Rules of Contract Construction
When the parties to a contract are in dispute, the focus of the dispute is often the meaning of the contract’s terms. Thus, parties in dispute often call on courts to interpret the meaning of those terms. When the terms of a contract are clear and unambiguous, no interpretation is needed. The terms of the contract take effect in accordance with their clear meaning. A court cannot rewrite a contract for the parties. The court must enforce the contract as the parties wrote it.If the terms of a contract are not clear, however, the court must follow established rules of contract construction to interpret the meaning of the contract. In common law jurisdictions, these rules of contract construction typically are found in the jurisdiction’s case law. In civil law jurisdictions, rules of contract construction typically are found in the jurisdiction’s statutory law. A court’s primary goal in interpreting a contract is to determine what the parties intended when they entered into the contract. The court must analyze the words that the parties used in the contract to determine the parties’ intent. Generally, courts try to determine the most reasonable meaning of the contract given the circumstances of the situation. The question the courts try to answer is, “What would a reasonable person in the position of the parties have understood the contract to mean?” In interpreting the meaning of a contract, a court must consider the entire contract. It must consider all of the words included in the contract and analyze all of the contract’s provisions together to determine the purpose and intent of the contract. The court must construe the contract so that all of its provisions are given effect in a consistent and reasonable manner. Courts generally give words their plain, ordinary meaning. Nevertheless, the intent of the parties controls the meaning of words used in a contract. If the parties seem to have intended a word to have a technical meaning as opposed to the word’s most common meaning, the court will construe the contract by giving the word its technical meaning. Occasionally, a contract consists of a preprinted form on which the parties have handwritten or typed additions or changes to the form. In interpreting such a contract, the courts generally place more importance on the handwritten or typed portions of the contract. Because handwritten or typed portions are amendments, they are more likely to represent the parties’ intent than are the preprinted portions. Thus, if a preprinted portion conflicts with a handwritten or typed portion, the handwritten or typed portion generally is given effect; and if a typed portion conflicts with a handwritten portion, the handwritten portion generally is given effect. Courts typically interpret unclear or ambiguous language against the party who drafted or prepared the written contract, unless the use of the unclear language was required by law. This rule, known as the principle of against the offeror (or the rule of contra proferentem), is applied most often to contracts of adhesion such as insurance policies. If an insurance policy contains ambiguous terms, the courts will construe the contract against the insurer and in favor of the policyowner or beneficiary.
ref: Business Law For Insurance Professionals Module 2