CONTRACT DRAFTING AND INTERPRETATION

Drafting

The purposes of a written contract is to tell the parties (1) what they can and can’t do; and/or (2) what they have to do and when they have to do it.

A well drafted contract should protect you when things don’t go as planned.

Because of the give and take in most contract negotiations, it is important to review each provision.

Signing a form contracts is almost certain to leave you in a losing position if things do not go as planned.

Contract Litigation

 When deciding what the contract means, the court will use a three step approach.

First, the judge will read the contract to see if it unambiguously sets out what the parties agreed to do. This is known as the “four corners test”. In most cases the court will not look beyond the four corners of the document in determining what the parties agreed to do.

If the judge cannot decide the issue after reading the four corners of the contract, then the court will move to the second step and apply the rules of contract construction. There are many rules of contract construction. One example is the rule that if the contract is subject to more than one fair reading, then it is to be read in the way that is most favorable to the non-drafting party.

If the judge is still unable to resolve the dispute, then the third step is for the parties to present extrinsic evidence. Extrinsic evidence includes what the parties said while negotiation of the contract. Once the court determines that extrinsic evidence is necessary, the decision about what the parties actually agreed to do will be decided by a jury.