II. The Importance of Writing

The centrality of the written word in the Middle Ages is reflected in the emphasis placed on deeds in the Royal Courts. A deed consisted of a very formal written contract using a wax seal. The popularity of deeds was part of a broader trend in the use of written documents.Footnote ¹⁷ In the 1320s, a deed became the only valid mode of proof in actions of covenant in Royal Courts whereas previously an oral agreement had been sufficient.Footnote ¹⁸ Following the invention of conditional bonds, debt using a bond (a form of deed) became available in a wide range of transactions beyond a simple money debt.Footnote ¹⁹ The bond was so powerful that it could not be discharged by a verbal agreement or repayment;Footnote ²⁰ rather, it had to be cancelled or destroyed: “For if matter in writing could be so easily be defeated […] by naked breath, a matter in writing would be of no greater authority than a matter of fact.”Footnote ²¹

The mid-thirteenth-century law treatise, Bracton, asserts that in the face of obvious errors in a written instrument it was necessary to give a “favourable” or “benign” interpretation.Footnote ²² If Bracton accurately reflected contemporary legal practice on this pointFootnote ²³ then it suggests that it was sometimes possible, in narrow circumstances, to go behind the literal meaning. This did not necessarily allow consideration of context more broadly. There was a more visible move in that direction in the sixteenth century when more weight began to be placed on the intentions of the parties at the expense of the words of the contract.Footnote ²⁴ By the seventeenth century, however, the ground had shifted again. Any search for intention became stultified by a larger set of rules designed for interpreting deeds. Writing in his Commentary on Littleton,Footnote ²⁵ Edward Coke laid down maxims of construction. One of these states that “the law shall not make an exposition against the express words of the parties, when this way stands with the law”.Footnote ²⁶ Lord Coke made similar remarks on the Bench in Butt’s Case.Footnote ²⁷ A few decades later, William Sheppard developed even more comprehensive rules.Footnote ²⁸ Sheppard wrote that “[i]n the construction of deeds it must be observed that there are some general rules that are applicable to all the parts of all kinds of deeds”.Footnote ²⁹ Sheppard listed 11 “general” rules. Some, such as his first rule, which mirrored one of Coke’s rules, were expressed in broad terms: “That the construction be favourable and as near to the minds and apparent intents of the parties as possibly it may be and law will permit.”Footnote ³⁰ Sheppard then went on to discuss more specific types of deed based on summaries of earlier authorities.Footnote ³¹

McCunn has argued that, by the seventeenth century, judges had started to become concerned about “the uncertainties of liberal construction” leading to their ascertaining contractual intention against the backdrop of legal rules of interpretation.Footnote ³² This is textualism of a narrow sort. It is not merely that the court focuses on the words, rather than the wider context, but that it does so against a backdrop of rules of interpretation. It was still possible to depart from a literal meaning when it led to unfair outcomes, but this was a rather narrow exception that was not commonly applied.Footnote ³³ Deeds actually declined in significance following the emergence of the action of assumpsit which replaced debt as the main contract action in the seventeenth century.Footnote ³⁴ In assumpsit neither a deed nor even writing was required unless the contract fell within the Statute of Frauds of 1677.Footnote ³⁵ It might have been expected as deeds became less central and simple contracts (i.e. those without a deed and either written or oral) became commonplace, that it would be easier to deviate from the literal interpretation of contracts. In fact, there were other obstacles to departing from a textual approach precisely because of this legal procedure.

III. Legal Procedure

The way that deeds had dominated for so long may have encouraged a certain literalism when interpreting contracts, even once deeds were no longer so central. Procedural obstacles still made it difficult for a court to go beyond the words of the contract. The parol evidence rule prevented evidence extrinsic from the words in the document to add to, vary or contradict the written instrument.Footnote ³⁶ Strictly speaking this was not a prohibition on using extrinsic evidence to interpret the contract as opposed to varying it. The boundary between the two might be difficult to draw. At the very least the presence of such a rule suggests a certain wariness towards testimony, as explained by Lord Coke:

There were other limits on testimony. Before the 1850s, the parties in common-law litigation were prohibited from giving evidence.Footnote ³⁸ Practically speaking this made it difficult to investigate the background of the transaction and thereby further encouraged, but did not mandate, a focus on the text. There is an illuminating point of contrast between the common law and equity on this point.

The Court of Chancery was a separate jurisdiction before the nineteenth century. Different procedures were followed. The parties to a contract could be examined on interrogatories recorded in written dispositions and submitted to the full court.Footnote ³⁹ Using party testimony it was easier to get to the bottom of matters such as fraud and mistake.Footnote ⁴⁰ It was also valuable when rectifying written contracts. Rectification involved interpretation by another means. To rectify a contract, it was necessary to show that the written version of the contract failed to reflect the true intentions of the parties. It forced a court to openly confront the relationship between the written words, as an expression of the literal meaning, and the context of the transaction, as a reflection of the parties’ intention. The trickle of authority on rectification from the sixteenth century had grown by the eighteenth century.Footnote ⁴¹ A series of decisions of Lord Hardwicke L.C. shows how the background to the transaction informed the way in which a court could establish the true intentions of the parties. He was quite explicit regarding the correct approach in a decision involving an insurance policy, Henkle v Royal Exchange Assurance Company,Footnote ⁴² even though on the facts he refused to rectify the agreement. There were, he said, two considerations: “The first question is, whether it sufficiently appears to the court, that this policy which is a contract in writing, has been framed contrary to the intent and real agreement? Secondly, supposing it so, whether this is such a case, under the circumstances of it and nature of the trade, as that the court ought to interpose and relieve.”Footnote ⁴³ Other decisions by the same judge also emphasised the importance of the commercial context and nature of the parties when rectifying a contract.Footnote ⁴⁴

Rectification was one aspect of contract enforcement in Chancery. By the fifteenth century there was already an established jurisdiction over contracts including informal agreements for the sale of real property.Footnote ⁴⁵ The basis of that jurisdiction was good conscience, allowing equity judges to consider the broader context of the transaction. This process might involve balancing competing factors and was certainly not an inquiry merely focused on the text. From the sixteenth century, the Court of Chancery had made a concerted attempt to regulate contractual penalty clauses.Footnote ⁴⁶ By the late seventeenth century, it was clear from Lord Nottingham’s judgments that when determining if a clause was a penalty a court was striking a balance between unfair advantage taking and the principle that parties should stick to an agreement freely entered into.Footnote ⁴⁷ By its nature, this was not an inquiry that could be confined to the text of the contract. The discussion so far may seem to suggest that the process of contractual interpretation more generally was quite an arid exercise which, at least from the seventeenth century onwards, placed greater emphasis on the words of the contract within a framework of rules about how those words should be interpreted. By the eighteenth century, a more contextual approach was becoming evident in the process of interpreting some contracts.

IV. Interpretation and Commercial Contracts in the Eighteenth Century

The growth in commercial trade in the seventeenth century prompted English merchants to speculate on the relationship between the law and their continued prosperity. Several writers made unflattering comparisons with Holland.Footnote ⁴⁸ One of them, Josiah Child, complained that “[a]fter great expenses of time and money, it is as well if we can make our own counsel (being common lawyers) understand one half our case, we being amongst them as in a foreign country, our language strange to them, and theirs strange to us”.Footnote ⁴⁹ His remarks have powerful rhetorical force but the reality was more complex. In earlier centuries, special mercantile forums were exceptionally important;Footnote ⁵⁰ even as these lost ground to the common law courts,Footnote ⁵¹ a residue of mercantile custom and usage was left behind. Mercantile transactions began to be enforced in the common-law action of assumpsit and in the process generated some friction between older mercantile customs and the common law. One example is found in the debates about transferability and negotiability of bills and notes in the decades either side of 1700.Footnote ⁵² The creation of new rules around practices that were supposedly unfamiliar to common lawyers made it impossible to interpret a contract literally. Until a settled meaning emerged, it was necessary to consider the meaning attributed by merchants in their day to day working lives. Context was vital. This sort of evidence could be brought before a court without the parties giving testimony. In the 1670s, Mathew Hale described the practice of other merchants appearing as witnesses and the use of mercantile jurors.Footnote ⁵³ Witnesses might be called to explain a particular trade usage.Footnote ⁵⁴ Mercantile juries were an important kind of special jury which brought their expertise to bear on commercial disputes during the eighteenth century when some of the law of contract was still relatively fluid.Footnote ⁵⁵ All this rather raises the question of the extent to which mercantile custom and usage influenced the way in which contracts, at least between merchants, were interpreted.

When it is said that the courts considered the context of a mercantile contract, this might mean different things. Context might mean drawing on mercantile custom to interpret the meaning of contracts. Context, when equated with custom, was used in a way that extended beyond the parties. It referred to mercantile custom as it universally applied. Mercantile custom was commonly pleaded in assumpsit claims during the seventeenth century.Footnote ⁵⁶ At a time when, for example, negotiable instruments were still developing in the common law, custom was important in shaping legal doctrine. Once the law was settled, the situation changed and custom could not contradict the common law without causing the kind of problems seen in the emergence of promissory notes.Footnote ⁵⁷

Trade usage was distinct from custom.Footnote ⁵⁸ Whilst custom, for a period at least, was pleaded and, to an extent, absorbed into the common law, usage could not strictly speaking contradict the law.Footnote ⁵⁹ Trade usage might nevertheless still impact the way in which contracts were interpreted. It might be thought that commercial parties operate according to the standard usage of their business. Judges of the era were keen to ensure that the common law did not put up barriers, for example, by stopping merchants from achieving their aims as reflected in their normal usage. In the 1740s, Willes C.J. explained that “[c]ourts of Law have always in mercantile affairs endeavoured to adapt rules of law to the course and method of trade in order to promote trade and commerce instead of doing it any hurt”.Footnote ⁶⁰ Rather than ignoring the context of the transaction and just focusing on the words used, the context was treated as central. Relevant context at this time might include the nature of the contract as well as a particular narrow trade usage. Carter v Boehm,Footnote ⁶¹ a decision best remembered today for ruling that contracts of insurance should impose a duty of disclosure, carefully considered the nature of the contractFootnote ⁶² alongside trade usage:

On this occasion, Lord Mansfield very clearly did not confine himself merely to the words of the contract. Similar examples appear in his trial notes.Footnote ⁶⁴ Another situation in which the context of a contract was prominent during this period concerned contracts that were the subject of a statutory prohibition. In interpreting the words of the contract, it was necessary to consider the purpose of the contract, in order to determine if it fell within the prohibition. A focus on the literal meaning might not be able to achieve that end. By the eighteenth century, interest on loans was limited to 5 per cent per annum.Footnote ⁶⁵ Lenders inevitably tried to avoid the cap.Footnote ⁶⁶ Mark Ord complained that as a result, “after a long contest between the usurer and the legislature, the ingenuity of the former hath prevailed over the authority of the latter; for the legislature have never yet been able to extirpate the practices of usurers, to get extravagant interest”.Footnote ⁶⁷

If courts had confined themselves to considering the words of the contract alone in a literal sense, it would have been relatively easy to evade the statutory restrictions. Loan transactions were, after all, commonly dressed up in the language of annuities. When, in Richards v Brown,Footnote ⁶⁸ a mercantile jury delivered a verdict that a loan in the form of an annuity was non-usurious, Lord Mansfield asked them the same question a second time, urging the jury to distinguish the form and substance of the transaction.Footnote ⁶⁹ The jury changed its verdict. Lord Mansfield explained: “The question is, what was the substance of the transaction, and the true intent and meaning of the parties? For they alone are to govern, and not the words used.”Footnote ⁷⁰ A contract might be usurious on its faceFootnote ⁷¹ but more often, as Lord Hardwicke L.C. noted, “I really believe in my conscience that ninety-nine in a hundred of these bargains are nothing but loans turned into this shape to avoid the statutes of usury”.Footnote ⁷² In this instance, the words of the transaction alone, without context, were insufficient to determine character of the contract. When Lord Mansfield talked about the substance of the transaction, his language makes clear that he was referring to its intended purpose. In the same way it had become necessary to distinguish between marine insurance and life insurance, which were valid, and wagers, which were void.Footnote ⁷³

A judicial willingness to go beyond the words of the contract was not confined to novel kinds of commercial contracts or ones that potentially evaded a statutory restriction. Some of the same techniques were used in the way that courts interpreted contractual conditions during the same period. In Kingston v Preston,Footnote ⁷⁴ Lord Mansfield appeared to stress the intended effect of the agreement when interpreting a condition in language, echoing the approach a few decades earlier.Footnote ⁷⁵ In the process of determining the intention of the parties, Lord Mansfield seems to have been influenced less by some abstract rule, or objective intention in the modern sense, than by the business setting and aim of the contract.Footnote ⁷⁶ Ashhurst J. also emphasised the “nature of the transaction”,Footnote ⁷⁷ whilst Ashton J. suggested that it was a matter of “intent and legal construction” but also seems to have considered the background to the transaction.Footnote ⁷⁸

The context of contractual conditions can mean more than one thing. Some decisions placed greater stress on the intended effect of the contract rather than on a literal interpretation of the words used. Lord Mansfield, this time in Boone v Eyre,Footnote ⁷⁹ said:

Judges switched between different techniques. Lord Kenyon was sometimes prepared to stress intentionFootnote ⁸⁰ but on other occasions he suggested that the outcome must depend on “the good sense of the case” and then proceeded to examine the facts against the criteria of whether the covenant went to the “whole of the consideration”.Footnote ⁸¹ Both of these approaches left open the possibility that context might be a relevant consideration but with some differences in emphasis. The same judge, in the mid-1790s, stumbled on the truth when he described the different techniques used to interpret a condition as “the convenience of the case, the intention of the parties, or the words of the instrument”.Footnote ⁸²

The same approach towards contractual conditions continued into the early nineteenth century. Lord Ellenborough in Ritchie v Atkinson explained that the nature of a condition “depends not on any formal arrangement of the words, but on the reason and sense of the thing, as it is to be collected from the whole contract: whether of two things reciprocally stipulated to be done, the performance of the one does in sense and reason depend upon the performance of the other”.Footnote ⁸³ His focus was on the intended effect of the contract over the words used. For him, the question was what the parties were trying to achieve, however they expressed themselves. The other judges on this occasion reached the same conclusion in a similar way.Footnote ⁸⁴ All of them went beyond the text. Bayley J. was particularly explicit on the point when he said that “[n]ot that those words would control the meaning of the subsequent words, if it clearly appeared that a condition precedent was intended by them”.Footnote ⁸⁵

V. Interpretation and Commercial Contracts in the Nineteenth Century

The eighteenth century saw rapid developments in commercial contracting. In keeping pace with these developments, it was necessary for judges to draw on the context of the agreement as represented by custom and commercial usage. These might be said to facilitate contracting. On other occasions, looking to the broader context had the opposite effect. A statutory provision made it necessary to consider whether it had been the purpose of a commercial loan agreement to frustrate the wording of the contract. By the early nineteenth century there was a considerable body of law on the meaning of commercial contracts. Commercial contracts were increasingly lengthy, reflecting a desire to avoid settled default rules.Footnote ⁸⁶ Standard form contracting also became more common.Footnote ⁸⁷ Both of these developments might be thought to exclude trade usage, particularly since it was accepted that usage could not be used to contradict a written contract.Footnote ⁸⁸ Yet, from early in the nineteenth century, trade usage continued to be important in the way in which contracts were interpreted.Footnote ⁸⁹ John Balfour Browne, in his work on usage and customs in 1870, made the point:

It started to be assumed that the meaning of contracts reflected normal trade usage unless the contract stated otherwise.Footnote ⁹¹ Baron Parke noted in the 1850s that “[t]he custom of trade, which is a matter of evidence, may be used to annex incidents to all written contracts, commercial or agricultural, and others, which do not by their terms exclude it, upon the presumption that the parties have contracted with reference to such usage, if it is applicable”.Footnote ⁹² The continued relevance of trade usage is shown by the fact it was sometime necessary for it to be excluded, for example, when interpreting words of general import such as “about” or “more or less”.Footnote ⁹³

The most obvious role for trade usage was as a means to resolve ambiguity in a contract.Footnote ⁹⁴ It was also important when a contract was silent.Footnote ⁹⁵ Tindal C.J. explained:

In these situations, the character of a particular market, for example in one location, might certainly determine the meaning of a contract.Footnote ⁹⁷

Behind the formal legal rules about the evidence that could be used to interpret a contract, there were a range of other factors that might have allowed trade practices to influence the outcome of contract litigation. Some of these factors can only be a matter of speculation. Cranston shows that by the late nineteenth century, trade organisations were very involved in drafting standard-term contracts for their members.Footnote ⁹⁸ This process may have helped to reduce the scope of disputes, particularly as some of these contracts, for example those involving the Liverpool cotton brokers, included an arbitration clause backed up by a mechanism for arbitration.Footnote ⁹⁹

The entire rationale of mercantile juries a century earlier was to bring their commercial expertise to litigation and they continued to be both used and influential until at least the middle of the nineteenth century.Footnote ¹⁰⁰ Away from a special jury of merchants, the general civil jury remained central to the civil trial process. A rigid division between questions of law and fact would only begin to emerge slowly in the late eighteenth century.Footnote ¹⁰¹ It is difficult to speculate on how civil juries might have decided cases, as their reasoning is not reported. The temptation for any type of jury must sometimes have been to go beyond the words used when interpreting the contract. From the middle of the nineteenth century the civil jury was in decline, but it was a long way from disappearing.Footnote ¹⁰² One of the criticisms of juries was that they tended to consider inappropriate and irrelevant matters,Footnote ¹⁰³ so it was perfectly possible that they could, and did, bring outside experiences and expertise to the decision. Some even saw the application of commercial knowledge as a strength of the general civil jury.Footnote ¹⁰⁴ The civil jury remained influential, but as it began to be sidelined by procedural changes, an avenue that indirectly brought commercial considerations into court deliberations began to be closed off. Trade usage remained relevant, but it was no longer determined by the mere whim of jurors. It was now something that had to be mediated through the application of legal rules. The decline of the civil jury did not mean that a contextual approach was no longer possible, but it became something that had to be done more formally and transparently by a judge. At the same time, it would be naïve to assume that judges forgot their knowledge of business practice when it came to interpreting contracts.Footnote ¹⁰⁵ It also needs to be remembered that many claims did not even get before a jury in the superior courts. The County Court was the primary forum for small claims from the 1840s.Footnote ¹⁰⁶ Much of the litigation heard there would have consisted of simple debt cases. Irrespective of the type of contract at issue, it seems likely that judges in that court were likely to apply a degree of pragmatic common sense rather than complex legal rules of construction and, like juries, may have gone outside the text of the contract.Footnote ¹⁰⁷

VI. The Attraction of Rules: The Legal Writers

While the courts in the eighteenth century began to consider the context of contracts in various ways, the textual approach did not disappear from legal commentaries, although it did take on slightly different forms. In the 1720s Jeffrey Gilbert separated the rules for constructing deedFootnote ¹⁰⁸ from those for dealing with written contracts more broadly.Footnote ¹⁰⁹ The latter situation was discussed in the context of a written condition in a contract of apprenticeship.Footnote ¹¹⁰ Gilbert was careful to restate the parol evidence rule, thereby stressing the importance of the written words. There was nothing new in using intention to explain contract construction.Footnote ¹¹¹ More novel was the way in which Gilbert explicitly linked intention to a “union of minds”, although no source was provided. Henry Ballow’s A Treatise of Equity contained the similar observation that contracts were formed by consent.Footnote ¹¹² The Natural lawyer, Samuel Pufendorf, was his most obvious inspiration.Footnote ¹¹³ Ballow said very little about contractual construction beyond a passing comment on legacies and, in a later edition, Fonblanque added a note on the parol evidence rule.Footnote ¹¹⁴

John Joseph Powell, writing in the closing years of the eighteenth century, argued that contracts were created by assent but devoted a much greater part of his Essays Upon the Law of Contracts Footnote ¹¹⁵ to the issue of construction than either Gilbert or Ballow. In a chapter headed “Of the Interpretation of Contracts and Agreements”, Powell wrote that “[c]onstruction is the drawing an inference, by the aid of reason, as to the intent of an instrument from given circumstances upon principles, deduced from men’s general motives, conduct and actions”.Footnote ¹¹⁶ Powell went on to explain that both parties must “assent” and that because “these signs may sometimes be taken in different senses, it is necessary there should be some rule to find out which is true and genuine”.Footnote ¹¹⁷ The basic rule still remained that, “unless there be the most decisive reasons which lead us to conjecture the intent was otherwise, they [the parties’ words] are to be understood in their proper and most known signification”.Footnote ¹¹⁸ Powell went on to lay down a number of other rules, all of which were designed to determine the intentions of the parties.Footnote ¹¹⁹ At the same time, Powell recognised the limits of textualism. To give accurate meaning to words, he wrote, it is necessary that they are “understood in their proper and most known signification” or, as we might say, that the context of the transaction is not divorced from the text. This pragmatism was also evident in the next generation of legal writers.

By the 1820s, the intellectual framework of contract law in England was changing.Footnote ¹²⁰ English writers took up an idea borrowed from the Frenchman Robert Joseph Pothier, that contracts were formed by a meeting of wills. His insights had implications for contractual interpretation. Pothier was translated by Sir William Evans as A Treatise on the Law of Obligations or Contracts.Footnote ¹²¹ One consequence of the idea that contracts were formed by the meeting of wills was to put party intention, only infrequently referred to in earlier centuries, at the centre of the nineteenth-century treatment of contracts. It might be thought that if contracts were formed by a meeting of wills the only question to be addressed was what the parties to the contract intended or willed. Pothier did not regard this as an unstructured exercise; rather he laid down his own rules of construction.Footnote ¹²² Evans observed in his commentary that “Pothier only gives the general rules and illustrations” and referred to more detailed treatments which included his own appendix on the subject.Footnote ¹²³ Pothier set out 12 rules of construction at some length. An English contemporary, Samuel Comyn, a traditional writer in many respects, nevertheless borrowed his own treatment from Pothier, describing it as “quite consonant to the principles of English law, and to the practice of our courts”.Footnote ¹²⁴

As a group, English writers had slightly different views on the importance of rules of construction. In 1818, the Anglo-Indian writer Henry Colebrooke wrote that “[t]he leading principle is, that the intentions of the parties, as expressed or implied, shall be the rule of construction. Particular maxims of interpretation are illustrations of that principle, rather than substantive and authoritative rules of law”.Footnote ¹²⁵ Colebrooke was not a typical treatise writer of the period and his work may not fully reflect the English law of contract of his time,Footnote ¹²⁶ but he was not unique in his approach towards interpretation. In the 1860s, having discussed the subject of contractual conditions Stephen Leake said that rules and maxims were “only indicative of the intentions of the parties generally”.Footnote ¹²⁷ Leake was a significant figure whose treatise has been said to mark “the beginning of a modern approach to contract writing”.Footnote ¹²⁸

Joseph Chitty, on the other hand, wrote with an audience of practitioners in mind and probably had a greater understanding of the way that contract law operated in practice than Colebrooke and Leake. He provided the following justification for rules of construction: “The maxims for the exposition of contracts are simple and consistent and well calculated to effect their sole object; namely, to do justice between the parties by enforcing a performance of their agreement, according to the sense in which they mutually understood it at the time it was made.”Footnote ¹²⁹ Chitty treated contracts as formed by assent,Footnote ¹³⁰ but he was still not prepared to leave the process of construction to an unrestricted search for intention. At the same time, he did not favour the kind of detailed rules favoured by Pothier. Rather, Chitty attempted a compromise between unstructured intention and detailed rules of construction. He made do with four maxims: the construction shall be reasonable; the construction shall be favourable; the popular meaning of words to be adopted; and the whole agreement is to be considered.Footnote ¹³¹ In the second edition of his treatise, he added a fifth maxim: that the construction shall be liberal.Footnote ¹³² By this he meant that “the term shall prevail according to their most comprehensive popular sense”.Footnote ¹³³ When John Russell became editor in 1850 he retained the original structure although more details were added.Footnote ¹³⁴ The basic format continued unchanged into the twentieth century.Footnote ¹³⁵

Other writers went further in developing even more detailed rules of interpretation. In his edition of Saunders’s Reports in the late eighteenth century, Serjeant Williams complained when discussing conditions that “almost all of the old cases, and many of the modern ones on this subject, are decided upon distinctions so nice and technical, that it is very difficult, if not impractical, to deduce from them any certain rule or principle”.Footnote ¹³⁶ Williams nevertheless still resorted to a series of rules of interpretation. By the 1871 edition of the reports, edited by his son, Sir Edward Vaughan Williams, these rules were spread across five pages.Footnote ¹³⁷ Williams’s rules were often relied upon in argumentFootnote ¹³⁸ and referred in judgments.Footnote ¹³⁹ They were then repeated in the influential John William Smith’s, Leading Cases.Footnote ¹⁴⁰

Will theory had become deeply ingrained by the middle of the nineteenth century. By adopting rules of construction, these writers in some way shifted the focus back away from the context of the transaction onto the words of the text. But this only went so far. The rules, or at least maxims of construction, when used by someone like Chitty were still quite broad and explicitly seen as sitting beneath a wider principle that the court should determine the intention of the parties. The leading author on contract law of the period, Frederick Pollock, was at the opposite end of the scale to Serjeant Williams in that he said relatively little about the process of interpretation. In a chapter headed “Mistake in Expressing True Consent”, he tellingly made the following point about construing contracts: “The end proposed is to give effect to the true intentions of the parties concerned. Intention has to be inferred from words, or conduct or both. In making these inferences conduct must generally be interpreted, and words may often be interpreted, by reference to other relevant circumstances of the transaction.”Footnote ¹⁴¹ Pollock gave a very modern description of the process of construction. There is no lengthy list of rules of construction. He recognised the value of the text but also thought that “conduct” was relevant, although he was not very precise about what that meant. It was clear that he did not think the words in themselves were enough. In practice, and away from the law books, the scope for debates about interpretation was narrowing. Commercial transactions were much more tried and tested than a century earlier.

In lectures delivered in the 1840s, William Smith noted that interpretation involved discovering “the intent of the parties” but also explained that for “a sale or other simple transaction” that “necessity does not arise”.Footnote ¹⁴² Writing in the same period, Colin Blackburn, the future judge, would claim that “the intention must be collected from the whole agreement, and the Courts have within the last fifty years adopted for this purpose some rules of construction which are, perhaps, some of them a little artificial”.Footnote ¹⁴³ Pollock’s approach exposed a tension at the heart of the way that will theory was absorbed into English law. If contract was formed by consent, then the obvious starting point when interpreting a contract was to look at the intentions of the parties. There was no need to be too concerned with rules of construction. Yet intention brought its own problems. When Lords Hardwicke and Mansfield referred to intention they were referring to the subjective intentions of the parties. By the nineteenth century, there was a shift to an objective test for intention.Footnote ¹⁴⁴ Perillo argues that this was partly a reaction to the fact that parties could now appear as witnesses, which generated concerns about the risk of perjury.Footnote ¹⁴⁵ Just a few years before Pollock published his treatise, Blackburn J., in Smith v Hughes,Footnote ¹⁴⁶ had emphasised the importance of an objective reasonable person when it came to determining contract formation. There were still examples of subjective thinking at this time.Footnote ¹⁴⁷ When an objective test is combined with rules of interpretation it narrows the scope of inquiry. This is not to say that the context is never relevant. Trade usage might be highly relevant. But it is only relevant in a more structured manner.

VII. Penalty Clauses, Intention, Rules of Construction and Context

Although the rules of construction which emerged in the first half of the nineteenth century were sometimes lengthy, they did not always provide a certain outcome. Pollock was not alone in recognising that the surrounding circumstances might be relevant. Charles Addison’s description of the method of construing deeds would not look out of place today when he said that in order to “arrive at the real intention of the parties […] all the surrounding facts and circumstances may be taken into consideration”.Footnote ¹⁴⁸ This was not just a matter of rhetoric. The relationship between intention, rules of construction and the effect of a contract was thrown into sharp relief by the law surrounding contractual penalty clauses. It shows the reality facing judges presented with tricky matters of interpretation.

The way in which the common law came to regulate penalties at all is a complex story.Footnote ¹⁴⁹ By the early nineteenth century, common-law judges were left trying to define an illegitimate penalty. In Astley v Weldon,Footnote ¹⁵⁰ Lord Eldon observed that, he was “much embarrassed in ascertaining the principle upon which those cases were founded”.Footnote ¹⁵¹ His starting point was that even a “very enormous and excessive” sum could be for liquidated damages (and therefore legitimate) provided it was intended to be a genuine pre-estimate of loss.Footnote ¹⁵² The situation was different when there were several conditions in the agreement and the sum in the clause was payable on breach of any term, whether trivial or serious.Footnote ¹⁵³ Having set down a list of conditions on both sides, the agreement stated that “either of them neglecting to perform that agreement should pay the other £200”. As a result, it was held to be a penalty. Heath J. agreed with this view.Footnote ¹⁵⁴ The other two judges stressed that, in the words of Rooke J., a court “must be guided by the intention of the parties”.Footnote ¹⁵⁵ Chambre J. made a similar reference to intention.Footnote ¹⁵⁶ But both judges whilst emphasising intention concentrated on the effect or consequence of the contract as a means of determining that intention. This approach differed very little in practice from Lord Eldon’s. As Chambre J. explained, “[i]n this case it is impossible to garble the covenants, and to hold that in one case the Plaintiff shall recover only for the damages sustained, and in another that he shall recover the penalty: the concluding clause applies equally to all the covenants”.Footnote ¹⁵⁷ Other judges relied solely on the label used in the contract to determine if the clause was a penalty.Footnote ¹⁵⁸ A new consensus emerged in the 1830s. Any authorities inconsistent with Astley v Weldon were treated as wrongly decided.Footnote ¹⁵⁹ In Kemble v Farren Footnote ¹⁶⁰ an agreement described “to be liquidated and ascertained damages, and not a penalty or penal sum”Footnote ¹⁶¹ was assessed by Tindal C.J. as a penalty because the clause applied to various breaches of differing severity. He clearly ignored the language used in the text and looked to the effect of the contract.Footnote ¹⁶²

In the 1870s, William Anson described Kemble v Farren as the “leading case”Footnote ¹⁶³ on penalties, which could be summarised in three rules:

1. 1. Where the contract was for a fixed sum and the amount was higher than the fixed sum, it was a penalty;

2. 2. Where the contract involved a liquidated sum and the amount was fixed, that need not be a penalty, except;

3. 3. Where the same sum was payable on different breaches, it was to be regarded as a penalty, “however strongly the parties may have expressed their intentions”.Footnote ¹⁶⁴

As a result, determining whether or not a clause was a penalty came to be viewed by Anson through the prism of rules of construction. It did not depend on the label used to describe the clause. It required a court to look at the intended effect of the contract, but in a rather narrow fashion. As Leake put it, “[t]his is a question of law, depending upon the matter of the agreement, and is not affected by the terms in which the parties have expressed their intention”.Footnote ¹⁶⁵

Frederick Pollock said very little about the distinction between a penalty and liquidated damages in his treatise, although he observed the issue “is often a very nice one”, by which he meant it was difficult to resolve.Footnote ¹⁶⁶ A few years earlier, Baron Martin could remark that, were it not for the earlier authorities, “I should be prepared to hold that parties are at liberty to enter into any bargain they please”.Footnote ¹⁶⁷ Some of the authorities of the 1820s still discussed the need to ascertain the real intentions of the parties,Footnote ¹⁶⁸ but by the middle of the century this justification was less prominent and the underlying reason, however it was expressed, turned on the intended effect of the contract mediated through rules of construction.