Court Opinion

ID: 8921187
Source: CourtListenerOpinion
Date Created: 2022-11-27 06:17:14.185134+00
Date Added: 2024-06-11T17:09:18.030634
License: Public Domain

JON O. NEWMAN, Circuit Judge,
concurring:
I agree with the majority that the hull insurance policy covering “damage to the vessel” renders the insurers liable only for the costs of removing debris from non-cargo areas and removing the residue of adhering cargo from the bulkheads of the cargo areas. I write separately because of my differing views as to the analytical framework in which we reach an interpretation of the contract contrary to that reached by the able District Judge. These differences concern the venerable dispute as to whether an issue is one of law or of fact.
The majority proceeds from the premise that the question of interpreting the contract is “at least a mixed question of law and fact.” P. 199. The majority then observes that “the emphasis of plaintiff’s proof, as well as the district court’s analy*203sis, should have been on the parties’ mutual understanding.” Id. The majority maintains that Judge Conner “implicitly found, as a matter of fact, that plaintiff had proved the parties contemplated [coverage for the cost of removing all of the rock-hard debris from the cargo areas].” Id. Finally, the majority concludes that Judge Conner’s findings are clearly erroneous. I believe that Judge Conner made no finding of fact in the traditional sense, that he interpreted the insurance contract as a matter of law, that the question of interpretation is a close question on which reasonable minds may and obviously do differ, and that, as appellate judges, we may reverse the District Judge’s conclusion because we disagree with it, not because it is clearly erroneous.
Commentators and courts differ as to whether interpretation of a contract is an issue of law or of fact. The matter has relevance for determining whether the issue is to be decided by the trial judge or, when available, the jury, whether the determination, if made by the trial judge, is subject upon appellate review to the “clearly erroneous” standard of Rule 52(a) of the Federal Rules of Civil Procedure, and whether the construction is to have stare decisis effect.1 Professors Corbin and Williston express the view that interpretation of a contract is always a question of fact. 3 Corbin on Contracts § 554 (1960); 4 Williston on Contracts § 616 (W. Jaeger 3d ed. 1961). However, courts have traditionally stated that, where evidence extrinsic to the undisputed terms of a contract is not presented, the interpretation of the contract is “a pure question of law.” Hamilton v. Liverpool, London and Globe Insurance Co., 136 U.S. 242, 255, 10 S.Ct. 945, 950, 34 L.Ed. 419 (1890); see Pennsylvania Avenue Development Corp. v. One Parcel of Land, 670 F.2d 289, 292 (D.C.Cir. 1981); Official Creditors Committee of Stratford of Texas, Inc. v. Stratford of Texas, Inc. (In re Stratford of Texas, Inc.), 635 F.2d 365, 368 (5th Cir.1981); Hoffman v. American Mills Co., 288 F. 768, 772 (2d Cir.1923); see also Parsons v. Bristol Development Co., 62 Cal.2d 861, 865, 44 Cal.Rptr. 767, 770, 402 P.2d 839, 842 (1965) (Traynor, C.J.) (“It is ... solely a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence.”); but see Dobson v. Masonite Corp., 359 F.2d 921, 923 (5th Cir.1966) (“Interpretation is always a question of fact”). It may be helpful to characterize such cases as involving only “textual interpretation” to distinguish them from the fact-specific cases involving extrinsic evidence of the parties’ actual intent offered to aid in the interpretation of ambiguous contract terms. Professor Williston suggests that courts are mislabeling the textual interpretation question as one of law. He recalls Professor Thayer’s observation that “judges have always answered a multitude of questions of ultimate fact, of fact which forms part of the issue. It is true that this is often disguised by calling them questions of law.” J.B. Thayer, A Preliminary Treatise on Evidence at the Common Law 202 (1898), quoted in Williston, supra, § 616 at 649.
Professors Corbin and Williston both recognize, however, that where the terms of an agreement are definite and undisputed and there is no doubt concerning the sur*204rounding circumstances, interpretation is thought to be a matter for the court. This is so, they note, not only when the terms are so clear that only one reasonable interpretation is available, but also when the terms are subject to either of two reasonable interpretations but no extrinsic evidence is presented that aids in ascertaining the parties’ intent. Corbin, supra, § 554; Williston, supra, § 616. As would be expected, courts that describe the issue of textual interpretation as a question of law also hold that the issue is for the court, not the jury. E.g., Hamilton v. Liverpool, London and Globe Insurance Co., supra, 136 U.S. at 255, 10 S.Ct. at 949; Pennsylvania Avenue Development Corp. v. One Parcel of Land, supra, 670 F.2d at 292; Official Creditors Committee of Stratford of Texas, Inc. v. Stratford of Texas, Inc. (In re Stratford of Texas, Inc.), supra, 635 F.2d at 368; Hoffman v. American Mills Co., supra, 288 F.2d at 772.
One may wopder how it can be that courts, not juries, decide issues of textual interpretation in contract cases if they are really reasonably disputable issues of fact. I think the answer is, with all respect to the acknowledged giants of contract law, that issues of textual interpretation, in the absence of extrinsic evidence of the parties’ intent, are really not issues of fact in any meaningful sense of that term. In asserting the contrary, Professor Corbin helpfully identifies the following contexts in which interpretive questions arise:
searching for the meaning of the two contracting parties, or for the meaning given to words by the one person who used them, or for the meaning that was given by words by another person who heard or read them and acted in reliance on them, or for the meaning that a reasonable man or an intelligent user of English or an average resident of the community would have given to them.
Corbin, supra, § 665 at 219. The first three contexts are specific to the case to be adjudicated. The fourth, involving interpretation by a reasonable person, is not case specific; it is the interpretation that will apply in all cases involving the meaning of the contract terms at issue, whenever extrinsic evidence of intent is lacking to aid in interpreting those terms. If such extrinsic evidence is available, the issue becomes one of fact because it is entirely realistic to examine as a question of fact the actual intent of the parties in the particular case. See, e.g., United Truck & Bus Service Co. v. Piggott, 543 F.2d 949, 950 (1st Cir.1976); Palmer v. Howard, 493 F.2d 830, 835 (10th Cir.1974); Hoffman v. American Mills Co., supra, 288 F.2d at 772; see generally Judge Friendly’s helpful opinion in Meyers v. Selznick Co., 373 F.2d 218, 221-23 (2d Cir.1966). In the absence of such extrinsic evidence, however, it is a strained and unrealistic use of the term “question of fact” to apply it to the inquiry as to what meaning a reasonable person would give to the contract term at issue. Of course, if the law’s hypothetical reasonable person were to appear in the courtroom as a deus ex machina and respond to an inquiry as to what he or she thought the terms meant, the answer would be a matter of fact in the traditional sense — an observable, recordable historical event. But the law’s reasonable person has not yet appeared on the witness stand of any courtroom. That person remains a legal construct.2
*205When we say that a contract has a particular meaning only because a reasonable person would so interpret it, we are leaving the realm that Professor Corbin has so carefully defined as “interpretation” and entering the area he classifies as “construction.” Corbin, supra, § 534 at 9:
By “interpretation of language” we determine what ideas that language induces in other persons. By “construction of the contract,” as that term will be used here, we determine its legal operation— its effect upon the action of courts and administrative officials [footnote omitted].
I agree with Professor Corbin that we are interpreting language when we ask what it means to the parties who made a contract, or to the person who used the language, or to the person who heard or read the words and relied upon them. In those contexts, we want to know what ideas the words induced in the pertinent individuals, and if there is extrinsic evidence that will aid in knowing the workings of their minds, we receive it and use it to determine their meaning as a matter of fact. But in many cases the meaning of words must be ascertained in a context to which the parties gave no thought at all. Since the words induced no idea pertinent to the case at hand, it is unrealistic to pretend to be searching for the idea that the words induced. Cf. Corbin, supra, § 534 at 9 (“When a court is filling in gaps in the terms of an agreement, with respect to matters that the parties did not have in contemplation and as to which they had no intention to be expressed, the judicial process should not be called interpretation.”). Instead we are searching for the legal operation of the words, the consequence that courts will ascribe to the use of the words as applied to a particular situation as to which the parties entertained no specific intention at all. In Professor Corbin’s terms, that task is one of “construction,” and it presents an issue of law.
The point may be illuminated by considering the somewhat comparable problem of identifying the roles of court and jury in determining the existence of negligence. Dean Prosser observes that the issue of negligence is often said to be “a mixed question of law and fact,” which means “not only that both the court and the jury have an important part to play in the determination of the issue, and that separate functions are assigned to each, but further, that these functions to some extent overlap, and that it is not easy to fix any definite line of demarcation [footnote omitted].” W.L. Prosser, Law of Torts 205 (4th ed. 1971). He identifies as questions for the court determining the sufficiency of the evidence to permit a finding of the facts, determining the existence of a duty, and determining the general standard of conduct; that leaves for the jury determining the weight of the evidence as establishing the facts and determining the particular standard of conduct. Id. at 205-07. It is the distinction between the general and the particular standards of conduct that is relevant to the issue of contract interpretation. In tort law the court decides that, in most cases, the general standard is the conduct of a reasonable person under similar circumstances; in determining the particular standard, the jury decides what the reasonable person would have done under similar circumstances. This latter question, Dean Prosser observes, “is said to be one of fact, but it should be apparent that the function of the jury in fixing the standard differs from that of the judge only in that it cannot be reduced to anything approaching a definite rule.” Id. at 207 (emphasis added). Thus, in deciding how the reasonable person would have acted under the circumstances, the jury is not answering a traditional inquiry as to fact; it is formulating a standard of law.3 It is a more refined standard than the general standard of reasonable care applicable to most circum*206stances, but it is nonetheless a standard, a particular standard formulated for the precise circumstances of a given case.
Ascertainment of the particular standard of care applicable to the circumstances of a case could be viewed as a question of law.4 We leave it to the jury in doubtful cases, Dean Prosser suggests, “because the public insists that its conduct be judged in part by the man in the street rather than by lawyers, and the jury serves as a shock-absorber to cushion the impact of the law” [footnote omitted]. Id. We do so also for the practical reason that since the circumstances of the accident are almost always in some dispute, a judge endeavoring to instruct the jury as to the particular standard of care applicable to the circumstances would have to formulate a variety of standards to fit with all of the permutations of facts that the jury was entitled to find.5
In contract, as in tort, it strikes me as making sense to describe the inquiry concerning the response of the hypothetical reasonable person as more akin to an issue of law. The inquiry as to what the reasonable person would have thought the contract terms mean, like the inquiry as to how the reasonable person would have acted under the circumstances, is the ascertainment of a governing standard that is then applied to the facts of the case. In tort we prefer, as a matter of both policy and practicality, to let the jury select the particular standard of care; since it would be unsettling to say that the jury is deciding an issue of law, we prefer to say that the issue is one of fact, or sometimes, without identifying the different subquestions involved, we simply say, unhelpfully, that the overall issue of negligence is a mixed question of law and fact. In contract, however, the policy and, frequently, the practical considerations do not support jury consideration of the meaning of terms in the absence of extrinsic evidence.6 On *207the contrary, rather than wish for the leavening influence of a jury to decide in tort cases under what circumstances a person’s conduct should render him liable for another’s injuries, we should deem it in the public interest in contract cases to have as much certainty as possible as to the meaning of contracts, especially those involving terms used by others beyond the contracting parties. And, unlike most tort cases, the facts of a contract breach are frequently undisputed, requiring determination only of the applicable standard to be derived from the words of the contract. I therefore agree with those courts that view the textual interpretation of a contract, in the absence of extrinsic evidence, as essentially an issue of law.7 It is of special importance to do so in the instant case involving a standard form of contract for marine insurance, the uniform interpretation of which is significant for the entire shipping industry.
In this case, though some brief testimony concerning custom was presented by the plaintiff, it is apparent that this testimony provides no guidance whatever as to the intent of the parties, and it was not so relied upon by the District Judge. If anything, that evidence, as the majority notes, would support the interpretation of the defendants. Thus, for me there is only the question of law as to what is a proper interpretation of the pertinent terms of the contract. I do not fault the plaintiff for not offering proof of the parties’ understanding, nor the District Judge for not directing his analysis to that topic. In truth there was no evidence of the parties’ understanding; they never contemplated the episode that gives rise to this suit, and they had no specific intention concerning coverage for the costs of removing cargo solidified by an explosion and adhering to bulkheads. Nor do I agree that Judge Conner implicitly found as a fact that the parties had contemplated coverage for these costs.8 Judge Conner, in my view, decided the case by applying the law’s standard of what a reasonable person would think the terms mean. By doing so, he construed the contract as a matter of law. In disagreeing with Judge Conner, I do not conclude that he made a clearly erroneous interpretation. In this case, as in many other contract cases, there are two reasonable views as to what the law’s hypothetical reasonable person would say the terms mean. Judge Conner chose one. We choose the other. If we were reviewing a finding of fact under the “clearly erroneous” standard, I would affirm. Because I believe we are reviewing a decision on a question of law on which my views coincide with the views of the majority, I join the majority in voting to reverse.

. The dichotomy between issue of fact and issue of law has no bearing on the selection of the fact-finder in this case, since the court, sitting in admiralty, was the adjudicator of both the law and the facts. However, the choice is pertinent to the precedential force of our ruling and to our standard of review, since findings of fact, but not conclusions of law, may not be disturbed on appeal unless "clearly erroneous." Fed.R.Civ.P. 52(a). In this latter connection, the choice could also be implicated by the proposed amendment to Rule 52(a), which would make findings of fact subject to the "clearly erroneous” standard of review, "whether based on oral or documentary evidence.” Preliminary Draft of Proposed Amendments to the Federal Rules of Civil Procedure, 98 F.R.D. 337, 359 (1983). I assume that the proposed change is intended to apply to instances where documentary evidence, whether in the form of affidavits, depositions, or otherwise, is offered to establish facts, and not to a case like this where a written contract, whose meaning is unaided by any evidence, oral or documentary, must be interpreted as a matter of law.

. I do not mean to suggest that an inquiry concerning a hypothetical question cannot be an issue of fact. An estimation of future profits or earnings had a breach of contract not occurred or a tortious injury not been inflicted is a hypothetical inquiry, appropriate for the fact-finder upon evidence of sufficient quality to make the estimate. That inquiry, however, is fact-specific: it asks what the profits or earnings would have been had specific facts transpired in the future. An inquiry as to what a reasonable person would think the contract terms mean is of a different nature. We have no expectation that but for the event giving rise to the lawsuit, the law’s hypothetical "reasonable person” would have ever materialized to express a view as to the meaning of the contract. We are not predicting what a future fact would likely be; we are ascertaining what the law says should be the consequences of the existing uncertainty as to the meaning of the terms.

. Professor Bohlen has observed that if the "reasonable man" were the "average man,” his conduct under the circumstances disclosed by the evidence would be a question of fact. But he is not. His use, Professor Bohlen notes, enables the decision-maker to determine what ought to be done. Bohlen, Mixed Questions of Law and Fact, 72 Univ.Pa.L.Rev. 111, 113 (1924).

. In our Circuit Learned Hand noted that in cases tried to a jury the question of the proper standard of care is "treated” as a question of fact “although obviously it is not a question of fact, for it measures the duty and the liability which the law imposes; upon appeal in a cause tried to a judge, we think it should not be so regarded.” Sidney Blumenthal & Co. v. Atlantic Coast Line R. Co., 139 F.2d 288, 290 (2d Cir.), cert. denied, 321 U.S. 795, 64 S.Ct. 848, 88 L.Ed. 1084 (1943). Judge Friendly has observed that application of a legal standard to undisputed facts is "not exactly” either a question of fact or law and that once an appellate court recognizes that the issue is not one of fact, "there is no necessity for going further and endeavoring to establish that it is one of 'law' in the usual meaning of that term.” Baranow v. Gibraltar Factors Corp. (In re Hygrade Envelope Corp.). 366 F.2d 584, 588 (2d Cir.1966). Holmes expressed the view that specific standards of conduct should increasingly be set by courts so that people would know in advance what they are supposed to do in a given set of circumstances. O.W. Holmes, Jr., The Common Law 110-12 (1881).
Professor Bohlen has suggested that determination of a particular standard of conduct is neither a question of fact or law but what he calls an “administrative” decision because it reflects a standard promulgated after the fact to determine liability in the case at hand and not primarily to guide conduct in the future. He observes, however, that the decision “is more nearly akin to a declaration of law than to a finding of fact____” Bohlen, Mixed Questions of Law and Fact, supra, at 114.

. The possibility of doing so has been long recognized. "[I]t is entirely possible to give a series of hypothetical instructions adapted to every state of facts which it is open to the jury to find.” O.W. Holmes, Jr., The Common Law, supra, at 122. "Now it is perfectly clear that rules of law could be so formulated and so administered as to exclude the jury from making these evaluations [concerning the particular standard of conduct].” James, Functions of Judge and Jury in Negligence Cases, 58 Yale L.J. 667, 676 (1949).

. That policy considerations can and should determine the appropriate roles of court and jury has long been noted:
Logic and neatness of legal theory have always called loud, at least in recent centuries, for special verdicts, so that the true significance of ascertained facts might be ascertained and declared by the one tribunal fitted to do this finally and with authority. But considerations of policy have called louder for leaving the jury a freer hand. The working out of the jury system has never been shaped merely by legal or theoretical considerations. That body always represented the people, and came to stand as the guardian of their liberties; so that whether the court or the jury should decide a point could not be settled on merely legal grounds; it was a *207question deeply tinged with political considerations.
Thayer, Preliminary Treatise, supra, at 218.

. Judge Friendly has suggested that the law-fact dichotomy in the context of contract interpretation is to be avoided. Meyers v. Selznick Co., supra, 373 F.2d at 222 n. 2. By whatever label one characterizes the issue of textual interpretation, it is important to recognize that its determination by a trial judge is not insulated upon review by the "clearly erroneous” standard, see Eddy v. Prudence Bonds Corp., 165 F.2d 157, 163 (2d Cir.1947) (L. Hand, J.), cert. denied, 333 U.S. 845, 68 S.Ct. 664, 92 L.Ed. 1128 (1948).

. I disagree with the majority’s suggestion that Judge Conner made a factual interpretation of the contract by pointing to the fact that the English underwriters paid their share of the disputed claim. That circumstance sheds no light on the factual inquiry as to what was in the minds of the parties to this lawsuit at the time they entered into their contract. At most it provides a circumstance arguably supporting Judge Conner’s view that his legal interpretation of the contract was shared by those familiar with English law.