Fundamental principles of contract interpretation.

Fundamental Principles of Contract Interpretation

Contract Interpretation

This is the first in a series of articles about principles of contract interpretation. Read part 2 here and part 3 here.

Every day, a party to a lawsuit in Mississippi calls upon the court to make a ruling as to the meaning of a a contract. The goal of the court is to determine and give effect to the intent of the parties.

To accomplish this, the law has created several rules of interpretation (also referred to as rules of construction) to assist in determining what a contract actually means.

Start with the four corners.

The “four corners test” is the beginning point for interpreting a contract. The phrase “four corners” refers to the four corners of a piece of paper. It is a shorthand way of saying that the first thing the court will do is look only at the written contract.

If the contract is clear to the court, then (subject to a few exceptions we will discuss in a subsequent post), the court will enforce it as written. The courts are not concerned about whether somebody made a good bargain or a foolish bargain.

The question of whether a contract is clear (also called unambiguous) is a question of law for the court to decide. The fact that the parties to the contract disagree as to its meaning does not make a contract ambiguous.

But, if the court concludes that the contract is ambiguous, then there are certain rules of interpretation that must be used to determine the true intent of the parties.

Construing the contract against the party who wrote it.

Sometimes, the parties will disagree as to the meaning of a particular phrase or clause in the contract. It may very well be that each party’s interpretation is a reasonable one.

Just as an example, assume the contract states that Party A will make “monthly payments of $1000” to Party B. But, Party A says he meant at the end of each month, while Party B says he intended to be paid at the beginning of each month.

Both interpretations are reasonable. But, if Party A drafted the contract, the court will adopt Party B’s interpretation. The rationale is that Party A had the opportunity to make the contract very clear. Because Party A did not do so, the court will interpret the contract in favor of Party B.

Interpretation of the contract as a whole.

Another fundamental principle of contract interpretation is that the court will construe the contract as a whole. This means the court will consider all the provisions of the contract and not just any one specific provision to resolve an ambiguity.

Continuing with our example, assume the contract between Party A and Party B is 10 pages long. Many times in the contract, there is a reference to “monthly payments.” There are also many references to monthly deliveries of goods.

It seems perfectly clear to the court that Party B is going to make monthly deliveries, and Party A is going to make monthly payments.

But, for some reason (probably a simple drafting error), there is one reference to an “annual payment.” In this situation, the court has the power to recognize a simple drafting error and conclude that the intention of the parties was for monthly payments.

Construing a contract in a reasonable manner.

As noted above, if a court finds that the contract is unambiguous, then the court will enforce it as written. This is so even if the contract may be burdensome to a party.

But, if the court finds an ambiguity, the law states the court should reject an interpretation that would lead to an absurd or harsh result.

Returning once again to our example, if Party B argued that he was entitled to 12 monthly payments and an additional annual payment of $12,000, the court should reject such an unreasonable interpretation.

If you need a contract drafted or reviewed, contact the Panter Law Firm at 601-607-3156 for a consultation.

Panter Law Firm, PLLC, 7736 Old Canton Road, Suite B, Madison, MS 39110

Craig Painter