Seppo Sajama UEF Law School SOME EPISTEMOLOGICAL PROBLEMS IN CONTRACT LAW 1 THE PROBLEM(S) Article 1281 of the Spanish Civil Code says that we must follow the common intention of the parties (CIP for short) and not the literal sense of the document (LSD for short): Article 1,281. If the terms of a contract are clear and do not leave any doubt as to the intention of the contracting parties, they shall abide by the literal meaning of its clauses. If the words seem contrary to the evident intention of the contracting parties, the latter shall prevail over the former. Many other sets of rules of contractual interpretation include a similar rule. But how can we KNOW the CIP? Since both parties have signed the document, is it not the case that - in most cases at least - the LSD is identical with the CIP? Moreover, how can we know even a single person's intention (SPI for short), if that person is in a situation where it pays him not to be honest about his intentions? Consequently, knowing the CIP is doubly more difficult. Article 1282 provides the answer: " In order to judge the intention of the contracting parties, their acts at the time of and subsequently to the contract shall be mainly taken into account." In other words, the SPI and the CIP are known through the ACTIONS (probably both bodily acts and speech acts) of the parties. (It may be wondered what is left of the unique "doctrina espiritualista" of the Spanish contract law, if the "spirit" is read out of the "body" - just like in other legal systems.) 2 THE DOUBLE NATURE OF THE CIP The essence of the "spiritualist doctrine" can be condensed into two theses: (DE1) The aim of contractual interpretation is to find the CIP. (DE2) In case of conflict, the CIP overrides the LSD. It is clear that the expression "CIP" is used in different senses in (DE1) and (DE2). In (DE1), it refers to the END or aim of contractual interpretation, and in (DE2) it refers to a MEANS of attaining that end. In other words, in (DE1) the CIP is the MEANING of the contract - i.e., something to be clarified and fixed in the process of interpretation - whereas in (DE2) the CIP is a CANON of interpretation, a rule that says how one is to proceed in order to discover the meaning. This ambiguity is not fatal, but it must be kept in mind. I will next briefly examine these two aspects of the CIP. 3 THE CIP AS THE END OF CONTRACTUAL INTERPRETATION What do we interpret when we interpret "a contract"? Arthur L. Corbin has distinguished (in Contracts, 4)
three ways of using the word "contract", all of them quite legitimate. The word "contract" may refer (1) to the contractual document, (2) the agreement of the parties, and (3) to the legal consequences of the agreement. Many contracts have all these three elements (if I may call them so), but only one of them is an essential property of any contract, viz., the agreement. No contract can lack it, but there are (a) contracts that are not fixed onto any document (written, recorded or otherwise), and (b) contracts that have no legal consequences. (a) Oral contracts usually leave only memory traces, and those traces cannot be called "documents" by any stretch of imagination. Just consider what a document is: an aid to memory. Therefore memory cannot itself be a document. Moreover, a real document must be intersubjectively examinable; and a private memory-image is not that. (b) Invalid and void contracts are instances of contracts that have no legal consequences. Many contracts lawyers would refuse to call them contracts at all. Maybe they are right, but there are others who do not hesitate to use the expressions "invalid contract" and "void contract". (The purist will say, "This piece of paper is not a contract", whereas his less strict colleague may say, "This contract is void". The purist is like a physicist who refuse to speak of colors because colors do not REALLY exist.) So, a contract may have three aspects, and many contracts do: (1) document, (2) agreement, and (3) legal consequences. But which of these three is THE thing that we interpret when we are interpreting a contract? (3) CONSEQUENCES. The legal consequences cannot be the object of interpretation - at least in the ordinary sense of the word in which water is the object of drinking; although somebody could also call "avoiding dehydration" to be the object of drinking. Finding the legal consequences is the AIM or OBJECTIVE of contractual interpretation, but the OBJECT must be something else: either the agreement or the document. (2) AGREEMENT. The agreement does not seem to be a good object of contractual interpretation - and for the same reason as the consequences cannot be it, either. The agreement or the "meeting of the minds" is not easily accessible because it is something subjective - or, even worse, intersubjective in the disjuctive sense in which parts of it exist in party A's mind and parts in party B's mind. Moreover, this agreement - or its content - seems to be the very thing that the court is seeking; therefore it cannot be the object of interpretation, but it can well be the objective or aim of interpretation. (1) DOCUMENT. It seems that the document is the only natural object of interpretation or at any rate the most natural one of the three possibilities. It is not without its problems because there are undocumented contracts, viz., the oral ones. But even in the case of oral contracts there must be some EVIDENCE or "traces" out of which the content of the agreement is constructed (not RE-constructed). To sum up: when we interpret a contract, we construct its meaning - the CIP - out of the pieces of evidence available to us. 4 THE CIP AS A MEANS OF CONTRACTUAL INTERPRETATION Contractual interpretation is not a random process but a rule-governed activity. The interpreter need not be able to spell out the rules and principles that he uses; it is enough that he follows them - either knowingly or
unknowingly. There is nothing mysterious in this. There are very few people in Finland who can spell ot the detailed rules of the use of the acccusative case in the Finnish language - but there are millions of native speakers who can both use them correctly and recognize if somebody is using them correctly. As Peter Winch put it, the existence of a rule can be seen from the fact that there is a right and a wrong way of doing something. The rules or canons of interpretation are the grammar of interpretation. Just as there can be different grammars of one and the same language, so different textbooks teach entirely different doctrines of contractual interpretation. Some authors want to present as many rules as possible, other try to reduce the number of rules to as few as possible. My sympathies are with the latter. The minimal set of rules of contractual interpretation consists of the following three: (R1) Follow the LSD. (R2) Follow the CIP. (R3) Follow the reasonable person's interpretation (RPI). These have been put forward for instance by Burton and Hov. Patterson comes close to them, too. However, the system of Corbin in Restatement (Second) Contracts (R2C for short) - especially in its introductory general clausule, 201 "Whose meaning prevails" - is the most interesting from the epistemological point of view. 5 CORBIN'S RULES OF CONTRACTUAL INTERPRETATION Corbin's starting point, as expressed in his comments, is that, "{t]he objective of [contractual] interpretation... is to carry out the understanding of the parties rather than to impose obligations on them contrary to their understanding: 'the courts do not make a contract for the parties'." He takes this idea so seriously that he drops (R1) from the list of his own canons. (R1) Follow the TEXT. (R2) Follow the COMMON INTENTION. (R3) Follow the REASONABLE PERSON'S VIEW (C1) Follow the COMMON MEANING. (C2) Follow the meaning of the party acting in GOOD FAITH. There is nothing in Corbin's canons corresponding to (R1). The explanation is that he does not need it. In most cases in which (R1) would seem to be needed, parties A and B agree as to the sense to be given to a term of the contract in question. Another conspicuous feature in Corbin is that he does not have to take a stand as to the "real" meanings of the terms of a contract. He exclusively deals with the meanings of the parties. If they agree, there is no problem. If they disagree, the interpreter should follow the meaning of the party acting in good faith. But how can we KNOW that the the parties give the same meaning to a (term of the) contract? Because they say so. Or because they do not challenge the other party's interpretation.
How can we KNOW which party has acted in good faith? We can determine who has acted in good faith on the basis of our knowledge of the facts of the case. The version of the person acting in bad faith is somehow contradictory; it just does not fit the facts. Typically, a person X who acts in bad faith is trying to make the other party Y do things that Y would not do if Y knew the things that (a) X knows himself and (b) X is obliged by law (or morality) to reveal to Y. 6 THE STRUCTURE OF CONTRACTUAL INTERPRETATION In the interpretative situation, there are four texts competing for precedence: (T1) the contractual document, (T2) party A's version, (T3) party B's version, and (T4) the context. The decision of the court (or a lawyer's recommendation, prediction etc.) is the result of combining these four source texts. It is important to realize, first of all, that the "context" is just another text, not a complex fact or state of affairs "in the external world". The result of the interpretative process can be called the "common intent", because it is what the court will enforce. -------------------------------------------- APPENDIX: From the Restatement (Second) Contracts: 201. Whose Meaning Prevails (1) Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning. (2) Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made (a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or
(b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party. (3) Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent. Comment: a. The meaning of words. Words are used as conventional symbols of mental states, with standardized meanings based on habitual or customary practice. Unless a different intention is shown, language is interpreted in accordance with its generally prevailing meaning. See 202(3). Usages of varying degrees of generality are recorded in dictionaries, but there are substantial differences between English and American usages and between usages in different parts of the United States. Differences of usage also exist in various localities and in different social, economic, religious and ethnic groups. All these usages change over time, and persons engaged in transactions with each other often develop temporary usages peculiar to themselves. Moreover, most words are commonly used in more than one sense. b. The problem of context. Uncertainties in the meaning of words are ordinarily greatly reduced by the context in which they are used. The same is true of other conventional symbols, and the meaning of conduct not used as a conventional symbol is even more dependent on its setting. But the context of words and other conduct is seldom exactly the same for two different people, since connotations depend on the entire past experience and the attitudes and expectations of the person whose understanding is in question. In general, the context relevant to interpretation of a bargain is the context common to both parties. More precisely, the question of meaning in cases of misunderstanding depends on an inquiry into what each party knew or had reason to know, as stated in Subsections (2) and (3). See 20 and Illustrations. Ordinarily a party has reason to know of meanings in general usage. c. Mutual understanding. Subsection (1) makes it clear that the primary search is for a common meaning of the parties, not a meaning imposed on them by the law. To the extent that a mutual understanding is displaced by government regulation, the resulting obligation does not rest on "interpretation" in the sense used here. The objective of interpretation in the general law of contracts is to carry out the understanding of the parties rather than to impose obligations on them contrary to their understanding: "the courts do not make a contract for the parties." Ordinarily, therefore, the mutual understanding of the parties prevails even where the contractual term has been defined differently by statute or administrative regulation. But parties who used a standardized term in an unusual sense obviously run the risk that their agreement will be misinterpreted in litigation.