A contract refers to a legally binding agreement between two private parties. This document creates mutual legal obligations and details the terms of the agreement as well as what should be done in the event of a contract breach. Contracts may be either oral or written, but written contracts are generally easier to enforce. Additionally, some contracts may only be written. An example of this would be a marriage contract.

Contract interpretation may be needed when there is a dispute over the terms of the contracts, or the language and definitions used in a contract. If the parties involved cannot come to an agreement on what a certain contract term means, it may be necessary to file a lawsuit in order to have a court review the contract in question. If this should happen, the court will participate in contract interpretation to determine a resolution for the disagreement.

An example of this would be a shipping contract dispute in which the parties are mistaken as to whether the word delivery means by land, or by air. The court would then perform contract interpretation in order to determine exactly what the parties meant by the word “delivery” when drafting the contract.

Ultimately, the goal of contract interpretation is to come to a definition that most clearly reflects the original intent of the parties who authored the contract. Contract interpretation generally becomes necessary when a mutual mistake has been made. This refers to both parties being mistaken. Further, contract interpretation may also be necessary when a unilateral mistake has been made. Unilateral mistakes are mistakes in which only one party to the contract is mistaken.

How Are Contracts Interpreted?

The laws governing contract interpretation may vary from state to state. Additionally, the nature of the contract or its subject matter may influence how it is interpreted by the court. Generally, most courts follow some basic principles when interpreting a contract. Two of these principles include:

  • Determining Mutual Intentions: The first step is to determine the intentions shared by both parties. Courts will always first attempt to interpret a contract according to what the contract’s authors originally intended. When possible, the mutual intentions will be determined strictly by using the written provisions included in the contract. If the contract’s language is clear and definable, the contract language will control the interpretation. If the contract’s language is unclear, external evidence may be used to interpret intent. An example of this would be a record of previous dealings between the parties; and
  • Ordinary Meaning: In order to determine if the contract’s language is clear and definite, the court will generally rely on the ordinary meaning of the word or phrase in question. This practice is also known as going by the dictionary definition of the word, or the common usage. A contract will typically be interpreted by using ordinary means, unless it is clear that the contract’s authors used the term in question in a technical or special way. An example of this would be how in a construction setting, the word hammer would refer to a specific tool, whereas in other circumstances it may refer to a part of a gun.

Some other aspects of contract interpretation include but are not limited to:

  • As a Whole: Contracts are generally interpreted as a whole, meaning that the definition of one word or term in one part of the contract should apply to the rest of the contract, unless otherwise specified;
  • External Evidence: In general, a court will only use the contract itself when interpreting the disputed term. However, if the particular terms of the contract in question are vague or ambiguous, the court may decide to disregard the contract and instead use an external document to interpret the contract. The laws regarding utilizing external evidence are complex, and dependent upon the reasons for needing interpretation; and/or
  • Parol Evidence: Parol evidence refers to evidence of agreements that were intended to supplement the contract, or be integrated into the contract. An example of this would be oral agreements that may have occurred before the contract was fully written.

In order to avoid potential disputes, and the need for contract interpretation, it is best to ensure that all contract terms are clear and precisely indicated in the contract. Both parties should ensure that everyone involved in the contract understands the terms, and that they are on the same page in regards to the definitions of certain words.

Do I Need an Attorney for Assistance With Contract Interpretation?

One way to potentially avoid the need for contract interpretation is to have an attorney review the contract before it is signed. Whether you need a contract reviewed or are facing contract interpretation, a skilled and knowledgeable contract attorney can be a valuable resource. An experienced contract attorney can review the contract before it is signed and be present during negotiations.

Additionally, an attorney can draft and edit the contract in order to ensure that the parties are in full agreement. Finally, the attorney can represent you in court as needed, should you find yourself in a legal dispute as to the contract’s terms.