Interpreting Contract Language — What Courts Look At
Contract disputes usually arise over the meaning of contract language. Unless resolved by compromise, these disputes wind up in court. Understanding what guides a judge's interpretation of obscure contract language is essential in deciding whether to compromise or litigate.
In resolving contract disputes, a judge's objective is to determine what the parties intended, and to interpret the contract to best carry out that intention. The tricky part, of course, is determining intent where the disputed contract language is unclear.
The primary source for determining what the parties intended is the contract itself. Even a badly written contract usually discloses its central purpose. A judge will attempt to construe the disputed contract provision in harmony with other related provisions to best carry out that purpose. In reaching a conclusion, a judge will give reasonable effect to all provisions. Language in a disputed provision will not be interpreted literally if to do so would render some other provision meaningless or in conflict with the contract's main purpose. A judge will always seek an interpretation that makes the contract a rational business agreement.
Sometimes the contract alone is not sufficient to reveal the parties' intent as to a particular provision in dispute. In that event a judge will look at other facts and circumstances beyond the contract to aid his interpretation.
One such circumstance is custom in the trade. When the dispute involves the performance of work about which the contract is either silent or ambiguous, a judge will assume the parties contracted with customary trade practices in mind. He will attempt to determine what the parties intended from evidence of customary practice or usage in that particular trade in that area.
Another circumstance a judge may look at to ascertain the parties’ intent is their negotiations leading to the contract. He may consider written proposals and responses, as well as oral representations by both parties before the contract was signed. Additionally, a judge may consider the parties' conduct after execution of the contract. Appellate courts have repeatedly observed that there is no better way of determining what parties intended than by looking at how they acted during performance of the contract.
Whether the judge confines his review to the written contract, or expands the investigation to custom or conduct, he will in the end interpret disputed language using justice, common sense and the parties' probable intent as his guides.
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