At times, the court may need to intervene and assist with interpreting a contract. Through this process, the court clarifies any disputes that the parties might have had about a word, phrase, sentence, or term in the contract. This can be necessary if there is a disagreement that leads to a breach of contract or to a major discrepancy in bargaining between the parties.
Sometimes, contract interpretation may be necessary because there is a dispute over a single word. At other times, interpretation may be needed to resolve disputes over entire situations proposed by the contract (such as what should happen if a shipment is late or destroyed).
Courts may use a number of techniques and principles to help them figure out which contract interpretation is correct. Some of these include:
- Intent: The court first tries to determine what the party’s original intent was. If they can do this by examining solely the written contract document, it eliminates the need for further review
- External evidence: If the contract document isn’t enough, the court may use outside evidence to clarify the contract. This can include other documents, witness testimony, and physical evidence. This may not be available in all situations.
- Trade usage: Sometimes, terms are interpreted according to how they’re used in a particular field or trade
- Ordinary meaning: As much as possible, courts try to rely on the normal, everyday ordinary meaning of words, unless the contract specifies otherwise
Lastly, courts will always consider the contract as a whole and in its entirety. For instance, if a term is defined at the beginning of a contract, the term will be interpreted as having the same defined meaning if it appears later on in the document.
In cases where a misinterpretation of a contract leads to financial losses, it may be possible for the non-breaching party to obtain a damages award. In some cases, the contract interpretation may have much to do with the amount of damages issued. In some cases, the interpretation of a contract may actually serve as a defense for the breaching party. In other instances, the court may rewrite the contract or fill in terms that were missing or blank.
Understanding how contract interpretation works can sometimes be difficult to do. You may need to hire a business lawyer if you need help drafting a contract, or if you need help interpreting an existing document. Also, your attorney can represent you in court if you need to file a lawsuit in order to have a contract re-interpreted by the court.