This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Whether the intention of the parties which the courts are to ascertain is the intention which the particular parties to the contract actually entertained as a matter of fact or whether it is the standardized intention which the law would say that the ordinarily reasonable man would attach to the words of the contract under the circumstances of the particular case, is a quesstion which is occasionally presented for adjudication. In the great majority of cases there is nothing to show that the parties to the contract used language in any way different from that in which the ordinarily reasonable man would use such language in connection with that subject-matter and under the circumstances of the particular case. Occasionally, however, one or both parties have attached a special meaning to the terms of the contract and the courts are obliged to determine how far the special meaning which the parties have attached must be recognized and given full effect. If a contract is plain and unambiguous, it is said that the parties who execute such contract are presumed to know its legal effect.1 If a promise is so ambiguous as to be susceptible of more than one interpretation and the promisor knows which of these possible meanings the promisee attaches to the promise, that meaning will be adopted by the court in construing the contract.2 The same rule applies where the promisor has reason to suppose that the promisee understands the ambiguous promise in a particular sense.3 Neither party can rely upon the representations of the other as to the legal effect of such instrument.4 The secret intention of one of the parties can not control the construction of the contract.5 A contract to deliver first government grade New Zealand creamery butter by government certificate attached, means a first grade of butter as inspected and certified by an inspector of the New Zealand government.6 On the other hand, the object of construction is to ascertain the intention of the parties,7 and it is frequently said that the court must consider what the parties mutually understood to be the meaning of the language which they used.8 This rule applies to express contracts as well as to implied ones.9 and to written contracts as well as to oral ones.10 A letter is to be construed, if possible, in the sense in which the writer must have known that the recipient would understand it.11 It is said not to apply to mere negotiations as distinguished from offers intended on acceptance to become contracts.12 If the promisor interprets the contract before the promisee has accepted it, or before a formal contract has been signed, the parties are bound by the interpretation thus given.13 A case of this sort presents features which resemble the modification of the offer or of the original contract fully as much as the construction of a contract. If A employs technical terms in a contract, but he has reason to believe that B understands that such terms have their non-technical meaning, the court will give such terms a non-technical meaning, although without such misunderstanding on the part of B the technical meaning would have been adopted.14 The actual understanding of one of the parties with reference to the time of performance which was known to the other, has been considered when the contract is final as to the time,15 although such evidence was introduced on the theory that it tended to show what was a reasonable time for performance.16 If the contract calls for performance which is to be satisfactory to one of the parties, evidence of the actual understanding of what might be necessary for complete performance is admissible if known to the adversary party.17 If it is fairly doubtful whether an instrument was intended as an option or as a complete contract, the fact that one party expended a considerable amount of labor and capital in reliance thereon and to the knowledge of the adversary party is to be regarded as tending to show that the transaction created a contract and not an option.18 A statutory provision to the enect that if the terms of an agreement have been intended in a different sense by the parties thereto that sense is to prevail against either party in which he had reason to suppose that the party understood it, has been held not to apply to a contract which is so worded as to be plain and unambiguous.19 A contract is said to be ambiguous only when a person of competent skill and information would regard it as ambiguous.20 If an instrument purports to be a chattel mortgage, the secret intention of the mortgagee that it should also apply to realty can not affect its meaning.21 The rule that the meaning which one party attaches to a contract and which the other party knows that he attaches, is regarded as the true meaning, has been laid down without the qualification that the contract must be ambiguous.22 It is quite likely, however, that the court regarded either of such constructions as fairly capable of being drawn from the language which was used. If a principal gives ambiguous instructions to his agent and the agent adopts one of such instructions and acts thereon, the principal can not disavow the act of the agent, although the principal intended the other meaning to such instructions and although he did not know in advance the meaning which the agent attached to such instructions.23 The power of the court to ascertain the true intention of the parties as distinguished from the intention of the parties as evidenced from the words of the contract, is limited in case of written contracts by the parol evidence rule which is discussed subsequently.24 If the parties have entered into a valid oral contract and in reducing such contract to writing the contract as written fails to express the true intention of the parties, as evidenced by their oral contract, the right of the party who is injured by such mistake in expression depends upon his right to reformation in equity,25 or in some cases it is his right to avoid the contract entirely for fraud or mistake.26 If the contract as reduced to writing is unambiguous, a court of law can give no. relief under guise of construction.27 If the other party does not know of the construction placed upon the contract, the understanding of the one party has no legal effect.28 Thus where A's attorney drew the contract and A directed its phraseology, but by inadvertence of counsel it was so worded that B's understanding was prima facie expressed, though it might possibly have been consistent with A's meaning, A's intention can not control.29 If the meaning of the contract is clear, the understanding of one party as to its meaning does not affect its construction,30 unless it operates as estoppel by inducing the other party to act.31
See also, Snead v. Merchants' Loan & Trust Co., 225 111. 442, 9 L. R. A. (N.S.) 1007, 80 N. E. 237. 3Lesamis v. Greenberg, 225 Fed. 449,
140 C. C. A. 481; Sholl v. Peoria & P. V. Ry. Co., 276 11l. 267, 114 N. E. 529.
4 See Sec. 2034, this section.
5 See Sec. 2447 et seq.
6 See Sec. 8 2462 et seq.
7 See Sec. 2461 et seq.
1 Batesville Cotton Oil Co. v. Southern Ry. Co., 103 S. Car. 494, 88 S. E. 360; Klock Produce Co. v. Robertson, 90 Wash. 260, 155 Pac 1044.
2 United States. American Loan & Trust Co. v. Ry., 47 Fed. 343; Allen-West Commission Co. v. Patillo, 90 Fed. 628, 33 C. C. A. 194.
Colorado. Fearnley v. Fearnley, 44 Colo. 417, 98 Pac. 819.
Georgia. Reeves v. Daniel, 143 Ga. 369, 85 S. E. 756.
Illinois. Snead v. Merchants' Loan & Trust Co., 225 111. 442, 9 L. R. A. (N.S.) 1007, 80 N. E. 237.
Iowa. Chicago Lumber Co. v. Mfg. Co., 80 Ia. 369, 45 X. W. 893; Wood v. Allen, 111 Ia. 97, 82 N. W. 451.
Michigan Manley v. Saunders, 27 Mich. 347.
Montana. Blankenship v. Decker, 34 Mont. 292, 85 Pac. 1035.
Nebraska. Flory v. Supreme Tribe, 08 Neb. 160, 152 N. W. 295; Schroeder v. Nielson, 39 Neb. 335, 57 N. W. 003; Patterson v. First National Bank, 78 Neb. 228, 110 N. W. 721.
New Jersey. Empire Rubber Mfg. Co. v. Morris, 73 N. J. L. 602, 65 Atl. 450.
New York. Barlow v. Scott, 24 N. Y. 40; Hoffman v. Ins. Co., 32 N. Y. 405, 413, 88 Am. Dec. 337.
North Carolina. Kendrick v. Ins. Co., 124 N. Car. 315, 70 Am. St. Rep. 592, 32 S. E. 728.
Oklahoma. American Soda Fountain Co. v. Gerrer's Bakery, 14 Okla. 258, 73 Pac. 115.
West Virginia. McNeer v. Chesapeake & O. Ry. Co., 76 W. Va. 803, 86 8. E. 887.
See also, Newburger-Morris Co. v. Talcott, 210 N. Y. 505, 3 A. L. R. 287, 114 N. E. 846. In some states, as in Iowa, this rule has been enacted as a statute.
3 North Carolina. Kendrick v. Ins. Co., 124 N. Car. 315. 70 Am. St. Rep. 502, 32 S. E. 728.
Delaware. Weishut v. Layton, 5 Del. 364, 93 Atl. 1057.
Montana. Blankenship v. Decker, 34 Mont. 202, 85 Pac. 1035.
Nebraska. Flory v. Supreme Tribe, 08 Neb. 160, 152 N. W. 295; Richey v. Omaha & L. Ry. & Light Co., 100 Neb. 847, 161 N. W.575.
West Virginia. McNeer v. Chesapeake & O. Ry. Co., 76 W. Va. 803, 86 S. E. 887.
See also, Newburger-Morris Co. v. Talcott, 219 N. Y. 505, 3 A. L. R. 287, 114 N. E. 846.
4Batesburg Cotton Oil Co. v. Southern Ry. Co., 103 S. Car. 494, 88 S. E. 360. See Sec. 394 et seq.
5 Rouss v. Creglow, 103 Ia. 60, 72 N. W. 429; Newcomb v. Kloeblen, 77 N. J. L. 791, 39 L. R. A. (N.S.) 724, 74 Atl. 511; Harney v. Wirtz, 30 N. D. 292, 152 N. W. 803; McOarry v. Superior Portland Cement Co., 95 Wash. 412, 163 Pac. 928.
6Klock Produce Co. v. Robertson. 90 Wash. 260, 155 Pac. 1044.
7 See Sec. 2021.
8 Davis v. Patrick, 141 U. S. 479, 35 L. ed. 826; Orvis v. British-American Cotton Co., 242 Fed. 835; Mobile County v. Linch, - Ala. - . 73 So. 423;
Jones & Laughlin Steel Co. v. Graham, 273 111. 377, 112 N. E. 967.
"In the in£erpretation of contracts * * * regard must be given to the intention of the parties and their version of its meaning." Hairston v. Hill, 118 Va. 339, 87 S. E. 573.
9 Lull v. Bank. 110 Ia. 537, 81 N. W. 784.
10 Cobb v. McElroy, 79 la. 603, 44 N. W. 824; Hill v. Hart, 23 N. M. 226. 167 Pac. 710.
11 Empire Rubber Mfg. Co. v. Morris, 73 N. J. L. 602. 65 Atl. 450.
12 Patton v. Arney, 95 Ia. 664. 64 N. W. 635.
13 Snead v. Merchants' Loan & Trust Co.. 225 111. 442, 9 L. R. A. (N.S.) 1007, SO N. E. 237.
14 Richey v. Omaha & L. Ry. & Light Co.. 100 Neb. 847, 161 N. W. 575.
15 United Iron Works v. Wagner, 89 Wash. 293, 154 Pac. 460.
16 United Iron Works v. Wagner, 89 Wash. 293. 154 Pac. 460.
17.Janssen v. Muller. 38 S. D. 611, 182 N. W. 393.
18Hairston v. Hill, 118 Va. 339, 87 S. E. 573.
19Rouss v. Creglow, 103 Ia. 60, 72 N. W. 429; Peterson v. Modern Brotherhood, 125 la. 562, 67 L. R. A. 631,
101 X. W. 289; Tnman Mfg. Co. v. American Cereal Co.. 133 Ia. 71, 12 Ann. Cas. 387, 8 L. R. A. (N.S.) 1140, 110 N. W. 287; Comptograph Co. v. Burroughs Adding Machine Co.. 179 Ia. 83. 159 N. W. 465.
20 Comptograph Co. v. Burroughs Adding Machine Co., 179 Ia. 83, 159 N. W. 465.
21 Harney v. Wirtz, 30 N. D. 292, 152 N. W. 803.
22 Reeves v. Daniel, 143 Ga. 569, 85 S. E. 756.