ agreement must be evidenced by a signed
writing.
79
Altering rules and their components, like any other framework
contract rules, can themselves be mandatory or default. As it happens,
Statutes of Frauds are mandatory components of the altering rules into
which they figure. Parties cannot contract out of their writing requirements.
Although a complete understanding of such formal requirements demands a
richer conceptual toolkit, a Statute of Frauds therefore also fits “into the
default-immutable rule dichotomy.”
3 The Varieties of Contract Interpretation
Part One emphasized differences among how Lieber, Williston and
Corbin conceive interpretation and construction and the relationship
between the two activities. But there is a similarity among their
understandings of interpretation. Each has a relatively narrow conception of
meaning. For Lieber, “[t]rue sense is . . . the meaning which the person or
persons, who made use of the words, intended to convey to others, whether
he used them correctly, skillfully, logically or not.”
80
Williston follows
Lieber’s intentionalist account: “Interpretation is the art of finding out the
true sense of any form of words: that is, the sense which their author
intended to convey, and of enabling others to derive from them the very
same idea which the author intended to convey.”
81
Corbin adopts a listener-
centered account of meaning, but one that is similarly one-dimensional.
“By ‘interpretation of language’ we determine what ideas that language
induces in other persons.”
82
These simple accounts of meaning, and by extension interpretation,
oversimplify. This Part argues that contract law’s interpretive altering rules
recognize and give legal effect to several different types of meaning.
83
These
79
This is roughly the basic requirement of Article Two’s writing
requirement. U.C.C. § 2-201(1). The rule in section 2-201 of the Code
contains exceptions and qualifications that are not captured in the above.
And other Statutes of Frauds require additional things of the writing. The
Second Restatement, for example, suggests that the contents of the writing
must (1) reasonably identify the subject matter of the contract; (2) indicate
that a contract has been made; and (3) state the essential terms of the
unperformed promise. Restatement (Second) Contracts § 131 (1981).
80
Lieber, supra note 7 at 23. See also id. at 19 (“[I]t is necessary for him, for
whose benefit [a sign] is intended, to find out, what those persons who use
the sign, intend to convey to the mind of the beholder or hearer.”).
81
Williston (1st ed.) § 602, at 1159-60 (quoting Lieber, supra note 7 at 23).
82
Corbin (1st ed.) § 534, at 7.
83
Lieber expressly rejects the idea that there are multiple types of meaning
relevant to the law, contrasting legal to Biblical interpretation.
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include plain meaning, context dependent use meaning, subjective and
objective meaning, an agreement’s or term’s purpose, and the parties’
intentions and beliefs. Each can, under the right circumstances, figure into
determining the existence or content of a contract. Each is identified by
interpretation of the parties’ words and actions. And the legal relevance of
each is determined by a rule of construction.
Two scholars have recently suggested that public laws too have
multiple meanings. Cass Sunstein argues that “there is nothing that
interpretation ‘just is,’” and that “no approach to constitutional
interpretation is mandatory.”
84
And Richard Fallon identifies a “diversity of
senses of meaning that constitute . . . potential ‘referents’ for claims of legal
meaning.”
85
Sunstein suggests an outcome-based approach the choice
among interpretive methods in constitutional law. “Among the reasonable
alternatives, any particular approach to the Constitution must be defended
on the ground that it makes the relevant constitutional order better rather
than worse.”
86
To date Sunstein he has not made an outcome-based case for
one or another form of constitutional interpretation. Fallon argues that it is a
mistake to equate statutory or constitutional meaning with any one type of
meaning. Rather than selecting a single mode of interpretation on the basis
of overall outcomes, Fallon recommends “a relatively case-by-case
approach to selecting” the appropriate sort of meaning.
87
Neither Sunstein’s nor Fallon’s theory describes the choice of
meaning in the law of contracts. In contract exposition, different types of
meaning are relevant in different circumstance and to different legal
questions. And generally accepted rules of construction govern which type
of meaning is legally relevant when. Contract law thereby illustrates how
legal exposition can incorporate multiple types of meaning in a rule-
Owing to the peculiar character which the Bible possesses, as a
book of history and revelation, and the relation between the old and
new testaments, we find that some divines ascribe various meanings
to the same passages or rites, and that different theologians take the
same passage in senses of an essentially different character. We hear
thus of typical, allegorical, parabolical, anagogical, moral and
accommodatory senses, and of corresponding modes of
interpretation. . . . In politics and law we have to deal with plain
words and human use of them only.
Lieber, supra note 7 at 75-76.
84
Cass Sunstein, There Is Nothing that Interpretation Just Is, 30 Const.
Comment. 193, 193 (2015).
85
Richard H. Fallon, Jr., The Meaning of Legal “Meaning” and Its
Implications for Theories of Legal Interpretation, 82 U. Chi. L. Rev. 1235,
1239 (2015).
86
Sunstein, supra note 84 at 212.
87
Fallon, surpra note 85 at 1303.
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governed way. And it exemplifies how what counts as the right approach to
legal interpretation depends on the relevant rule of construction, as the
complementary conception suggests it must.
This Part focuses on the interpretation of contractual agreements.
But it is worth remembering that agreements are not the only types of
altering acts that contract law recognizes. Offers, rejections, counter offers,
retractions, preliminary agreements, modifications, waivers, repudiations,
demands for adequate assurance, cancellations, elections of remedies and
other meaningful acts before and after formation can alter the parties’
contractual rights, obligations, powers, privileges and so forth. All of
commonly require interpretation to determine their legal effect. This Part
makes only a start at describing the varieties of interpretation in contract
law.
3.1 Plain Meaning and Use Meaning
Perhaps the most contested question about contract interpretation
concerns the choice between plain meaning and use meaning. In contract
law, “plain meaning” generally refers to the meaning an experienced
interpreter can glean from a writing using nothing but a dictionary, her
knowledge of the English language, and her generic understanding of the
social world. Because plain meaning interpretation uses so few inputs, a
writing’s plain meaning often is its literal meaning. But not always. A
written agreement read as a whole, for example, might evince a general
purpose which suggests that a provision in it should not be read literally. As
Williston explained in the first edition of his treatise:
in giving effect to the general meaning of a writing particular words
are sometimes wholly disregarded, or supplied. Thus “or” may be
given the meaning of “and,” or vice versa, if the remainder of the
agreement shows that a reasonable person in the position of the
parties would so understand it.
88
The plain meaning of words is their meaning stripped of context, but not
entirely of apparent intention.
89
I will use “use meaning” to refer to how a reasonable person would
understand the parties’ words or actions in light of the relevant
circumstances of their use. An agreement’s plain and use meanings
sometimes diverge. Parties sometimes objectively use and understand
words to mean something other than their plain meanings. To take a
88
2 Williston (1st ed.) § 619, 1199.
89
In other words, plain meaning is not necessarily semantic meaning. I
discuss the distinction between semantic and pragmatic meaning in Part
Four.
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famous example, consider a clause in a contract for the repair of a steam
turbine that indemnifies the owner “against all loss, damage, expense and
liability resulting from . . . injury to property.” Read literally and without
context, the clause covers all losses, including those of the owner. But it is
easy to imagine that the parties’ reasons for adding the clause, their past
dealings, or a course of performance could cause them to reasonably
understand the clause to cover only third-party losses. In such a case, the
words’ plain meaning would diverge from their use meaning.
Contract law recognizes that even in an integrated writing—one that
the parties intend to be a final statement of some or all terms of their
agreement—plain meaning can diverge from use meaning. As just about
every first-year US law student learns, US jurisdictions take different
approaches to the possibility of such divergences. In Pacific Gas & Electric
v. G.W. Thomas Drayage & Rigging, the California Supreme Court held,
The test of admissibility of extrinsic evidence to explain the
meaning of a written instrument is not whether it appears to the
court to be plain and unambiguous on its face, but whether the
offered evidence is relevant to prove a meaning to which the
language of the instrument is reasonably susceptible.
90
This California rule eschews exclusive reliance on plain meaning and
instructs courts to look in the first instance to an integrated writing’s use
meaning—to how the parties reasonably understood the words in the
circumstances of the writing’s production. At issue in Pacific Gas was the
legal effect of the above indemnification clause. The court concluded that
the defendant should have been allowed to introduce extrinsic evidence
that the parties understood the clause to cover only third-party losses.
New York courts apply a very different rule. In W.W.W. Assoc. v
Giancontieri, for example, the New York Court of Appeals held that “when
parties set down their agreement in a clear, complete document, . . .
[e]vidence outside the four corners of the document as to what was really
intended but unstated or misstated is generally inadmissible to add to or
vary the writing.”
91
Under Giancontieri, when the plain meaning of an
integrated writing is unambiguous, that meaning governs. In New York, the
Pacific Gas indemnification clause would cover both third-party and owner
losses.
There is a lively debate among contracts scholars as to which rule is
better. Interesting though the question is, I am not going to weigh in on it
here. Instead, I want to make four points about the choice between plain
and use meaning.
90
Pac. Gas & Elec. Co. v. G. W. Thomas Drayage & Rigging Co., 442 P.2d
641, 644 (Cal. 1968).
91
W.W.W. Associates, Inc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990).
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First, both the Pacific Gas and the Giancontieri rules are rules of
construction. More specifically, they are interpretive altering rules. Pacific
Gas holds that the parties’ legal obligations depend on the contextually
determined use meaning of their words, even when the parties have
reduced their agreement to an integrated writing that appears unambiguous
on its face. The holding in Giancontieri is that when an integrated writing is
on its face unambiguous, the parties’ legal obligations depend on the
writing’s plain meaning only. Each rule establishes which type of meaning
is legally salient.
Second, by determining which sort of meaning is legally salient,
these rules thereby determine what sort of interpretation legal decision
makers should engage in. In New York, a court should first aim to interpret
an integrated agreement’s plain meaning; in California it should begin with
the writing’s use meaning. I have observed that in the order of application,
interpretation comes first, construction second. But because legal
interpretation serves construction, the correct approach to legal
interpretation depends on the applicable rule of construction. Rules of
construction are conceptually prior to legal interpretation.
Third, the design choice is not simply between plain meaning and
use meaning, but is about which type of meaning is relevant when. This is
most obvious under the New York rule. Giancontieri states that if the plain
meaning of an integrated writing is unambiguous, that meaning controls.
When the writing’s plain meaning is ambiguous, however, parties are free
to introduce extrinsic evidence to show which meaning they intended and
the reasonable understanding of the words in the context in which they
were produced.
92
In other words, when plain meaning runs out, legal
interpreters should turn to use meaning. Nor is it obvious that New York
courts would apply to the plain meaning rule to informal, non-integrated
writings or to oral agreements. New York’s plain meaning rule does not
eschew use meaning altogether, but identifies a narrower band of cases in
which use meaning is legally relevant than does the California rule.
Finally, both the California and the New York rules are probably
default rules. Alan Schwartz and Robert Scott discuss examples of contract
clauses that expressly instruct courts to construe the agreement according to
its plain meaning.
93
Alternatively, parties might include a clause instructing
92
See, e.g., Pouch Terminal, Inc. v. Hapag-Lloyd (Am.) Inc., 569 N.Y.S.2d
122, 123 (2d Dep’t 1991) (“Where . . . the language of a contract is
susceptible of varying but reasonable interpretations, the parties may submit
extrinsic evidence as an aid in construction, and the resolution of the
ambiguity is for the trier of fact”).
93
Alan Schwartz & Robert E. Scott, Contract Interpretation Redux, 119 Yale
L.J. 926, 955 (2010).
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courts to construe their agreement according to its use meaning.
94
Although
there is not much case law on the effectiveness of such contractual
provisions, a court would be hard pressed to altogether ignore such
instructions from sophisticated parties. And though the Second Restatement
casts some doubt on the rule, integration can also make a difference to the
choice between plain and use meaning.
95
3.2 Subjective and Objective Meaning
The distinction between plain and use meaning is not the only
divide among legally relevant meanings in contract cases. Rules of
construction also govern the choice between subjective and objective
meaning.
In contract law, “subjective meaning” refers to what a speaker
actually intended her words and actions to communicate or to what a
hearer actually understood them to mean, “objective meaning” to what a
reasonable person would understand those words and actions to mean.
Subjective meaning can be private; objective meaning is always public. In
the casebook staple Embry v. Hargadine, McKittrick Dry Goods Co., for
example, a Missouri appellate court considered the correct interpretation of
the words “Go ahead, you’re all right; get your men out and don’t let that
worry you,” spoken by the company’s president, McKittrick, to an
employee, Embry, who was threatening to quit unless given a new
contract.
96
At trial the jury was instructed to find that there was a contract
only “if you (the jury) find both parties thereby intended and did contract
with each other for plaintiff's employment.”
97
The appellate court held this
was an error. “[T]hough McKittrick may not have intended to employ
Embry by what transpired between them . . ., yet if what McKittrick said
would have been taken by a reasonable man to be an employment, and
Embry so understood it, it constituted a valid contract of employment.”
98
In
94
See, e.g., Corthell v. Summit Thread Co., 167 A. 79, 80 (Me. 1933)
(written agreement specifying that it “is to be interpreted in good faith on
the basis of what is reasonable and intended and not technically”).
95
This was Williston’s view. See 2 Williston (1st ed.) § 606, 1165. The
Second Restatement is more equivocal on the point. Section 212(1)
provides that “The interpretation of an integrated agreement is directed to
the meaning of the terms of the writing or writings in the light of the
circumstances.” Yet section 212(2) suggests that when the plain meaning of
a writing is unambiguous, that meaning is to be determined by the court
rather than the finder of fact.
96
105 S.W. 777, 777 (Mo. Ct. App. 1907).
97
Id. at 778.
98
Id. at 779.
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short, the existence of a contract depended on the objective meaning of the
company president’s statement, not on his subjective understanding of it.
Plain meaning is always objective, as the inputs of plain meaning
interpretation do not include evidence of privately held understandings.
Use meaning can be understood subjectively or objectively. Objective use
meaning is the meaning a reasonable observer would attribute to the words
or actions in the context of their use. Thus the court in Embry interpreted
the objective use meaning of McKittrick’s statement to be an agreement to
renew the employment contract.
[W]hen [Embry] was complaining of the worry and mental distress
he was under because of his uncertainty about the future, and his
urgent need, either of an immediate contract with respondent, or a
refusal by it to make one, leaving him free to seek employment
elsewhere, McKittrick must have answered as he did for the purpose
of assuring appellant that any apprehension was needless, as
appellant's services would be retained by the respondent. The
answer was unambiguous.
99
An utterance’s or writing’s subjective use meaning is a party’s actual
understanding of it, which might or might not be how a reasonable
observer would understand it in the circumstances of its production. If, as
the jury might have found, McKittrick believed he was not agreeing to
renew Embry’s contract, McKittrick’s subjective understanding of his words
departed from their objective meaning in the circumstances of their
utterance.
In the early twentieth century, scholars and jurists devoted
considerable attention to the choice between subjective and objective
forms of interpretation.
100
With respect to the interpretation of contractual
agreements, most courts today follow section 201 of the Second
Restatement, which looks to a mix of subjective and objective meaning.
Oversimplifying a bit, when the parties’ subjective meanings converge,
those subjective meanings govern; when the parties attach different
subjective meanings to their words and actions, objective meaning
governs.
101
Section 201 is another interpretive altering rule. Like the rules in
Pacific Gas and Giancontierri, it establishes when one or another type of
meaning is legally effective. That rule of construction, in turn, tells
99
Id. at 779-80.
100
See generally Joseph M. Perillo, The Origins of the Objective Theory of
Contract Formation and Interpretation, 69 Fordham L. Rev. 427 (2000).
101
Restatement (Second) of Contracts § 201(1) (1981). For a detailed
account, see Lawrence M. Solan, Contract as Agreement, 83 Notre Dame L.
Rev. 353 (2007).
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adjudicators and others when to engage in what sort of interpretation when
determining the legal effects of the parties’ words and actions. If the
pleadings or interpretation suggests that the parties’ subjective
understandings were in agreement, subjective meaning governs; if not, the
objective meaning of their words and actions governs. Again, the correct
approach to legal interpretation depends on a rule of construction. And that
rule specifies that circumstances in which one or the other type of meaning
controls.
3.3 Purpose
Rules of contract construction also sometimes condition legal
outcomes on the purpose of an agreement or a term in it. The interpretation
of purpose is somewhat different from the interpretation communicative
meaning, be it plain meaning or use meaning. Purpose is more closely
aligned with instrumental or practical reasoning. A party’s purpose in
entering into an agreement or agreeing to a term in it is the end she seeks to
achieve. Although identifying an agreement’s purpose requires
understanding its communicative content, the rational reconstruction of
reasons and motives plays a larger role. Interpreting an agreement’s purpose
is more like figuring out a tool’s function by examining its parts. Although
still a form of interpretation, the relevant evidence and inferences can differ
from the interpretation of communicative meaning.
Section 202 of the Second Restatement, for example, provides a
general rule of contract construction that emphasizes both use meaning and
purpose: “Words and other conduct are interpreted in the light of all the
circumstances, and if the principal purpose of the parties is ascertainable it
is given great weight.”
102
But the interpretation of purpose does not always
require evidence of surrounding context. As observed above, purpose also
figures into plain meaning rules. Thus the New York Court of Appeals has
recently reaffirmed that “[a] written contract will be read as a whole, and
every part will be interpreted with reference to the whole; and if possible it
will be so interpreted as to give effect to its general purpose.”
103
An older New York case, William C. Atwater & Co. v. Panama R.
Co., further illustrates the role purpose plays in plain meaning rules. At
issue was an installment contract for the sale of coal and the legal effect of
the following provision: “Any portion of the tonnage remaining unshipped
at the date of expiration of this agreement shall be considered cancelled
without notice.”
104
The sentence’s literal meaning was that both parties
would be released from liability for any coal unshipped by the end of the
102
Restatement (Second) of Contracts § 202(1).
103
Westmoreland Coal Co. v. Entech, Inc., 100 N.Y.2d 352, 358 (2003)
(internal quotation marks omitted).
104
159 N.E. 418 (N.Y. 1927).
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installment period. The buyer invoked the clause to attempt to avoid
liability for coal that the seller chose not to ship due to the buyer’s own
refusal to accept earlier shipments. Reading the agreement as a whole, and
in light of the seller’s contractual option to reduce installments after a buyer
breach, the Court of Appeals concluded that the clause’s purpose was to
cancel only installments unshipped as a result of the seller’s exercise of that
option. “Reason, equity, fairness—all such lights on the probably intention
of the parties—show what the real agreement was.”
105
Interpretation of the
term’s purpose required an imaginative reconstruction of what the parties
sought to accomplish with it. Atwater stands for the proposition that the
apparent purpose of a term can be legally controlling at the expense of the
words’ literal meaning.
In addition to its generic relevance, purpose figures into several
more specific rules of contract construction. A defense of supervening
frustration exists, for example, “[w]here after a contract is made, a party’s
principal purpose is substantially frustrated without his fault.”
106
Article Two
of the UCC provides that “[w]here circumstances cause an exclusive or
limited remedy [such as liquidated damages] to fail of its essential
purpose,” the court may provide any other remedies available under the
Code.
107
And though a commitment to serve as a surety is generally subject
to the Statute of Frauds’ writing requirement, where the surety’s main
purpose is a pecuniary or business advantage, the agreement falls outside
the scope of the Statute.
108
Each is an example of an interpretive altering
rule, for each specifies ways that the parties’ or an agreement’s purpose at
the time of formation figures into determining the legal state of affairs, and
the identification of purpose requires interpretation.
3.4 Intention and Belief
Yet other rules of contract law look to the parties’ beliefs, intentions
or other propositional attitudes.
109
Implied-in-fact contracts provide a familiar example. Although
contract law requires that each party agree to the transaction, it does not
require that they express that agreement in so many words. “[W]here the
parties do not explicitly manifest their intent to contract by words, their
intent may be gathered by implication from their conduct, language, and
105
Id. at 419.
106
Restatement (Second) of Contracts § 265.
107
U.C.C. 2-719(2).
108
See Restatement (Second) of Contracts § 116.
109
A propositional attitude is a mental state that takes as its object a
proposition, and can therefore be described using a verb plus a “that”
clause, as in, “She believed that . . .” or “They intended that . . .”
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other circumstances attending the transaction.”
110
When one party alleges
an implied-in-fact contract, the question is not what the parties said, but
what in the circumstances they objectively believed or intended. The
ultimate question is not the meaning of their words, but their apparent
intentions.
A common fact pattern illustrates. Suppose an individual submits a
potentially valuable idea to a business, the business uses the idea, and the
individual then demands payment. If the parties did not expressly agree to
compensation, the law looks to their reasonable expectations. “[A]n
implied in fact contract may be found when the parties have an
understanding that the recipient of a valuable idea has accepted and used
the idea, knowing that compensation is expected for use of the idea,
without paying the purveyor of the idea.”
111
This is an altering rule that
determines when parties acquire contractual obligations. The dispositive
question, however, is not the meaning of the parties said. It is, rather, what
they objectively believed regarding the nature of the transaction.
Another group of examples can be found in formation rules that
require that the parties intend legal liability. The black-letter law in most
jurisdictions outside of the United States is that a contract exists only if, at
the time of formation, the parties objectively intended that their agreement
be legally binding.
112
Although US law generally eschews this
requirement,
113
US courts condition the enforcement of some types of
agreements on evidence of the parties’ intent to be legally bound. Examples
include preliminary agreements, agreements between family members and
reporters’ confidentiality promises.
114
Under all these rules the legal
question is not the communicative content of the parties’ words or
actions—parties need not say that they intend legal liability—but the
parties’ apparent intentions.
Consider the rules for preliminary agreements. During the course of
negotiations sophisticated parties sometimes write down the terms they
have agreed to, though other terms remain under negotiation. Courts have
110
Featherston v. Steinhoff, 226 Mich. App. 584, 589 (1997).
111
Wrench, LLC v. Taco Bell Corp., 51 F.Supp. 2d 840, ___ (D. Mich. 1999)
(emphasis added), reversed on other grounds, 256 F.3d 446 (6th Cir. 2001).
112
See The Commission of European Contract Law, Principles of European
Contract Law arts. 2:101, 2:102 and accompanying notes (Ole Lando &
Hugh Beale eds., 2000) (discussing European sources of law).
113
See Restatement (Second) of Contracts § 21 (1981).
114
See, e.g., Teachers Ins. and Annuity Ass’n of Am. v. Tribune Co., 670 F.
Supp. 491 (S.D.N.Y. 1987) (preliminary agreements); Empro Mfg. Co. v.
Ball-Co Mfg., Inc., 870 F.2d 423 (7th Cir. 1989) (preliminary agreements);
Restatement (Second) of Contracts § 21 cmt. c (1981) (agreements between
family members); Cohen v. Cowles Media Co., 457 N.W.2d 199 (Minn.
1990) (reporter’s confidentiality promise).
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held that such preliminary agreements can create a legal duty to negotiate
in good faith remaining open terms, but only if the parties intend the
agreement to be legally binding. Thus in the seminal case of Teachers
Insurance and Annuity Association v. Tribune, Judge Leval wrote:
There is a strong presumption against finding binding obligation in
agreements which include open terms, call for future approvals and
expressly anticipate future preparation and execution of contract
documents. Nonetheless, if that is what the parties intended, courts
should not frustrate their achieving that objective or disappoint
legitimately bargained contract expectations.
115
This too is an altering rule. It determines when parties shift from not having
a duty to negotiate in good faith to having such a duty. Although the rule
turns on the parties’ legal intent, it does not require that they say that they
intend to be legally bound. It asks instead whether the parties appear to
intend a legally binding agreement.
116
Thus in Teachers Insurance, Leval
suggests a broad, all-things-considered inquiry into the parties objective
intent, whose inputs include the language of agreement, the context of
negotiations, the parties’ motives, the number of open terms, the extent to
which the agreement had been performed, and usage of trade.
117
Both the rule for implied-in-fact contracts and the rule for
preliminary agreements attach legal consequences to proof of one or both
parties’ beliefs or intentions. They are, therefore, interpretive altering rules.
Some readers might find it a stretch to say that these mental states are part
of the meaning of the parties’ words and actions. But whether or not we call
them “meaning,” identifying the parties’ beliefs, intentions or other legally
salient propositional attitudes requires interpreting what they said and did.
Attributing such mental states to others is a way of making sense of their
behavior, linguistic and nonlinguistic.
118
This type of interpretation is not
the same as the interpretation of communicative content, or even purpose.
But it is a type of interpretation nonetheless, and is required by well-
established rules of construction. The parties’ propositional attitudes are yet
115
Teachers Ins. and Annuity Ass’n of Am. v. Tribune Co., 670 F. Supp.
491, 499 (S.D.N.Y. 1987).
116
“In seeking to determine whether such a preliminary commitment should
be considered binding, a court’s task is, once again, to determine the
intentions of the parties at the time of their entry into the understanding, as
well as their manifestations to one another by which the understanding was
reached.” 670 F. Supp. at 499.
117
670 F. Supp. at 499–503.
118
See, e.g., Daniel C. Dennett, The Intentional Stance (1989); Donald
Davidson, Radical Interpretation, in Inquiries into Truth and Interpretation
125 (1984).
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another type of meaning that can, at times, be relevant to the determination
of their contractual obligations.
* * *
The above discussion illustrates two features of contract exposition.
First, to paraphrase Sunstein, there is no one thing that contract
interpretation just is. There are multiple types of legally salient contract
interpretation. Whereas in public law there might be a need to choose one
interpretive approach, the rules of contract construction call for different
types of interpretation depending on the particulars of the case and the
legal question at issue. Thus, for example, determining the legal effect of an
unambiguous integrated document requires a different type of interpretation
than interpreting an informal oral agreement, both of which differ from the
interpretation needed to determine whether there exists a contract implied
in fact.
The potential relevance of multiple types of meaning suggests also
the possibility of a hierarchy of meanings. Thus plain meaning rules
commonly permit recourse to extrinsic evidence of use meaning in cases of
ambiguity. When plain meaning interpretation runs out, use meaning
interpretation steps in. In explaining his constitutional originalism, Randy
Barnett has suggested that “[w]hen original meaning runs out, constitutional
‘interpretation,’ strictly speaking, is over, and some new noninterpretive
activity must supplement the information revealed by interpretation.”
119
I
doubt whether an originalist needs to agree with Barnett on this point. One
might maintain that when a preferred form of original meaning—say
original public meaning—does not decide a constitutional question, other
types of constitutional meaning, and therefore other types of interpretation,
should step in. But whether or not such a rule makes sense in constitutional
law, multiple types of interpretation are the norm in the law of contracts.
Contract interpretation need not end when one type of interpretation runs
out.
Second, the above analysis demonstrates how legal interpretation
stands in the service of construction. In order to determine what sort of
interpretation is appropriate when, one needs a rule of construction. In the
process of determining the legal effect of the parties’ words or actions,
interpretation comes first, construction second. But because legal
interpretation is the handmaiden of construction, the rules of the former
must satisfy the requirements of the latter. Rules of construction are
conceptually prior to rules of legal interpretation.
The conceptual priority of construction and multiple types of
meaning suggest that it is a mistake to attempt to argue for one or another
119
Randy Barnett, The Gravitational Force of Originalism, 82 Fordham L.
Rev. 411, 419 (2013) (emphasis added).
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theory of contract interpretation based a theory of meaning more generally.
Consider Corbin’s argument against plain meaning rules:
[I]t can hardly be insisted on too often or too vigorously that
language at its best is always a defective and uncertain instrument,
that words do not define themselves, that terms and sentences in a
contract, a deed, or a will do not apply themselves to external
objects and performances, that the meaning of such terms and
sentences consists of the ideas that they induce in the mind of some
individual person who uses or hears or reads them, and that seldom
in a litigated case to the words of a contract convey one identical
meaning to two contracting parties or to third persons. Therefore, it
is invariably necessary, before a court can give any meaning to the
words of a contract and can select one meaning rather than other
possible ones as the basis for the determination of rights and other
legal effects, that extrinsic evidence shall be heard to make the court
aware of the “surrounding circumstances,” including the persons,
objects, and events to which the words can be applied and which
caused the words to be used.
120
Justice Traynor quotes the above passage in Pacific Gas.
121
There are clear
echoes it in comments to the Second Restatement and the UCC.
122
And one
finds similar claims in the writings of contemporary anti-formalists.
123
The
claim is, in essence, that there is no such thing as plain meaning.
“’[M]eaning’ cannot exist without a speaker or hearer,” and “no word or
phrase has one true and unalterable meaning.”
124
Meaning only happens
120
3 Corbin (1st ed.) § 537 at ___.
121
442 P.2d at 644-45.
122
Restatement (Second) of Contracts § 212 cmt. b (1981) (“meaning can
almost never be plain except in a context”); U.C.C. § 2-202 cmt. 1 (“This
section definitively rejects . . . [t]he premise that the language used has the
meaning attributable to such language by rules of construction existing in
the law rather than the meaning which arises out of the commercial context
in which it was used.”).
123
See, e.g., Melvin Aron Eisenberg, The Emergence of Dynamic Contract
Law, in 2 Theoretical Inq. L. 1, 27 (2001) (“The proper interpretation of all
purposive expressions, including contractual expressions, is necessarily
dynamic, because the meaning of a purposive expression is always
determined in part by its context, and the context is prior to the
expression.”); E. Allen Farnsworth, “Meaning” in the Law of Contracts, 76
Yale L.J. 939 (1967) (““The very concept of plain meaning finds scant
support in semantics, where one of the cardinal teachings is the fallibility of
language as a means of communication.”).
124
3 Corbin (1st ed.) § 535, ___ n. 15 & ____.
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when words are used in a particular setting for a specific purpose. The idea
that words could have a meaning apart form their use is a form of magical
thinking from another era.
This argument is confused. First, it employs an overly simplistic a
theory of meaning. Plain meaning might not always capture what parties
are doing with their words. But it is a type of meaning nonetheless. One
can interpret words without knowing the full context of their use. Second,
there are many different types of meaning that can be relevant in contract
cases—plain and use, subjective and objective, an agreement’s or term’s
purpose, and the parties’ beliefs or intentions. Third, although the theory of
language can tell us a great deal about how legal interpretation can work, it
cannot tell us what form legal interpretation should take. A theory of
language cannot tell us which type of interpretation best serves the policies
and purposes behind the law of contract. For that we need a rule of
construction.
4 The Interplay Between Interpretation and Construction
Part Three has demonstrated that the relationship between
interpretation and construction is more complex than the supplemental
conception recognizes. Although interpretation comes first in the process of
exposition, the correct approach to interpretation depends on the relevant
altering rule. Rules of construction are always conceptually prior to rules of
legal interpretation. This Part identifies two other ways that construction
sometimes precedes interpretation.
Describing them requires yet another distinction among types of
meaning. Linguists and philosophers of language disagree about the best
way to define “pragmatic” and “semantic” meaning.
125
Some describe the
distinction in terms the types of evidence that goes into interpretation,
others in terms of the question that the interpreter asks of that evidence. For
my purposes, the latter approach is preferable and the following
formulations serve well. The pragmatic meaning of an utterance or text is
the best interpretation of the speaker’s communicative intentions. Thus Kent
Bach describes the ascription of pragmatic meaning as follows:
The hearer . . . seeks to identify the speaker’s intention in making
the utterance. In effect the hearer seeks to explain the fact that the
125
The topic is rich enough to the subject of at least one doctoral
dissertation. Börjesson, Kristin. The Semantics-Pragmatics Controversy
(2014). Robyn Carston identifies five separate ways scholars have tried to
draw the distinction. Robyn Carston, Linguistic Communication and the
Semantics/Pragmatics Distinction, 165 Synthese 321, 322 (2008). See also
Kent Bach, The Semantics/Pragmatic Distinction: What It Is and Why It
Matters, Linguistische Berichte, Sonderheft 8, 33 (1997).
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speaker said what he said, in the way he said it. Because the
intention is communicative, the hearer’s task of identifying it is
driven partly by the assumption that the speaker intends him to do
this. The speaker succeeds in communicating if the hearer identifies
his intention in this way, for communicative intentions are
intentions whose “fulfillment consists in their recognition.”
126
Semantic meaning, in distinction, is conventional meaning, which can be
identified independently of the speaker’s communicative intentions.
127
The
semantic meaning of a sentence lies first and foremost in the conventional
or literal meanings of its words, together with the rules of syntax or
grammar of the language they belong to. It might also include contextual
elements whose contribution to meaning is governed by determinate rules,
such as those governing indexicals such as “I,” “you” and “those.”
128
Pragmatic meaning diverges from semantic meaning when speakers use
their words in nonliteral ways. Familiar examples include irony, innuendo,
metaphor, ellipsis, malapropism and the many forms of nonconventional
conversational implicature.
129
The distinction between pragmatic and semantic meaning does not
map onto the various types of meaning and interpretation discussed in Part
Three. For the most part, interpretive altering rules in the law of contract
focus on the pragmatic meaning of what parties say and do—on the parties’
apparent communicative intent. Thus the Embry court interpreted, “Go
ahead, you’re all right; get your men out and don’t let that worry you,” as
an agreement to renew the contract, despite the words’ literal meaning. The
primacy of pragmatic meaning also explains why plain meaning is not
always literal meaning. Where the literal meaning of an agreement is at
odds with the agreement’s apparent purpose when read as a whole, a court
will treat the words as a slip of the pen and give legal effect to the
pragmatic meaning of the parties’ words at the expense of their semantic
126
Bach, supra note 125 at 41 (quoting Kent Bach & Robert M. Harnish,
Linguistic Communication and Speech Acts 15 (1979)). The passage goes
on to link this definition to the evidentiary conception of pragmatics.
“Pragmatics is concerned with whatever information is relevant, over and
above the linguistic properties of a sentence, to understanding its
utterance.” Id. Plain meaning rules demonstrate that the two conceptions of
pragmatic meaning are not extensionally equivalent.
127
This negative definition can be found in Kent Bach, Thought and
Reference 180-181 (1987).
128
See Bach supra note 125 at 37-40.
129
See H.P. Grice, Logic and Conversation, in The Logic of Grammar 64
(Donald Davidson & Gilbert Harman eds., 1975), reprinted in Paul Grice,
Studies in the Ways of Words 22 (1989); Bach & Harnish, supra note 126 at
___-___.
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meaning. Thus on occasion, “’or’ may be given the meaning of ‘and,’ or
vice versa, if the remainder of the agreement shows that a reasonable
person in the position of the parties would so understand it.”
130
Rules of construction can figure into the pragmatic meaning of what
parties’ say and do. This happens when parties choose their words in light
of their legal consequences—in light of the altering rules that will determine
their legal effect. Where this is the case, interpretation requires some
understanding of the rules of construction the parties have in mind. I call
this the “pragmatic priority” of construction. It is the topic of the second
section of this Part.
If semantic meaning figures into contract law, it is primarily in
formalistic altering rules. A formalistic altering rule does not require that
parties utter words with the right meaning, but only that they use the right
words. For example, the words “F.O.B.” plus the name of a location suffices
to determine the seller’s responsibility for shipment and to allocate the risk
of loss if goods are damages before arrival.
131
Formalistic altering rules
attach conventional legal effects to certain words or acts, thereby giving
them new semantic meanings. The first section of this Part discusses how
acts of judicial construction can generate new formalistic altering rules, and
thereby new semantic meanings. I call this the “semantic priority” of
construction.
4.1 Acts of Construction and Semantic Priority
When during bidding a bridge player says, “Double,” she is not
using the word in its everyday sense. She is, rather, making a move in the
game, effecting a change to how play will go forward. The rules of bridge
give the ordinary word “double” a specialized function within that game.
They give the word a new conventional, or semantic, meaning.
Formalistic altering rules similarly generate new semantic meanings.
Consider again the legal use of “as is.” The Uniform Commercial Code
provides that “unless the circumstances indicate otherwise, all implied
warranties are excluded by expressions like ‘as is’ [or] ‘with all faults.’”
132
Although the rule is written as if the phrases were mere examples, in
practice it establishes that these ordinary-language terms suffice to achieve
a specific legal effect: excluding implied warranties.
133
Sophisticated parties
130
2 Williston (1st ed.) § 619, 1199.
131
U.C.C. § 2-319.
132
U.C.C. § 2-316(3)(a).
133
See, e.g., Meyer v. Alex Lyon & Son Sales Managers & Auctioneers, Inc.,
889 N.Y.S.2d 166 (1st Dept. 2009) (holding that “as is” clause disclaimed
all implied warranties without further inquiry); Welwood v. Cypress Creek
Estates, Inc., 205 S.W.3d 722 (Tex.App.—Dallas 2006) (same); Prudential
Ins. Co. of America v. Jefferson Associates, Ltd., 896 S.W.2d 156 (Tex.
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who encounter “as is” in a contract know that it is not being used to convey
its non-legal meaning (arguably a tautology), but is there solely to achieve a
specific legal effect. The formalistic altering rule gives the word a new
semantic meaning.
Legal formalities come from a variety of sources. A statute might
create a formality by fiat. Or it might codify historical patterns of use and
legal effect among the legal community. Especially interesting for my
purposes, and highly salient to the law of contracts, is the fact that acts of
judicial construction can give a string of words a standard legal effect,
thereby creating a new formality.
For several centuries, the standardized language in a Lloyd’s marine
insurance policy used the following words to describe covered risks:
Touching the Adventures and Perils which we the Assurers are
contented to bear and do take upon us in this Voyage, they are, of
the Seas, Men-of-War, Fire, Enemies, Pirates, Rovers, Thieves,
Jettisons, Letters of Mart and Counter-mart, Surprisals, Takings at
Sea, Arrests, Restraints and Detainments of all Kings, Princes, and
People, of what Nation, Condition or Quality soever, Barratry of the
Master and Mariners, and of all other Perils, Losses and Misfortunes
that have or shall come to the Hurt, Detriment, or Damage of the
said Goods and Merchandises and Ship, &c., or any Part thereof.
134
In his 1914 treatise, Sir Douglas Owen observed that “[i]f such a contract
were to be drawn up for the first time to-day, it would be put down as the
work of a lunatic endowed with a private sense of humour.”
135
But the
“Adventures and Perils” clause in fact had an established set of legal
consequences:
It is an ancient and incoherent document, occasionally the subject
of judicial remarks in the highest degree uncomplimentary. But
nobody minds this or dreams of altering the ancient form, nor, one
may imagine, is it ever likely to be altered. Insurance experts
know—or very often know—exactly what it means, and with
generations of legal interpretations hanging almost to every word,
and almost certainly to every sentence, in it, it would be highly
dangerous to tamper with it.
136
1995) (same); Warner v. Design and Build Homes, Inc., 114 P.3d 664
(Wash.App. Div. 2 2005) (same).
134
I am grateful to Jim Oldham for bringing this example to my attention.
See James C. Oldham, Insurance Litigation Involving the Zong and other
British Slave Ships, 1780-1807, 28 J. Legal Hist. 299, 300 (2007).
135
Sir Douglas Owen, Ocean Trade and Shipping 158 (1914).
136
Id. at 155.
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Lloyd’s “Adventures and Perils” clause was a legal formality. Years of
judicial construction gave the clause a standard legal effect, thereby
generating a formalistic altering rule. That rule, in turn, gave the clause a
new conventional, or semantic, meaning.
I call this the “semantic priority” of construction. The semantic
priority of construction is a type of etymological priority. Judicial
construction of nontechnical words can give those words new conventional
legal meanings going forward. Construction can transform ordinary words
into legal formalities.
The semantic priority of construction is a contingent feature of the
legal system we have. If judicial construction sometimes generates new
formalities, it is only because judicial decisions are both backward and
forward looking. When a text’s legal effect of is at issue, the court’s job is to
construe the effects of the words that appear in it. As Lawrence Solum puts
the point, the question concerns a particular tokening of those words.
137
At
the same time, principles of stare decisis mean that this backward-looking
decision can have forward-looking legal effects. The decision can also
determine the legal consequences of future uses of the type.
But principles of stare decisis alone do not explain the semantic
priority of construction in contract cases. It is a familiar fact that the same
words often acquire different shades of meaning in different circumstances.
If the fundamental principle of contract exposition is to ascertain the
parties’ intentions, it is not obvious why the construction of words in one
contractual agreement should ever govern the construction of that same
words in a different one.
There is, however, an instrumental advantage to that result.
Formalities provide sophisticated parties cheap and effective tools with
which to achieve the legal effects they want. As Lon Fuller observed, “form
offers a legal framework into which the party may fit his actions, or, to
change the figure, it offers channels for the legally effective expression of
intention.”
138
Interpretive inquiries into parties’ intentions can be uncertain
and their results difficult to predict. By rendering interpretation
unnecessary, a formality gives sophisticated parties an instrument for
realizing those intentions. Allowing the construction of a string of words in
one agreement to govern the construction of the same words in other
agreements is a way of generating new, potentially useful formalities.
And in fact, the Second Restatement authorizes this result. Section
212(2) provides that when a party adopts a writing knowing that it is the
standard form for a transaction, the writing “is interpreted wherever
137
Lawrence B. Solum, The Fixation Thesis: The Role of Historical Fact in
Original Meaning, 1 Notre Dame L. Rev. 1, 35-41 (2015).
138
Lon L. Fuller, Consideration and Form, 41 Colum. L. Rev. 799, 801
(1941).
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reasonable as treating alike all those similarly situated, without regard to
[the parties’] knowledge or understanding of the standard terms of the
writing.”
139
Although the Restatement uses the word “interpret,” section
211(2) is a rule of construction. It tells courts to treat boilerplate as having
the same legal effect across multiple transactions, even if those transactions
involve different parties with different background and occur in different
circumstances. The rule authorizes the creation of new formalities by way
of the judicial construction of contractual agreements. The reason for the
rule is the practical advantages of contract formalities.
The danger of legal formalities, of course, is that unsophisticated
parties might not understand the legal effects of their words or actions. A
buyer who does not know the legal meaning of “as is” might not
understand what she is getting in a sale. The danger is especially salient
when it comes to judicially generated boilerplate formalities.
Consumer insurance law provides an example. Many courts today
apply the doctrine of reasonable expectations: “The objectively reasonable
expectations of applicants and intended beneficiaries regarding the terms of
insurance contracts will be honored even though painstaking study of the
policy provisions would have negated those expectations.”
140
The doctrine
of reasonable expectations is another rule of construction that authorizes
courts to give a clause a legal effect that departs from its plain meaning,
thereby creating a gap between the best interpretation of a contractual
agreement and the parties’ legal obligations.
The doctrine’s become more interesting when later courts apply the
same construction to other contracts, in accordance with the principle of
section 211(2). At this point the clause at issue has become a formality. But
because the formality originated in an application of the doctrine of
reasonable expectations, its conventional legal meaning cannot be found in
the contract language. As Michelle Boardman observes, the result is that
“[b]oilerplate that has repeatedly been construed by courts will take on a
set, common meaning [i.e., legal effect], but one that may not be easily
understood by reading the language itself.”
141
Thus applications of a rule of
139
Restatement (Second) of Contracts § 211(2) (1981).
140
Robert E. Keeton, Insurance Law Rights at Variance with Policy
Provisions, 83 Harv. L. Rev. 961, 967 (1970). Keeton’s article was the first
to articulate the principle, based on his collection of cases. For discussions
of subsequent developments in the doctrine, see Kenneth S. Abraham,
Judge-Made Law and Judge-Made Insurance: Honoring the Reasonable
Expectations of the Insured, 67 Va. L. Rev. 1151 (1981); Roger C.
Henderson, The Doctrine of Reasonable Expectations in Insurance Law
After Two Decades, 51 Ohio St. L.J. 823 (1990); Peter Nash Swisher, A
Realistic Consensus Approach to the Insurance Law Doctrine of Reasonable
Expectations, 35 Tort & Ins. L.J. 729 (2000).
141
Id. at 1111.
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construction that is intended to protect insureds—the doctrine of reasonable
expectations—can generate legal formalities that unsophisticated insureds
are unlikely to understand. “[A]n outside reader may have an illusion of
understanding, but only knowledge of the subsequent case law and
regulatory actions can reveal what the language means in the eyes of the
law.”
142
Insofar as the semantic priority of construction operates to give
words, phrases or entire clauses conventional legal meanings that
significantly diverge from their nonlegal meanings, it can also function to
mislead unsophisticated parties.
Although contract scholars have written a great deal about the
advantages and disadvantages of plain meaning rules—what one might call
“interpretive formalism”—they have paid less attention to the potential
utility and possible downsides of formalities—what might be called
“noninterpretive formalism.”
143
We do not have a general theory of when
formalities add value, of their optimal design, or of how to generate new
formalities. Such a theory would assess inter alia the costs and benefits of
the production of formalities through acts of judicial construction and
section 211(2) in various types of contracts. Such a theory is beyond the
scope of this work. For present, it is enough to observe the phenomenon
and the potential semantic priority of acts of judicial construction.
4.2 Rules of Construction and Pragmatic Priority
Although the application of a formalistic altering rule does not itself
require interpretation, the rule itself can give words new conventional
meanings. Construction is semantically prior to interpretation when
individual acts of judicial construction generate new formalities, which is to
say, when they produce new formalistic altering rules.
The pragmatic priority of construction, in distinction, appears in the
interpretation of certain legal acts. It follows from the fact that parties often
take rules of construction into account when choosing their words. When
this is so, on order to identify the parties’ communicative intent—the
pragmatic meaning of their words—one needs to know something about
the altering rule they mean to satisfy.
Consider the communicative intent of the following provision in a
negotiated written agreement between sophisticated parties:
This instrument embodies the whole agreement of the parties. There
are no promises, terms, conditions, or obligations other than those
contained in this contract, and this contract shall supersede all
142
Id.
143
Ian Ayres is an exception. See Ayres, supra note 4 at 2080-83.
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previous communications, representations, or agreements, either
verbal or written, between the parties.
144
The provision is an integration clause. Without saying so explicitly, it
expresses the parties’ shared intent that the writing be treated as integrated
under the parol evidence rule, with the legal effect of excluding extrinsic
evidence of contrary or additional terms. As discussed above, the parol
evidence rule is a type of altering rule. It allows parties to change the
default rules of construction that apply to their agreement. Familiarity with
that altering rule is essential to identifying the communicative intent of such
an integration clause.
I call this the “pragmatic priority” of construction. Construction is
pragmatically prior to interpretation when a speaker intends her speech act
to satisfy, to conform to, or to avoid a rule of construction. When this is the
case, one cannot identify the pragmatic meaning of the speaker’s words or
actions without knowing something about that rule of construction.
The pragmatic priority of construction is integral to formation rules
that require that parties intend legal liability. Recall the rule for preliminary
agreements: a preliminary agreement creates a duty to negotiate only if the
parties intended it to be legally binding. Such an intent presupposes a rule
of construction that gives that intent legal effect. Its interpretation therefore
also presupposes awareness of that rule of construction. The rule of
construction is pragmatically prior to the intent to effect a legal change.
Intent-to-contract rules are the most obvious, but by no means the
only examples of the pragmatic priority of construction. Contractual
agreements between sophisticated parties often include clauses intended to
effect one or another legal change. In addition to integration clauses,
examples include warranty limitations and non-reliance clauses; material
adverse change clauses in merger or acquisition agreements; provisions in
consumer contracts that permit unilateral modification with notice;
remedial clauses such as damage limitations or liquidated damages clauses;
and choice of law, choice of forum and arbitration clauses. In order to
identify the communicative intent of any such clause—in order to interpret
its pragmatic meaning—one must know something about contract law.
More specifically, one must know that there perhaps exists an altering rule
that the parties’ intend their words to satisfy.
145
The above examples involve contractual agreements that aim to
achieve specific legal effects. Rules of contract construction can also figure
more globally into how parties speak. Legal actors often choose their words
in light of the legal rules they expect to determine their legal effect.
Williston suggests an example.
144
1A Williston on Contracts 4th Forms § 33F:2 (2016).
145
“Perhaps exists” because the parties might intend to exercise a power
they do not have.
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In an ordinary oral contract or one made by correspondence, the
minds of the parties are not primarily addressed to the symbols
which they are using; they are considering the things for which the
symbols stand. Where, however, they incorporate their agreement
into a writing they have attempted more than to assent by means of
symbols to certain things, they have assented to the writing as the
adequate expression of the things to which they agree.
146
Williston posits here that when parties agree to an integrated writing, they
expect it to be construed according to its plain meaning, and that their
communicative intentions and choice of words presuppose that rule of
construction. As an argument for the plain meaning rule, this suffers from
circularity. Because sophisticated parties’ expectations depend on what the
legal rule is, those expectations cannot serve as a reason to choose one rule
over another. But as an analysis of parties’ communicative intentions when
contracting in the shadow of a plain meaning rule, it reveals an important
truth. Sophisticated parties take rules of construction into account when
choosing how to speak.
147
The interpretation of their communicative
intentions—of the pragmatic meaning of their words and actions—also
must take account of the salient rules of construction and their effect on
what those parties say and do.
Public law theorists have recognized something like the last point.
William Eskridge and John Ferejohn’s anticipation-response theory argues
that legislators and legislative staff often anticipate judicial construction of
the legislation they produce, and that committee reports and floor debates
should be interpreted accordingly.
148
And John McGinnis and Michael
Rappaport have argued for an “original methods originalism” that would
take account of the rules of constitutional construction in effect at the time
of the Constitutional Convention and subsequent ratification, on the theory
that the framers and ratifiers would have themselves taken those rules into
146
2 Williston (1st ed.) § 606, 1165.
147
The same observation lies behind familiar arguments, often advanced by
those who employ economic analysis, that plain meaning rules give parties
a new reason to invest in expressing their intentions in clear language. See,
e.g., Schwartz & Scott, supra note 48 at 572. It is also appears in Jody Kraus
and Robert Scott’s idea of intended contractual means, as distinguished
from contractual ends. Jody S. Kraus & Robert E. Scott, Contract Design and
the Structure of Contractual Intent, 84 N.Y.U. L. Rev. 1023, 1026 (2009).
148
See Victoria Nourse, A Decision Theory of Statutory Interpretation:
Legislative History by the Rules, 122 Yale L.J. 70, 143-47 (2012) (discussing
William N. Eskridge, Jr. & John Ferejohn, The Article I, Section 7 Game, 80
Geo. L.J. 523 (1992)).
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account when they assigned meaning to the constitutional text.
149
More
generally, because public lawmakers intend their words to effect a legal
change, lawmakers are likely to chose them with some attention to the rules
of construction that secure that effect. One might therefore expect the
pragmatic priority of construction to be ubiquitous in public law.
150
The situation is different in the law of contracts. Although rules of
construction are sometimes pragmatically prior to contract interpretation,
they are not always so. The question is an empirical one and depends both
on the rule of construction at issue and on the responsiveness of legal actors
to it. Consider the UCC rule for express warranties:
Any affirmation of facts . . . which relates to the goods and becomes
part of the basis of the bargain creates an express warranty. . . . It is
not necessary to the creation of an express warranty that the seller
use formal words such as ‘warrant’ or ‘guarantee’ or that he have a
specific intention to make a warranty.
151
An “affirmation of fact” is not a legal act, and might be made without any
awareness of the legal consequences. The requisite altering act does not
presuppose awareness of the altering rule. More generally, though
contracting parties often intend the legal effects of their words, many
contract altering rules do not require such an intent. Corbin suggests
another helpful example, involving formation rules.
149
John O. McGinnis & Michael B. Rappaport, Original Methods
Originalism: A New Theory of Interpretation and the Case Against
Construction, 103 Nw. U.L. Rev. 751 (2009).
150
That said, even in the context of public lawmaking responsiveness to
relevant rules of construction is a question of fact. A legislator might know
that she is making a law without knowing all the rules of construction that
will determine the legal effects of her words and actions. Victoria Nourse
has argued, for example, that “[t]here are good empirical reasons to believe
that members of Congress are indifferent to the vast majority of ordinary
statutory interpretation cases in appellate courts.” Nourse, supra note 148 at
144. And several studies by Abbe Gluck and Lisa Bressman indicate that
the congressional staffers who write federal legislation do not fully
understand the cannons of statutory interpretation and construction courts
will use to give legal effect to the statutes they draft. Abbe R. Gluck & Lisa
Schultz Bressman, Statutory Interpretationfrom the Inside- An Empirical
Study of Congressional Drafting, Delegation, and the Canons: Part I, 65
Stan. L. Rev. 901 (2013). Even in public lawmaking, legal actors only
sometimes take rules of construction into account when choosing their
words.
151
U.C.C. § 2-314(1)(a) & (2).
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There seems to be no serious doubt that a mutual agreement to
trade a horse for a cow would be an enforceable contract, even
though it is made by two ignorant persons who never heard of a
legal relation and who do not know that society offers any kind of a
remedy for the enforcement of such an agreement.
152
Because the rules of contract formation do not require that parties intend or
expect the legal consequences of their acts, parties can enter a contract
without intending to do so. In such cases, their communicative intentions
do not incorporate the altering rules that give their words legal effect. When
parties do not intend or expect a legal change, interpreting their
communicative intent does not require an understanding the relevant rule
of construction.
Acts of public lawmaking are juristic acts, or what German private
law calls “Rechtsgeschäfte” in civil law contexts.
153
A juristic act is a speech
act that expresses the speaker’s or author’s intent to effect a legal change by
the very expression of that intent.
154
Thus the pervasive pragmatic priority of
authorizing rules—or rules of construction—in acts of public lawmaking.
The communicative content of juristic acts includes the intent to effect a
legal change, and therefore to satisfy an altering rule. The acts that generate
and alter contractual obligations, in distinction, need not be juristic acts—
though they sometimes are. Rules of construction are only sometimes
pragmatically prior to contract interpretation, but not always and not
pervasively.
155
152
1 Corbin (1st ed.) § 34 at 135. The Second Restatement suggests another
example:
A orally promises to sell B a book in return for B's promise to pay
$5. A and B both think such promises are not binding unless in
writing. Nevertheless there is a contract, unless one of them intends
not to be legally bound and the other knows or has reason to know
of that intention.
Restatement (Second) of Contracts § 21 ill. 2 (1981)
153
The idea of a juristic act is relatively unfamiliar in contemporary Anglo-
American legal theory, but is important enough in German private law that
Werner Flume gives it a full volume of his four volumes on the German
Civil Code. Werner Flume, 2 Allgemeiner Teil des Bürgerlichen Rechts: Das
Rechtsgeschäft (1992). The category of juristic acts is central to Wigmore’s
account of the parol evidence rule. 5 John Henry Wigmore, A Treatise on
the Anglo-American Law of Evidence in Trials at Common Law, § 2401,
238 (2d ed. 1924) (describing the category of “jural acts”).
154
For more on juristic acts, see the discussion of power conferring rules in
Gregory Klass, Three Pictures of Contract: Duty, Power and Compound
Rule, 83 N.Y.U. L. Rev. 1726, 1740-42 (2008).
155
For more on this point, see id. (passim).
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* * *
Although a complete theoretical account of the semantic and
pragmatic priorities of construction is fairly complex, each reflects a
familiar fact: authoritative judicial decisions can give words new legal
meanings, and legal actors often take into account the legal effects of their
words and actions when deciding what to say or do. When either happens,
construction can figure into the meaning of legal actors’ words and actions.
Interpretation must take account of both any acts of construction that give
words conventional legal meanings (semantic priority) and the rules of
construction that the legal actors might have in mind (pragmatic priority).
Another way of putting this is that construction is not exogenous to
meaning. It does not stand outside of legal actors’ intentions or the
language they use.
Conclusion
In order to understand how contract law translates parties’ words
and actions into legal obligations, permissions, powers and other relations,
it is important to distinguish two activities: interpretation, which is the
determination of the meaning of the parties’ words and actions, and
construction, which determines their legal effect.
Interpretation is the application of the interpreters’ linguistic abilities
and social knowledge to identify the meaning of parties’ words and actions.
There are, however, multiple types of meaning, and therefore multiple types
of interpretation. Depending on the facts of the transaction and the legal
question, the existence or content of a contract might turn on the plain
meaning of a writing, on the contextually determined use meaning of the
parties’ words and actions, on subjective or objective meaning, on the
purpose of the agreement or a term in it, or on the parties’ beliefs and
intentions. Contract interpretation can involve the identification of any of
these types of meaning.
Which type of meaning is legally relevant when depends on the
applicable rule of construction. More specifically, it turns on the relevant
altering rule. Altering rules specify who must do what to effect a legal
change. Interpretive altering rules require that parties say or do something
with the right meaning. Interpretation enters the contract exposition through
interpretive altering rules.
But not all contract altering rules look to the meaning of the parties’
words and actions. Formalistic rules condition legal outcomes on acts of the
right form, without regard to their nonlegal meaning.
Although interpretation precedes construction in the order of
exposition, there are three other senses in which construction can be prior
to interpretation. First, legal interpretation always serves construction. What
counts as the correct approach to interpretation therefore depends on the
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applicable rule of construction. Second, individual acts of construction,
including the application of interpretive altering rules, can in our system
produce new legal formalities. Acts of construction can thereby give words
new semantic meanings. Finally, because contracting parties act in the
shadow of the rules of construction that will give their actions legal effect, it
is sometimes impossible to understand the meaning of what they say and
do without knowing something about the altering rules they intend to satisfy
or avoid. This is the pragmatic priority of construction.
This Article’s approach has been descriptive and analytic. I have not
discussed when the contract law should attend to one or another type of
meaning or the factors that go into choosing one or another interpretive
approach. Nor have I examined the costs and benefits of adding formal
components to interpretive altering rules, the choice between interpretive
and formalistic altering rules, or how the law should go about recognizing
new formalities. These design questions are important. But before
addressing them, one must be have a clear understanding of the toolkit
lawmakers have at their disposal. That has been the project of this Article.
