When Parties Disagree As To What Words Mean, Here’s What Courts Do (Part 2)

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Last week, we began to describe what tools or methods a court uses to decide what an agreement says if the parties disagree as to the meaning of a certain word or set of words. Our goal was to explain to laypeople how this task is approached. Today, in what should be a shorter posting, we’ll finish what we started. Click HERE if you want to start at the beginning of this topic.

To recap, the overall goal is to determine what the parties intended at the time of signing. An overriding principal is that parties don’t agree to terms that contradict one another. So, a court (or other decider) is supposed to consider the entire agreement (and contemporaneous, related agreements) when reconstructing what the parties meant when they used a given word or set of words. That makes “context” important. Disputants, when digging in their respective heels, often ignore “context” and convince themselves that they can edit out or ignore things they don’t like when those “things” conflict with their own “certainty” as to what certain words mean. That’s a big mistake.

This leads us into yet another “rule” employed by those called upon to decide these disputes. It is that if one provision of an agreement would seem to say “yes” and a different provision would seem to say “no,” a court will go with whichever provision is the more specific. So, if a lease unambiguously and perhaps prominently says that the tenant may not enter the property on Sundays notwithstanding anything else the lease might say, and also say that the tenant may enter the premises between 2 pm and 3 pm on Sundays to remove its cash, the “notwithstanding” provision is going to fly out the window.

Courts don’t ignore what exhibits say and don’t ignore clear references to outside documents. It is a common practice to sprinkle words into agreements like: “attached hereto and incorporated by reference herein as if fully recited herein.” Ruminations thinks this is entirely unnecessary, but respects those who believe otherwise.

Where it is clear that text had been added to an agreement, such as by interlineation (typed or printed), and if the added text contradicts what was already printed, a court will see that as the parties’ intention to go with the later-added provision. Basically, the court will choose the inserted text over the pre-printed text if there is a conflict.

Sometimes, wrongly we think, a court will favor the first of two conflicting provisions in an agreement over the later one. In the couple of cases we’ve seen, it has struck us as a court seeking to support a result-oriented decision. Nonetheless, readers, be aware.

There is a peculiar and perhaps arrogant, but understandable, presumption that parties to an agreement know and understand every law that might affect that agreement. That presumption allows a court to construct (interpret) agreements using the law that was in place on the day the agreement was signed. It might not be obvious why this matters. After all, the law is the law, isn’t it? Remember, however, Ruminations is exploring how a decider will decide. And, the overall objective is to figure out what the parties “intended.” So, by assuming that the parties “knew” the law (even if that assumption is absurd), the decider can infer “intent” as if the parties were responding to the law they “must have known was in place.”

Though we are neither students of 16th century French history nor avid readers of Shakespeare, “petard” has become a recurring word in these blog postings. You can use the search feature to locate additional citations within Ruminations. Today, we’ll use it again within the context of how post-execution actions can be used when figuring out what the parties intended when agreeing to a provision capable of meaning more than one unambiguous thing.

Courts look to see how the parties acted in performing under their agreements. So, if the parties agreed to deal in petards and there were four prior, accepted and paid-for shipments of M80s (Salutes) [younger readers, look that up], the buyer can’t successfully point to the dictionary to support its claim that a petard is a little more explosive and that is what the agreement really called for. [There’s a place for the word “hoisted” here. Add it yourself.]

Less frequently seen in real property agreements than is seen in other commercial agreements is a court reaching for trade practices as a guide to get the meaning of specialized words or provisions. When this approach is employed, the court will look to see if something has a common meaning in the trade in which the contracting parties are engaged. For most of Ruminations readers, that would be the real property trade and specifically the commercial leasing trade. Basically, if the meaning of a provision is ambiguous on its face, but is the same or similar to a common provision or concept in a lease or whatever agreement is being examined, a court would figure out what the normal real estate person would have meant when agreeing to that kind of provision. The Uniform Commercial Code specifically endorses this approach, but that Code does not apply to real property transactions.

Much is made about “construing ambiguities against the drafter.” In practice, that argument is overrated (though not for insurance policies). Basically, we’ve seen two common problems. One is that courts can’t really figure out “who” that “drafter” was given all of the back and forth that takes place even if nothing was said about the disputed words. That’s because it is assumed that head-butting parties could have, but didn’t, claim ignorance as to meaning at the time of contract execution. Second, courts frequently undercut the “presumption against the drafter” by finding that parties were experienced and “commercially savvy.”

We’ll now present two independent overviews of what we’ve written this week and last.

First, when faced with a word or set of words that the decider holds to be capable of more than one meaning, the decider will look to the “intent” of the parties. It is assumed that the same intent permeates the entire document and permeates the entire set of documents that make up the same “deal.” There is an obligation to reconcile seeming contradictions in an agreement and to construe those words in a way that leads to a reasonable, not an unreasonable, result. All efforts are made to find the agreement to be valid.

Our second overview comes by way of a note from our good friend Rick Mallory of the California firm that includes his name as well as that of Allen and Matkins. He has pointed us to California Civil Code Sections 1635 through 1663. It is a series of rules for “constructing” contracts where the parties disagree as to the meaning of words or sets of words. It is a good reference that can be seen by clicking HERE.

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