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Some legal systems, such as the German, the Swiss and de facto the Italian as well, have special rules for such a mistake "Inhaltsirrtum" , whereas most legal systems and Arts.
A theory of interpretation which is based on the actual intention of the parties is often called "subjective", whereas a theory which emphasises the external signs of the communicative act, such as the literal meaning of declaration in particular, is characterised as "objective".
This antagonism pervades the entire history of interpre-tation, while the prevalence of one position over the other sometimes changed.
Historically, the objective approach with its focus on the literal meaning of the words has been the starting point. This is related to the fact that in legal systems whose development has not yet reached an advanced level there is obviously a strong leaning to formalism and therefore an overemphasis of the role of the literal meaning of contract terms.
In the course of legal and judicial development, however the modes of interpretation have become more refined and more flexible.
Correspondingly, the idea of freedom of contract - which is the underlying principle of "subjective" interpretation - had to gain acceptance bit by bit against the original notion that only certain types of contracts are admissible.
Systematically, there are different issues underlying the conflict between "subjective" and "objective" interpretation.
The first problem is the formalism caused by overemphasising the literal meaning of the contract. The result of such formalism can be that the parties are bound to the terms of the contract even if they have mistakenly phrased them or made them cover a situation which neither of the parties could have reasonably meant.
Modern laws in principle reject such formalism. The French Code Civil, for instance, rules in Art. This formula is matched by the Italian rule of Art.
The term "objective" interpretation fulfils a different function when it is used to describe the perspective of a reasonable party as the basis of inteipretation.
This perception is not about overemphasising the literal meaning of a declaration, but about its divergence from the intention of the declaring party.
In this respect the "objective" approach takes into account that the declaring party has not appropriately expressed his intention and therefore the addressee cannot reasonably consider the actual intention as relevant for the interpretation of the contract.
In modern contract law, this as-. Yet, this "objective" approach does not proceed "formalistically"in the sense of being strictly bound to the literal meaning, but it allows an unlimited variety of other criteria to be considered in addition and besides the meaning of the words see in more detail under 2.
With respect to this function of "objective" interpretation, one can draw a certain parallel to the dispute between the will theory and the theory of declaration, which played a major role in the 19th century legal discourse especially in Germany.
This dispute has, however, no practical consequences for the theory of interpretation. This is to say that even the advocates of a strict will theory cannot argue that the intention of the declaring party determines the terms of the contract even if it could not have been recognised by the addressee.
Doing so would mean to disregard the intention of the latter and would therefore be contradictory to its own premise. The dispute between the will theory and the theory of declaration therefore becomes only relevant for the doctrine of unilateral mistake and does not prejudice the issue of interpretation.
Interpretation is not only about the content of an agreement, but also about the logically prior question whether or not a contract has been formed at all.
In some cases it may be doubtful whether a declaration is to be understood as an offer or just as an invitation to the other party to make an offer of his own invitatio ad offerendum , in other cases it may be questionable whether a declaration is an offer to enter into a contract or just a declaratory message to confirm that an alleged contract has been formed before etc.
To answer such questions, the same rules and criteria apply as to questions about the content of a contract. The same applies if the parties did not express themselves in words, but merely through a certain conduct.
It is common currency in contract law that a conclusive form of conduct - for example a certain motion of the head or raising a hand in a public auction - may be sufficient to imply a binding contract.
This is, for example, expressly emphasised in Art. There may often be doubts about whether the conduct shown is in fact conclusive.
This, too, is a problem of interpretation and therefore one has to ask how the other party reasonably had to understand the conduct in question.
The rules of interpretation in the different European legal systems largely overlap, as all national approaches are based on the described principles and their implications.
Corresponding to the principles discussed above see 1. The goal of interpretation, therefore, is to establish what the intention of each party was at the time of contracting.
As far as their intentions correspond, they form the content of the contract. The objective aspect of interpretation concerns the perspective that is adopted in order to determine the intention of each party.
In this context, the content of each declaration has to be determined separately and the perspective of the addressee has to be adopted cf.
It is crucial how the addressee could reasonably understand the declaration in view of the individual circumstances of the case Arts. In ascertaining the perspective of a reasonable addressee, it is generally irrelevant whether the declarant knew or could have known that perspective.
The declarant is protected sufficiently by the rule that his reasonable perspective is relevant for the interpretation of the corresponding declaration of the other party.
If the two declarations do not correspond, the parties do not consent and no valid contract is formed. When establishing the meaning of a contract, the judge must consider all circumstances which allow one to draw conclusions with regard to the intentions of the parties at the time of contracting.
Special consideration has to be given to the circumstances of the negotiations. In certain cases, circumstances which occurred before the state of negotiations - e.
The content of a declaration is to be determined objectively only to the extent that the addressee can reasonably rely on the "normal" use of language, "the regular" meaning of a certain conduct etc.
It is therefore not justifiable to use an "absolutely objective" standard, i. Moreover, it is almost impossible to obtain such an "absolutely objective" perspective.
In evaluating an act of communication, it is generally unavoidable to respond to the individual circumstances of the case, e. Otherwise, there is little chance to identify the meaning of words and of other means of expression used.
This is in keeping with the general rules of hermeneutics. These aspects are neglected or at least unduly simplified when the subjective approach to interpretation is, as it is commonly done, contrasted with the objective approach.
At a closer look, it is the subjective perspective of the addressee that matters and this perspective is objectified only to a certain extent, i. The wording, however, is necessarily the starting point of interpretation.
It is of particular importance because it is the manifestation of the party's intention. In balancing against other criteria, the language used is normally to be given a rather significant weight.
The wording may not impetuously be disregarded by arguing the reasonableness of a solution which is far from or even not at all in accordance with the text.
This point may be demonstrated by using an example drawn from the Comments to Art. A clause in an insurance contract provides that the policy covers the theft of jewellery only if there has been "clandestine entry" into the place where the jewellery was.
An individual, A, pretends to be a telephone repairman and presents himself at Madame B's home to repair her telephone.
A distracts B with some pretext and takes the opportunity to steal her jewels. The insurance company refuses to pay up, on the basis that there has been no "clandestine entry".
On a reasonable interpretation entry gained by fraud is a form of " clandestine entry ". This example shows the risk of not taking the wording of the contract seriously, while the interpreter realises his own evaluation of a reasonable term.
By its literal meaning, the term "clandestine entry" hardly encompasses "entry gained by fraud". One would use the term "clandestine" if the victim did not notice the entry of the thief, but not if she voluntarily admitted him into her home not realising his identity and intentions.
Therefore, the parties' interests and the purpose of the contract clause must be ana- lyzed thoroughly. In this respect, significant differences between the two situations become evident.
If B did not suspect that an unknown person had entered her home, she had no reason to take special care to protect her jewels from theft.
On the other hand, if she deliberately admits a telephone repairman into her home, the need to lock the jewels away or keep an eye on them is apparent.
The crucial factor in interpreting the ratio of the expression is the aspect of control: It is immaterial whether the thief really is a telephone repairman or just pretends to be, whereas it is decisive that B, despite being aware of an unknown person's presence, left the jewels unguarded and let herself be distracted by some pretext.
This could have happened with a real telephone repairman as well. With respect to the purpose of the insurance, B's need and worthiness of protection against theft by a pretender is almost as low as against theft by a real telephone repairman and not nearly as high as against theft by unknown intruders.
Thus, the case is much closer to a situation which is definitely not covered by the insurance than to one which falls into the core meaning of the clause.
That is why with respect to the purpose of the insurance contract and the clause in question, its. Theft after "entry gained by fraud" is therefore not covered by the insurance.
This example shows how the criteria of reasonableness may be applied in a rational and methodical manner: The usual meaning of the words and the purpose of the clause to be interpreted must be combined with the double comparison of the situation in question with those definitely within and those definitely without the scope of the clause.
Moreover, in the example, B cannot successfully invoke the contra proferentem rule cf. Although the contract was phrased by the insurer, there are no remaining doubts which justify the application of the contra proferentem rule after careful analysis of its wording and purpose and taking into account the parties' interests.
If the parties' intentions correspond, but deviate from the regular understanding of their declarations, then neither party reasonably relies on the objective meaning of the contract.
In such a situation, therefore, the corresponding intentions of the parties have priority over the "regular" or "correct" meaning of the declaration falsa demonstratio non nocet.
This priority is based on the above assumption that there is no "absolutely objective" perspective underlying the interpretation. What matters is the individual perspective of the addressee.
This perspective is not purely shaped by the "bare" declarations, but also by all the circumstances which allow conclusions concerning the actual intention of the other party.
The priority of the corresponding intentions is largely agreed upon in all European legal systems. In such situations, the priority of the corresponding intentions is in line with the generally recognised rule of simulation Art.
The same applies if one of the parties realises or if it is obvious to him that there are certain intentions underlying the other party's declaration that contradict the normal understanding Art.
Yet, the adressee's reliance on the regular use of language is not worthy of protection. Rather, the addressee can reasonably be expected to reveal the discrepancy if he prefers not to be bound to the intention of the other party.
In a modified version of the example given above, this means that the seller owes whalemeat if the buyer knows that the seller mistakenly uses the term "Haakjöringsköd" for whalemeat, notwithstanding that the buyer intends to enter into a contract about sharksmeat which might be the case because sharksmeat is more valuable.
Before we turn to the discussion of further rules of interpretation, some general characteristics of the law of interpretation have to be considered.
Although the principles discussed under 2. The reason for this difficulty lies in the nature of communication and its fundamental dependence upon the circumstances of the individual case.
However, the number of potential rules is practically unlimited. Moreover, any rule is prone to mistakes due to peculiarities of the case and must allow for a wide range of exceptions.
It is therefore not surprising that, even in continental systems, interpretation is largely governed by general principles and judge-made law.
It is noteworthy that only limed binding force is attributed to the French rules of interpretation.
A clear line has to be drawn between "real" rules and the mere enumeration of aspects that ought to be taken into consideration in the process of interpretation.
In Art. Yet such a list will always be exemplary and very general, as demonstrated by Art. The perspective of the addressee is characterised by an indefinite number of individual factors.
Moreover, the choice of possible factors will always be the self-explanatory expression of common sense.
Thus, there is little use in enumerating the factors relevant to interpretation: where such an enumeration is specific, it will always be incomplete; where it is general, it will only state the obvious.
The difficulty in setting up a precise scheme of rules also affects the question whether interpretation is a matter of fact or a matter of law.
This distinction is relevant especially with regard to the scope of review of the trial court's decision on appeal. Interpretation is always based on facts, namely, the subjective intentions of the parties and other individual circumstances of the case.
The core question of interpretation, whether a binding contract has been formed on the established facts and what its content is, necessarily requires an additional legal judgment.
Because of the numerous and particular circumstances that potentially need to be taken into consideration, it is difficult, however, to clearly distinguish fact-finding from the application of law.
As a consequence, findings of trial courts concerning interpretation should be reviewed with restraint, in a similar way as with findings of fact.
In order to secure the priority of the trial judge's verdict, some legal systems deal with interpretation as a matter of fact, but nevertheless allow some limited review on appeal.
Admittedly, there is no strict concept of priority between the different aspects which play a role in the process of interpretation such as the meaning of the words, the purpose, the context or the origins of a contractual clause.
These aspects are more or less loosely combined with one another. At one time a certain aspect prevails and another time a different aspect.
Often the aspects are weighed by their persuasiveness. So there may be cases where a "weak" argument drawn from the meaning of the words of the agreement has to step back behind a "strong" argument derived from the purpose of the clause or the contractual context, but in other cases a narrow understanding of the words may prevail, because the purpose of the clause does not speak.
Hence, interpretation is a process of balancing. Inevitably, a balancing approach bears considerable uncertainties.
But this does not mean that interpretation of contracts evades rational inspection or is even an irrational and purely decisionistic procedure.
Rather, balancing works as does reasoning in general: one gathers as many arguments as are worth considering, weighs them by their persuasiveness and strikes a balance between them if they are in conflict.
Yet, the uncertainties of the balancing approach explain why it is so difficult to develop abstract and clear rules for interpretation.
They also explain why it is preferable to leave some discretion to the trial judge in the process of interpretation and to limit the scope of judicial review on appeal.
Even though there is no strict priority between the different aspects of interpretation, some of them carry special weight from an abstract point of view without regard to the particulars of a case.
First of all, this applies to the meaning of the words of the agreement. The words used are usually the manifestation of parties' intention as well as the object of their reliance see 2.
In addition, the meaning of the wording marks the border line with "constructive" interpretation, which may only be passed under certain conditions see below 3.
Thus, to overcome the hurdle of the literal meaning, very strong arguments are needed. The situation is similar with respect to arguments which are drawn from the purpose of a contractual clause or the purpose of the entire contract, since the parties use the contract as a means to pursue their specific goals.
Moreover, the focus on the purpose of legal arrangements generally prevails in modern jurisprudence. In many cases, however, the purpose remains unclear or can only be determined on the basis of other aspects such as the literal meaning of the words, the context or the origin.
Even though some of the criteria, such as the meaning of the words or the purpose, have important weight, they nevertheless remain elements within the process of balancing.
Therefore, they may have to step back behind other arguments if those turn out to be stronger in the particular case. This would be different in the case of a clear rule.
If, for example, a rule stated that one has to consider only the aspects expressed in a written document and that one may only refer to external aspects if they are known to everyone - as it is stated with respect to the interpretation of negotiable instruments see below 2.
In this case, interpretation is not guided by a "more or less" as in a balancing process when reasons have to be weighed against each other, but by a "yes or no".
The Roman Law principle cum in verbis nulla ambiguitas est, non debet admitti voluntatis quaestio 39 is still effective especially in the French doctrine of clauses.
As far as a contractual clause in a written contract is phrased unambiguously, the Cour de Cassation holds that there is no interpretation to be carried out and only the objective meaning is relevant.
Thus, there is an irrebuttable presumption that the unambiguous clause is the correct and complete expression of the parties' intentions.
Prima facie , the French doctrine appears to be an exception to the rule that the corresponding intentions of the parties have priority over the objective meaning of the declarations.
This would be irreconcilable with the principles governing interpretation: If one party can prove that both parties had corresponding intentions which deviate from the unambiguous meaning of the written declarations, none of the parties has reasonably relied on the objective meaning.
There was a precise term in the contract providing for an allocation of transport risks. Contrary to the wording of the contract, however, the buyer was willing to accept delivery and to pay in full despite the damage the shipment had suffered, because the price of sugar had risen and therefore acceptance of the damaged shipment was preferable to rescission of the contract.
The court ruled that, on the one hand, the clause concerning transport damages was clear , but, on the other hand, that the clause, being inconsistent with the apparent intentions of the parties in the situation given, was subject to interpretation.
An important aspect might be that interpretation under French law is a matter of fact and thus there is, as a general rule, no review on appeal.
Thereby, interpretation becomes - not openly but practically - subject to a review of evident mistakes on appeal as has been argued above.
Under this concept, extrinsic parol evidence is, as a general rule, not admis-sible to add to, vary, subtract from or contradict the terms of a written document.
Here the objection mentioned above is equally valid, i. Again, it has to be added that an interpretation which claims to leave aside circumstances that are not embodied in the written document is practically impossible.
Accordingly, the rigid ban on external circumstances also had to be loosened under English law by way of recognising many exceptions.
In , the Law Commission even started doubting whether the parol evidence rule has any actual binding effect at all.
Yet this assumption can be appropriately accounted for by regarding it a rebuttable presumption: 47 Whoever claims circumstances not embodied in the written document to be valid bears the burden of proof for this claim.
This legal situation generally remains unchanged if the parties agree on a written form clause or a merger clause. Such a clause only implies a higher probability that the parties intend to restrict the content of their agreement to what is stated in the written document, thereby cancelling or excluding other deviating agreements.
Such an intention, however, is subject to modifications: There is always the possibility that the parties - contrary to the clause - intend to leave certain other agreements intact or to provide new terms on certain issues after conclusion of the contract.
The written form clause and the merger clause can be justified - like any other term of contract - on the basis of mutual consent and, therefore, they can be altered by mutual consent at any time.
It follows that a written form clause and the merger clause only strengthen the presumption of the written agreement being complete.
This is in line with tendencies in most European legal systems 48 and with Art. Not fully convincing, however, is the regulation of Art. This rule - along with its legislative ratio - demonstrates, again, that a rigid rule intending to limit interpretation to the written document is inadequate.
The first indication for this can be found in Art. Furthermore, the merger clause is set aside according to Art. Finally, there is a reference in the comments on the PECL that a merger clause is also ineffective with respect to stipulations made separately from the contract.
There is an additional problem if written form is required by law with regard to the contract to be interpreted. In this case, the question is what kind of relationship exists between interpretation and the legal requirement of form.
In order to answer this question, two sub-questions need to be distinguished which is often neglected : First, the content of the contract must be determined.
Second, it has to be established whether the contract is valid with that specific content. With regard to the first sub-question, the content of the contract is to be determined on the basis of the general rules on interpretation of written documents.
At this level, the requirement of form does not pose any restriction on interpretation. The starting point is therefore the presumption of the written document being correct and complete.
This presumption is rebutted if one of the parties proves by way of external evidence that the actual intentions of the parties deviate from, or go beyond, the objective content of the written document.
At the level of interpretation, there is no need to disregard extrinsic evidence due to the form requirement, 50 as form requirements are generally not aimed at binding the parties to something that contradicts their corresponding intentions.
Having established the content of the contract, one may turn to the second sub-question, i. Generally, there can be no breach of the form requirement only on the ground that circumstances not embodied in the written document are relevant in order to determine the content of the contract, for it is practically impossible to phrase a written clause that is not in any need of inteipretation on the basis of external circumstances.
Thus, the requirement of form must, at least, be limited to ensuring that the actual intention is somehow indicated in the written document.
Rather, the validity of the contract should be determined depending upon the specific form requirement and its objective. For example, under German law the contract of sale of real estate remains valid even though the actual piece of land has been designated wrongly in the written document, if it can be established what piece of land the parties actually wanted to refer to.
Finally, particular caution is necessary with regard to cases where third parties who did not originally participate in the conclusion of the contract rely on its content and where the transaction is specifically designated to evoke such reliance.
This is especially relevant with respect to negotiable instruments and corporate contracts. With regard to negotiable instruments, for instance, the general rule is that extrinsic circumstances can only be considered in the process of interpretation if they are known to anyone.
Generally, the third party has no access to the individual circumstances accompanying the conclusion of the contract and, therefore, his perspective differs from the point of view of the original parties to the contract.
The original parties do not deserve the regular protection by law if and because they exchanged offer and acceptance with the initial concern that third parties might rely on their declarations.
In these cases, it is justified to generally have regard only to the written content of the contract and to circumstances obvious to anybody while other external circumstances are to be disregarded.
It is widely accepted that an ambiguous clause is to be construed against the party on whose initiative it was inserted into the contract.
This rule has its foundation in the Roman law principle "Cum quaeritur in stipulatione, quid acti sit, ambiguitas contra stipulatorem est".
Moreover, this rule is an integral part of the already existing Community law in Art. The contra proferentem rule is mainly based upon the concept of deterrence.
The party who introduces a clause into the contract can and should ensure its transparency and, respectively, avoid the uncertainty associated with ambiguous terms.
This uncertainty is detrimental, since the other party is not sufficiently aware of the scope of his rights and duties when concluding the contract.
Also, it is more difficult for the other party to evaluate the outcome of a dispute. The contra proferentem rule, moreover, preserves the legal status quo which would exist without the clause in question.
If one party introduces a clause, it usually worsens the other party's existing legal position by establishing duties or limiting rights.
The contra proferentem rule aims to achieve that the other party's 'well-earned' legal position is only restricted to an extent that is made perfectly clear in the contract.
This idea is sometimes also expressed by demanding that clauses which limit essential duties or rights of one party have to be interpreted narrowly.
The contra proferentem rule only applies to terms which were not individually negotiated Art. If a term was negotiated between the parties there is no unilateral responsibility for an unclear formulation.
Individual negotiation of a term also reduces the need for protecting the affected legal position. Some rules connect the interpretation against one of the parties with the role this party plays in a specific contract.
For example, there are rules in French Law which, in case of doubt, provide for an interpretation against the creditor Art. The idea of the contra proferentem rule might provide a certain justification for these rules which originate in Roman Law.
In many cases, however, the contract is negotiated in detail or the debtor or the buyer is responsible for the drafting of the contract.
If this is the case there is - possibly with the exception of promises without recompense 60 - no plausible reason to put the creditor or the seller at a disadvantage.
In a liberal contract system, interpretation cannot depend on social aspects, namely on the relative economic strength of the parties, not to mention that creditor and seller are not necessarily economically more powerful than debtor and buyer.
Consequently, the rule on uncertainty contained in Arts. Numerous other rules of interpretation are practised beyond those already discussed.
For instance, the proposition that an individual agreement takes preference over terms which were not subject to individual negotiations Art.
According to another, equally convincing rule, an interpretation which avoids rendering the agreement void or meaningless is generally to be preferred Art.
Apart from this, it should be emphasised again that one cannot expect rules of interpretation to give precise guidelines in making decisions.
Therefore, one should be cautious when formulating them in binding form. For example, the rule in Art. In particular, this rule fails to consider that the parties.
As another example, the norm of Art. Aspects like these, which are only potentially relevant to interpretation, can be compiled into catalogues such as Art.
From the point of view put forward here, however, it is preferable to abstain from this kind of regulation for reason of the self-evidence and almost unlimited number of such potentially relevant criteria.
It is not always possible to solve the problems of interpretation by reverting to the wording of the contract or to the clear and concurring intention of the parties.
In practice, contracts often contain gaps. A gap in the contract may arise in case the parties' intentions diverge and this divergence cannot be resolved by means of interpretation.
In such a case, there is no agreement with respect to one element of the contract. As a general consequence, the contract is void.
Such a dissent occurs extremely rarely. Normally, a dissent is ruled out either because the parties notice their disagreement or because the rules of interpretation demand that both declarations be understood in the same sense.
In general, the corresponding interpretation of both declarations is ensured by the rule that each declaration has to be interpreted from the perspective of a reasonable recipient.
In most cases, it follows that the same circumstances of the case are decisive for both parties. That means that the perspectives of the reasonable recipient and, accordingly, the meanings of the declarations are the same for both parties.
Under German law, for instance, a dissent has been found in a case where both parties wanted to conclude a contract for the sale of tartaric acid by telegram.
Both parties wanted to sell but due to the shortened language they failed to notice the equal intention of the other party. Thus, one of the parties had made it clear that he wanted to sell and not to buy.
Taking this into account, it would have been more appropriate to treat both declarations as congruent with the other party as buyer on the basis of the perspective of an objective recipient.
Wichelhaus seems to be a more justifiable example for a dissent. Here the parties en-. Unknown to both parties, there were two ships called 'Peerless' which arrived at the agreed port of Liverpool at different times.
If both parties really had different ships in mind and if there were no indications which allowed an unequivocal determination of the ship the contract was void.
Due to a currency reform, the agreement could have referred either to old or to new Francs. The case of differing declarations has to be strictly distinguished from the situation that the parties have not made any provisions at all with respect to certain questions.
This may be the case either because they did not consider the question at all or because they deliberately abstained from dealing with it.
As long as this gap does not affect fundamental elements of the contract such as, in particular, the parties, the subject matter of the contract, and the price, the contract is enforceable cf.
In that case, the questions for which no provisions were made have to be solved under the rules provided by law. All European legal systems contain supplemental rules to complete contractual arrangements.
In France, e. The necessity of these rules becomes obvious if one takes into account that the parties can never provide for all eventualities.
Thus, the existence of suppletive law prevents contractual incompleteness or voidness respectively and thereby reduces the cost of negotiations and drafting.
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