What Is the Four Corners Rule?
The Four Corners Rule is one of the fundamental maxims in contract law, always applying when courts are required to determine the meaning of a contract. Practically, when a court is called to interpret a contract, it will first turn and look to the four corners.
Essentially then, the four corners rule is premised on the belief that the parties to a contract could only have intended for the contract itself to control the rights of the parties. For instance, if you had negotiated a contract right to be paid $100,000 for the sale of real property and there was a dispute over whether the obligation had been extinguished by a later agreement, the court will look to what was in writing … in the four corners.
The four corners rule is simply the manner in which courts are to interpret contracts. If the contract is clear and unambiguous, a court sits as a duty-bound mechanical translator of the document. A dictionary is then used to assist the court. Simply put, just because you don’t like the way that the court interpreted the contract doesn’t mean the court’s interpretation was wrong.
The origin of the four corners rule was created by Judge Tindall in 1711 in the case of Robertson v. French (1709), 2 Smith L.C. 483. Judge Tindall held that interpretation of a contract was limited to "the four corners of the deed itself."
Judges have constantly articulated "the four corners" notion , with the seminal statement being that, "[T]he intent of the parties is to be gathered solely from the language of the instrument." Herdisia N. V. v. La Berita, Inc., 2012 WL 1742535 at *3 (Okla. 2012).
For better understanding of the four corners rule, consider the case of Ricks v. Budge, 161 Cal. App. 3d 1058 (1984). In Ricks, the court held that "[it] is general rule that an interpretation of a written instrument for any reason other than indecipherability is a judicial function, and . . . where the interpretation of a document is dependent in whole or in part upon oral evidence, there is a factual question to be determined by the jury." Ultimately, the four corners rule applies to allow for the factual questions to be addressed by the trier of fact.
There are two instances when the four corners will not control. The first is where extrinsic evidence may be admitted to prove the parties’ intent… extrinsic evidence is not restricted "solely to clarify an ambiguity although, such evidence is required to clarify an ambiguity." See Carmona v. Carmona, 233 Cal. App. 3d 1692, 1698-99 (1991).
The second instance when the four corners rule does not apply is when the court looks at two contract documents together. See Amaro v. Centennial Bank.
The Purpose and Importance of the Four Corners Rule
In contract law, the Four Corners Rule is more than a vague principle; it is a key fundamental that serves as a critical check on the limits of specific performance and the area of performability itself. Applied primarily to the language defining the wishes and expectations of the parties, it offers a framework for determining the meaning of the contract. It derives its importance from the reliance on objective evidence in securing performance of the written contract. Its application ensures that parties are held to explicitly stated terms rather than potential undisclosed motives or hidden understandings.
The primary purpose of the Four Corners Rule is to preserve the intent of the parties as expressed in the document itself. If a contract is well-drafted with explicit provisions, specific performance will almost certainly be granted. But if the contract appears to conflict with other documents or circumstances, or if its language is subject to different interpretations, the Four Corners Rule acknowledges the potential limitations of a written contract. The Rule is also designed to prefer enforcement of the agreement to invalidation by means of extrinsic evidence. Thus, the Rule strikes a delicate balance between maintaining the integrity of the written terms and the whole surrounding context of the obligations. It also serves as a bedrock principle for robust drafting legal contracts as it harnesses the written agreement to ensure objective and verifiable performance, thereby limiting the scope for the type of gamesmanship and opportunism that would corrode the very bedrock of contractual justice.
How Does it Work in Court Cases?
In contract interpretation, the Four Corners Rule applies almost universally. When interpreting a contract against multiple conflicting provisions, the rule generally prevails. It states that within a contract, where there are multiple conflicting provisions, the clear and unambiguous one of superior importance governs. The first step to contract interpretation is to determine whether there are any ambiguities in the contract. If the contract is ambiguous, then the court will determine if the 1) the parties’ exchanged contradictory terms that provide alternative views with respect to a party’s right or duty; or 2) the terms provide alternate courses of performance that are available to a party. If so, then the court will attempt to harmonize them, or state the contract is unenforceable if it is impossible to do so. There are two schools of thought on making contradictory contract provisions work together, or simply striking provisions as unenforceable. For example, some contracts refer to "hold harmless", while others to "indemnity" as the basis for liability. An indemnity clause may provide a broader scope than a hold harmless clause. Some courts will refer to the "intent of the parties" clause, and attempt to harmonize the two clauses together, such as in the case of Cincinnati Ins. Co. v. Purdin 48F.3d 1146 (5th Cir. 1995). In the case of Cincinnati, the court found a waiver of conflicting indemnity clauses by the purchaser. The 5th Circuit reversed the decision, and held that the indemnity clause was primary of significance, and "hold harmless" was a seemingly "innocuous" clause incorporated within the contract and not meant to contradict. The Keller v. Clear Channel Commc’ns Inc., 164 F. Supp. 2d 970 (N.D. Tex. 2001) court concluded that the "indemnify and hold harmless" clauses attempted to do the same thing, with the same intent, essentially harmonizing the two provisions, while finding that the "hold harmless" provisions were superfluous. In these cases, the intent of the parties was that they be contemporaneous. On the other hand, the courts in Great Lakes Chemical Corp. v. H.B. Fuller Co., 52 F.3d 180 (7th Cir. 1995); and Morris v. Texas Employers Ins. Ass’n, 77 F.3d 222 (5th Cir. 1996) found that imports of the contracts were mutually exclusive, and that they had the right to exercise their option not to have all the coverage.
When Does the Rule Have Exceptions?
Traditionally, exceptions to the four corners rule include instances when the contract was not integrated, or where there was a clerical mistake or a typographical error. However, another exception to the rule is when the parties did not intend to be contractually bound until a second writing was executed. A contract that remains subject to further negotiation documents, conditions, or approvals is not "fully integrated" and therefore is not yet binding. The parties may even submit the agreement to a third party for approval, and until that party approves the contract, the parties are not bound.
Another exception to the four corners rule arises in the context of fraud. In other words, if a plaintiff alleges fraud in the inducement, extrinsic evidence is admissible to show any contradiction between the written agreement and the alleged inducement, so long as the plaintiff does not seek to use the alleged inducement to contradict the express terms of the contract. Even when fraud exists, however, some jurisdictions support the idea that the plain language of the written agreement controls.
Other courts allow the introduction of extrinsic evidence even when it conflicts with the express terms of a contract to determine whether the parties had a meeting of the minds. This is known as the "four corners" exception. In this situation, the parties have implicitly agreed to leave some matters open for later settlement, and such parties’ intent is best measured by consideration of extrinsic evidence. For the four corners exception to apply, however, the extrinsic evidence must be relevant and about prior statements.
"Myriad" is another exception to the four corners rule. Under the "myriad" exception, a contract consisting of multiple writings may be considered as one document for purposes of determining whether a contract is integrated and defeated by the existence of an oral agreement. The parol evidence is admissible to resolve ambiguities and inconsistencies between multiple writings.
Other Rules for Interpreting Contracts
The Four Corners Rule is but one of the many contract interpretation rules that exist in the English common law. It is most closely related to the Parol Evidence Rule, which prevents the introduction of certain extrinsic evidence, but which has no real application as a contract interpretation canon until the contract at hand has been first deemed sufficiently ambiguous that extrinsic evidence is admissible. The Four Corners Rule also bears similarities to the contra proferentem doctrine, which applies the common-sense maxim that any ambiguity in a document will be construed against the party that wrote it. Of course, the most well-known contract interpretation canon is the plain meaning rule, which although it is conceptually similar to the Four Corners Rule, is frequently misapplied or ignored in favor of extrinsic evidence . The Four Corners Rule provides a certain procedural certainty to the contract interpretation process by requiring that a contract be sufficiently ambiguous before the court can look outside it for interpretive guidance. While the Four Corners Rule provides for the stability of an interpretive closure based solely on the text of the contract, the resulting strictness can be a drawn-out process where the contract party left the ambiguity unresolved, leaving the party without the result corresponding to its original bargain. In such a situation, however, the aggrieved party is best advised to litigate its case in the court system that honors the Four Corners Rule the most.
Criticism and Limitations of the Rule
Despite its longevity, the Four Corners Rule has been criticized on a number of different levels. First, it is often criticized for being too rigid and not allowing for extrinsic evidence under any circumstances. Some courts have also criticized the rule for placing too much emphasis on the written agreements themselves. In accordance with the doctrine of "freedom of contract" courts have been criticized for placing too much emphasis on the written terms without taking into consideration the parties’ intent or any surrounding circumstances. The rule has also been criticized for its openness to judicial manipulation and the inequities that can often result. Because the rule allows the admission of parol evidence when the terms of the contract are ambiguities, courts can decide what is and is not an ambiguity and then determine whether the extrinsic evidence fits into that previously determined category or not. The rule has been criticized for allowing judges to become a party to a contract, and then resolving any ambiguities they have created by reading in their own terms and conditions. Additionally, courts have criticized the rule for being contradictory in that it excludes extrinsic evidence while at the same time permitting the use of parol evidence to clarify the meaning of terms. Even the modern application of the rule provides a certain amount of leeway for courts to admit extrinsic evidence of parol agreement, thus rejecting the strict notion that an agreement is limited to what it states in writing. The Four Corners Rule is also criticized for being a poor approach to determining the intent of the parties. Critics argue that the rule places too much weight on the written terms and conditions to the exclusion of other sources. While it is true that principles of contract law mandate that contracts are policy in favor of enforcing scrupulously-drafted written agreements, critics argue that the Four Corners rule as drafted excludes too much relevant extrinsic evidence. Critics argue that it is overly restrictive and has led to what has been called "the sophisticated customization of contracts," which has created a quagmire of convoluted terms that are so difficult to interpret that they fail to further parties’ intent at all. An extension of this criticism is that the doctrine of freedom of contract is not upheld because the terms become ambiguous and illegible to even the most sophisticated readers of contracts, let alone the average person. Another criticism of the Four Corners rule is that it places too much emphasis on the written contract and too little attention on the parties themselves. In accordance with basic principles of contract law, the rule recognizes the equality of bargaining power and emphasizes the independence of parties that are unequal, rather than recognizing the equality and power of the parties. Specifically, the rule is criticized for allowing parties with superior bargaining power to dictate the terms of the agreement at the expense of fairness and justice. The rule has also been criticized for its insistence on relying on the privity of contract between the parties where one of the parties acts on behalf of another and is thus within the relationship of the two. Critics argue that privity should not be so strictly enforced when one of the parties effectively requires another party to act on its behalf. While the Four Corners Rule has been criticized for its rigidity, it has also been praised for its predictability and efficiency. Critics argue that the rule both constrains the court in its decision-making and therefore decreases litigation costs and creates predictability for the parties. Parties that are able to predict the outcome of disputes that may arise are more likely to plan accordingly and to allocate positions and make decisions based on that predictability.
The Importance of the Rule to Drafting Contracts
What do the Four Corners Rules of contract interpretation mean for contract drafting? It is a good reminder for legal drafters that they not only have to think about what they are putting into a contract, but also the way it should be interpreted later. The Fourth Circuit provided good insight in a 1959 breach of contract case where it stated the following about what it termed the "totality of the circumstances" rule of contract interpretation: If after such a consideration the instrument remains ambiguous it becomes our duty to look to all relevant facts and circumstances of the transaction in an effort to determine the intent of the parties. We may be aided in so doing by considering such matters as the subject matter of the contract, the objective situation with respect thereto, the form of the contract, the position or status of the parties as revealed by it, the situation of the parties with reference to the subject matter of the contract, their actions thereunder, and in short, the circumstances attending the making of the contract. And where, as here, the contract is in form a final and complete writing, which is unambiguous on its face, such consideration should normally cease. Amoco Oil Co. v. Commercial Union Ins. Co., 468 F.2d 1003 (4th Cir. 1972). If a contract is unambiguous on its face, then the interpretation will cease at the four corners of that contract. If there is no contractual language that can be fairly interpreted to provide the remedy contended for, then the Court will not imply a right to that remedy . If the court cannot resolve an ambiguity based solely on the contract itself, a court will then consider any relevant extrinsic evidence to determine which of the two equally reasonable interpretations is more consistent with the agreement taken as a whole and in light of the parties’ conduct. So to avoid ambiguity in a contract, and to make sure that extrinsic evidence is not considered, the best legal practice is to draft contracts so that the terms are as clearly stated as possible. That is to say, if it is important that a party to a contract be a U.S. citizen, or over 40 years old, or male, or an employee of a certain organization, then be specific in the language of the agreement. If you want to limit the scope of the agreement’s application, be explicit about that through language such as "notwithstanding anything to the contrary," "except as otherwise contained herein," "without limitation," "subject to," "provided that," or "except." In addition, don’t rely on the more nebulous and often vague "as such time may allow," "subject to budgetary constraints," "governmental approvals," or "reasonableness" to be the subject of a contract generally. Clarify what you mean by "reasonableness," and what "reasonable" would mean in the specific context of this contract. Put the same level of thought and effort into your contract that you want a judge or jury to put into determining what you mean when you have a dispute.