Sec. 3.5. Principles for Interpreting the Words in Contracts
The art of contract drafting is to avoid interpretation. However, history and experience demonstrate that words convey meaning but words are not meaning. They are symbols of meaning. The drafter and the reader must decode the symbol and ascribe practical meaning to words within the legal context. The context in which words are used profoundly affects the search for meaning. A contract is not a novel or a poem. The words which the drafter uses are not intended to evoke deep emotions or impart a moral truth. They are intended to actualize the abstract thoughts and concepts of the parties.
Each word which the drafter uses in a contract must have as few alternate meanings as possible. The words in a contract describe the acts which the parties have agreed to perform or not perform, by their express and voluntary will, and which, but for the contract, they are not obligated to perform. By the way the words are phrased, the parties empower a third party to resolve any disagreement over performance.
Attorneys who practice in and persons who do business in Anglophone countries are fortunate because English is recognized as one of the most precise languages in the world. It is precise because words in English have comparatively fewer meanings than do other languages.
A. The Plain Meaning Rule
The contract should be drafted with sufficient precision so that the intent of the parties with respect to the terms and conditions is apparent from the language of the provisions of the contract. This objective is reflected in the primary rule of contract interpretation, the “Plain Meaning Rule”.
1. Words speak for themselves.
The Plain Meaning Rule holds that, in the absence of an ambiguity in the words of a valid written contract speak for themselves. The parties are bound by the words without resort to any evidence extrinsic to the written contract,
(a)
The meaning of the plain language of the contract is determined not according to what a party thought the language meant but rather according to what a reasonable person in the position of a party would have thought the language meant.
(b)
The reasonable person is presumed to know all of the circumstances surrounding the making of the contract and bound by the usages of terms that the parties know or have reason to know.
(c)
The Plain Meaning Rule applies even though the parties never contemplated that the language of a contract would lead to a particular result.
2. Words given their ordinary meaning
The ordinary definition of a term is given weight in ascertaining the meaning of a term. A term or provision will be accorded a meaning that is consistent with the contract as a whole.
3. Words Given Particular Meaning in Custom, Trade Usage or Course of Dealing
Words that have particular meaning in the context of the custom, trade usage or course of dealing of the contractual relationship, will be accorded that particular meaning even if it differs from the ordinary meaning.
If an ambiguity is found to exist in the language, then extrinsic evidence may be introduced to determine the intent of the parties. Extrinsic evidence can be in the form of oral testimony about the negotiations, the states of mind of the parties, custom and trade usage in the particular industry or course of dealing between the parties. A contract provision is ambiguous if it is reasonably susceptible to different constructions. It is not ambiguous simply because the parties disagree as to the meaning. Whether or not a term is ambiguous is a question of law to be resolved by the court and not by a trier of fact.
Under the traditional application of the ambiguity exception, where the meaning of the term is “plain” either in ordinary usage or in a particularized usage, then no ambiguity exists and extrinsic evidence of the meaning of a term is not admissible. Under the modern trend, if a term is “reasonably susceptible” to the meaning asserted by a party, then extrinsic evidence of the meaning of the term is admissible.
The Plain Meaning Rule has been criticized by many commentators. They have remarked that, because there are inherent linguistic limits on how precise a word can be, it is both unconstructive and unfair to rely exclusively on the written document to determine the intent of the parties. Moreover, determining whether or not an ambiguity exists is so subjective as to be almost arbitrary. Any competent evidence that is reasonably calculated to elucidate the intent of the parties should be considered.
Despite the criticism, the Plain Meaning Rule is followed in most jurisdictions. Therefore, attorneys must draft contracts not only to avoid ambiguities that are inherent in language but also to avoid ambiguities that may be found by the courts. This is an extremely difficult endeavor because, as one court has pointed out, contract interpretation is largely an individualized process. If the same contractual language from prior cases significantly differs from the contract being interpreted, prior cases cannot control. This means that the use of the principle of stare decisis is limited.
The Plain Meaning Rule is not to be confused with the Parol Evidence Rule. Under the Parol Evidence Rule, where a written contract contains an integration clause which states that it is the final and full expression of the agreement between the parties, no prior oral or written agreement or negotiation or custom/usage can be admitted into evidence in a legal proceeding that adds or removes any term or provision from an integrated written contract.
The Parol Evidence Rule is a substantive rule of contract law or a rule of evidence but not a rule of interpretation. The Parol Evidence Rule is used to determine the content of the contract i.e. which terms and provisions are to be included in the contract. The Plain Meaning Rule is used to determine the meaning or legal effect of the terms and provisions of the contract.
B. Interpretation of Words Construed Against Drafter
In choosing among alternative reasonable meanings of a word, the preferred meaning will be the one that operates against the interest of the drafter of the disputed words, (referred to as the rule of contra proferentum). This parties must be in equal bargaining positions.
C. Accord Meaning to All Terms
Parties are assumed to intend legal and practical consequences when they enter into a contract. Where two interpretations of a term are possible in a contract and one such interpretation would render the term or the contract without legal or practical effect, the interpretation that accords legal or practical effect to the term or contract prevails.
D. Conflicting Terms
Where two terms conflict with one another, the more specific term will be deemed an exception to the more general term. Where part of the contract is handwritten or typewritten and part of the contract is printed and the handwritten or typewritten parts conflict with the printed part, the handwritten or typewritten parts will control.
E. The Doctrine of the Last Antecedent and the Doctrine of the Series Qualifier
1.
Under the doctrine of the last antecedent, a modifying or limiting clause modifies or limits only the words or phrases immediately before the modifying or limiting clause and not the words or phrases that are physically remote from the modifying or limiting clause. Examples:
The tenant shall pay the rent, real estate taxes, electric bills and water charges on the first day of the month.
Interpretation: The tenant is required to pay only the water charges on the first day of the month.
(b)
Redraft: On the first day of the month, the tenant shall pay the dollar amount of each of the rent, real estate taxes, electric bills and water charges.
2.
Under the doctrine the series qualifier, a modifying or limiting clause modifies or limits each word or phrase in a series of words or phrases as long as they are in parallel construction and the modifying or limiting clause was clearly intended to modify or limit each word or phrase in the series. Examples:
The doctor shall diagnose, medicate, and treat each symptom using the highest professional standards.
Interpretation: The clear intent is that the doctor uses the highest professional standards for “diagnose” and “medicate” and not just for “treat”.
(b)
Suggested Re-Draft: Using the highest professional standards, the doctor shall diagnose, medicate, and treat each symptom.
F. Canons of Interpretation
The canons of interpretation derive from the 17th Century British jurist Blackstone who included ten such canons in his Commentaries. The canons are not rules of law but rather “rules of thumb” or “axioms of experience” by which legal meaning can be inferred. The canons have been criticized over the years. One commentator has written that for each canon there is an equally correct but opposing canon. Although the canons have been criticized, the courts still resort to them so the drafter must know them.
1.
“Expressio unius est exclusio alterius” – The expression of one thing excludes any other things.
If a provision enumerates specific items or specific exceptions to a general prohibition, other items or exceptions not so enumerated will not be implied.
Example:
A provision states that constituent must deliver written notice of dissociation. A court will not imply that oral notice satisfies this provision even though oral notice is reasonable under the circumstances.
2.
“Noscitur a sociis” – A word is known by the company it keeps.
Words that are grouped together in the form of a list are deemed to have a related meaning. This rule limits a broad term to the attributes that the broad term has in common with the terms with which it is grouped.
Example:
A provision states that the entity shall indemnify a constituent for the dollar amount of “filing fees, court costs and brief reproduction”. The entity is not obligated to indemnify the constituent for attorneys’ fees.
3.
“Ejusdem generis” – Of the same kind.
Where general words follow an enumeration of specific items, the general words apply only to other items that are similar in nature or function to the items specifically enumerated.
Example:
A provision states that a constituent is authorized to make withdrawals from entity accounts, prepare financial accounts, file tax returns and other management duties. The general term “other management duties” does not include hiring and firing employees.
G. Scrivener’s Error
A contract can be reformed where there has been an error in the text when it was reduced to writing. If the intent of the parties remains the same despite the error it is a mutual mistake. The error can be corrected using the equitable remedy of reformation. If a party asserts that correcting the error would alter the intent of the parties, then it is a unilateral mistake for reformation is not available.