Opinion ID: 198009
Heading Depth: 4
Heading Rank: 2

Heading: Redrafting of the facilitation clause and consideration

Text: 38 of extrinsic evidence 39 The clause in question states: The SELLERS guarantee the following: ... That the SELLERS will use GE del Caribe as facilitators and sales consultants during this transaction. SELLERS will not negotiate sale of the lot aforementioned without the written agreement of GE del Caribe. The district court found that this clause was not consistent with the most natural reading of the rest of the Agreement, which otherwise seemed to be a contract for the sale of cotton. Moreover, SECOMAN presented evidence that the facilitation clause had been incorrectly drafted by Mr. Aranda, because the actual agreement between Mr. Gordillo and himself provided that SECOMAN would act as facilitator and sales consultant for GE del Caribe, not the other way around. The district court believed this evidence, and ruled accordingly. 40 GE del Caribe claims, however, that Peruvian law prohibits courts from using extrinsic evidence to rewrite the clear and unambiguous terms of an agreement, and therefore that the district court's determination that the Agreement's facilitation clause contained a drafting error was ultra vires. Although agreeing with the court that the facilitation clause was not consistent with the view that the Agreement was a contract of sale, GE del Caribe argues that the clause means what it says, that the court could not ignore the inconsistency, and thus that the only legally permissible conclusion to be drawn from the inconsistency was that the Agreement was not a contract of sale. 41 GE del Caribe is correct in stating that Peruvian law does not permit a court to rewrite the clear and unambiguous terms of a contract; however, Peruvian law does permit a court to inquire into the common intention of the parties if the terms of the contract are unclear or ambiguous. Contrary to GE del Caribe's assertion, several of the Agreement's provisions are ambiguous and confusing. The source of the problem is evident. GE del Caribe's argument is premised on the erroneous assumption that a contractual provision is ambiguous only when its words are literally unclear. To the contrary, contractual provisions may be ambiguous, even if their words are otherwise clear, if their meaning is placed in question by the context in which they are found. 42 In order to explain our conclusion, we review some basic concepts of Peruvian contractual hermeneutics. Pursuant to C. Civ. art. 1352, [c]ontracts are perfected by the consent of the parties, except for those which, in addition, must observe the form required by law under penalty of nullity. Thus, Peruvian law does not require any particular form for contracts, except for certain specific types of contracts that are not relevant here. Instead, the Peruvian Civil Code contains a number of provisions designed to guide the parties (and the courts) in the interpretation of contracts, no matter what their form. 43 The most basic of these provisions are C. Civ. arts. 168, 169, and 170, which regulate the interpretation of all juridical acts, including contracts. In particular, Article 168 provides that [a] legal act must be interpreted in accordance with its content and with the principle of good faith, Article 169 provides that [a] clause in a legal act is interpreted in the light of the other clauses, and those clauses which are dubious are ascribed the meaning arising from the whole, and Article 170 provides that [s]tatements that have several meanings must be understood to have the meaning that is most suitable to the nature and object of the legal act. In addition, there are a number of hermeneutic rules that are specifically applicable to contracts. For example, C. Civ. art. 1361 provides that [c]ontracts are binding as to what is expressed in them. It is presumed that the statements expressed in a contract reflect the common will of the parties, and whomever denies [that the statements do reflect the common will] must prove it. Moreover, C. Civ. art. 1362 emphasizes that [c]ontracts must be negotiated, executed, and performed according to the rules of good faith and the common intent of the parties. The principle of good faith has been interpreted to imply, among other things, the principle of conservation of contracts, which requires that contracts be interpreted whenever possible in such a way as to preserve their validity. See Manuel Miranda-Canales, Derecho de los Contratos [The Law of Contracts ], at 33-34 (Lima, Peru 1986). 44 As GE del Caribe correctly states, the theory underlying these provisions is known as the objectivist theory of interpretation. See Fernando Vidal-Ramrez, Tratado de Derecho Civil [Treatise on Civil Law ], Tome III, Vol. I, at 395 (Lima, Peru 1990); see generally M. de la Puente y Lavalle, El Contrato en General, Pt. 1, Tome 1, at 121-52 (from which much of the following discussion is derived). However, GE's interpretation of the objectivist approach is incorrect. As noted above, although under Peruvian law a contract is perfected by the consent of the parties, see C. Civ. art. 1352, consent as a mere subjective mental state has no legal effect. Instead, some outward sign of consent, some declaration of the common will of the parties is required. Unfortunately, the possibility then arises that the declaration of will may not accurately reflect the subjective common will of the parties. 45 Various theories have been developed in order to resolve the problems that may be caused by this discrepancy. The two most influential theories, the subjectivist and the objectivist, seem also to be diametrically opposed to each other. The subjectivist theory requires the parties to subjectively consent to the contract, and treats the declaration of will merely as evidence of the subjective will of the parties. In contrast, pursuant to the pure version of the objectivist theory, the declaration of will prevails over the subjective common will of the parties, so that if the declaration appears to indicate that the parties consented to the contract, the contract will be upheld even if the parties had not, in fact, had the requisite subjective intent. 46 Although GE del Caribe claims that Peru has adopted the pure version of the objectivist theory, that is clearly not the case. To the contrary, the provisions of the Peruvian Civil Code reflect a less strict version of the objectivist theory, sometimes referred to as the reliance theory. See M. de la Puente y Lavalle, El Contrato en General, Pt. 1, Tome 1, at 149-51 (describing the teora de la confianza); see also Vidal-Ramrez, Tratado de Derecho Civil, at 374-78. In particular, Article 1361 establishes only a rebuttable presumption that the declaration expressed in the contract reflects the common will of the parties. This approach conserves the benefits of the [objectivist] system, and, in particular, its security, but it also leaves the way open for the interpreter to determine the subjective intent of the declarant, which furnishes evidence of the common will of the parties. Id. 5 47 Thus, notwithstanding GE del Caribe's arguments to the contrary, it is simply not true that Peruvian law bars courts from considering evidence extrinsic to the text of an ambiguous or unclear contract. A contract is interpreted as a whole (not as a series of disjointed, independent clauses), and in light of its nature and purpose. See C. Civ. arts. 169, 170. Consequently, when an individual clause appears to be inconsistent with the others and with the purpose of the contract, a court is empowered to inquire further into the common will of the parties. In doing so, the court operates under a presumption that the text of the clause in question reflects the common will of the parties, but the presumption may be rebutted by evidence to the contrary as to the common will of the parties. See C. Civ. art. 1361. A fortiori, that evidence can only be evidence that is extrinsic to the contract. If the evidence is sufficient to rebut the Article 1361 presumption, the court may enforce the terms of the contract as it finds that they were agreed to, rather than as they were written. See Lavalle-Zago, Contratos at 197-98. 48 With regard to the case at hand, we agree with the district court's conclusion that the facilitation clause was not consistent with the rest of the contract. The contract was entitled Agreement to Purchase, and labeled the parties as BUYERS and SELLERS. Most of the other clauses in the contract were consistent with the interpretation that the Agreement was, in fact, a contract for the sale of cotton. The first sentence in the facilitation clause, however, indicates that SECOMAN is to use GE del Caribe as a facilitator and sales consultant, which, as both parties agree, is difficult to reconcile with the view that the Agreement is a sales contract. 49 There are at least two alternative interpretations of this discrepancy, the one advocated by SECOMAN and adopted by the district court, and the one espoused by GE del Caribe. As one commentator has noted with regard to Article 168, courts are not required to interpret words literally, when such an interpretation would lead to [an] absurd [result] or to contradiction. LavalleZago, Contratos at 194. In this case, both parties' interpretations may lead to internal contradictions: SECOMAN's interpretation appears to be contradicted by the first sentence of the facilitation clause, while GE del Caribe's interpretation appears to be contradicted by the title of the Agreement and the nomenclature of the parties used therein. 50 Regardless of which interpretation is correct, we find that the meaning of the facilitation clause was sufficiently contentious to make it necessary for the district court to receive any evidence that was probative of the common will of the parties. In this regard, we find no merit in GE del Caribe's claim that the subsequent conduct of the parties may not be used by a court in interpreting a contract. To the contrary, when the meaning of a contract is unclear, the entire behavior of the parties must be observed, before, during, and even after the conclusion of the contract. Max Arias-Schreiber, Cdigo Civil Peruano de 1984 [Peruvian Civil Code of 1984 ], Tome I, at 89-90 (Lima, Peru 1986).