The principles and practices of contract interpretation in us law – an implication for dispute settlement in vietnam

The author though introduces the definition of contract interpretation, neither an depth research into the cardinal rule and essential matters relating to the case where there are differ

MINISTRY OF EDUCATION & TRAINING

HO CHI MINH CITY UNIVERSITY OF LAW

 THE MANAGING BOARD OF SPECIAL TRAINING PROGRAMS

HO CHI MINH CITY

2017

MINISTRY OF EDUCATION & TRAINING

HO CHI MINH CITY UNIVERSITY OF LAW

 THE MANAGING BOARD OF SPECIAL TRAINING PROGRAMS

HO CHI MINH CITY

DECLARATION

I hereby declare that the thesis “The principles and practices of contract

interpretation in US law – An implication for dispute settlement in Vietnam” is

my own study under the supervisor’s guidance and to the best of my knowledge, it contains no material previously published or written by another person, nor material which to a substantial extent has been excepted for the award of any other degree or diploma at any educational institution, except where due acknowledgement is made

in the thesis All of the information other than my idea to be used or quoted has been acknowledged by means of complete references I would bear full responsibility for my protest I warrant that this authorization does not, to the best of

my belief, infringe the rights of any third party

July 18th, 2017

DEDICATED

TO

The memory of my Mother (1959-2008)

A strong and gentle soul who brought me to planet earth

and endured many hardships

to give me a better life

My Family For their endless love, support and encouragement

My Senior Supervisor – Dr Do Thi Mai Hanh For her unwavering support and mentorship throughout this thesis

My Dearest Friend – Dang Hoang Nhan For his advice, his patience, and his faith

i

Table of Contents

INTRODUCTION 1

CHAPTER 1 OVERVIEW OF CONTRACT INTERPRETATION IN US LAW 11

1.1 Dissection of contract interpretation 11

1.1.1 Definition and the cardinal goal of contract interpretation 11

1.1.2 A historical brief of intention-finding progression in US law 14

1.1.2.1 Subjectivist theory of interpretative regime 14

1.1.2.2 Extreme objectivist theory of interpretative regime 15

1.1.2.3 Modified objectivist theory of interpretative regime 17

1.1.3 Definition of contract interpretation under Vietnamese law perspective 19

1.2 Dissection of ambiguity definition 21

1.3 Textualism and Contextualism: The two most contentious theories in US interpretive regime 27

1.3.1 A theoretical perspective of textualism 27

1.3.1.1 Anatomy of the plain meaning rule – A formalist doctrine 28

1.3.1.2 The justification for textualism 29

1.3.2 A theoretical perspective of contextualism 31

1.3.2.1 Anatomy of the extrinsic evidence rule – An anti-formalist doctrine 32

1.3.2.2 The justification for contextualism 34

CONCLUSION OF CHAPTER 1 36

CHAPTER 2 CONTRACT INTERPRETATION UNDER THE US PRECEDENTIAL PERSPECTIVE – AN IMPLICATION FOR VIETNAM REGIME OF CONTRACTUAL DISPUTE RESOLUTION 37

2.1 The plain meaning rule via textualist courts’ judicial precedents 37

2.2 The extrinsic evidence rule via contextualist courts’ judicial precedents 42

2.2.1 The “reasonably susceptible” rule (also labeled Pacific Gas rule) 42

2.2.2 The “no limitations” rule 45

2.3 Reconciling textualism with contextualism by distinguishing objective evidence from subjective evidence 47

2.3.1 Reconciliation between textualism and contextualism in judicial precedent 48

ii

2.3.2 Dichotomy between objective and subjective extrinsic evidence - An aid to

reconciliation between textualism and contextualism 49

2.4 Practice of contract interpretation in Vietnam and suggestions for improvement 52

2.4.1 Interpretative approach that Vietnamese law and judicial practices follow 52

2.4.2 Recommended policy in utilizing objective extrinsic evidence and choosing the most appropriate intention attached to the meaning of contractual language 56

CONCLUSION OF CHAPTER 2 61

CONCLUSION 63

BIBLIOGRAPHY 65

1

INTRODUCTION

1 Rationale for the research

Language as a mean for expression of ideas utterly plays a material role in constructing a written contract.1 When using language in a contract, parties are giving them the function to fix rules that will govern their contractual relations.2

Language as a system of symbols, however, “has no arbitrary and fixed meaning

like a symbol of algebra or chemistry”.3 The language is thus not always being precisely used to fully manifest the idea which the contracting parties are trying to convey, or is attached materially different meanings.4 The contractual language in such a case is therefore inevitably placing room for doubt or different meanings and the role of contract interpretation as a tool to discern the true meaning of contract is thereby asserted

The anatomy above sheds light on the fact that the demand for contract interpretation can arise in any contract Without the cohesive body of rules of contract interpretation, contracts may produce uncertainty and unenforceability,5which are detrimental to the mutual accomplishment of contracting parties

The role of contract interpretation has been also significantly recognized by both scholarly writings and judicial practices in Vietnam.6 As to legislations, the Civil Code 20157 of Vietnam sets forth a separate institution governing contract

1 Steven J Burton (2006), Principles of Contract Law, Third Edition, Thomson West Publisher, p.384

2

Hon Randall H Warner (2010), All Mixed Up About Contract: When Is Contract Interpretation A Legal

Question And When Is It A Fact Question?, Virginia Law & Business Review, Volume 5, Number 1, p.101

3 Justice Traynor in Pacific Gas & Electric v G.W Thomas Drayage & Rigging Co, 69 Cal.2d 33, 36 (Cal

1968) See full text at: https://casetext.com/case/pacific-gas-e-co-v-gw-thomas-drayage-etc-co (Accessed on

11 July, 2017)

4

Charles L Knapp and Nathan M Crystal (1987), Problems in Contract Law – Cases and Materials, Second

Edition, Little, Brown & Company (Canada) Limited, p.331

5 Juliet P Kostritsky, Plain Meaning vs Broad Interpretation: How the Risk of Opportunism Defeats a

Unitary Default Rule For Interpretation, Kentucky Law Journal, Volume 96, p.43

6

Nguyen Anh Thu (2014), De xuat sua doi, bo sung qui dinh lien quan den nguyen tac thien chi trong Bo

luat dan su Viet Nam nam 2005, Luat Hoc Journal (of Ha Noi National University), Volume 30, Number 3, p.62; Do Van Dai (2014), Luat Hop Dong Viet Nam – Ban an va Binh luan ban an (Volume 2), Chinh Tri

Quoc Gia Publisher, pp.194-216; Ha Thi Mai Hien and Ha Thi Thuy (2015), Ban ve Che dinh giai thich hop

dong trong du thao Bo luat dan su (sua doi), Nha nuoc va Phap luat Journal, Volume 3, p.42

7 The Civil Code 2015 passed by the 13th National Assembly of the Socialist Republic of Vietnam came into force from January 1, 2017

2

interpretation, Article 404 with noteworthy amendments to Article 409 of the Civil Code 2005,8 denoting the crucial importance of contract interpretation in Vietnam Unfortunately, the study of contract interpretation in Vietnam has not drawn serious attention and gained as much popularity as it should from legal researchers For a long time, consequently, legal practitioners have underestimated this vital institution in contractual litigation

Furthermore, lacking formal training and comprehensive knowledge of contract interpretation makes transactional lawyers, whose job is mainly focusing

on drafting contract, solely concern how to get the deal done and thus unable to accomplish the highest qualities of drafting, which are first to avoid disputes and second to best protect their clients in contract litigation if things do not go as planned Indeed, with the grasp of contract interpretation, drafting attorneys are able

to consciously assess whether or not provision at issue is subject to the risk of ambiguity and then can eliminate that risky ambiguous provision for the avoidance

of further dispute From the litigators’ perspective, deeply perceiving the principles

of contract interpretation can help litigators put their clients in a better position to a certain degree

The above casts light on principles of contract interpretation undeniably calling for an established reform and profound understanding As a result, the author sets forth below the aims of this thesis:

(i) This thesis attempts to fill the gap in perception and application of contract interpretation which is deemed to be fundamental but oblivious institution, thereby enhancing the legal certainty and predictability of contract and contractual litigation

(ii) This thesis attempts to further accomplish in a supportive resource for legal practitioners With regard to drafting attorneys, it is meant to serve as an instrument to enhance the quality of contract drafting in terms of discerning

8 The Civil Code 2005 passed by the 10th National Assembly of the Socialist Republic of Vietnam came into force from January 1, 2006

3

ambiguities in contractual terms and avoiding disputes thereof With respect to litigators, it is meant to improve the abilities in analyzing the disputed contract and thus in sharpening their arguments before the judicial body to some extent

In light of the above reasons, the need to take an in-depth research into other countries in terms of rules on contract interpretation is urgently called for Among these, rules of contract interpretation of US law are infamous for their profound history of development, even now subject to controversy to adapt to the sophistication of contractual ambiguity The justifications for choosing US law as a role model for deriving experiences are also proved as follows:

(i) The two competing trends of contract interpretation, namely textualism and contextualism of which the core issue is their justifications for admission of extrinsic evidence in aid of the intention-finding process are the main subject-matter of contract interpretation dispute and most thoroughly studied in the United States Undertaking the study into each trend’s justifications and practices virtually assures valuable lessons for Vietnamese legal system of contract interpretation and legal practitioners

(ii) Contract interpretation enormously varies due to the complication of contractual language and diversity of contractual disputes Therefore, the study of such legal institution is best supported by judicial precedents, in which the holdings are accompanied with legal reasoning US law, with the piles of contract precedents, turns out to be an ideal reference for this research

The topic of “The principles and practices of contract interpretation in US

law – An implication for dispute settlement in Vietnam” is thus what the author

chooses as his elaboration for bachelor’s thesis

2 Literature review

2.1 Vietnamese materials

The textbook “Giao trinh Phap luat ve hop dong va boi thuong thiet hai

ngoai hop dong” (2014) of Ho Chi Minh City University of Law provides the

4

general view of Vietnamese law on contract interpretation, from the definition of the respective subject matter to the admissible extrinsic evidence in aid of ascertaining the parties’ real intention This textbook is meant to serve as the basic material for further in-depth research on the interpretative institution and relevant legal issues

The book “Luat Hơp Dong Viet Nam - Ban an va binh luan ban an” (2014)

of author Do Van Dai focuses on giving the interpretive definition and relevant matters in finding the actual intention of contracting parties via the anatomy on Vietnamese judicial practices Author Do Van Dai further carries out his research into two typical types of extrinsic evidence which are prior negotiations and subsequent conducts for the purpose of intention ascertainment This book plays a significant role as the valuable source of basic knowledge and cases for the author’s further anatomy of the practical application of this institution in Vietnam However, the book, which only focuses on the use of pre-contractual information and subsequent conducts in contract interpretation, does not point out the use of objective extrinsic evidence to demonstrate and create ambiguity and the interpretative approach to which Vietnam is following

The book “Binh luan khoa hoc – Nhung diem moi cua Bo luat Dan su nam

2015” edited by author Do Van Dai notes new amendments and supplementations

of the Civil Code 2015 regarding contract interpretation This book, however, does not go into detail the application of such reform, especially the noticeable supplementation to Section 1 of Article 404 of the Civil Code 2015

The bachelor thesis “Interpretation of Contracts in English law and

Experience for Vietnamese law” (2013) of Nguyen Vu Lien Quynh concerns with

general principles of contract interpretation in the area of English contract law and gives several recommendations for Vietnamese Law based upon the comparative perspective between English law and Vietnamese law on the respective matter

5

However, the author focuses merely on the interpretative principles which are solely

developed by Lord Hoffmann in the famous case ICS of English law jurisdiction

The author though introduces the definition of contract interpretation, neither an depth research into the cardinal rule and essential matters relating to the case where there are different intent attached to the meaning of contractual terms nor the significant importance of defining ambiguity has been seriously addressed Furthermore, the thesis does not go into detail the study of extrinsic evidence as an aid to cast light on actual intention of contracting parties Especially in the context

in-of Vietnamese interpretative rules, it unfortunately neglects the modern trend in contract interpretation relating to the admissibility of extrinsic evidence, which is virtually adopted by civil law countries as well Ultimately, this thesis focuses on contract interpretation in English law and in the Civil Code 2005 of Vietnam, whilst the thesis at hand will further attempt to dissect interpretative regime under US law and Vietnamese Civil Code 2015

Author Nguyen Ngoc Khanh provides a brief of two doctrines “intent” and

“manifestation of intent”, introduces the practice of some prominent countries in

contract interpretation, namely France, Russia, and the United Kingdom in the

Article “Giai thich hop dong dan su: So sanh nuoc ngoai va lien he Dieu 408, Bo

luat dan su” (2004) The author eventuates in the introduction of the Convention on

International Sales of Goods (1980)’s interpretive institution and the current interpretative practice of Vietnam This Article proffers a view of contract interpretation under the Vietnamese Civil Code 1995 but does not take in-depth research into the use of extrinsic evidence in assisting the contract interpretation process

Article “Ban ve che dinh giai thich hop dong trong du thao Bo luat dan su

(sua doi)” (2015) of Ha Thi Mai Hien and Ha Thi Thuy follows the step of author

Nguyen Ngoc Khanh but in the context of the Civil Code 2005 being reformed The Article emphasizes the crucial essence of law on contract interpretation and looks

2.2 Foreign language materials

Several treatises on contract law, which also specify in contract

interpretation as an integral part, namely the book “Principles of Contract Law” (2006) of Steven J Burton, “Problems in Contract Law – Cases and Materials” (1987) of co-authors Charles L Knapp and Nathan M Crystal, “The Law of

Contracts” (1987) of John D Calamari and Joseph M Perillo, and “Sum & Substance Quick Review of Contracts” (1999) of Robert D Brain, have been meant

to serve as the important foundation for the author to proceed in further research Those books proffer fundamental knowledge on interpretative definition, ambiguity notion, the historical background of the intention-finding progress, variable doctrines in interpretative regime and competing approaches in ascertaining the mutual intent

Article “Text versus Context: The Failure of the Unitary Law of Contract

Interpretation” (2013) of Robert E Scott and article “Text and Context: Contract Interpretation as Contract Design” (2014) of Ronald J Gilson, Charles F Sabel,

and Robert E Scott give the anatomy on the two competing approaches in interpretative regime – textualism and contextualism from the historical sources of the two respective trends to different points of view of the two giants on contract law treatise – Professor Corbin and Professor Williston, and eventuates in the justification of these dominant regimes

7

In Article “UK versus Swiss law on contract interpretation: which approach

is best suited to international construction contracts?” (2015) of Shona Frame and

Sam Moss, and “Swiss Law vs English Law on Contract Interpretation; Is Swiss

Law better suited to the realities of International Construction Contracts?” (2015)

of Sam Moss, the authors give an overview of the United Kingdom and Swiss rules

on contract interpretation A detailed comparison whereby have been conducted between two legal systems, which are known as the most chosen governing laws in international contracts and as the prominent common law and civil law countries in the context of contract interpretation, according to the author Shona Frame and Sam Moss finally leaps to the conclusion of which interpretative system is best suited to international construction contracts

Author Margaret N Kniffin reveals a new trend in the long enduring controversy aspect of contract interpretation – textualism undergirding the plain meaning rule or contextualism undergirding the extrinsic evidence rule – by analyzing and critiquing the series of prominent judicial precedents, focusing on the

infamous Pacific Gas case in “A New Trend in Contract Interpretation: The Search

for Reality As Opposed to Virtual Reality” (1995)

In Article “The Federal Circuit And Contract Interpretation: May Extrinsic

Evidence Ever Be Used To Show Unambiguous Language Is Ambiguous?” (2010),

author Jerald D Stubbs explores divergent lines of cases of the Federal Circuit and the United States Supreme Court in approaching the admissibility of extrinsic evidence in determining the language’s ambiguity Author Stubbs further dissects the trends of extrinsic evidence admission as enshrined in the Second Restatement

of Contracts and the Uniform Commercial Code of the United States He finally suggests the distinction between objective and subjective extrinsic evidence in aid

of reconciling two dominant regimes in contract interpretation – textualism and contextualism

In Article “Toward a Prudential and Credibility-Centered Parol Evidence

Rule” (2000), author Lawrence A Cunningham dissects a series of Chief Judge

8

Posner’s decisions in the United States Seventh Circuit of Appeal to further offer the credibility-centered analysis of extrinsic evidence for the basis upon which two apparently different approaches (textualism and contextualsim) can be reconciled

3 Statement of objectives

The intended accomplishment of this research is to introduce the US law perspective of rules on contract interpretation so as to improve the same legal institution in Vietnam In order to achieve this result, there are two sub-objectives, namely:

First, the author shall bring an overview of contract interpretation in US law with an emphasis on: definition of contract interpretation, ambiguity and relevant issues of these concepts, two dominant competing regimes of contract interpretation and justifications of each regime The author simultaneously proffers a brief analysis of Vietnamese rules in terms of contract interpretation and ambiguity definition

Second, the author shall take an in-depth research into the judicial practices

of the two approaches – textualism and contextualism – which are still competing for dominance in the law of contract interpretation in US courts The author shall also carry out research into the utility of extrinsic evidence as an aid to contract interpretation The thesis shall eventuate in elucidating which interpretive regime Vietnam is following and recommending the usage of extrinsic evidence in attempting the cardinal goal of contract interpretation

- In Vietnam: the research shall restrict itself within the area of rules of contract interpretation in Section 1 and Section 5 of Article 404 of the Civil Code

9

2015 which directly relate to actual intent of contracting parties The author shall not dimensionally further the research to the provisions of contract interpretation in sectorial legislation such as Law on Insurance Business,9 Law on Consumers’ Rights Protection.10 The mention of these legislation (if any) merely serves as clarification for author’s point of view on the current status of Vietnamese rules governing interpretative regime

- Historical method: This method is primarily applied in Chapter 1 with regards to the intention-finding progression and two interpretative regimes throughout the history of contractual interpretation institution in US law The historical development of such institution provides the general outlook for further dissection

- Analytical method: This method is applied throughout the thesis in order to clarify relevant definitions, regulations and judicial practices in US law and the Civil Code 2015 on the respective matter This method is simultaneously applied to analyze and give comments on some notable precedents in both legal systems Finally, the author shall provide suggestions for appropriate approaches of contract interpretation via the method at issue

9 The Law on Insurance Business passed by the 10th National Assembly of the Socialist Republic of Vietnam came into force from April 1, 2001 (amended by the Law amending and supplementing several articles of the Law on Insurance Business passed by the 12th National Assembly of the Socialist Republic of Vietnam came into force from July 1, 2011)

10 The Law on Consumers’ Rights Protection passed by the 12th National Assembly of the Socialist Republic

of Vietnam came into force from July 1, 2011

10

- Synthetic method: Basing on the body of the research, the author applies this method to produce conclusion which embodies the highly refined and consistent content for each Chapter and the entire research

6 Structure of the thesis

Apart from the Introduction, the List of Authorities, this thesis is divided into two main chapters, as follows:

- Chapter 1: Overview of contract interpretation in US law

- Chapter 2: Contract interpretation under the US precedential perspective – An implication for Vietnam regime of contractual dispute resolution

CHAPTER 1 OVERVIEW OF CONTRACT INTERPRETATION IN US

LAW 1.1 Dissection of contract interpretation

1.1.1 Definition and the cardinal goal of contract interpretation

A good place to commence the research on the definition of interpretation is the Black’s Law Dictionary, which generally attempts to define the interpretation as

“the process of determining what something, esp the law or legal document, means” or “the ascertainment of meaning to be given to words or other manifestation of intention”.11

To approach the legal definition of contract interpretation, a definition adopted by the Restatement of Contracts12 is necessarily set out, “Interpretation of

words and of other manifestations of intent forming an agreement [or having reference to the formation of an agreement] is the ascertainment of the meaning to

be given to such words and manifestations”.13

The Second Restatement of

Contracts remained the same approach, “Interpretation of a promise or agreement

or a term thereof is the ascertainment of its meaning”.14

The Black’s Law Dictionary and the (First and Second) Restatement of Contracts share the approach in constructing the definition of contract interpretation that they both encompass the process of uncovering the meaning to be given to words and manifestation of parties’ intention

In an endeavor to delineate the true sense of contract interpretation, the purpose-based definition of contract interpretation given by a majority of prominent scholars consistently states that the cardinal rule of contract interpretation is to

11 Bryan A Garner (2007), Black’s Law Dictionary Eighth Edition, Thomson West Publisher, p.837

12 Restatement of Contracts is a legal treaties and a quintessential guide to the modern US common law of contracts It covers fundamental principles, and provides a complete, coherent overview of contract law Notwithstanding its non-binding characteristic, Restatement of Contracts is relied on and adopted by courts nationwide This authoritative work is one of the most frequently cited publications

13 Section 226 of the First Restatement of Contracts

14

Section 200 of the Second Restatement of Contracts

effectuate the common intent of both contracting parties.15 Professor Snow in his law journal described the overriding goal of contract interpretation as justices

requires “is always the discovery of actual intention”.16 Sharing this ideal, Professor Ottinger proclaims that the ascertainment of the parties’ common

intention is “the most fundamental tenet regulating the interpretation of

contracts”.17 After the course of detecting what the parties actually meant when they adopted certain language to fix the rules governing their contractual relation

and being applied in specific circumstances, the contract interpretation “would

result in a meaning corresponding exactly with what both parties in fact had in mind”.18

The cardinal rule of contract interpretation wholly based upon the effectuation of parties’ intent can also be found in numerous courts’ decisions.19 In

Sault Ste Marie Tribe of Chippewa Indians v Granholm, a dispute involving

gaming on tribal lands and required payments by casinos to the government, the

court endeavored to answer whether the term “wager” used in the gaming industry

was ambiguous, which raised a question as to contract interpretation To resolve the above query, the United States Court of Appeals for the Sixth Circuit first put

contract interpretation succinctly in its holding, “The cardinal rule in the

15 Lawrence Solan, Terri Rosenblatt and Daniel Osherson (2008), False Consensus Bias In Contract

Interpretation, Columbia Law Review, Volume 108, Number 5, p.1271

16

Carl Ton J Snow (1987), Contract Interpretation: The Plain Meaning Rule In Labor Arbitration, Fordham

Law Review, Volume 55, Issue 5, Article 1, p.681

17 Patrick S Ottinger (2000), Principles of Contractual Interpretation, Louisiana Law Review, Volume 60,

Number 3, p.766

18

Jay E Grenig (1986), Principles of Contract Interpretation: Interpreting Collective Bargaining Agreements,

Capital University Law Review, Volume 16, Number 31, p.31

19 In Perry v Wolaver, 506 F.3d 48 (1st Cir 2007), the court reaffirmed that, “Contracts should be

interpreted to give effect to the parties’ intentions expressed by the writing, considering the subject matter, purpose, and object of the contract” See full text at: https://casetext.com/case/perry-v-wolaver-2 (Accessed

on 11 July, 2017)

In French v Assurance Co of Am., 448 F.3d 693 (4th Cir 2006), the court held that, “The principal rule in

the interpretation of contracts is to effect the intentions of the parties” See full text at:

https://casetext.com/case/french-v-assurance-co-of-america (Accessed on 11 July, 2017)

interpretation of contracts is to ascertain the intention of the parties To this rule all others are subordinate” 20

Scholars and judges when giving definition to the contract interpretation have gained the consensus over the purpose of such process which is to reveal the actual intention of the parties Lest there be any doubt, the next question that is at which time the parties’ actual intent shall be taken into account needs elucidating Generally, judges most often say that they look to the intention of the parties at the time of contract’s formation.21

For instance, in Davidson v Allelix Inc., with other

analogous holdings shedding light on the above query,22 the court, based upon its solid reasoning that a contract’s meaning should not depend on the time when someone goes to court to have it interpreted, rejected discussions between parties in

1986 to be relevant to the interpretation of contract concluded in 1984 and held that,

“It is a fundamental rule of contractual interpretation that the intention of the parties is to be determined as of the time when the contract is made”.23

The reason why the courts only take into account the mutual intent at the time of contract formation is because permitting intent at different points of time will allow a contracting party to invoke any intention in supporting its interest It thus spurs the bad faith and uncertainty in contracting agreements, since contracts are the manifestation of mutual intentions, and, in many cases, such mutual intentions are consented at certain degree only after an extended period of exchanging voluminous draft contracts Such mutual intentions therefore must be

20

Sault Ste Marie Tribe v Granholm, 475 F.3d 805 (6th Cir 2007) See full text at: https://casetext.com/case/sault-ste-marie-tribe-v-granholm (Accessed on 11 July, 2017)

21 Steven J Burton (2006), Principles of Contract Law, Third Edition, Thomson West Publisher, p.385

22 In United States Fid Guar Co v Parsons, 154 Miss 587 (Miss 1929), “Contracts must be construed

with reference to the intention of the parties at the time of entering into the contract” See full text at:

https://casetext.com/case/united-states-fid-guar-co-v-parsons (Accessed on 11 July, 2017)

In Gilchrist v Western Star Trucks Inc., 2000 BCCA 70, 73 B.C.L.R (3d) 102, “The goal in interpreting an

agreement is to discover, objectively, the parties’ intention at the time the contract was made” See full text

at: http://www.courts.gov.bc.ca/jdb-txt/ca/00/00/c00-0070.htm (Accessed on 11 July, 2017)

23 Davidson v Allelix Inc (1991), 7 O.R (3d) 581 (C.A.) See more in: Geoff R Hall and Michael Feder (2012), A Primer on Contractual Interpretation, McCarthy Tétrault Advance™, p.8, reachable at:

https://www.mccarthy.ca/pubs/A_Primer_On_Contractual_Interpretation_2012_jun_07.pdf (Accessed on 11 July, 2017)

given greater weight than any other intentions which are less trustworthy and verifiable

In light of the above cases, courts have invariably recognized the tenet of contract interpretation is to ascertain and to effectuate the parties’ intention at the time of entering into the contracts.24 This fundamental rule of contract interpretation

is in aid of the contract’s certainty, which can bar the party in bad faith from abusing contractual interpretation to the meaning beyond the actual mutual intentions at the time the contract was made

1.1.2 A historical brief of intention-finding progression in US law

The interpretative regime of contract is to determine the real intention of both parties when entering into the contract It is, however, seemed hardly possible

to know what exactly the parties’ intention when forming the contract is.25 Further, whether the intent that courts discover reflects precisely the same things both parties did have in mind is doubtful.26 Therefore, a historical debate over this problem of contract interpretation between the subjectivist and the extreme objectivist

exploded, which eventuated in the modern approach characterized as a “modified

objective approach”.27

1.1.2.1 Subjectivist theory of interpretative regime

Over the first three quarters of the nineteenth century, the two prominent common law countries, namely England and the United States, adopted a subjectivist approach in their interpretative regime.28 The first pass at the theory

shows that “there is a contract if and only if minds of the parties meet”,29 denoting

24 Keith A Rowley (1999), Contract Construction and Interpretation: From the “Four Corners” to Parol

Evidence (and Everything in Between), Mississippi Law Journal, Volume 69, pp.79-80

25 Jay E Grenig (1986), Principles of Contract Interpretation: Interpreting Collective Bargaining Agreements,

Capital University Law Review, Volume 16, Number 31, p.31

26 Ibid

27

Charles L Knapp, Nathan M Crystal (1987), Problems in Contract Law – Cases and Materials, Second

Edition, Little, Brown & Company (Canada) Limited, p 333

28 Id., p.332

29 Robert Birmingham (1985), Holmes on Peerless: Raffles v Wichelhaus and the Objective Theory of

Contract, University Of Pittsburgh Law Review, Volume 47, p.184

that “no enforceable contract ever came into existence” 30 if the parties by their different intentions attached materially different meanings to contractual language

In a very well-known case, Raffles v Wichelhaus also referred as “Peerless”

case, the Court of Exchequer was apparently pursuing subjectivist theory when interpreting a contract for the sale of cotton The fact of the case shows that Wichelhaus entered into a contract to buy 125 bales of cotton from Raffles The contract provides for the delivery of the cotton from Bombay via the ship Peerless

In fact, there were two ships named Peerless that were sailing from Bombay, one leaving in October, the other in December Raffles meant to make delivery by the December Peerless, while Wichelhaus meant for the cotton to be shipped on the October Peerless When Wichlhaus refused to take delivery in December, Raffles brought suit for breach of contract Wichelhaus argued that the cotton was to be delivered by a different ship also called Peerless, which had departed Bombay in October The court, relying upon its core reasoning that the formation of a contract

requires a meeting of the minds, held for Wichelhaus that, “the defendant meant

one Peerless and the plaintiff another… there was no consensus ad idem, and therefore no binding contract”.31

The Peerless case remarkably represented a philosophy of subjectivist in

approaching the interpretative regime This leading case of subjectivist, however,

was heavily criticized by the proponent of “extreme” objectivist approach, Justice

Holmes of the United States Supreme Court, which shall be dissected in the following Subsection

1.1.2.2 Extreme objectivist theory of interpretative regime

Represented as a “shift in legal theory” and developed in the late nineteenth

century and early twentieth century, the objectivist approach in interpretative regime was to replace the rigid subjectivist theory in aid of the needs of a national

30

Flower City Painting Contractors, Inc v Gumina Constr Co., 591 F.2d 162 (2d Cir 1979) See full text

at: http://law.justia.com/cases/federal/appellate-courts/F2/591/162/369363/ (Accessed on 11 July, 2017)

31 Raffles v Wichelhaus, Court of Exchequer, 1864, 2 Hurlstone & Coltman 906 See full text of the judgment in: John P Dawson, William Burnett Harvey, and Stanley D Henderson (1987), Contracts – Cases

and Comment, Fifth Edition, Mineola, New York, The Foundation Press, Inc., pp.353-355

market and the needs of the commercial classes.32 In his prominent treatises of contract interpretation, Holmes was of the opinion that courts should instead adopt

an external approach to contractual interpretation, based upon two grounds: (i) the subjectivist approach made enforcement of contracts too difficult, and (ii) the external method was fair because a speaker should always expect his words to be understood in accordance with his normal usage.33 Basing upon Holmes’ assertions, Professor Williston, both in his treaties and in the original Restatement, presented a systematic objectivist theory of contractual interpretation Under this theory, a

contract should be interpreted in accordance with the standard of “a reasonably

intelligent person acquainted with all the operative usages and knowing all the circumstances prior to and contemporaneous with the making of the [contract], other than oral statements by the parties of what they intended it to mean”.34 The objective theory of interpretative regime is fairly understandable that a contract shall be interpreted in accordance with a reasonable person familiar with the circumstances, rather than in accordance with the subjective intention of either of the parties.35

Under Williston’s view, the contract acquires a life and meaning of its own,

separate and apart from the meaning the parties attach to their agreement “A

facility and certainty of interpretation are obtained, which, though not ideal, is so much greater than is obtainable” by use of a less rigid standard, said Williston.36

This objective approach, therefore, could lead to the absurd result that an interpretation does conform to the intention of neither party.37 Inevitably, modern

32 Joseph M Perillo (2000), The Origins of the Objective Theory of Contract Formation and Interpretation,

Fordham Law Review, Volume 69, Issue 2, Article 4, p.427

33 Charles L Knapp and Nathan M Crystal (1987), Problems in Contract Law – Cases and Materials,

Second Edition, Little, Brown & Company (Canada) Limited, p 332

34 Section 230 of the First Restatement of Contracts

35

Charles L Knapp and Nathan M Crystal (1987), Problems in Contract Law – Cases and Materials,

Second Edition, Little, Brown & Company (Canada) Limited, p.332

36 Ibid

37 John D Calamari and Joseph M Perillo (1967), A Plea for a Uniform Parole Evidence Rule and Principles

of Contract Interpretation, Indiana Law Journal, Volume 42, Issue 3, Article 2, p.348

contract law has departed from this approach which was then critically

characterized as “extreme” objectivist approach.38

1.1.2.3 Modified objectivist theory of interpretative regime

Laying down the foundation of the modern objectivist approach, Professor Corbin critiqued the extreme objectivist that it would be absurd for a court to give a contract a meaning that neither of the parties intended.39 He further restrained the extreme objective theory by stating that if the intention and the understanding of each of the two parties coincide, there is a contract If they do not coincide as to material terms there is no contract unless one of the parties is guiltier than the other for the difference in meaning attached.40 In that case, the prevailing intention is the intention of the party who is less at fault.41 Hence, the core distinction between Corbin and Williston is whilst Corbin is willing to weight fault, Williston is not.42

This modified objectivist approach can be found in the overwhelming rule provided by the Second Restatement of Contracts The actual mutual intent of both parties that shall be the intent of one of them is if at the time the contract was made (i) that party did not know of any different intent attached by the other, and the other knew the intent attached by the first party; or (ii) that party had no reason to know of any different intent attached by the other, and the other had reason to know the intent attached by the first party.43 This rule is briefly understood that the actual intention of both parties shall be the intention of the party which did not know or had no reason to know of any different intention attached by the other provided that the other knew or had reason to know that intention.44

38 Charles L Knapp and Nathan M Crystal (1987), Problems in Contract Law – Cases and Materials,

Second Edition, Little, Brown & Company (Canada) Limited, p.333

39

Ibid

40 John D Calamari and Joseph M Perillo (1967), A Plea for a Uniform Parole Evidence Rule and Principles

of Contract Interpretation, Indiana Law Journal, Volume 42, Issue 3, Article 2, p.348

41 John D Calamari and Joseph M Perillo (1987), The Law of Contracts, Third Edition, West Publishing

Co., p.171

42 Ibid

43 Section 201(2) of the Second Restatement of Contracts

44 Carl Ton J Snow (1987), Contract Interpretation: The Plain Meaning Rule In Labor Arbitration, Fordham

Law Review, Volume 55, Issue 5, Article 1, p.681

Notwithstanding the prominent rule prescribed above, what if the parties entered into the contract with different intentions thus attached different meanings

to a material term of the contract, but neither of them knew or had reason to know

the meaning of the other? The well-known precedent established in Peerless,

therefore, is still worth its weight in gold The best known illustration of the case

following Peerless under this harsh situation is Flower City Painting Contractors,

Inc v Gumina Construction Co., where the plaintiff, the newly formed painting

subcontractor, insisted it was required to paint only interior walls of individual units

of an apartment project, exclusive of exteriors The defendant, the general contractor, nonetheless, alleged the contract was for the exteriors as well The court held for defendant that no contract was actually formed because there was no

“meeting of the minds” since neither party knew or had reason to know the intention

of each other The court’s holding, based upon the rule in famous Peerless case,

was:

“If the manifestations of intention of either party are uncertain or ambiguous, and he has no reason to know that they may bear a different meaning to the other party from that which he himself attaches to them, his manifestations are operative in the formation of a contract only in the event that the other party attaches to them the same meaning”.45

This is also the position taken by the Second Restatement of Contracts.46 In particular, where each party had different intentions when forming the contract and none of them knew or had reason to know what intention of the other was, neither party will be bound by the intention attached to the meaning by the other, even though the result may be a failure of mutual assent.47 This approach is a reasonable one, since interpretation of contract utterly never effectuates an intention attached to

a meaning of words that neither party in fact gave them.48 Further, contract is a mutual consent of both parties which establishes, terminates or modifies civil rights and/or obligations binding upon them Had no assent been reached, the contract would have thus never been formed However, there is still exception to this rule that is in the event that there is mutual assent to a sufficient number of other terms,

a contract may be held to exist, exclusive of the disputed term.49

1.1.3 Definition of contract interpretation under Vietnamese law perspective

The rationale of contract interpretation in Vietnam is to settle substantive issues of the contract, especially in resolving compensation dispute, and to acknowledge which contractual rights and obligations binding upon both parties.50The analysis on the definition of contractual interpretation is thus essential for the accurate understanding and application of this institution in Vietnam dispute resolution sector

Notwithstanding the fact that Article 404 of the Civil Code 2015 directly governs contract interpretation, this Article and the Civil Code 2015 do not define

the term “contract interpretation” The need to interpret contracts also exists in

several sectors, usually contracts between sophisticated business entities and sophisticated parties However, neither Article 21 of the Law on Insurance Business

non-2000, as amended in 2010, regulating interpretation of insurance contracts,51 nor Article 15 of the Law on Protection of Consumers’ Rights 2010, governing

48 Carl Ton J Snow (1987), Contract Interpretation: The Plain Meaning Rule In Labor Arbitration, Fordham

Law Review, Volume 55, Issue 5, Article 1, p.681

49 Comment d of Section 201(3) the Second Restatement of Contracts (1981) describes this conclusion,

“There may be a binding contract despite failure to agree as to a term, if the term is not essential or if it can

be supplied”

See more in: Margaret N Kniffin (2009), Conflating And Confusing Contract Interpretation And The Parol

Evidence Rule: Is The Emperor Wearing Someone Else's Clothes?, Rutgers Law Review, Volume 62,

Number 1, p.93

50 Do Van Dai (2014), Luat Hop Dong Viet Nam – Ban an va Binh luan ban an (Volume 2), Chinh Tri Quoc

Gia Publisher, pp.203-204

51 Article 21 governing the interpretation of insurance contracts reads that, “Where an insurance contract

contains ambiguous clauses, such clauses shall be interpreted in favor of the insured”

interpretation of contracts executed with consumers,52 sheds light on definition of contract interpretation

Author Do Van Dai, in his comprehensive study on the law of contract, points out that contract interpretation is the ascertainment of the parties’ intention attached to the respective content of contract.53 The intent-ascertaining process as

the core issue of contract interpretation is justified by the fact that “contract is the

parties’ consent, and this mutual consent is the parties’ intention”.54 Concurrently,

the textbook “Giao trinh Phap luat ve hop dong va boi thuong thiet hai ngoai hop

dong” of Ho Chi Minh City University of Law sets forth the definition of contract

interpretation as follows:

“Contract interpretation is the thinking process to clarify the meaning of contractual terms, provisions, which are ambiguous or understandable to different meanings, in order to make those terms, provisions become clear and conceivable and capable of being accurately performed”.55

This definition elucidates contract interpretation as the process of throwing light on ambiguous contractual term to make it accurately enforceable; it merely serves as the basic foundation for understanding the definition of contract interpretation, nonetheless Author Do Van Dai’s definition of contract interpretation which shares the view with US case law and scholars as delineated above thus shall be seriously taken into consideration for the fully comprehensive perspective of the respective definition

Further, Vietnamese law of contract and prominent scholars’ writing are not clear on the resolution in case of which intent shall prevail when different intentions

of the parties attached to the meaning of certain term It is a harsh and rare situation

52 Article 15 regulating the interpretation of contracts executed with consumers provides that, “In case of

different understandings of the contract, the competent organizations or individuals resolving the dispute shall interpret it in favor of consumers’ interests”

53

Do Van Dai (2014), Luat Hop Dong Viet Nam – Ban an va Binh luan ban an (Volume 2), Chinh Tri Quoc

Gia Publisher, pp.205-206

54 Ibid

55 Ho Chi Minh City University of Law (2014), Giao trinh Phap luat ve hop dong va boi thuong thiet hai

ngoai hop dong, Hong Duc – Hoi Luat Gia Viet Nam Publisher, p.254

but is inevitable one Hence, the intention-discovering measure as delineated in the last part of Subsection 1.1.3 is a reasonable one which shall be taken into consideration for the next Civil Code amendment

In the essence of the above elaboration, the author endeavors to proffer the definition of contract interpretation and its fundamental rule as follows:

Contract interpretation is the process through which the competent judicial authority shall ascertain the meaning of contractual term which is ambiguous by unveiling the real intention of both parties at the time entering into the contract If the same intentions being attached to the meaning have been discerned, the contract shall be interpreted in accordance with that meaning In case of different intentions, the contract shall be interpreted in accordance with the intention of one party which neither knew nor had reason to know of any different intention of the other, if the other knew or had reason to know what it was Except from the above, none parties shall be bound by the other’s intention, even though it might result in a failure of mutual assent

1.2 Dissection of ambiguity definition

As discussed in Section 1.1 above, in the field of law on contract, interpretation usually refers to the process in which the meaning of a contractual term placing room for doubt or other difference of opinions.56 Back to the Civil Code 2015, Article 404.1 provides the existence of ambiguity as a condition for triggering contract interpretation under this section.57 The law, nonetheless, does

not give any definition to the term “ambiguity” To guard against the abuse of

interpretation process in contract litigation, it is thus of essence to explore the definition of ambiguity

56 George M Cohen (2009), Interpretation and Implied Terms in Contract Law in Encyclopedia of Law and

Economics, Second Edition, Forthcoming, Virginia Law and Economics Research Paper Number 2009-2012,

p.79

57

Article 404.1 of the Civil Code 2015 provides that: “Where a contract contains terms and conditions

which are ambiguous, the interpretation of such terms and conditions shall be based not only on the wording

of the contract but also on the mutual intentions of the parties during the process prior to and after the time

of establishment and performance of the contract” Also, see more in: Do Van Dai (2016), Binh luan khoa hoc – Nhung diem moi cua Bo luat Dan su nam 2015, Hong Duc – Hoi Luat Gia Viet Nam Publisher, p.179

Oxford Advanced American Dictionary gives two definitions of ambiguity

which are “the state of having more than one possible meaning” and “the state of

being difficult to understand or explain because of involving many different aspects”;58 whilst Black’s Law Dictionary defines ambiguity as “[a]n uncertainty

of meaning or intention, as in a contractual term or statutory provision”.59

Nevertheless, in a legal sense, the latter definition of Oxford Advanced American Dictionary and the definition of Black’s Law Dictionary seem to be of minor help in determining when the contract provision is ambiguous since they do not provide detailed criteria In fact they do not reflect exactly ambiguity definition given by US judicial precedents and the majority of legal scholars which would be addressed underneath

A technical definition of an ambiguous term is given by Professor Burton

who stated that, “Technically, a word or phrase is ambiguous when it has two or

more distinct meanings It then can refer to two or more distinct actions, events, or states of affairs in the world, laying the groundwork for an interpretative dispute”.60

This technical approach gives us a primitive view on ambiguity definition which shall be further dissected

Accordingly, author Stark affirms the arising of ambiguity in case a provision can be interpreted in two or more exclusive ways.61 Another definition of

ambiguity is given by Professor Rowley stating that a contract is ambiguous “if one

or more terms or provisions are susceptible to more than one reasonable meaning”.62

Two definitions share the view that a contractual provision is ambiguous if it is capable of producing more than one reasonable meaning

Steven J Burton (2006), Principles of Contract Law, Third Edition, Thomson West Publisher, p.384

61 Tina L Stark (2014), Drafting Contracts: How and Why Lawyers Do What They Do, Second Edition,

Wolters Kluwer Law & Business Publisher, p.235

62 Keith A Rowley (1999), Contract Construction and Interpretation: From the “Four Corners” to Parol

Evidence (and Everything in Between), Mississippi Law Journal, Volume 69, p.90

The view above has a long-standing history of being consistently held by the

courts in US law jurisdictions For instance, in GRT, Inc v Marathon GTF Tech.,

Ltd, the plaintiff and the defendant entered into a Cooperative Development

Agreement (“CDA”), governing collaboration to develop gas-to-fuels technology Under the CDA, GRT obtained access to the Demonstration Facility (“Facility”)

built by Marathon to test the technology and the ability to modify the Facility, to expire on December 31st, 2012 The Facility began operations in 2008 until November 2009 when Marathon decided to permanently close the Facility because

of operational difficulties Marathon was allegedly breached GRT’s access rights by discontinuing operations at the Facility permanently before December 31st, 2012 According to Marathon, the CDA only provided a maximum expiration date for the access rights, rather than a continuous survival right The case involved query into the existence of ambiguity since under GRT’s reading of the Development Agreement, the expiration of the access rights on December 31st, 2012 means that they cannot be terminated before that date By discontinuing operations permanently at the Facility in November 2009, Marathon, under GRT’s allegation, thus deprived GRT of certain of its access rights In considering whether the CDA

is ambiguous, the chancellor found that, “A contract is unambiguous if, by its plain

terms, the provisions in controversy are reasonably susceptible to only one meaning”.63

In a swift conclusion, a contractual provision or term is ambiguous if it is obscure in its meaning that would lead to the state of a disputed provision or term being susceptible to two or more reasonable meanings Thus the ambiguity of a contract is the capability of that contract to have different acceptable interpretations This prominent definition of ambiguity has been followed and supported by a majority of American courts.64

63 GRT, Inc v Marathon GTF Tech., Ltd., Civil Action No 5571-CS (Del Ch Jun 21, 2012) See full text

at: https://casetext.com/case/grt-inc-v-marathon-gtf-tech-ltd (Accessed on 11 July, 2017)

64 In Matthew v Laudamiel, 2012 WL 2580572, Del.Ch.,2012, June 29, 2012, ambiguity exists “when the

provisions in controversy are reasonably or fairly susceptible [to] different interpretations or may have two

For the comprehensive understanding of the aforesaid definition of ambiguity, the enquiry, whether ambiguity is created merely by disagreement between the parties as to the meaning of a contract term or by the absence of relevant term’s definition, shall need addressing

With similar holdings can be found in lines of several judicial precedents,65

Heller v Fire Ins Exch proffers a good illustration, where the Hellers filed a claim

of different interpretations or may have two or more different meanings” See full text at:

http://law.justia.com/cases/delaware/supreme-court/2012/614-2010.html (Accessed on 11 July, 2017)

In Reyes v Metromedia Software, Inc., 840 F.Supp.2d 752, 2012 WL 13935, S.D.N.Y., January 04, 2012A, contractual provision is ambiguous only “when it is reasonably susceptible to more than one reading” See

full text at: http://law.justia.com/cases/federal/district-courts/new-york/nysdce/1:2011cv02155/377183/19/ (Accessed on 11 July, 2017)

In Gen Teamsters Local Union 326 v City of Rehoboth Beach, 2012 WL 2337296 Del.Super., 2012, April

24, 2012, “there is an ambiguity in the contract where a contract’s provisions are reasonably susceptible

to two or more meanings” See full text at:

http://law.justia.com/cases/delaware/superior-court/2012/11c-03-019.html (Accessed on 11 July, 2017)

In Hamilton Partners, L.P v Highland Capital Mgmt., L.P., 2012 WL 2053329 Del.Ch., 2012, May 25,

2012, “a contract is ambiguous only when the provisions in controversy are reasonably or fairly susceptible

of different interpretations or may have two or more different meanings” See full text at:

http://courts.delaware.gov/opinions/download.aspx?ID=153760 (Accessed on 11 July, 2017)

In Convergent Wealth Advisors LLC v Lydian Holding Co 2012 WL 2148221 S.D.N.Y., 2012, June 13,

2012, contract terms are only ambiguous “[w]hen the provisions in controversy are fairly susceptible [to]

different interpretations or may have two or more different meanings” See full text at:

http://law.justia.com/cases/federal/district-courts/new-york/nysdce/1:2012cv01199/392206/18/ (Accessed on

11 July, 2017)

In Greenstar, LLC v Heller, 934 F.Supp.2d 672, D.Del., 2013, March 28, 2013, “a contract is ambiguous

only when the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings” See full text at: https://casetext.com/case/greenstar-llc-v-heller

65 In Reyes v Metromedia Software, Inc., 840 F.Supp.2d 752, 2012 WL 13935 S.D.N.Y., January 04, 2012,

“A contract is not ambiguous simply because the parties have urged conflicting interpretations” See full

text at: http://law.justia.com/cases/federal/district-courts/new-york/nysdce/1:2011cv02155/377183/19/ (Accessed on 11 July, 2017)

In Alta Berkeley VI C.V v Omneon, Inc., 41 A.3d 381, Del.Supr., 2012, March 05, 2012, “Contract

language is not ambiguous merely because the parties dispute what it means To be ambiguous, a disputed contract term must be fairly or reasonably susceptible to more than one meaning” See full text at:

https://casetext.com/case/alta-berkeley-vi-cv-v-omneon-inc (Accessed on 11 July, 2017)

for losses of $25,000, due to the extensive damage to their property caused by water from spring runoffs of melted snow Whilst the Insurer denied such insurance coverage since the policy clearly and unambiguously excluded the damage caused

by surface water The Hellers then sued the Insurer, seeking coverage under the policy The Hellers contended that the term surface water was ambiguous because it was undefined in the policy Rejecting the plaintiff’s argument by looking at the common definition of surface water which is water from melted snow lying or flowing naturally on the earth’s surface, the court disagreed the term surface water was ambiguous in its holding that:

“The term surface water is not ambiguous merely because it is undefined in the policy Its meaning can be ascertained by looking at the common definitions accepted by courts and secondary sources Although the definitions vary slightly in language, together they establish a comprehensible definition for the term surface water”.66

In State ex rel Vincent v Schneider, 194 S.W.3d 853, 860, Mo banc 2006, “A contract is not ambiguous

merely because the parties disagree as to its construction” See full text at:

https://casetext.com/case/state-ex-rel-vincent-v-schneider (Accessed on 11 July, 2017)

In GMG Capital Investments, LLC v Athenian Venture Partners I, L.P.36 A.3d 776, 2012 WL 10916 Del.Supr., January 03, 2012, “A contract is not rendered ambiguous simply because the parties do not agree

upon its proper construction” See full text at:

http://law.justia.com/cases/delaware/supreme-court/2012/614-2010.html (Accessed on 11 July, 2017)

In Convergent Wealth Advisors LLC v Lydian Holding Co., 2012 WL 2148221 S.D.N.Y., 2012, June 13,

“Contract terms are not rendered ambiguous simply because the parties disagree as to their construction”

See full text at: https://casetext.com/case/convergent-wealth-advisors-v-lydian-holding-co (Accessed on 11 July, 2017)

In Stephan v Pennsylvania Gen Ins Co., 621 A.2d 258, 261, Conn 1993, “The mere fact that the parties

advance different interpretations of the language in question does not necessitate a conclusion that the language is ambiguous” See full text at: https://casetext.com/case/stephan-v-pennsylvania-general-ins-co

(Accessed on 11 July, 2017)

In In re New York Skyline, Inc., 471 B.R 69, 2012 WL 1658355 Bkrtcy S.D.N.Y., 2012, May 11, 2012,

“Language whose meaning is otherwise plain does not become ambiguous merely because the parties urge different interpretations in the litigation, unless each is a reasonable interpretation” See full text at:

http://business-finance-restructuring.weil.com/wp-content/uploads/2012/06/In-re-New-York-Skyline-Inc.pdf (Accessed on 11 July, 2017)

66 Heller v Fire Ins Exch., 800 P.2d 1006, (Colo 1990) See full text at:

https://casetext.com/case/heller-v-fire-ins-exchange (Accessed on 11 July, 2017)

Another analogous holding can be found in Bay Cities Paving & Grading, Inc v Lawyers Mut Ins Co., 855 P.2d 1263 (Cal.1993), “The absence from the policy of a definition of the term related does not by itself

render the term ambiguous We recently rejected the view that the lack of a policy definition necessarily creates ambiguity” See full text at: https://casetext.com/case/bay-cities-paving-grading-v-lawyers-mutual-

ins (Accessed on 11 July, 2017); or

The above courts’ decisions make it clear that ambiguity is not merely created either by the parties’ advancing different interpretations as to the meaning

of a contract term or by the parties’ urging conflicting interpretations in the litigation, unless each is a reasonably susceptible interpretation.67 Further, language

of a contract is not ambiguous merely due to an absence of a relevant term’s definition in the contract

In essence, the author comes to a conclusion of ambiguity definition and matters surrounding it which Vietnamese law can adopt for the avoidance of abusing contractual interpretation institution under Section 404.1 of the Civil Code

2015 as below:

A contractual term shall be deemed ambiguous in case it is susceptible to more than one reasonable meaning Further, a contractual term does not become ambiguous merely due to disagreement between the parties to the meaning of that term or the lack of its definition in the parties’ agreement

Perceiving two fundamental definitions of contract interpretation and ambiguity, the author shall endeavor to shed light on the most vital but debating issue of contract interpretation that is whether extrinsic evidence to be admissible to show a contract which appears on its face to be unambiguous is ambiguous Textualism and Contextualism representing for the two most dominant approaches addressing the above enquiry shall be elaborately elucidated in the next Section

In Keyser v Connecticut General Life Ins Co., 617 F Supp 1406 (N.D Ill 1985), “Nevertheless, neither

the mere absence of a policy definition nor the presence of a dispute as to the meaning of the provision necessarily renders it ambiguous as a matter of law” See full text at: https://casetext.com/case/keyser-v-

connecticut-general-life-ins (Accessed on 11 July, 2017)

67 Margaret N Kniffin (1995), A New Trend in Contract Interpretation: The Search for Reality as Opposed to

Virtual Reality, Oregon Law Review, Volume 74, p.649

1.3 Textualism and Contextualism: The two most contentious theories in US interpretive regime

Modern contract law is regarded as a cohesive body of law that is a unitary set of legal rules applying to all legal contracts.68 But despite the anticipation of consistency, predictability, and efficiency of interpretative rules to secure parties’ best legitimate rights and obligations, there are significant inefficiencies in an interpretative system where the two opposing theories – textualism and contextualism – have still competed for dominance Initially framed by the two prominent titans in contract law, specifically in the respective contract interpretation, Professor Williston and Professor Corbin,69 the debate over the respective advantages and disadvantages of textualist and contextualist theories remains in large part of contractual interpretive regime.70 At first glance, in the textualist regime and absence of ambiguity, the courts cannot look to the surrounding circumstances to determine the meaning of contractual terms; whilst in contextualist regime, the courts must consider context embodied in the pre- and post-contractual oral and written evidence to discern what the parties actually intended was even if the agreement appears unambiguous.71

1.3.1 A theoretical perspective of textualism

Historically, set of doctrines framing textualist regime owes its origin in the first seven centuries of adjudication in English common law courts, namely the King’s Bench and Common Pleas.72 Then, substantially followed by a majority of American courts,73 textualism is conceptually embodied in the plain meaning rule – the formalist doctrine of US law, which is designated as a tool empowering

68 Ronald J Gilson, Charles F Sabel and Robert E Scott (2013), Contract and Innovation: The Limited Role

of Generalist Courts in The Evolution of Novel Contractual Forms, New York University Law Review,

Volume 88, p.171

69 Robert E Scott (2015), Contract Design and the Shading Problem, Marquette Law Review, Volume 99,

pp.3-4

70 Ronald J Gilson, Charles F Sabel, and Robert E Scott (2014), Text and Context: Contract Interpretation

as Contract Design, Cornell Law Review, Volume 100, p.34

71 Id., pp.25-26

72 Id., p.47

73 Margaret N Kniffin (1995), A New Trend in Contract Interpretation: The Search for Reality as Opposed to Virtual Reality, Oregon Law Review, Volume 74, p.649

contractual parties to lightly control over the process of courts in using extrinsic evidence when interpreting contracts.74 In general, textualist regime bars extrinsic evidence of a possible contrary meaning when a contractual term or provision appears unambiguous on its face.75

1.3.1.1 Anatomy of the plain meaning rule – A formalist doctrine

The theory of the plain meaning rule was advocated at the end of the nineteenth century and beginning of the twentieth by a leading proponent of contract treatise, Samuel Williston whose formalist approach was subsequently enshrined in the original Restatement of Contracts.76 The plain meaning rule set forth by Professor Williston77 could be found in his prominent treaties on contract

which reads, “The court will give language its natural and appropriate meaning;

and, if the words are unambiguous, will not even admit evidence of what the parties may have thought the meaning to be”.78

This notion of the plain meaning rule could also be found in a reverent opinion which is expressed by Lord Chief Justice Tindal of the House of Lords in

Attorney-General v Shore (1843) and is also adopted by the US law on contract

74 Ronald J Gilson, Charles F Sabel, and Robert E Scott (2014), Text and Context: Contract Interpretation

as Contract Design, Cornell Law Review, Volume 100, p.26

75 Id., p.35

76 Ronald J Gilson, Charles F Sabel, and Robert E Scott (2014), Text and Context: Contract Interpretation

as Contract Design, Cornell Law Review, Volume 100, p.50

77

Robert D Brain (1999), Sum & Substance Quick Review of Contracts, The West Group, p.186

78 Jerald D Stubbs (2010), The Federal Circuit and contract interpretation: May extrinsic evidence ever be

used to show unambiguous language is ambiguous?, Public Contract Law Journal, Volume 39, Number 4,

p.786

79

“Dehors” owes its origin in French which denotes “Outside”

explaining it according to the surmised or alleged intention of the parties to the instrument is utterly inadmissible”.80

In light of the above, the plain meaning rule requires that if judge believes that a contract’s term appears plain and unambiguous on its face, judge must determine its meaning merely from the four corners of the contract and all extrinsic evidence relevant to the parties’ intended meanings is inadmissible.81 In other words, under this formalist doctrine, a court only admits extrinsic evidence as an aid

of contract interpretation when the disputed term is ambiguous on its face.82 On this account, the plain meaning rule is treated as a tool for preserving an unambiguous term from being contradicted by contextual evidence supporting a different meaning

For the comprehensive and perceivable view of the respective plain meaning rule, it does necessitate setting up the following hypothetical case Given a contract

to paint surface of a house blue, contest over of the meaning of contractual term blue follows a predictable pattern: one party claims that the disputed term blue should be given the meaning of navy blue and the counterparty defends a meaning

of light blue The court thus must determine whether the term blue is susceptible to

at least two different meanings and is thus ambiguous Under the plain meaning rule, if the term blue appears to be plain and clear to the court, all extrinsic evidence

of a possible contrary meaning will be inadmissible

1.3.1.2 The justification for textualism

Adherents of textualism have proffered several fundamental claims to enhance the position of textualism in contractual interpretation regime

80

Lord Chief Justice Tindal’s reverent opinion can be found in: Margaret N Kniffin (1995), A New Trend in

Contract Interpretation: The Search for Reality as Opposed to Virtual Reality, Oregon Law Review, Volume

74, p.644

81 Margaret N Kniffin (1995), A New Trend in Contract Interpretation: The Search for Reality as Opposed to

Virtual Reality, Oregon Law Review, Volume 74, p.644; and Jay E Grenig (1986), Principles Of Contract Interpretation: Interpreting Collective Bargaining Agreements, Capital University Law Review, Volume 16,

Number 31, p.37

82 Linda Little Carloni (1977), The Use of Extrinsic Evidence to Interpret Real Property Conveyances: A

Suggested Limitation, California Law Review, Volume 65, pp.897-898

First, the instant textualism’s function is to make available fund of terms with standard meaning for the conduct of commercial transactions By framing the standard meaning of terms from different interpretations, a set of clear, unambiguous terms is valuably collected for the common understanding between a majority of commercial parties Further, when a phrase has a judicially protected, firm and easily discoverable meaning, contractual parties who rely on it will know what definitive commitments the phrase creates and thus will eliminate the risk that courts will erroneously interpret the respective phrase These parties can ultimately have control over the content of their contract.83

Second, under textualist regime, contractual parties are burdened with more careful drafting It is explainable that textualist theory of interpretation would bar extrinsic evidence from framing a different meaning which the contract, as facially interpreted, would never direct.84 As a result, parties will be encouraged to create a clear agreement; future disputes consequently can be avoided or at least litigation can be reduced.85

Third, textualism would permit contractual parties to economize on their contract embodying cost and time for contract enforcement and litigation The contextualist regime opens up for a very wide-ranging and almost untrammeled evidence to be taken into consideration where the contract is utterly clear and unambiguous Consideration of all relevant evidence embodied in thousands pages

of draft contracts exchanged within an extended period of time shall certainly result

in a significant increase of litigation cost and time The case will turn out even harsh when the huge passage of time would be taken by voluminous documentation of potential conflict, which might not even assist since dispute often occurs on the ground that no one anticipated at the time of entering into the contract Witness

83 Ronald J Gilson, Charles F Sabel, and Robert E Scott (2014), Text and Context: Contract Interpretation

as Contract Design, Cornell Law Review, Volume 100, p.40

84 Id., p.41

85 Jerald D Stubbs (2010), The Federal Circuit and contract interpretation: May extrinsic evidence ever be

used to show unambiguous language is ambiguous?, Public Contract Law Journal, Volume 39, Number 4,

p.815

evidence which is unreliable, incomplete or bias further costs the huge volume of time as well.86 Textualist approach which would bar any extrinsic evidence of a possibly contrary meaning to the plain and unambiguous meaning thus would reduce a considerable amount of cost and time Here, the simple comparison is between the role of textualist and contextualist in economizing on contractual cost and time

Fourth, it is also an approach that could lead to the enhancement of contract’s certainty and predictability that sophisticated businesses always prefer, as neither party can challenge the unambiguity of the contract meaning by using extrinsic evidence to change the agreement actually made.87 This most important

justification is affirmed by the court in McAbee Constr., Inc v United States, which

strongly criticized the contextualist approach by holding that allowing extrinsic

evidence to change terms of an unambiguous agreement would “cast a long shadow

of uncertainty over all transactions and contracts”.88

It is true that the needs of business are “certainty, predictability, expeditious

process and proportionate costs in resolving disputes, when and where these arise”.89 Those arguments for textualism position shed light on the fact that textualism is more likely to achieve these aims than contextualism where the wide-ranging extrinsic evidence is admissible

1.3.2 A theoretical perspective of contextualism

Contrary to textualism, the regime of contextualism was first framed by equity principles originating in the English Court of Chancery which was

empowered to hear cases “where the ordinary course of law failed to provide

86

Shona Frame and Sam Moss (2015), UK versus Swiss law on contract interpretation: which approach is

best suited to international construction contracts?, Construction Law International, Volume 10, Issue 3,

p.12

87 Ibid

88

McAbee Constr., Inc v United States, 97 F.3d 1431, (Fed Cir 1996) See full text at:

https://casetext.com/case/mcabee-construction-v-united-states (Accessed on 11 July, 2017)

89 Shona Frame and Sam Moss (2015), UK versus Swiss law on contract interpretation: which approach is

best suited to international construction contracts?, Construction Law International, Volume 10, Issue 3,

p.13

justice” 90 and thus “to mitigate the rigours of the Common law”.91 Though followed by a minority of United States’ jurisdictions embodying nine states joined

by the Uniform Commercial Code and the Second Restatement of Contracts,92contextualism still survives and is worth its weight in gold when resolving the

“dilemma” that textualist courts sometimes face That is the case where either the

courts have to be loyal to the unambiguous meaning of contract and the rigidity of textualist doctrines, but the outcome is in fact contrary to the parties’ apparent intent, or the judges follow the parties’ apparent intentions, but this requires the admission of extrinsic evidence which would be thwarted under textualism.93 Under textualist regime, the courts are, relatively speaking, permitted to look outside the four corners of a contract to ascertain the actual intention of both parties, regardless

of the court’s discernment of any ambiguity

1.3.2.1 Anatomy of the extrinsic evidence rule – An anti-formalist doctrine

The contextualist theory conceptually undergirds the equitable doctrine of

contract interpretation which is recognized as the “extrinsic evidence rule”.94 By pointing out the dangers of courts’ rigid pursuit to interpret a term within the four

corners of a contract and without reference to its context on the ground that the term

is so plain and clear,95 the titan in contract law, Arthur Linton Corbin, advocated the extrinsic evidence rule.96 His anti-formalist doctrine was subsequently enshrined in the Second Restatement of Contracts which provides for the admission of extrinsic

90 Ronald J Gilson, Charles F Sabel, and Robert E Scott (2014), Text and Context: Contract Interpretation

as Contract Design, Cornell Law Review, Volume 100, p.47

91

Id., p.49

92 Robert E Scott (2013), Text versus Context: The Failure of the Unitary Law of Contract Interpretation in

The American Illness: Essays On The Rule Of Law (Edited by F.H Buckley), Yale University Press, p.5

93 Ronald J Gilson, Charles F Sabel, and Robert E Scott (2014), Text and Context: Contract Interpretation

as Contract Design, Cornell Law Review, Volume 100, p.36

94 The term “extrinsic evidence rule” is borrowed from Jerald D Stubbs (2010), The Federal Circuit and

contract interpretation: may extrinsic evidence ever be used to show unambiguous language is ambiguous?,

Public Contract Law Journal, Volume 39, Number 4, p.807

95

W Stanfield Johnson (2005), Interpreting government contracts: plain meaning precludes extrinsic

evidence and controls at the Federal Circuit, Public Contract Law Journal, Volume 34, Number 4, p.637

96 Jerald D Stubbs (2010), The Federal Circuit and contract interpretation: May extrinsic evidence ever be

used to show unambiguous language is ambiguous?, Public Contract Law Journal, Volume 39, Number 4,

p.786

evidence in interpreting contract, regardless of any discernment of ambiguity.97

Section 202(1) of the Second Restatement of Contracts, which states “[w]ords and

other conduct are interpreted in the light of all the circumstances ”, serves as an

illustration of the point at issue Comment a of this Section makes the overriding

rule of extrinsic evidence further crystal clear that, “The rules in this Section do

not depend upon any determination that there is an ambiguity, but are used in determining what meanings are reasonably possible as well as in choosing among possible meanings”.98

The Uniform Commercial Code of the United States (the “UCC”), which

also follows contextualism, is deemed as another disavowal of the plain meaning rule The UCC sets forth the extrinsic evidence rule for sales of goods contracts

Section 1-201(3) of UCC defines an agreement as “the bargain of the parties in

fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade ”99

By defining the content of an agreement embodied in course of performance, course of dealing, or usage of trade in forming the contract, the UCC apparently permits an examination of extrinsic evidence.100 Additionally, under Section 2-202

of the UCC, extrinsic evidence in the form of trade usage, course of dealing, and course of performance is admissible to explain the contractual terms, even when

such terms are included in “a writing intended by the parties as a final expression

of their agreement with respect to such terms”.101 Official Comment 5 to this

97 Margaret N Kniffin (1995), A New Trend in Contract Interpretation: The Search for Reality As Opposed

to Virtual Reality, Oregon Law Review, Volume 74, p.649

98 This comment is available at:

http://www.cs.xu.edu/~osborn/main/lawSchool/contractsHtml/bottomScreens/Briefs/Restatement%20202.% 20Rules%20in%20Aid%20of%20Interpretation.htm (Accessed on 11 July, 2017)

99

This section is available at: https://www.law.cornell.edu/ucc/1/1-201 (Accessed on 11 July, 2017)

100 Robert E Scott (2013), Text versus Context: The Failure of the Unitary Law of Contract Interpretation, in

The American Illness: Essays On The Rule Of Law (Edited by F.H Buckley), Yale University Press, p.10

101 Section 2-202 of the UCC available at https://www.law.cornell.edu/ucc/2/2-202 (Accessed on 11 July, 2017):

“Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms

as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented