Interpretation of contracts is the legal process of determining the true intent of parties when terms are ambiguous or disputed, prioritizing evident intention over literal words. Key kinds of interpretation include literal (plain meaning), contextual (reading as a whole), intentional (giving effect to intent), and contra proferentem.
Key Kinds and Rules of Contract Interpretation
- Literal (Plain Meaning) Interpretation: If the terms are clear and leave no doubt, the literal meaning controls.
- Intentional Interpretation (Intent Over Words): If words conflict with the parties’ evident intention, the intention prevails.
- Contextual/Systematic Interpretation: The contract must be read as a whole, with clauses interpreted in relation to one another to give all of them effect.
- Interpretation by Conduct (Contemporaneous Acts): To determine intent, courts consider the parties’ actions, behavior, and negotiations during and after the contract’s creation.
- Reasonable/Effective Interpretation: If a stipulation has multiple meanings, it is interpreted to be most effectual/enforceable, rather than void.
- Narrow Interpretation of General Terms: General terms, regardless of how broad, are restricted to the specific, intended subject matter.
- Special Over General Provisions: Specific provisions or handwritten/typed terms prevail over printed, general ones.
- Contra Proferentem: Ambiguous terms are interpreted against the party who drafted the contract or caused the ambiguity.
- Usage of Trade/Customs: Interpretation may be guided by established customs or industry practices.
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