Often there are disputes and differences by and between the parties as to the meaning or interpretation of a term or expression used in a contract. The issue becomes all the more contentious when the possible interpretations would lead to varying results.
A Court will try to find out the intention of the parties using the popular and ordinary meaning of the words used in an agreement.
The general rule is that no clause in a contract is meaningless, redundant or surplus. Each one has a definite purpose. Only in extreme cases when no viable interpretation is available, the court will treat the concerned clause or part of a contract as defunct.
The court can also look at the introductory recitals, preambles, headings, titles and subtitles to ascertain the meaning of the vague parts.
To resolve ambiguity the court may try to find out the circumstances in which the contract was signed from reliable sources including correspondence or earlier agreement between the parties.
When a contract is capable of two different but equally sustainable meanings, that particular interpretation that goes against the author of the document is adopted. This is particularly valid when the party who is in a superior bargaining position to dominate the will of the other prepares the contract. For instance, the courts try to adopt that line of interpretation in favor of the employees in employer employee agreements since employers prepare such contracts.
A court may even incorporate a business custom or usage, which is an established norm in the concerned sector into a contract, unless there is any condition or intention in the agreement to bypass such established practice.
In case there is inconsistency between handwritten and typed out parts of an agreement, the courts take the meaning of the handwritten portion.
Oral evidence is not allowed to contradict a written agreement. However, an exception is made in case of consumer transactions regarding the promises held out by the seller.
