Whose meaning? Ambiguity and the reasonable reader

New York, May, nineteen fifty seven. A Swiss company contracts to buy from a New York seller a large quantity of US Fresh Frozen Chicken, Grade A, Government Inspected, in two sizes, the smaller at thirty six and a half cents a pound and the larger at thirty three cents. The first shipment reaches Switzerland. The smaller birds are young chickens for broiling and frying. The larger birds are stewing fowl, and many of the cartons say so.
The buyer protests. Chicken, it says, means a young chicken. The seller answers that chicken means any bird of that genus that meets the contract's weight and grade, stewing hens included. The second shipment goes out with the same larger birds, the seller stops it at Rotterdam, and the buyer sues for breach of the warranty that goods shall correspond to their description.
So here is the question, and Judge Friendly asked it in the first sentence of his opinion. The issue is, what is chicken? Think about it before I go on, and notice that both sides are honest. Each believed its own meaning. Dictionaries give both. The question is not who is lying. It is whose meaning the law will hold the other to, and, if neither, what happens.
And now the question I keep asking. What exactly did these people promise each other? Chicken, at a price, in two weights. The words are agreed. What the words meant is the whole case. Everything you learned in Lecture Two about the objective theory returns today, aimed not at whether there was a contract but at what a contract says.
Here is the first line for the board. Words in a contract are read as a reasonable person in the position of the other party would read them. Judge Friendly put it with a line from Holmes. The making of a contract depends not on the agreement of two minds in one intention, but on the agreement of two sets of external signs, not on the parties' having meant the same thing but on their having said the same thing.
Second line. Where the parties attach different meanings, three cases. If one party knew or had reason to know the other's meaning, and the other did not know the first's, the other's meaning governs.
If neither knew or had reason to know, the court asks which meaning a reasonable reader would attach, and the party urging the less ordinary meaning must prove it. And if the term is genuinely equivocal, with no sensible basis for choosing, and neither party knew the other's meaning, there is no contract on that term at all.
Third line, the method. When a word is ambiguous, the court reads the contract as a whole, then the negotiations, then any trade usage, then regulations or standards the contract points to, then the market and the price, then the parties' conduct afterwards. Each is evidence of meaning. None is conclusive. And at the end, the burden decides the close case.
Now the case. Frigaliment Importing against B.N.S. International Sales, Southern District of New York, nineteen sixty, Judge Friendly sitting as a trial judge. He walked the method. Since the word chicken standing alone is ambiguous, I turn first to see whether the contract itself offers any aid to its interpretation.
The buyer said the small birds had to be young, so the large ones must be too. Unpersuasive, said the judge. A contract for apples of two different sizes could be filled with different kinds of apples.
The negotiations. The cables between the parties were in German but used the English word chicken, and the buyer said that was deliberate, because the German word covered both broilers and stewing hens.
But the seller's officer testified that he had asked the buyer's man what kind of chickens were wanted, was told any kind of chickens, and then asked in German whether the cable meant the broad word and was told yes. The buyer, the judge said, cannot rely on its cable as its dictionary and repudiate the interpretation given the dictionary by the man in whose hands it was put.
Trade usage. The buyer called three witnesses who said chicken meant broilers in the trade. But the seller was new to the poultry business, and a usage binds a newcomer only if he knew it or it is so general that knowledge is inferred.
And the buyer's own witnesses undercut themselves. One, a careful businessman, protected himself in his own dealings by writing broiler when he wanted broilers and fowl when he wanted older birds. A witness' consistent failure to rely on the alleged usage deprives his opinion testimony of much of its effect.
The regulations. The contract said Government Inspected, and the Department of Agriculture's regulations listed the classes of chickens, broiler or fryer, roaster, capon, stag, hen or stewing chicken or fowl, cock or old rooster. There is force in defendant's argument that the contract made the regulations a dictionary.
The market. Broilers of that weight sold at thirty five to thirty seven cents. The contract price was thirty three. Plaintiff must have expected defendant to make some profit. Certainly it could not have expected defendant deliberately to incur a loss.
And the conclusion. When all the evidence is reviewed, it is clear that defendant believed it could comply with the contracts by delivering stewing chicken. Defendant's subjective intent would not be significant if this did not coincide with an objective meaning of chicken.
Here it did coincide with one of the dictionary meanings, with the definition in the Department of Agriculture regulations to which the contract made at least oblique reference, with at least some usage in the trade, with the realities of the market, and with what plaintiff's spokesman had said.
Then the sentence that decided the case. For plaintiff has the burden of showing that chicken was used in the narrower rather than in the broader sense, and this it has not sustained. The buyer had not proved its meaning. That did not mean the seller had proved its own. It meant the party who wanted the unusual meaning lost the tie. Complaint dismissed.
Now the case where nobody wins, because there is no tie to break. Oswald against Allen, Second Circuit, nineteen sixty nine. Doctor Oswald, a coin collector from Switzerland who spoke almost no English, came to see Mrs. Allen's Swiss coins in a bank vault in Newburgh, New York.
She had two collections in separate boxes, one she called the Swiss Coin Collection and one she called the Rarity Coin Collection, which also held several valuable Swiss coins. He examined both. He did not know they were separate collections.
On the drive back, through his brother, he negotiated a price of fifty thousand dollars. The trial judge found that Doctor Oswald thought he was buying all of her Swiss coins, and that Mrs. Allen thought she was selling the Swiss Coin Collection only.
Apparently the parties never realized that the references to Swiss coins and the Swiss Coin Collection were ambiguous. He wrote to confirm his purchase of all your Swiss coins. She never signed anything, and in the end her family talked her out of the sale.
The court held there was no contract, and it said why in words that go back a century. In such a factual situation the law is settled that no contract exists. The Restatement adopts the rule of Raffles against Wichelhaus, an English case of eighteen sixty four about two ships, both named Peerless, sailing from Bombay months apart, where the buyer meant one ship's cargo and the seller the other's.
Professor Young states that rule as follows. When any of the terms used to express an agreement is ambivalent, and the parties understand it in different ways, there cannot be a contract unless one of them should have been aware of the other's understanding.
Notice how narrow this is. The court said the facts placed the case within the small group of exceptional cases in which there is no sensible basis for choosing between conflicting understandings. Two boxes, two labels, a buyer who spoke no English, and a seller who reasonably understood the words her own way.
No one was at fault, no one had reason to know, and no reading was more reasonable than the other. That is when Raffles applies, and it is rare. In the chicken case there was a sensible basis for choosing, and the burden supplied it.
Now let's change one fact. The New York seller had been in the poultry trade for twenty years and knew perfectly well that Swiss importers use chicken to mean broilers. Does the buyer win? Choose an answer before I go on.
Most people say yes, and they are right, and the reason is the second line on the board. When one party knows or has reason to know the meaning the other attaches to a word, and the other does not know the first's, the other's meaning governs. The seller could have said stewing chicken. Knowing the buyer's meaning and staying silent, the seller is held to it. Judge Friendly reached for the burden of proof only because neither side knew the other's meaning.
Change one fact again. In two earlier sales between the same parties, Mrs. Allen had sold Doctor Oswald Swiss coins from both boxes under the name Swiss coins. Choose.
Now there is a sensible basis for choosing. A course of dealing between these parties had given the words a meaning, all the Swiss coins in both boxes, and Mrs. Allen had reason to know that was how he used them. The Raffles rule needs the absence of any such basis. Give the words a history between the parties and the ambiguity resolves, and the contract stands on his meaning.
Change one fact a third time. The chicken contract had priced the heavier birds at thirty six cents, above the broiler market. Choose.
This one is argued, and the argument is the point. The price evidence now cuts the other way. A buyer paying more than broilers cost is not asking for stewing hens, and a seller taking that price cannot say the buyer must have expected him to supply fowl.
Take away the market argument and the regulations argument is weaker on its own, the trade evidence is split, and the buyer may well carry its burden. The method has not changed. One piece of evidence changed, and with it perhaps the result.
Here is what people get wrong here, and why it is tempting. The first mistake is reading Raffles as a rule that any ambiguity kills a contract. It is the opposite, a rule for the rare case where nothing at all can resolve one. Courts resolve ambiguity every day, by the method Friendly walked. The second mistake is forgetting the burden. The party who claims the narrower or less usual meaning must prove it, and in a close case that decides everything.
The third mistake is ignoring the humble evidence. Regulations the contract mentions, the price against the market, what the parties' own agents said in the negotiation. These decided the chicken case more than the dictionaries did.
Here is the rule, in one breath.
A contract's words carry the meaning a reasonable person in the other party's position would give them, so a party who knows the other's meaning is held to it, a party urging an unusual meaning must prove it from the contract, the negotiations, usage, incorporated standards, the market and conduct, and only where a term is genuinely equivocal and neither party had reason to know the other's meaning is there no contract on it at all. Now, five questions.