Contract Interpretation

Lawyers.com

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There are rules for interpreting written contracts in the event of a dispute among the parties to the contract. The courts seek to the intent of the parties at the time they entered into the contract. Rules for interpreting contract language have as their goal determination of the parties' intent.

Intention

The mutual intention of the parties at the time of the contract will govern the court's resolution of a contractual dispute if that intention can be determined and if that intention is lawful. If possible, the mutual intent of the parties will be determined only from the written terms of the contract. If the language of the contract is clear and definite, that language will determine the mutual intent of the parties.

Ordinary Meanings

In determining whether contract language is clear and definite, the court will give the words their ordinary and common meaning unless it is apparent that the parties used the words in a special or technical sense. If it is apparent that the words were used in their technical sense, the court will consider how the words are used by persons in the business or profession in which the words are used in a technical sense and interpret the words in that sense unless it is apparent that the parties did not intend such an interpretation.

Interpretation

Contracts are interpreted as a whole, if possible, in order to give effect to all parts of the contract. Also, a contract may be interpreted within the context that it was made and with recognition of the matters to which the contract relates. If there is more than one contract relating to a matter, the contracts may be considered together if they were entered into by the same parties and can be viewed as relating to a single overall transaction.

The court will not look outside the contract unless there is ambiguity in a contract provision. Contract provisions may be considered ambiguous if consideration of the plain meaning and context of the provision can lead to two or more reasonable constructions. To assist the court, parol (oral), written, or other evidence from outside the contract may be reviewed to resolve the ambiguity or to explain the contract and its context. In resolving ambiguities, the court may construe the ambiguity against the party to the contract causing the ambiguity.

In light of the objective to determine the mutual intent of the parties at the time the contract was entered into, a court may disregard written provisions in the contract that through fraud, mistake, or accident cause the contract to fail to express the true mutual intention of the parties. If it is contended that there has been a mutual mistake of the parties, the court may consider extrinsic evidence and the court may reform the contract. Such reformation, however, may not go beyond implementing the mutual intent of the parties and must avoid any prejudice to the interests of other persons if such interests were acquired in good faith and in return for consideration. A person who is not a party to the contract and who has no rights under the contract that were acquired for value or as an intended beneficiary of the contract may not seek enforcement of the contract and may not complain about reformation of the contract.