Contract Interpretation Part 2

 

By Albert L. Kelley

 

When the court is trying to interpret a contract, it begins by looking at the full contract to determine the intent. If the contract can be divided into separate obligations, the court may separate it into its component parts and interpret the various parts as separate contracts. This is especially true if the consideration is divisible as well.

 

 

In some cases, contracts may be conditional. This is also referred to as a contingency. The contract will not be valid unless certain conditions occur. This is the case with most contracts to purchase real estate. The contract may state that it is contingent upon the buyer obtaining proper financing. If the buyer applies to the bank for financing and is refused, then the contract ends and the seller must return any deposit money to the buyer. If the contract is cancelled for any other reason, the Seller keeps the deposit as liquidated damages.

 

 

If the contingency occurs before the contractual obligation, it is termed a condition precedent; if it arises after the obligation, it is a condition subsequent. Condition subsequent are usually things that cancel contracts, whereas conditions precedent prevent the contract from forming.

 

 

What language prevails in a contract? When you have contradictory terms, the court is often asked to determine which is controlling. As a general rule, handwritten provisions in a contract take precedence over typewritten provisions, and typewritten provisions take precedence over preprinted provisions. If the conflict is between numbers that are expressed in both words and figures, the words prevail.

 

 

When resolving ambiguous terms, courts will construe a contract against the party who drafted it. That is, if you hire a lawyer to write the contract and there is an unclear term, the court will read that term in the light most favorable to the other party. For this reason, many contracts now have the phrase that “Ambiguous terms shall not be construed against the drafting party.”

 

 

The court can also insert certain terms, without changing the contract. If the contract does not have a clause regarding when an act is to be performed, the court will imply that a reasonable time controls and can insert a date they deem reasonable.

 

 

If the contract is one that is covered by statutory law and there is an ambiguity as to that portion of the contract, the court will imply the statutory language and can redraft the contract to fit the statute.

 

 

If the parties have a particular pattern of conduct or custom of dealing with each other, the court can look to the prior dealing to interpret the language of the contract. In other words, if I have a tenant who routinely pays his rent three weeks late, and I accept the rent without objection, the court may decide that the contract has been redrafted to change the payment date.

 

 

When you enter into an agreement with someone, you have an obligation to act in the manner most favorable to carrying out the terms of the contract. If a person takes action to prevent the other side from performing its obligations under the contract, even though not precluded by the contract, that person might be found in breach of the agreement.

 

 

Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University. He is so the author of “Basics of Business Law” (Absolutely Amazing e-Books). This article is being offered as a public service and is not intended to provide specific legal advice. If you have any questions about legal issues, you should confer with a licensed Florida attorney.

 

[livemarket market_name="KONK Life LiveMarket" limit=3 category=“” show_signup=0 show_more=0]