Chapter 15: Contract Interpretation and Construction.
In this chapter, we explore the intricate principles governing the interpretation and construction of contracts. The understanding of how contractual terms are construed is fundamental for lawyers navigating the often complex landscape of contractual relationships. This chapter will delve into the rules, methods, and considerations involved in the interpretation of contracts.
Rules of Contract Interpretation.
Introduction to Contract Interpretation.
Contract interpretation is an art as much as it is a science. It involves discerning the meaning and intent of the parties from the language used in the contract. Key principles include:
Objective Standard: Courts generally interpret contracts based on the objective intentions of the parties. This means looking at what a reasonable person would understand from the contract's language.
Plain Meaning Rule: When the language of a contract is clear and unambiguous, courts typically interpret it according to its plain and ordinary meaning.
Ambiguity: When terms are unclear or capable of multiple interpretations, courts may consider extrinsic evidence to determine the parties' intent.
Extrinsic Evidence.
Extrinsic evidence, information beyond the contract itself, can be crucial in interpreting certain contracts:
Parol Evidence Rule: This rule generally limits the use of extrinsic evidence to contradict or vary the terms of a fully integrated written contract. However, it allows the use of such evidence to interpret ambiguous terms.
Integration: A contract is considered integrated if it represents the final and complete agreement of the parties. Integrated contracts are less likely to be supplemented or contradicted by extrinsic evidence.
Incorporation of Trade Usage and Course of Dealing.
Trade Usage.
Trade usage, or custom, is a practice or course of dealing commonly observed in a particular industry. Its incorporation into contracts involves understanding:
Implied Terms: Trade usage can imply terms into a contract. For example, a contract for the sale of goods may incorporate industry-standard quality standards or delivery times.
Course of Performance: Trade usage can be established through the course of performance in a series of prior transactions between the parties.
Course of Dealing.
Course of dealing involves the previous conduct and interactions between the parties in their prior transactions:
Modification of Contract: The parties' course of dealing can be used to modify the terms of the contract if they have a consistent history of altering the contract's provisions.
Supplementing Ambiguous Terms: Course of dealing can be used to supplement ambiguous terms in a contract to help determine the parties' intent.
Landmark Case: Masterson v Sine (1968).
Masterson v Sine is a crucial case highlighting the principles of contract interpretation. The court in this case considered the parties' course of dealing to determine the intended meaning of a contract clause, emphasizing the importance of extrinsic evidence in certain situations.
