What Rules Guide the Courts in Interpreting Contracts?
If two parties fail to determine what the specific terms of a contract mean, they may seek to have the courts review the contract by filing a lawsuit.3 min read
It is important to know what rules guide the courts in interpreting contracts in the event you have a dispute over the:
If two parties fail to determine what the specific terms of a contract mean, they may seek to have the courts review the contract by filing a lawsuit. When this occurs, the court will then engage in contract interpretation to define the terms that would be closest to reflecting what the original intention of the parties was.
The need for contract interpretation often arises out of a mutual mistake in which both parties were mistaken about the terms or definitions of a contract. Mistakes can also be unilateral meaning that only one party had been mistaken. An example of a unilateral mistake would be whether delivery refers to delivery by air or ground services.
Performing a contract interpretation often will involve finding a balance between both the technical uses of terms as well as their every day understood meanings. When performing the interpretation, the court will interpret the document as a whole to determine in what context the contract was made.
When there are multiple contracts in force when deciding a matter, the court will often consider them together with the other contracts as one entity. During the process, the court will only look at the contract and not at anything outside of the contract unless they find some ambiguity in the drafting of the provisions of the contract. Ambiguity can occur due to vague language where the meaning can be interpreted in two ways.
The court may ask for assistance in the form of written, oral—also called parol— or other evidence that can help resolve any language ambiguity. There is the chance that the ambiguous language could be construed against the party who created it for causing the issue.
Sections of the contract may be disregarded if the provision in the contract failed to express the party's true intention either through:
When making the decision, the court will strive to determine the mutual intent of the contract and avoid making prejudices due to the interests of third parties to the contract.
What Does the Term Intention Mean?
Since the court will be determining mutual intention when interpreting contracts it is important to fully understand what intention means in contract law. The court will interpret the contract by deciding the mutual intention if:
- The intention can be determined.
- The intention is lawful.
The intention—why both parties entered into the contract—will need to be determined from the written terms listed in the contract. If this language is unclear and indiscernible, the court will look at the original dealings that occurred between the parties.
In the pursuit to determine the contract language, the court will give the words in the contract what is referred to as ordinary meaning unless the parties had clearly used it in a more technical sense. If it is apparent that the language was meant to be used in a technical sense, then the court will look at how those technical terms are often used in business and interpret that language in the way that it would most make sense for the contract.
Ordinary meaning is the standard that the court uses for determining the language of the contract. This is also known as the dictionary definition or common use. Unless the contract is shown to be using specific technical language, it will be interpreted using ordinary meaning.
Courts will often utilize the four corners rule, which means that the interpretation will only come from what is contained in the contract unless the language is ambiguous. Language can be determined to be ambiguous if it is possible that the plain meaning, as well as the meaning in context, can be different constructions.
Determining the Parties' Mutual Intentions
When determining the intentions of a contract the court will rely strictly on the provisions of the contract. For language that is clear and easy to define, the contract language will be deemed controlling.
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