Rules for Interpreting a Contract

January 5, 2016 § Leave a comment

Only yesterday we discussed the importance of clarity in drafting agreements for your clients. What the parties were thinking and believed at the time is of no consequence in interpreting a contract unless the court first finds that the language is ambiguous. Only then can the court delve into what went into and what was behind the drafting.

In the case of Gibbs v. Moody, decided December 1, 2015, the COA, by Judge Carlton, quoted at ¶ 13 from Royer Homes of Miss., Inc. v. Chandeleur Homes, Inc., 857 So.2d 748, 751-753 (Miss. 2003), to lay out the process the trial court is required to follow:

The primary purpose of all contract construction principles and methods is to determine and record the intent of the contracting parties. In contract construction cases[,] a court’s focus is upon the objective fact—the language of the contract. A reviewing court is concerned with what the contracting parties have said to each other, not some secret thought of one not communicated to the other. A reviewing court should seek the legal purpose and intent of the parties from an objective reading of the words employed in the contract to the exclusion of parol or extrinsic evidence. The reviewing court is not at liberty to infer intent contrary to that emanating from the text at issue.

This Court has set out a three-tiered approach to contract interpretation. Legal purpose or intent should first be sought in an objective reading of the words employed in the contract to the exclusion of parol or extrinsic evidence. First, the “four corners” test is applied, wherein the reviewing court looks to the language that the parties used in expressing their agreement. We must look to the “four corners” of the contract whenever possible to determine how to interpret it. When construing a contract, we will read the contract as a whole, so as to give effect to all of its clauses. Our concern is not nearly so much with what the parties may have intended, but with what they said, since the words employed are by far the best resource for ascertaining the intent and assigning meaning with fairness and accuracy. Thus, the courts are not at liberty to infer intent contrary to that emanating from the text at issue. On the other hand, if the contract is unclear or ambiguous, the court should attempt to harmonize the provisions in accord with the parties’ apparent intent. Only if the contract is unclear or ambiguous can a court go beyond the text to determine the parties’ true intent. The mere fact that the parties disagree about the meaning of a contract does not make the contract ambiguous as a matter of law.

Secondly, if the court is unable to translate a clear understanding of the parties’ intent, the court should apply the discretionary “canons” of contract construction. Where the language of an otherwise enforceable contract is subject to more than one fair reading, the reading applied will be the one most favorable to the non-drafting party. Finally, if the contract continues to evade clarity as to the parties’ intent, the court should consider extrinsic or parol evidence. It is only when the review of a contract reaches this point that prior negotiation, agreements[,] and conversations might be considered in determining the parties’ intentions in the construction of the contract. Of course, the so-called three-tiered process is not recognized as a rigid “step-by-step” process. Indeed, overlapping of steps is not inconceivable.

I reiterate: If you intend for your contract to say a particular thing, then include language that expressly says that particular thing. Just because you can draw an inference from your draftsmanship does not mean that a judge — or anyone else — will draw the same inference. And unless a judge rules that the language is ambiguous, the door to your thought processes and what you intended remains locked.

 

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