Contract Intent: Everything You Need to Know
Contract intent is the mental attitude with which the parties enter into a contract. It is an important factor used for interpreting a contract.3 min read
2. Interpreting a Contract
3. Intent to Deceive
4. Letter of Intent
Contract intent is the mental attitude with which the parties enter into a contract. It is an important factor used for interpreting a contract.
What Is Intent?
In a contract, intent refers to the determination of parties to act or perform in a particular manner. It's a state of mind with which the parties entered into contractual obligations. Since it's difficult to prove the intent directly, it's often presumed from facts and circumstances of the contract.
Intent is different from motive, which causes a person to act in a certain way. Let's say, for instance, A threw a snowball at B, who was teasing him. A's intention might be to hit B, while his motive might be to stop B from teasing him.
The language of a written contract determines the intention of the parties.
Interpreting a Contract
In the case of a dispute between the contracting parties, courts use certain rules for interpreting the language of the contract. These rules have a common goal of ascertaining the intent of the parties. Courts usually base their judgment on the lawful intention of the parties behind entering into a contract.
To the extent possible, courts try to determine the parties' mutual intent from the written content of a contract. So, if the language used in a contract is clear, the intent can be determined based upon the language alone.
However, if there is ambiguity in the language, courts try to understand the intent through the course of dealing that took place between the parties. A course of dealing refers to a sequence of conduct before the said transaction took place. It often throws light on the circumstances that led the parties to form the contract.
While determining intent on the basis of the language, courts first interpret the used terms on the basis of their common meaning unless it appears that the words were used in a different sense. If it appears that the parties used the specific words in a technical sense, courts interpret those words on the basis of their trade usage (how they are used in the industry to which the contract pertains).
Courts usually stick to the four corners rule; wherever possible, they determine the intent from the text of the contract, without looking at anything else. Courts look outside the contract only when a contract term is ambiguous. A term is said to be ambiguous if normal interpretation does not go with the context of the term.
Courts use external parol evidence to resolve such ambiguity. As a general rule, any ambiguity in drafting is interpreted against the person drafting the contract. Since the objective is to ascertain the intention of the contracting parties, courts may ignore any express terms that hide the real intention through fraud or mistake.
In the case of a mutual mistake, courts may modify the contract on the basis of extrinsic evidence. However, such modification must consider real intention of the parties, and it must not prejudice any third party's interest.
A third party may not complain about such modification or seek to enforce the contract unless:
- It has rights under the contract, and it acquired such rights for a consideration, or
- It is a beneficiary of the contract.
Intent to Deceive
In order to prove fraudulent misrepresentation, you must prove intent to deceive. The accused must also be aware that he is providing false information or withholding material information.
The legal term for intention to do wrong is scienter. In the context of fraud in contracts, scienter normally exists:
- If a party knows that an important fact stated in the contract is not true.
- If a party had claimed that its statement was based on research, whereas no such research was conducted.
- If a party makes a statement without caring for its validity.
Note that willfully ignoring the validity of your statement can result in fraudulent representation.
Letter of Intent
LOI or a letter of intent outlines an agreement before the parties finalize it. It's usually prepared during the negotiation stage or immediately after negotiation to capture the main points of the deal.
Mostly used in the finance industry, an LOI is similar to a written contract since it includes binding provisions like non-disclosure agreement or an agreement to negotiate in good faith. However, since it's drafted as being subject to contract, it's not usually enforceable in entirety.
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