Last Updated on December 12, 2022 by Anda Malescu
This article covers the basics of contract interpretation principles in the United States and addresses common queries with respect to contract law as it stands today in the United States. Commercial contracts are often complex, comprising of numerous documents (for example terms and conditions, specification, schedules, annexes, and others). This can sometimes lead the readers into an ambiguous contract interpretation.
There are broad principles of contract interpretation (rather than strict rules) that courts apply if a dispute arises as to what the parties intended to say initially in the contract. It is highly recommended to get a well-written agreement from the outset. When one understands the basics of contract interpretation rules, one is able to recognize the importance of certain clauses and is able to ensure that the contract accurately reflects their intentions.
One of the most important aspects in applying contact interpretation principles would be to read the actual words of the contract in a straightforward objective manner. What do they actually say? More important, one must ask himself if the ordinary meaning of the words has been used in the agreement. Interpretation is based on an understanding of the contract by a reasonable hypothetical person who is aware of the context of the agreement and the factual background of the parties at the time they signed the contract.
However, using clear and concise words is not possible every time. Words can sometimes be ambiguous and lead the reader to understand something else. Where wording is ambiguous and there is more than one possible meaning, the court would probably interpret the contract using a commercial and business common sense, as long as this would not interfere with the natural meaning of the words used. The factual context and relevant background of the parties are important here; this helps the court to work out the true meaning of the words.
Furthermore, another important aspect is that in the United States, in most cases, negotiations prior to finalizing a contract are not admissible as evidence at trial. This can include either drafts of the contract or related communications between the parties prior to finalizing an agreement. Moreover, contracts usually contain implied terms as well. An implied term is a term that has not been expressly written down by the parties, but it is implied into the contract. This can be based either on a statute or precedent. The meaning of an implied term can still be developing through the decisions of the higher courts and some of the key principles courts established may apply for the future. A term is only implied if it is necessary to give business efficacy to the contract. Moreover, whether the term is implied or not is determined from a reasonable person point of view and the meaning must be understood by both parties to the contract at the time of execution.
Contact us or schedule a consultation with your business attorney in Miami, Florida USA to assist you with your legal needs and help you better understand and apply contract interpretation principles to your circumstance.
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