Often when negotiating a contract, the parties are on friendly terms and understand the intention behind each provision whether express or implied. The difficulty lies somewhere down the road should the parties dispute the meaning of one or more of those terms. When drafting a contract, you should be keenly aware that it will likely be construed by a court who has little knowledge of the party’s intentions and will have to assess the contractual language objectively, setting aside any subjective notion of the party’s intention.
Although the court is entitled to consider the objective commercial purpose, the origin of the transaction, and often its context in the marketplace. But it is prevented from looking at prior drafts, notes, emails, or other indicia of the negotiations. The court interprets the contractual language in a clear and natural meaning of the language used. The court will rely on the express terms, as drafted, providing clarity to those terms that are, perhaps less clear resulting in the dispute.
There is some precedence that the court may recognize implied terms in very specific and highly restrictive circumstances. The court will not conclude a term is implied unless a reasonable reader would consider the term to be so obvious as to go without saying or be necessary for business efficacy. It seems the reasonableness standard is not applied lightly, rather the exercise of construction applying traditional notions of interpretation.
Thus, when drafting a contract, you should keep in mind the importance of the language used as well as what might be interpreted by a reasonable reader as obvious and necessary to fulfill the terms of the contract. One example of this might be, termination fees for early termination of a contract.
Here are a few tips:
- Draft clearly using plain language and eliminate any ambiguity
- Address issues that may be implied by the circumstances
- Define the meaning of specific words to avoid confusion later
- Use recitals to outline the background the more detail set out the more information the court has to determine relevant circumstances
- When using dates, monetary payments, cure periods etc., be very specific rather than using language such as “On or before” or “commencing on”
- When reviewing make certain there are no conflicts between the various provisions
- Ensure all section/provision number references are correct
Please contact us if you would like any assistance with drafting your contracts, we would be happy to help.