CCMost of us understand the importance of reducing a commercial contract to writing.

However, even then, two parties will sometimes take different views on what the written words of the contract actually mean.

When courts investigate the meaning of words written in a contract, they call the exercise ‘contractual interpretation’. When you draft your own contract it’s important to follow the same principles that a court would apply if it were asked to interpret the words.

Firstly, the contract is considered objectively. That is, the parties themselves are not asked what they intended by the words, rather the question is what a reasonable third person, reading the contract would take the words to mean. The pre-contractual negotiations will often be irrelevant, as will the course of conduct after the formation of the contract.

Secondly, where the contract is in writing, effect should almost always be given to the written words. If a contract is silent on what is to happen in certain circumstances, then the loss lies where it falls. Courts will not add words to a contract unless it is necessary for the contract to work on the most fundamental level, or, the words to be implied are so obvious that they ‘go without saying’.

Thirdly, the contract should be read as a whole. That is, if two possible interpretations of a term arise, effect should be given to the interpretation that best aligns with the flavour of the rest of the contract.

Lastly, contracts are interpreted in the context of the relevant background. That is, if two interpretations of a contract arise, the one that seems most likely in the context should be adopted.

Merely putting something in writing is not always enough. Many commercial disagreements arise, because contracting parties have differing views on what the actual words mean.  For that reason it’s always good practice to have important contracts drafted by a professional and to seek professional advice on the likely meaning of the words.

If you need assist drafting or understanding a commercial contract, contact Everingham Solomons because Helping You is Our Business.

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