Which source may be used to interpret contract terms to explain the contract?

• A. The contract's ambiguous terms may be explained by prior course of performance
• B. The buyer's subjective understanding
• C. Public policy considerations
• D. The parties' current mood

Answer: (A)

Interpreting a contract term that is ambiguous is guided by evidence of how the contract has actually been performed. Prior course of performance looks at how the parties have acted under the contract in the past and uses that behavior to illuminate meaning, providing an objective basis for interpretation. For example, if the contract calls for delivering “as soon as possible” and deliveries have consistently happened within five days, that pattern helps explain what the parties meant by “as soon as possible.” This approach is allowed because it reflects outward, observable conduct rather than anyone’s private beliefs.

The buyer’s subjective understanding isn’t used in interpreting terms, since interpretation must be objective. Public policy considerations can influence enforceability or remedies in some contexts, but they don’t serve to explain ambiguous terms. The parties’ current mood is entirely irrelevant to meaning.