Of ambiguities in contracts aiming to uphold the true intent
of the parties while ensuring fairness and consistency.
The resolution of ambiguities is a critical aspect of contract
interpretation as it directly impacts how the contract will be
enforced and the rights and obligations of the parties
involved. One primary goal Ascertain
intent The primary goal in resolving ambiguities is to
ascertain the intent of the parties at the time the contract
was formed. Courts will consider the entire
contract, giving effect to all provisions and avoiding
interpretations that render any term meaningless.
The intent of the parties is considered the most important
factor in contract interpretation, as it ensures
that the contract is enforced according to what the parties
actually agreed upon. Example A contract includes a
clause that is unclear about whether a particular payment is
due on the 1st or last day of the month.
The court will look at the contract as a whole, considering
the context in which it was formed and the likely intent of
the parties. If other provisions in the
contract suggest that payments are generally made at the
beginning of the month, the court may interpret the
ambiguous clause to align with this pattern.
Methods for determining intent Courts may use various methods
to determine the intent of the parties, including analyzing the
language of the contract, considering the contracts
purpose, and examining the conduct of the parties during
the performance of the contract. The goal is to arrive at an
interpretation that is consistent with the party's
expectations and the overall purpose of the contract.
Two, construing against the drafter contraproferentem.
When an ambiguity cannot be resolved by standard
interpretation methods, courts may apply the rule of
contraproferentem, which construes ambiguities against
the party that drafted the contract.
This rule is particularly relevant in cases where one
party had greater control over the drafting process, as it
discourages the drafter from including ambiguous terms that
could be interpreted in their favor.
Example. A contractor drafted a contract
with ambiguous payment terms. If the terms are unclear and
cannot be resolved through other methods, the court may resolve
the ambiguity in favor of the other party, interpreting the
terms in a manner less favorable to the contractor.
For instance, if the payment terms could be interpreted to
allow for early payment with a discount, but the contractor did
not clearly specify this in the contract, the court may rule
that the other party is entitled to the discount.
Purpose of Contraproferentem The rule of contraproferentem serves
to protect the party with less bargaining power or less
involvement in drafting the contract.
It also incentivizes clear drafting, as the drafter is more
likely to face unfavorable interpretations if they include
ambiguous terms. This rule is particularly
important in contracts where there is a significant disparity
in bargaining power between the parties, such as in consumer
contracts or standard form contracts. 3 Preference for
consistency Courts generally prefer interpretations that
promote consistency and coherence within the contract.
This includes giving meaning to all parts of the contract and
avoiding interpretations that create contradictions.
The principle of consistency is crucial for ensuring that the
contract functions as a cohesive whole, with all provisions
working together to achieve the party's intended purpose.
Example, A contract contains 2 clauses that appear to conflict
regarding delivery timelines. One clause states that
deliveries must occur within 30 days, while another clause
specifies 45 days for a particular delivery.
The court will interpret the clauses in a way that reconciles
the apparent conflict, ensuring that both clauses can be given
effect. For example, the court may
determine that the 45 day timeline applies only to the
specific delivery mentioned, while the 30 day timeline
applies to all other deliveries. Approach to Harmonization.
Courts strive to interpret contracts in a way that
harmonizes conflicting provisions, giving effect to all
terms if possible. This approach ensures that the
contract is interpreted as a coherent document, with all
provisions working together to achieve the party's overall
objectives. When harmonization is not
possible, courts may prioritize specific provisions over general
ones or apply other interpretative principles to
resolve the conflict. Four, external evidence When the
ambiguity cannot be resolved through the text alone, courts
may consider external evidence, such as the party's prior
dealings, industry practices, or relevant negotiations, to
clarify the meaning. The use of external evidence is
a critical tool for resolving ambiguities, particularly when
the contract language is unclear or open to multiple
interpretations. Example, If a contract is
ambiguous about the quality standards for goods, the court
may look to industry standards or the party's previous
transactions to determine the intended quality level.
For instance, if the parties have previously agreed on a
particular quality standard and similar transactions, the court
may interpret the ambiguous term in the current contract to align
with this established standard. Types of External Evidence
External evidence can take many forms, including prior
negotiations, drafts of the contract, industry standards,
and the conduct of the parties during the performance of the
contract. Courts use this evidence to fill
in gaps, clarify ambiguous terms, and ensure that the
contract is interpreted in a way that reflects the party's true
intentions, challenges, and considerations.
The use of external evidence can complicate the interpretation
process, as it introduces additional factors for the court
to consider. However, it is often necessary
to ensure that ambiguities are resolved in a way that aligns
with the party's intentions and the realities of the
transaction. Courts must carefully balance
the need to respect the written contract with the need to
consider external evidence when ambiguities cannot be resolved
through the contract language alone.
Contradictions Contradictions within a contract occur when
different parts of the contract appear to provide conflicting
terms or obligations. Resolving contradictions
requires careful analysis to determine the dominant or
prevailing term while still attempting to harmonize the
contract as a whole. Contradictions can arise from
poor drafting, changes in circumstances, or simply from
the complexity of the contract itself.
Key Points One Harmonization Courts strive to interpret
contracts in a way that harmonizes conflicting
provisions, giving effect to all terms if possible.
The principle of harmonization ensures that the contract is
interpreted as a cohesive document, with all parts working
together to achieve the party's intended purpose.
Harmonization is the preferred approach because it respects the
integrity of the contract and the intentions of the parties.
Example, A contract includes a provision requiring quarterly
payments, but also contains a clause stating that payments are
due at the end of each month. The court would analyze the
context and intend to determine which provision prevails or
whether the contract can be interpreted in a way that
reconciles the two clauses. For instance, the court may
conclude that the quarterly payments clause refers to a
specific type of payment, while the monthly payments clause
applies to regular payments, thereby harmonizing the
provisions Approach to harmonization.
Courts will first attempt to reconcile conflicting provisions
by interpreting the contract in a way that gives effect to both
terms. If this is not possible, the
court may prioritize 1 provision over the other based on factors
such as specificity, context, and the overall purpose of the
contract. The goal is to arrive at an
interpretation that is logical, fair, and consistent with the
party's intentions. 2 Specific versus General Provisions When a
specific provision conflicts with a general provision, the
specific provision typically prevails as it is assumed to
reflect the party's more precise intentions.
This principle is based on the idea that specific terms are
more likely to represent the party's true agreement as they
address particular aspects of the contract in detail.
Example, a contract contains a general clause stating that all
deliveries are due within 30 days, but a specific clause
states that one particular delivery is due within 15 days.
The specific clause would prevail for that particular
delivery, as it is assumed to reflect the party's specific
intentions regarding the timing of that delivery.
Rationale for the principle. The preference for specific
provisions over general ones is grounded in the belief that
parties are more likely to have carefully considered and
negotiated specific terms, whereas general terms may be
included as boilerplate or standard language.
By prioritizing specific provisions, courts ensure that
the contract is interpreted in a way that aligns with the
parties. Detailed and deliberate
agreements 3. Analyzing the Context and Intent
When faced with contradictions, courts analyze the context in
which the contract was formed and the parties likely intent to
determine which provision should prevail.
This analysis may involve considering the overall purpose
of the contract, the circumstances surrounding its
formation, and the conduct of the parties during the
performance of the contract. Example A contract specifies
that a particular product must be delivered by air freight, but
another clause allows for ground transportation.
As an alternative, the court would consider the context in
which these provisions were included, such as the urgency of
the delivery, the nature of the product, and the party's prior
dealings. If the product is perishable and
requires fast delivery, the court may prioritize the air
freight provision to ensure that the product reaches its
destination in time. Tools for Analyzing
Contradictions Courts may use various tools to analyze
contradictions, including the principles of harmonization, the
preference for specific provisions, and the use of
external evidence. By applying these tools, courts
can resolve contradictions in a way that respects the contract's
integrity and aligns with the party's true intentions. 4
Interpretation Aids In addition to the rules and principles
discussed above, courts often rely on various interpretation
aids to clarify the meaning of contractual terms.
These aids include the course of performance, course of dealing,
and usage of trade, all of which provide valuable context for
interpreting contracts within specific industries or
situations. These aids help courts
understand the contract in its broader context, ensuring that
the interpretation aligns with the parties established
practices and industry standards.
Course of Performance Course of performance refers to the
conduct of the parties during the performance of the contract
in question. This interpretation aid is
particularly useful when the contract has been partially
performed, as it provides insight into how the parties
themselves understood and applied the contract terms.
The course of performance can reveal the party's practical
interpretation of the contract, offering strong evidence of
their intentions. Key Points One Relevance of
conduct The way the parties have performed their obligations
under the contract can provide strong evidence of their intent
and the meaning of ambiguous terms.
If both parties have consistently performed the
contract in a particular way, this conduct can serve as an
interpretative guide indicating how the contract should be
understood. Example A contract for the
supply of goods specifies delivery on the 1st of each
month, but the parties have consistently accepted deliveries
on the 3rd of each month without issue.
The course of performance may suggest that the parties
intended a more flexible delivery schedule, and the court
may interpret the contract accordingly.
This interpretation would align with the party's established
practice, ensuring that the contract is enforced in a way
that reflects their actual conduct. 2 Consistency in
performance. Courts give way to consistent
performance, especially when both parties have adhered to the
same interpretation without objection.
Consistent performance over time can establish a pattern of
behavior that clarifies the meaning of ambiguous terms,
providing a reliable basis for interpretation.
Example If a contract requires payments to be made monthly, but
the parties have consistently followed a pattern of making
payments every six weeks, this consistent performance can be
used to interpret the payment schedule.
The court may conclude that the parties intended a more flexible
payment schedule reflecting their actual practice rather
than a strict monthly schedule. Impact on Contractual Disputes
The course of performance is a powerful tool for resolving
disputes over ambiguous terms, as it provides concrete evidence
of how the parties have interpreted and applied the
contract in practice. By relying on the party's
conduct, courts can arrive at an interpretation that aligns with
the realities of the contractual relationship, reducing the
likelihood of disputes and ensuring that the contract is
enforced in a way that reflects the party's true intentions.
Course of Dealing Course of dealing refers to the previous
transactions between the parties that establish a common
understanding or pattern of behavior.
This history can provide context for interpreting terms in the
current contract, particularly when the parties have a long
standing relationship. The course of dealing helps to
clarify ambiguous terms by showing how the parties have
previously interpreted similar terms in their past dealings.
Key Points 1 Past Transactions Courts consider how the parties
have conducted business in the past to interpret ambiguous
terms in the current contract. The course of dealing provides a
historical context that can clarify the meaning of terms,
particularly when the same or similar terms have been used in
previous transactions. Example Two companies have
engaged in a series of contracts over several years consistently
using the same payment terms in the current contract.
The payment terms are ambiguous, but the court looks to the
course of dealing to interpret them consistently with past
practice. If the companies have always
interpreted the payment terms to mean payment within 30 days of
delivery, the court may apply this interpretation to the
current contract. Two, establishing context course
of dealing is particularly valuable when the current
contract builds on or continues a previous relationship as it
reflects the party's established practices.
The course of dealing can help to fill in gaps or clarify
ambiguities in the current contract by providing a
consistent pattern of behavior that aligns with the party's
expectations. Example, if a supplier and a
buyer have a long standing relationship where they have
always used the same delivery terms, the court may use this
course of dealing to interpret ambiguous delivery terms in a
new contract. The court would assume that the
parties intended to continue their established practice
unless there is evidence to the contrary.
Challenges and considerations While the course of dealing is a
valuable tool for interpreting contracts, it can also introduce
challenges, particularly if the past transactions were not
entirely consistent or if the party's relationship has evolved
over time. Courts must carefully evaluate
the relevance of past dealings, considering factors such as
changes in the business relationship, market conditions,
and the specific context of the current contract.
Usage of Trade Usage of trade refers to the common practices
or customs within a particular industry or trade that can
inform the interpretation of contract terms.
Courts consider these practices to ensure that contracts are
interpreted in line with industry standards, especially
when the parties are engaged in specialized or technical fields.
Usage of trade provides a broader context for
understanding contract terms, ensuring that the interpretation
aligns with the norms and expectations of the industry.
Key points One Industry standards Usage of trade
provides context for interpreting terms that may have
specific meanings within a particular industry, even if
those meanings differ from general usage.
Courts use industry standards to ensure that contracts are
interpreted in a way that is consistent with the practices
and expectations of the industry, particularly when the
parties are industry professionals.
Example In the construction industry, the term substantial
completion has a specific meaning that differs from its
general usage. A court interpreting a
construction contract would consider the industry standard
definition of substantial completion as established by the
usage of trade. This interpretation would align
with the expectations of the parties who are likely familiar
with the industry specific meaning of the term. 2 Implied
Terms In some cases, usage of trade may imply certain terms
into a contract, especially if those terms are so common that
they are assumed to be part of the agreement.
Courts may imply terms based on industry customs to fill in gaps
or clarify ambiguities, ensuring that the contract aligns with
the norms of the trade. Example, A contract for the sale
of agricultural products may not explicitly state the standard
for good quality, but the court may imply a standard based on
the usage of trade in the agriculture industry.
If the industry has a well established standard for what
constitutes good quality, the court may interpret the contract
to include this standard even if it is not explicitly stated.
Challenges and Considerations While usage of trade is a
valuable tool for interpreting contracts, it can also introduce
challenges, particularly if the industry standards are not well
defined or if the parties are not fully aware of the relevant
customs. Courts must carefully evaluate
the relevance and applicability of industry standards,
considering factors such as the party's familiarity with the
trade, the specificity of the terms, and the broader context
of the contract. Impact on Contractual
Relationships The use of trade is particularly important in the
industries where contracts often include technical terms or
industry specific language. By considering industry
standards, courts can ensure that contracts are interpreted
in a way that aligns with the party's expectations and the
norms of the trade, reducing the likelihood of disputes and
promoting consistency in contractual relationships.
Conclusion Chapter 9, Contract Interpretation, provides a
comprehensive examination of the principles, rules, and aids that
guide the interpretation of contracts.
From the foundational plain meaning rule and parole evidence
rule to the nuanced considerations of ambiguities
and contradictions, this chapter equips readers with the tools
necessary to navigate complex contract disputes.
The use of interpretation aids such as course of performance,
course of dealing, and usage of trade, further enriches the
interpretative process by providing context and clarity
within specific industries or ongoing relationships.
By understanding these principles, parties can better
anticipate how their contracts will be interpreted in the event
of a dispute, leading to more effective contract drafting and
negotiation. Moreover, courts and legal
professionals can apply these principles to resolve
ambiguities and contradictions in a manner that reflects the
true intent of the parties while maintaining fairness and
consistency in contract law. Summary of Chapter 9 Contract
Interpretation Chapter 9 delves into the intricate process of
interpreting contracts, focusing on how ambiguities,
contradictions, and various interpretative aides are handled
in legal practice. The chapter is divided into key
sections that address the common challenges faced in contract
interpretation and the principles and tools used to
resolve them. Ambiguities in Contracts Types
of Ambiguities The chapter begins by explaining the two
main types of ambiguities, patent and latent.
Patent ambiguities are apparent on the face of the contract,
while latent ambiguities become evident only when the contract
is applied to specific facts. Resolving ambiguities.
Courts use several methods to resolve ambiguities, with the
primary goal being to ascertain the intent of the parties.
Tools such as the rule of contraproferentem, which
construes ambiguities against the drafter and a preference for
consistency in interpreting the contract are crucial in this
process. Contradictions in contracts.
Harmonization The chapter explains how courts strive to
harmonize conflicting provisions within a contract, giving effect
to all terms if possible. When a specific provision
conflicts with a general one, the specific provision typically
prevails. Analyzing Context and intent
Courts analyze the context in which the contract was formed
and the parties likely intent to determine which provision should
prevail. When contradictions arise,
interpretation aids course of performance.
This section discusses how the conduct of the parties during
the performance of the contract can provide insight into their
intent and clarify ambiguous terms.
Course of dealing the history of past transactions between the
parties is used to establish a common understanding or pattern
of behavior that can inform the interpretation of the current
contract. Usage of trade, industry
standards and common practices within a particular trade or
industry are considered to ensure that contracts are
interpreted in line with these norms, especially when
specialized or technical language is used.
Conclusion Chapter 9 highlights the complexity of contract
interpretation and the importance of applying
consistent principles and tools to resolve ambiguities and
contradictions. By understanding these methods,
legal professionals can better draft, negotiate, and enforce
contracts, ensuring that they reflect the true intentions of
the parties and are interpreted fairly and consistently in legal
disputes.