Contract meaning refers to the way a term is defined in a contract document. For instance, the word “bow” may refer to a ribbon, or a weapon (such as “bow and arrow”). Here, if the contract is referring to a ribbon type of bow, that is the contract meaning of the term “bow” whenever it appears in the documents.
In most cases, words with possible multiple meanings are defined at the beginning of a contract or before they appear in the document. However, sometimes a formal definition for a term is not given in the contract. While the parties might have a history of using certain words in specific ways, this can also lead to misunderstandings and mistakes later on down the road. Thus, it’s important for the terms to be clearly defined in a contract.
An ambiguous contract term is a term that could have more than one meaning. An example of this was given above with the term “bow.” Another common ambiguous contract term is the word “dollar,” which can refer to U.S. dollars, or to dollars from other countries. Words that describe measurements can also become ambiguous without context.
Also, words that refer to subjective principles can be difficult to define in a contract. For instance, if a buyer is seeking “top grade” screws and nails, or “Grade A” materials, this can be a problem. Unless there is a formal, industrial definition of “top grade” or “Grade A,” there may be dispute over such terms. These are usually resolved using industry standards from similar cases, or by examining the prior dealings of the parties if they have any.
If there is dispute over a contract term, the parties can usually file a lawsuit to have the courts determine the best interpretation of the contract. When attempting to determine the contract meaning of a term, courts will employ several factors, including: the written documents themselves; external evidence; various definitions of terms, including trade usages and ordinary definitions; oral communications between the parties; and prior dealings of the parties.
In most cases, courts will try to adhere to the original contract as much as possible. In fact, reliance on outside sources such as additional documents is not always an option in every case. Also, courts will factor in whether both parties knew about a mistaken term, or if only one party knew about it. They will strive to reach an interpretation that is fair for both parties given the facts and circumstances.
Being involved in a contract agreement can sometimes involve different legal principles and theories. You may need to hire a business lawyer if you need help understanding the many terms and definitions in a contract. Your lawyer can guide you with legal advice on your situation, and can also represent you in court. If you need to file a lawsuit, your attorney can help make sure you obtain the remedy that best fits your needs.