Every first year law student in the U.S. takes a course on the Law of Contracts. It’s a rite of passage where lawyers-to-be learn all about things like consideration and legally-enforceable promises. And as lawyers, we also learn that there are generally-accepted rules on how to interpret contracts. Some of those rules even have fancy Latin phrases like “expressio unius est exclusion alterius.” While every state has its own unique set of laws, the basic rules of contract interpretation are largely consistent throughout the U.S.
Here are some of the common rules adopted by many jurisdictions that any non-lawyer in the construction industry should be aware of:
- The goal of contract interpretation is to ascertain and give effect to the parties’ intent as evidenced by words of the contract.
- Courts interpret contracts based on the plain meaning of their provisions, giving words their ordinary, usual, and popular meaning.
- The parties’ subjective intent (i.e., what they believed) is irrelevant if the court can ascertain their intent from the words in the contract.
- Courts interpret contracts as a whole and, if possible, in a way that gives effect to all of its provisions.
- Courts avoid interpretations that would collapse parts of the contract into meaningless or superfluous redundancy.
- Where general and specific provisions in an contract are inconsistent, the specific provision prevails.
- When parties list specific items in a document, any item not so listed is typically thought to be excluded.
- Extrinsic evidence (i.e., evidence outside the four corners of the contract) is generally inadmissible to show the parties’ intent. But, if the contract is ambiguous, court may refer to extrinsic evidence to resolve the ambiguity. Such extrinsic evidence may include the parties’ course of performance or the facts and circumstances surrounding the transaction.
- Unresolved ambiguities are construed against the party that drafted the contract.
These rules may inform how construction contracts are drafted, the advice lawyers provide construction clients during project execution, and the arguments lawyers advance in Court if a dispute arises. The next time you have a contract interpretation question, think about these rules. They may just provide the answer you’re looking for.