After two parties have entered into a contract, problems may arise if they cannot agree on what a specific term in the contract means. Obviously, if both parties have intended the same meaning on a specific term at the time they entered into a contract, then that would be the meaning that the court would attach to such a term. However, it becomes complicated when the parties do not have the same meaning in mind.

Whose Meaning Prevails When There Is A Disagreement On What A Term In The Contract Means Between the Parties?

How a contract will be interpreted will vary based on the specific facts at issue:

  • If the parties attach an entirely different meaning to a specific term in a contract at its formation and they do not know or have reasons to know of the other party's meaning, then it is most likely that a contract has not been made. Some courts will recognize the existence of a contract, but will leave any disputed terms out of the contract.
  • If one party attaches a different meaning to a specific term, but also knows or has reasons to know that the other party only knows one meaning to a specific term, then the meaning of the lesser knowing party will prevail.

For example: B enters into a contract with C. C only knows that the term of the contract means blue. If B knows or has reasons to know that C only knows the term means blue but the term can also mean green, then the court will assign the meaning of blue to the term, even though B wants to argue that the term really means green.

What Does It Mean "To Have Reasons To Know"?

Generally, "to have reasons to know" means that the party should have known the other party's meaning under the facts and circumstance of the case. This is determined not on a purely objective basis (i.e. what a reasonable person should know) or a purely subjective basis (i.e. what the particular party should know), but it depends on all of the facts of the case.

Should I Consult an Attorney when Drafting and Reviewing Contracts?

Contract negotiations, especially in the context of important financial contracts, can be tolling and difficult. A business attorney can assist you with negotiations so your needs and requirements will be met. Additionally, a lawyer can help you with drafting and reviewing contracts, and explain to you your duties under the contract. An attorney will look out for your best interests throughout the entire contract process.