Chapter 9.

An Introduction to Interpretation

Section 1. Subjective and Objective Elements in the Principles of Interpretation

in Contract Law (pp.368-370)

Introductory Note
(1) Subjective intent (state of mind, or what a party “really” meant) v.

(2) objective intent (what the party expressed, or “seemed” to have meant)

 Lucy v. Zehmer (pp.370-374)

Facts: One evening in December 1952 after several drinks, Zehmer (D) wrote a
contract on a restaurant bill in which he agreed to sell his farm to Lucy (P) for
$50,000. D later insisted that he had been intoxicated and thought the matter
was a joke, not realizing that P had been serious.

- P’s argument: There was a good faith sale and purchase of land. Df wrote the
contract and accepted the PL’s offer of $50,000.
- D’s argument: There was no mutual assent, the offer, acceptance, and the
instrument were in jest and a result of incapacity.

Issue: Whether the writing signed by Zehmer (D) and now sought to be enforced
by the plaintiff was the result of a serious offer by Lucy (P) and a serious
acceptance by D and there for a binding contract?

Rule:
1. If the words or other acts of one of the parties have but one reasonable
meaning, his undisclosed intention is immaterial except when an unreasonable
meaning which he attaches to his manifestations is known to the other party.

2. A contract must have a good faith offer and then a good faith acceptance of
that offer, with the terms of consideration known by each party.   Must look to
the outward expression of a person as manifesting his intention rather than to
his secret and unexpressed intention.

Holding: Yes. The complaints are entitled to have specific performance of the
contract sued on with a binding contract. A person cannot set up that he was
merely jesting when his conduct and words would warrant a reasonable person
in believing he intended a real agreement.

Reasoning : The court held that the court must look to the outward expression of
a person as manifesting his intention rather than to his secret and unexpressed
intention. In other words, whether a party had the requisite intent to enter into
an enforceable contract is determined by the acts of that party and not the
party’s actual subjective intent. The court decided that D’s acts appeared to
manifest an intent to enter into a binding contract and held the contract valid.
“The law imputes to a person an intention corresponding to the reasonable
meaning of his words and acts.”

 Keller v. Holderman (p. 374)

As a result of banter and frolic, Keller gave Holderman a $300 check in exchange
for a $15 watch. If neither party to a contract intends it to be binding, it is
unenforceable and no contract is deemed to exist. Banter and Frolic: One party
cannot covert what both parties knew was only a joke into a serious transaction
simply claiming on it.
 Raffles v. Wichelhaus (pp.374-375)

Facts: Raffles (P) contracted to sell 125 bales of Surat cotton to Wichelhaus(D).
The goods were to be shipped from Bombay to Liverpool, England on the ship
“Peerless”. Neither party was aware that there were two ships called
“Peerless” carrying cotton from Bombay to Liverpool, one arriving in October
and the other in December. Wichelhaus thought that he had purchased the
cotton arriving on the October ship, but Raffles sent his cotton on December
ship. D refused to accept delivery of the cotton arriving on the December ship
and P sued for breach of contract.
- P’s argument: The Ds refused to accept the cotton or pay the P for the
bales when they arrived.
- D’s argument: A material term of the K was ambiguous and therefor the
D’s failure is excused.

Issue: 1) If a latent ambiguity arises that shows that there had been no meeting
of the minds, have the parties given mutual assent to contract? 2) Is parol
evidence admissible to determine the meaning each party had assigned
regarding a latent ambiguity?

Holding and Rule: 1) No. If a latent ambiguity arises that shows that there had
been no meeting of the minds, there is no mutual assent to contract. 2) Yes.
Parol evidence is admissible to determine the meaning each party had
assigned regarding a latent ambiguity.

Reasoning: The moment it appears that two ships called Peerless were about
to sail from Bombay there is latent ambiguity, and parol evidence may be given
for the purpose of showing that the D meant one Peerless and the P another. 
That being so, there was no consensus between the parties and therefore no
binding K.

Rule: There is no right to contradict by parol evidence, a written K good upon

the face of it. 

Milward: Subjective intention is of no avail unless stated at the time of the

contract. The words “to arrive ex Peerless” only means that if the vessel is lost
on the voyage the contract is to be at an end. It would be a question for the
jury as to whether both parties meant the same ship called Peerless. That
would be so if the contract were for the sale of a ship called the Peerless but
this is only for a sale of cotton aboard that ship.

Mellish: A latent ambiguity appeared when the contract did not specify which
‘Peerless’ was intended. There is nothing on the face of the contract to show
that any particular ship called Peerless was meant but the moment it appears
that two ships called the Peerless were about to sail from Bombay, there is a
latent ambiguity. Parol evidence will be admissible for determining the actual
meaning that each party assigned to that ambiguity. From the evidence
presented, each party attached a different meaning to that ambiguity. If
different meanings were intended on a material term of a contract, there is no
mutual assent and there is no contract.

Holding: For D.

Notes: Restatement (2d) Section 20(1): If the misunderstanding concerns a

material term and neither party knows or has reason to know of the
misunderstanding, there is no contract. Parol evidence is admissible to
determine the meanings of terms when a latent ambiguity arises later.
 §20. Effect of Misunderstanding
(1) There is no manifestation of mutual assent to an exchange if the parties
attach materially different meanings to their manifestations and
(a) neither party knows or has reason to know the meaning attached by
the other; or
(b) each party knows or each party has reason to know the meaning
attached by the other.
 Embry v. Hargadine, McKittrick Dry Goods Co. (pp.381-384)
Facts: Embry (P) was an employee of Hargadine, McKittrick Dry Goods (D). He
was paid $2,000 per year and was responsible for the sample department. His
employment contract was about to expire. A meeting occurred eight days later
at which Embry went to his boss and threatened to quit if he didn’t get a new
contract. Hargadine’s president, McKittrick, said something that the plaintiff
took to mean that the defendant agreed to reemploy the plaintiff for another
year. He told Embry ‘Go ahead, you’re all right. Get your men out and don’t let
that worry you.’ Embry remained with the company. He was fired in less than a
year, and he sued. McKittrick denied having told Embry not to worry about his
employment contract.

Issue: May a contract be formed without reference to the subjective intentions

of either party? Did the boss’s words form a contract?

Rule:
1. A contract may be formed without reference to the subjective intentions of
either party.
2. If a reasonable person would have taken a party’s words to constitute
assent to the formation of a contract, then that contract will be enforceable.

Holding: Yes. A contract be formed without reference to the subjective

intentions of either party and the boss’s words formed a contract.

Reasoning:
1. The court finds that it is a matter of law whether or not the boss’s words
could be understood by a reasonable person as agreeing to form a contract.
The court goes over the version of the events given by the plaintiff and says
that if that version of events is true, the boss’s words would constitute assent
to a valid contract of reemployment.

2. To form a valid contract there must be a meeting of the minds and both
parties must agree to the same thing in the same sense. If a man conducts
himself such that a reasonable person would believe that he was assenting to
the terms proposed by another party, and that other party upon that belief
enters into the contract, that man would be equally bound whether or not he
had actual subjective intent. Therefore if what McKittrick said would have been
taken by a reasonable man to be an employment contract, and P understood it
as such, it constituted a valid contract of employment for the ensuing year.
McKittrick’s subjective intent was not relevant. In so far as their intention is an
influential element, it is only such intention a the words or acts of the parties
indicate; not one secretly cherished which is inconsistent with those worlds or
act.

§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.