How Does a Court Interpret a Contract?

 Posted on June 27, 2023 in Business Law

There are times when two parties to a contract each think that it says something different. They could up taking this business dispute to court, when one or both parties file their own lawsuits. Then, the court is called up to decide exactly what the contract says. There is a hierarchy of contract interpretation that comes from common law, and courts have used it for some time.

The Plain Language of the Contract Controls

The court will first analyze the exact language of the contract, giving meaning to the clear words of the document. The inquiry will begin within the “four corners” of the document. If the language of the contract is clear, the court needs to go no further, and it will decide the case. It is only when there is some ambiguity in the language that the court will then need to go further.

In general, courts do not like to read contracts in a way that would yield patently absurd interpretations. The court tries to read the contractual language reasonably. 

How Courts Address Ambiguities

A contract clause does not exist in isolation. If there is any ambiguity, the court will look to the rest of the document and examine it in the entire context. The court also gives words their plain and ordinary meaning.

There are times when the court may consider what it believes to be the party’s intent when they signed the contract. It is certainly not one of the first things that a court would do because it gives precedence to the actual language of the contract. For example, if the parties have a course of dealing between the two of them that shows what each believed the terms of the contract to be, the court could use it to interpret any ambiguities.

Another key principle is that the court will interpret the ambiguity against the person who drafted the contract. The thought process is that the draft had the full opportunity to make the language of the contract unambiguous, and the other party should not be penalized because the drafter did not use clear language. 

Contact a San Antonio Business Law Attorney Today

If you are involved in a contract dispute, or you need help drafting and reviewing a contract, contact the Geoff Mayfield, Attorney at Law. Our team helps Bexar County businesses with legal issues, knowing that contracts are the lifeblood of your company. Reach out to a San Antonio business litigation attorney at 210-535-0870 for a free initial consultation.

Source:

https://www.justice.gov/jm/civil-resource-manual-72-principles-contract-interpretation