Agreements can get tricky when things don’t go according to plan. That’s where understanding contract interpretation becomes important.
When disputes arise, and you’re not sure what the agreement says, it’s time to dive deeper into what you actually signed. In some cases, commercial lawyers or courts step in to help interpret the language, and that can make all the difference between a smooth resolution and a prolonged commercial dispute.
So, what exactly does contract interpretation mean, and why is it so crucial? Let’s break it down.
The Basics of Contract Interpretation
At its core, contract interpretation is the process of figuring out what the agreement means when the language isn’t crystal clear. Agreements are meant to outline the expectations, duties, and also rights of all the parties involved, but the language isn’t always straightforward. There can be ambiguity in wording, or sometimes people just disagree on what certain terms mean.
A commercial lawyer’s job often revolves around ensuring that an agreement reflects their client’s intentions as clearly as possible. However, even the best-drafted agreements can lead to misunderstandings, which is when commercial disputes may occur.
Key Principles of Agreement Interpretation
- Literal Meaning of the Words
First off, courts look at the literal or plain meaning of the words used in the agreement. The idea is simple: words should be given their ordinary meaning unless it’s clear that they’re being used in a specific, technical sense. - Context is King
Agreements don’t exist in a vacuum. Commercial lawyers will tell you that context is everything when it comes to interpreting agreements. This includes considering how certain words are used in the agreement as a whole, not just in isolation. - Purpose and Intention of the Parties
One of the most important elements of agreement interpretation is figuring out the intention of the parties when they signed the agreement. A court may look at not just the words in the agreement but also external evidence, like emails, draft versions of the agreement, or conversations between the parties. - Consistency and Fairness
Another key principle in agreement interpretation is consistency. Courts aim to interpret agreements in a way that makes sense overall, without creating contradictions within the document.
Common Issues in Agreement Interpretation
There are a few recurring themes that come up in agreement interpretation. These issues often lead to commercial disputes, which, if unresolved, can escalate into commercial litigation.
- Ambiguity
Agreements often use language that’s vague or open to more than one interpretation. Words like “reasonable,” “promptly,” or “best efforts” can be a headache because they lack clear definitions. What might be “reasonable” to one party might be entirely different for the other. - Conflicting Clauses
Sometimes agreements have provisions that seem to contradict each other. For example, one clause might say delivery must happen within 30 days, while another says 60 days. In such cases, courts have to figure out which clause prevails, or whether there’s a way to reconcile them. - Silence on Key Issues
Another problem arises when an agreement is silent on a key issue. For example, what happens if a party misses a payment deadline? If the agreement doesn’t specify the consequences, the parties may have to turn to the court to figure out what happens next.
How to Avoid Misinterpretation
Preventing misunderstandings in agreements is possible with some proactive steps. First, it’s important to be as clear as possible in your language. Avoid vague terms and define key terms up front. Next, always consult a commercial lawyer when drafting or reviewing an agreement, especially for high-stakes deals. They can help spot potential areas of confusion before they become full-blown commercial disputes.
Finally, communication is key. If something in the agreement isn’t clear, don’t be afraid to ask for clarification before signing. It’s much easier to resolve misunderstandings before the agreement is executed than to deal with them later in commercial litigation.
Ensure that Your Contract Interpretation is Beneficial to You
Contract interpretation is all about understanding what the words on the page really mean. Whether you’re drafting an agreement, signing one, or dealing with a dispute, the language matters. If a commercial dispute does arise, having an expert like Joseph t. Kelliher Esq. by your side can make all the difference. They’ll help ensure that the agreement is interpreted in a way that reflects your interests and keeps you out of lengthy commercial litigation.
