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Interpreting the Terms of the Contract - Coggle Diagram
Interpreting the Terms of the Contract
France
Art. 1188 CC Requires the court to find the “common intention of the parties”; if cannot be found it is interpreted in the sense which a reasonable person placed in the same situation would give to it.
Germany
§133 BGB The aim of interpretation must be to “ascertain the real intention”.
§157 BGB It should take place “in accordance with fairness and reasonableness taking into account general practice”.
England
Traditionally, in case of doubt about the meaning of contractual terms – interpret a contract according to its literal meaning (Lovell & Christmas Ltd v Wall 1911) abandoned
Now – takes into account a reasonable person Investors Compensation Scheme Ltd v West Bromwich Building Society 1998
LORD NAPIER AND ETTRICK V R F KERSHAW LTD 1999
PECL: Art. 5:101
(1)A contract is to be interpreted according to the common intention of the parties even if this differs from the literal meaning of the words
(2)If it is established that one party intended the contract to have a particular meaning, and at the time of the conclusion of the contract the other party could not have been unaware if the first party’s intention, the contract is to be interpreted in the way intended by the first party
(3)If an intention cannot be established according to
(1) and (2), the contract is to be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances
The Netherlands
HOGE RAAD – HAVILTEX 1981:
DECISION: The interpretation of a written contract: it is not enough just to look at the linguistic meaning of the text, but also at what meaning the parties gave to the text and what they were allowed to reasonably expect. Relevant what the parties’ societal position is and what knowledge of the law can be expected of such parties.
FACTORS RELEVANT TO INTERPRETATION
FALSA DEMONSTRATIO NON NOCET – a wrong description doesn’t harm, when the common intention of the parties prevails over the objective meaning of the contract
Interpretation of ambiguous clauses – Art. 5:102 PECL:
In interpreting the contract, regard shall be had in particular to:
a. Circumstances in which it was concluded, including preliminary negotiations
b. The conduct of the parties, even subsequent to the conclusion of the contract
c. The nature and purpose of the contract
d. The interpretation which has already been given to similar clauses by the parties and the practices they have established between themselves
e. The meaning commonly given to terms and expressions in the branch of activity concerned and the interpretation similar clauses may have received
f. Usages; and
g. Good faith and fair dealing
FIRST DEMAND GUARANTEE – allows the creditor to obtain immediately from such surety and promised sum, any defenses that the debtor is not obliged to pay are postponed to a later stage and could at best lead to a claim for restitution if the surety paid without a valid ground.
BURGERSCHAFT AUF ERSTES ANFORDERN 1992
PAROL EVIDENCE RULE – English law; evidence extrinsic to the express terms of the contract cannot be taken into account – drafts, letters, statements by witnesses can’t play a role in ascertaining what the contract terms say
MAXIMS OF INTERPRETATION; CONTRA PROFERENTEM RULE
France
The interpretation is preferred that gives an ambigous clause some effect rather than none at all (Art. 1191 CC).
Clauses must be interpreted in the light of the entire contract – (Art. 1189 CC).
CONTRA PROFERENTEM – the best-known rule of interpretation.
--> an ambiguity in a written contract must be interpreted against the person who drafted it.
This gives a clear incentive to the drafter to put the contract in clear terms.
Art. 1190, 1602 CC, Art. L 211-1 French Consumer Code, §305c (2) BGB, Art. 6:238 (2) BW and in European Directive 93/13 on Unfair Terms in Consumer Contracts Art. 5 (2).
PECL
Art. 5:104 PECL – individually negotiated terms take preference over those which aren’t.
Art. 5:107 PECL – in case of discrepancy between two language versions of one contract the interpretation that accords to the original version – prevails
Gap Filling
AD HOC GAP FILLING: A lacuna in a specific contract of the two specific parties is filled with terms that are necessary for the working of the contract and that the parties would have agreed upon if they had thought about it.
GERMANY - §157 BGB supplementing interpretation of the contract; in case the parties have omitted to say something, the court must “discover and take into account what, in the light of the whole purpose of the contract, they would have said if they had dealt with the point in question, acting pursuant to the requirements of good faith and sound business practice”. (Swapping doctors, 1954).
FRANCE – Art. 1194 CC constructive interpretation;” Contracts are binding not only as to what is therein expressed, but also as to all the consequences which equity, usage or statute give to the contract”. parties are obliged to comply with all kinds of pre-contractual duties to inform, advise and warn their counterpart.
THE NETHERLANDS - Art. 6:248 (1) BW – “A contract not only has the effects agreed upon by the parties, but also those which, according to the nature of the contract, result from statute, usage or the requirements of good faith (reasonableness and fairness)”. The principle of good faith obliges parties to a contract to take into account each other’s interests.
ENGLAND – doesn’t regard ad hoc gap filling, instead: terms implied in fact; terms of which it is assumed that parties would have included them if they had directed their minds to it. English courts have developed two tests to find this unexpressed intention
THE OFFICIOUS BYSTANDER TEST – if an officious bystander were to suggest some express provisions for the agreement, they would testily suppress him with a common ‘oh, of course’; SHIRLAW V SOUTHERN FOUNDRIES 1939
BUSINESS EFFICACY TEST –– THE MOORCOCK 1889; to give the transaction such business efficacy as the parties must have intended; the defendant should have warned the plaintiff of the unevenness of the riverbed.
GAP FILLING THROUGH DEFAULT RULES: Provides solutions for problems typical to a certain type of contract
•Sold goods must be of satisfactory quality – Sale of Goods Act 1979 s. 14 (2)
•Any sold good must be suitable for normal use – e.g. §434 BGB
•The rent is due at the beginning of the lease period – e.g. §556b (1) BGB
•The employee is entitled to a reference at the end of the employment – e.g. 7:656
The lender of a thing must tell the borrower about a defect that may cause harm to the person who uses it if he knows of the defect – e.g. Art. 1891 CC
LIVERPOOL CITY COUNCIL V IRWIN 1977
Civil law jurisdiction reach the same result by applying statutory default provisions.
• FRANCE - Art. 1719 CC
• GERMANY - §536 (1) BGB,
• THE NETHERLANDS - Art. 7:204 (2) BW, Art. 7:206 (1) BW