In legal terms, a contract is an agreement entered into by two or more parties, which outlines their promise to either sell goods or perform services. Although contracts can be oral, it is generally recommended that all the terms of the agreement be in writing, so as to decrease the potential for legal disputes associated with what each party agreed to do. When a contract dispute arises in which one party alleges that the other has failed to fulfill their obligation under the contract, the other party may sue that party for a breach of contract.
It is important to note that some contracts must be in writing in order to be considered legal. Examples of contracts that must be in writing include contracts for the sale of real property, and contracts for the sale of goods that are worth over a certain amount.
How Do I Form A Valid Contract?
It is important to note that only valid contracts are enforceable. As such, it is essential that any party entering into a contractual agreement understand the requirements for forming a valid contract. The requirements for forming a contract are fairly simple, as the requirements are intended to show that there was mutual assent between the parties entering into the contract.
The legal elements that are necessary in order to form a valid contract are:
- Offer: An offer is a promise made by one party (the offeror) to do something for the other party (the offeree);
- Acceptance: Once an offeree has received an offer they may then determine whether to accept it or reject it. Acceptance can often be difficult to prove as there may be issues of revocation, counteroffer, expiration of the offer, or improper method of communicating the acceptance;
- Consideration: Consideration is essentially something valuable or beneficial that is offered in exchange for the offeror’s promise to sell goods or perform services.
- Although consideration does not need to be financial in nature, the most common form of consideration is currency; and
- Legal Purpose: Finally, all contracts must serve a legal purpose. If the contract was made for an illegal purpose, such as acting as a getaway driver to rob a bank, then the contract will not be valid.
- An example of a legal purpose would be buying a home to live in. However, purchasing a home to use as the base of operations for an illegal business would not be considered a legal purpose, and that contract would be considered invalid.
How Do Courts Interpret a Contract?
At times, the court may need to intervene into a contractual relationship and assist the parties to the contract with interpreting a contract. Through the interpretation process, the court will clarify any disputes that the parties might have had about a word, phrase, sentence, or term that is present in the contract. Contract interpretation is often necessary if there is a disagreement that leads to a breach of contract or to a major discrepancy in the fulfillment of the contract terms.
Contract interpretation most often becomes necessary when there is a legal dispute over a single word. However, there are many situations in which contract interpretation may be needed to resolve disputes over the entire obligations of the parties to the contract.
When interpreting a contract, a court may use a variety of different interpretation techniques and principles to help them figure out which party’s contract interpretation is correct. Examples of the most common contract interpretation techniques and principles include:
- Intent: The first thing that a court will look at when resolving a contract dispute is what each party’s original intent was.
- Courts can often make a determination of each party’s original intent by examining the written contract itself. However, there is sometimes a need for other evidence to be introduced;
- External Evidence: If the contract document isn’t enough to resolve a contract dispute, the court may then allow outside evidence to be introduced to clarify the contract.
- Examples of common external evidence may include other documents, communications between the two parties, witness testimony, and other physical evidence;
- Trade Usage: Next, the court may interpret the disputed term(s) of the contract by looking at how the terms are used in a particular field or trade; and/or
- Ordinary Meaning: Finally, courts will try to rely on the normal, everyday meaning of words, unless the contract specifies otherwise via a definitions section.
As mentioned above, courts will always try and first consider the contract as a whole and in its entirety before allowing any external evidence from the parties. This is most commonly referred to as the “four corners rule,” as courts will try to stay within the four corners of the contract when resolving a dispute. For example, if the disputed term is defined at the beginning of the contract, the term will be interpreted as having the same defined meaning if it appears later on in the document.
Whose Meaning Prevails When There Is A Dispute Regarding What A Term In A Contract Means?
As mentioned above, when two parties have entered into a contract, problems may still arise if they cannot agree on what a specific term in the contract means. If both parties intended the same meaning on a specific term at the time they entered into a contract, then resolving the dispute is simple as that intended meaning would be the meaning that the court would attach to the term. However, resolving a term dispute becomes complicated when the parties did not have the same meaning in mind when they formed the contract.
How a contract will be interpreted will vary based on the specific facts at issue in the case. If the parties attach an entirely different meaning to a specific term in a contract at its formation, and they do not know or have reasons to know of the other party’s meaning, then it is most likely that a valid contract was never made. However, some courts will still recognize the existence of a contract, but simply leave any disputed terms out of the contract. This is known as contract reformation.
What Are Some Remedies for Contract Dispute Cases?
In cases where there is a misinterpretation of a contract that leads to financial losses for one party, it may be possible for the financially harmed party to obtain a damages award. In some cases, the contract interpretation made by the court will greatly impact the amount of damages issued. However, in other cases, the interpretation of a contract term or clause may actually serve as a defense for the breaching party.
Finally, the court may also rewrite the contract or fill in terms that were missing or blank. The most common remedy for a non-breaching party that proves the other party breached their obligations under the contract is a monetary damages award. Courts do not often require a party to perform services.
Do I Need a Lawyer for Help With Interpreting a Contract?
As can be seen, disputes regarding a term or condition of a contract can often become complicated matters. As such, if you are involved in a contract dispute, it is in your best interests to consult with an experienced contract lawyer.
An experienced contract attorney can assist you in drafting a contract, as well as help you in interpreting an existing contract. Additionally, an experienced attorney can also represent you in court, should the need arise to initiate a lawsuit in order to have the contract interpreted by the court. Finally, an attorney can also represent your interests at any in person hearing.
