The article touches upon the general rules of contract interpretation in the United States. There are certain rules used by courts for interpreting written contracts in the event of a dispute among the parties. In general, the rules for interpreting contract language have the goal of determining the parties’ intent.
The mutual intention of the parties at the time of signing the contract would usually influence a court’s resolution in a contractual dispute if that intention can be determined and if the intention is lawful. Where possible, the mutual intent of the parties will be determined solely from the written terms of the contract. However, this is now always possible because the words can sometimes be ambiguous. When the language of the contract is unclear, courts often first look to the course of dealing between the parties. A course of dealing is a sequence of previous conduct between the parties to a particular transaction which is regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.
Moreover, in determining whether a contract language is clear and defined, the court will give the words in the contract their ordinary and common meaning, unless it is apparent that the parties used the words in a special or technical manner. When courts establish that the words do have a special meaning different than the common and ordinary meaning, they will look at how the words are used normally by persons within that business area or profession – this is the trade usage. Then courts will interpret the words in the contracts according to trade usage.
The United States court system adhered to the four corners of the document general rule of contract interpretation. This means that the intent of the parties has to be determined from the written provisions of the contract itself and nothing else. In other words, the court cannot look outside the contract to understand its provisions. However, every rule has its exception. The court will not look outside the contract unless there is ambiguity (uncertainty) in a contract provision. Contract provisions can be considered ambiguous if consideration of the plain meaning and context of the provision can lead to two or more reasonable meanings. In order to assist the court, parole evidence from outside the contract may be reviewed to resolve the ambiguity.
In conclusion, the following considerations will be relevant to the court’s analysis:
• The natural and ordinary meaning of the clause. Any other relevant provisions of the contract
• The overall purpose of the clause and the contract
• The facts and circumstances known or assumed by the parties at the time the contract was executed
• Commercial common sense
The court will not take into account any subjective evidence of either party’s intentions.
Ultimately, the general rules of contract interpretation are no more than guidance tools and the particular facts and circumstances of the case determine how they are applied. In practice, it is for the judges to select from these tools at their discretion in order to make the contract work, give effect to the parties’ (presumed) intentions and to try to achieve reasonable justice between them.
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