1. Comprehensive Volume, 18 th Edition Chapter 18: Interpretation of Contracts

2. Intent Because a contract is based on the agreement of the parties, courts must determine the intent of the parties manifested in the contract. The intent that is to be enforced is the intent as it reasonably appears to a third person. This objective intent is followed, and the subjective or secret intent is ignored because recognition of secret intention would undermine the stability of contracts and open the door to fraud.

3. Interpretation of Contracts In interpreting a contract, ordinary words are to be given their ordinary meanings. If trade or technical terms have been used, they are interpreted according to their technical meanings. The court must consider the whole contract and not read a particular part out of context. When different writings are executed as part of the same transaction, or one writing refers to or incorporates another, all the writings usually are to be read together as the contract of the parties.

4. Conflicting Terms When provisions of a contract are contradictory, the court will try to reconcile or eliminate the conflict. If this cannot be done, the conclusion may be that there is no contract because the conflict makes the agreement indefinite as to a material matter. In some cases, conflict is solved by considering the form of conflicting terms. Handwriting prevails over typing and a printed form, and typing prevails over a printed form.

5. Eliminating Ambiguity Ambiguity will be eliminated in some cases by the admission of parol evidence. Sometimes courts will interpret the ambiguous provision strictly against the party preparing the contract, especially if that party has significantly greater bargaining power.

6. Reasonableness and Good Faith In most cases, the parties are held to their contract exactly as it has been written. In other cases, the courts will imply that performance is to be made within a reasonable time and that details of performance are reasonable when the contract fails to be specific on these points. Also, the law will imply an obligation to act in good faith.

7. Conflict of Laws When a contract has interstate aspects, it is necessary to determine which state’s law governs it. The rules that govern that decision are called the law of conflict of laws. The parties may specify the jurisdiction whose law is to govern. If that jurisdiction bears a reasonable relationship to the contract, the choice will be given effect by the court.

8. Conflict of Laws (Cont’d) In the absence of such a provision, some courts will apply the older rule that: the law of the state where the contract was made prevails in most matters the law of the state where performance is to be made prevails in matters relating to performance The modern, or center-of-gravity, view is to choose the jurisdiction that has the most significant relationship to the parties, the contract, and its performance.

9. Rule Gaining Acceptance Traditional Rules Conflict of Laws Place of Contracting: Law of the state where the contract was made. The state in which the last act essential to the formation of the contract was performed. contract validity as to substance satisfaction of requirements as to form Place of Performance: Law of state where the contract is to be performed. performance of the contract excuse or liability for nonperformance measure of damages for nonperformance determines governs Center of Gravity: Law of the state with the most significant contacts-- place of contracting, negotiating, and performing; location of subject matter of the contract; domicile (residence), states of incorporation, principal place of business of parties--governs.

10. Diversity of Citizenship When an action is brought in a federal court because it involves citizens of different states (diversity of citizenship), the federal court must apply the conflict of laws principles that would be applied by the courts of the state in which the federal court is sitting.