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Canons of Construction - Contract Construction

court parties terms interpretation

Judges face different challenges when interpreting the terms of a contract. As a result, different canons exist to aid a court in resolving a dispute between the parties to a contract.

As in statutory construction, in a contract dispute the court gives contract terms their plain and ordinary meaning, interpreting them as ordinary, average, or reasonable persons would understand them (Rains v. Becton, Dickinson & Co., 246 Neb. 746, 523 N.W.2d 506 [Neb. 1994]). If the language of the contract is clear and unambiguous, there is no room for further interpretation and the court will enforce the contract as written. By doing so, the court gives effect to the parties' intentions in making the contract and avoids adding its own interpretation to the agreement.

If the contract contains ambiguous terms, however, they are strictly construed against the party who drafted the contract. This rule of STRICT CONSTRUCTION is often applied in contracts containing exculpatory clauses, or provisions that attempt to insulate a party, usually the party who drafted the contract, from liability. Thus, when a clause in a contract between a health club and a member, in which the member waived her right to bring legal action for injuries she suffered at the health club, was held to be ambiguous, it was construed strictly against the health club and it was found to be invalid (Nimis v. St. Paul Turners, 521 N.W.2d 54 [Minn. App. 1994]).

A court may look to other canons of construction or interpretation if it determines that the terms of a contract are ambiguous. In business situations, the court may consider the course of dealing or COURSE OF PERFORMANCE, that is, the pattern of conduct observed in previous transactions between the parties. Such evidence can help the court determine the intent of the parties at the time they entered the contract and provides additional terms that, though they are not expressly contained in the agreement, the court can use to interpret the contract. Thus, where one party to the contract alleges that the other breached the contract by failing to make payment in the proper manner, and the contract contains no express provisions concerning payment, the court can consider how the parties handled the issue of payment in previous transactions to resolve the issue (AROK Construction Co. v. Indian Construction Services, 174 Ariz. 291, 848 P.2d 870 [Ariz. App. 1993]).

A court can also look to usage of trade to aid its interpretation of an ambiguous agreement. A usage of trade is a commercial practice or industry custom "having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to a particular agreement" (Restatement [Second] of Contracts § 222 [1981]). As a result, if a contract is unclear about how shipment of a specific type of goods is to be handled, the court can consider evidence of general industry practice in the area to help determine what the parties intended with respect to shipment.

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