When the terms of a contract are disputed, the law provides rules for interpretation to ascertain the true agreement. The cardinal rule: if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations controls. But if the words appear contrary to the evident intention of the parties, the intention prevails over the words; and to determine intention, the courts consider the contemporaneous and subsequent acts of the parties. Other rules include: a contract must be interpreted as a whole, giving effect to all its stipulations together, so that an ambiguous provision is understood in light of the others; words that may have different meanings are understood in the sense most consistent with the nature and object of the contract; usage or custom of the place may be considered to fill in omissions; and doubts that cannot otherwise be resolved are settled against the party who caused the obscurity (contra proferentem), which is why ambiguities in a contract of adhesion (a standard-form contract) are construed against the party who drafted it, typically the stronger party. If the doubts make it absolutely impossible to know the parties' intention, a gratuitous contract is interpreted for the least transmission of rights, and an onerous one for the greatest reciprocity of interests. These rules aim to give effect to what the parties truly agreed.
The Cardinal Rule
If the terms are clear, their literal meaning controls. But if the words appear contrary to the evident intention, the intention prevails — shown by the parties' contemporaneous and subsequent acts.
Reading the Whole
A contract is interpreted as a whole, giving effect to all stipulations together; ambiguous words are read in the sense most consistent with the nature and object of the contract, and custom may fill omissions.
Doubts Against the Drafter
Doubts not otherwise resolved are settled against the party who caused the obscurity — so ambiguities in a contract of adhesion are construed against the drafter (the stronger party).
Practical Takeaways
- Clear terms control; otherwise the parties' true intention prevails;
- Read the contract as a whole;
- Ambiguities are construed against the drafter (contra proferentem).
Frequently Asked Questions
How are contracts interpreted? If the terms are clear, their literal meaning controls. If the words appear contrary to the evident intention, the intention prevails, determined by the parties' contemporaneous and subsequent acts.
How are ambiguities resolved? A contract is read as a whole, ambiguous words are understood in the sense most consistent with its nature and object, and doubts not otherwise resolved are settled against the party who caused the obscurity.
How are ambiguities in a standard-form contract construed? Against the party who drafted it. Ambiguities in a contract of adhesion are construed against the drafter, typically the stronger party, under the contra proferentem rule.
What if the parties' intention cannot be determined? If doubts make it absolutely impossible to know the intention, a gratuitous contract is interpreted for the least transmission of rights, and an onerous one for the greatest reciprocity of interests.
This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.
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