Legal Determination of a Contract

When a court of law is presented with a case involving a contract, it must look to a set of guidelines known as the "Rules of Construction" in order to properly interpret the agreement. These guidelines assist the court in establishing the actual intent of the contractual parties. Five major areas are addressed by the Rules, and the court will review the contract in the light of each of these before reaching a verdict. The areas covered are listed here:

The entire contract - The entire contract is evaluated in order to determine the overall intent of the parties involved. A court generally will not consider any material added to the basic contract, nor will it regard only parts of the contract in making its determination. Once the court is satisfied that the intent of the contract has been discovered, any individual clauses or sections that would seem to subvert that basic intent will not be deemed to take precedence over the established intent of the contract.

Plain language and word definitions will be used - As long as a contract uses words that are clear and precise, the court won't need to interpret their meaning and, hence, the overall meaning of the contract. But if there's a question, the court will ascribe to a word or words their "ordinary" meaning. However, in situations where ordinary words are used with regard to a technical function or definition, the court will accept the technical meaning of the word.

Interpretations will be in favor of a valid contract - Courts make the fundamental assumption that when parties execute a contract their basic intention is for the agreement to be valid. Therefore, if at all possible, any necessary interpretations by the court will be rendered such that the contract's validity – rather than invalidity – is upheld. Even if one of the contractual parties did not truly intend for the contract to be valid or legal, the court will seek (again, if at all possible) to interpret the contract as being valid. This would then subject the dishonest party to possible charges of fraud.

Unclear or ambiguous contracts of adhesion will be interpreted against the contract writer - A contract of adhesion is one that's drafted in totality by one party and offered to the other with little or absolutely no opportunity or possibility for bargaining or materially altering any of its provisions. These contracts often contain lengthy clauses and complicated wording, making them difficult for average people to understand. Because of these factors, a court will typically interpret any unclear language of such a contract against the contractor writer; in other words, the court will generally favor the cause of the other party.

Written contracts - If a contract's meaning becomes unclear due to inconsistencies in printed, typed, or handwritten areas of the document, the typed or handwritten material will be used to determine the contract's intent. Furthermore, if a discrepancy arises between typed and handwritten information, the handwritten material would be used to determine intent. The fundamental assumption here is that printed material is standardized and thus used for general applications, but typed or handwritten material is a conscious addition to existing information and is therefore a better indication of the parties' actual intent.