Interpretation of Contracts

Contracts are not always clear-cut. Disputes may arise as to a contract’s meaning or its terms of enforcement. Sometimes these arguments result in attempts to have the contract enforced in court. The purpose of any contract litigation is to interpret what the parties originally put in writing. To provide uniform guidelines for interpretation, the law has developed many rules for courts and lawyers to follow.

One of these rules is the parole evidence rule. In contract law, “parole” refers to oral and written statements. If two persons have signed a written contract and intended it to express the full terms of their agreement, no court, in interpreting that contract, will admit as evidence any written or oral statements made prior to the signing of the written contract. Thus, a person cannot contradict or vary the term of a written contract by introducing for the court’s consideration evidence of discussions that occurred before the written agreement was signed.

There are exceptions to the parole evidence rule. The law allows the introduction of parole evidence if there is some indication that a purported contract is the result of fraud, duress, or illegality. In any of these circumstances, a binding contract does not exist. Second, parole evidence is admissible to show that the written agreement does not include all terms of the contract. The third exception arises when the terms of a contract are vague or ambiguous. In this case oral evidence can be introduced to help clarify the meaning of the contract. For example, it may include the term “barrel”. In the oil industry, a barrel means forty gallons. However, in the beer industry, a barrel refers to thirty gallons. In this situation oral evidence would be permitted to explain the usage of the term in the contract.

Other rules of interpretation state that words be given their plain and usual meaning, except when customary business usage indicates a special meaning, or when a technical word is defined. Obvious mistakes of grammar or punctuation are corrected by the courts. However, ambiguous words will generally be construed more unfavorably against the party who used them. Of there is a conflict between a printed word and a written word, the written word will govern. So also, when there is a conflict between a figure number and a written numeral, the written version will prevail.

Although these rules may seem unyielding, their purpose is to help the court interpret the contract in a manner that best expresses the intent of those who made it.

XII. Answer the following questions

1. What may stir up disputes about contracts?

2. What rules do courts and lawyers follow in contract litigations?

3. What is the parole evidence rule?

4. What exceptions to the parole evidence rule are mentioned in the text?

5. In whose favour are disputes about ambiguous words, printed and written words, figure numbers and written numerals settled?

6. What is the purpose of these rules?

XIII. Look through the text “Interpretation of Contracts”