Interpretation is "the process whereby one person gives a meaning to the symbols of expression used by another person."1 With respect to governance of contractual interpretation, a widely established cornerstone principle is that such interpretation is an effort in the "determination of common intent of the parties".2 Any interpretation is to be rendered in a manner that provides incentives for the enhancement of the mutual wealth of the stakeholders on both ends of the contract.3 This is illustrated by the developed doctrine of interpretation which enshrines that upon examination of any contractual term within the broader framework of the entire agreement, if it is not reasonably open to multiple interpretations, the "objective" meaning of the term or provision will prevail4 but if the parties had taken shared cognizance of some other meaning, the court should construe the contract in alignment with that shared meaning, even if a reasonable & objective criterion might dictate a different interpretation.5
Contractual ambiguity that arises due to the usage of imprecise terms characterised by ambiguity not mutually agreed upon or resulting in divergent interpretations or conflicting expectations by the contracting parties increases the probability of engaging in legal remedies such as court proceedings or the appointment of an independent arbitrator to assist in the dispute resolution process. In such instances, the contracting parties essentially delegate the responsibility of the assignment of "proxies" to the ambiguous terms or conditions6 such as "best efforts" or "reasonableness". Such ambiguity plays in the favour of the drafter or both the contracting parties in the instance that the back end costs of litigation are lower than the front end costs of conceiving possible scenarios and ensuring contractual provisions for all contingencies.7
While a multitude of contracts manifest an intricate design with a refined approach in balancing the delineation of ambiguous provisions while allowing scope for favourable interpretation, the courts interpret such phrases variantly. While some courts may construe "reasonable best efforts"8 to be tantamount to the concept of good faith9, others may interpret the standard to be on the higher end of the spectrum of reasonable diligence10 while some may even interpret it to be even more exacting.11
Any ambiguity in a contract is to be resolved by construing any ambiguous terms against the drafting party.12 The rationale behind the development of the "contra proferentem" principle is that the party that "furnished its text" is the best equipped to articulate the intended terms meticulously and that any failure to do so shall result in the imposition of any burden or consequence arising out of such confusion. However, this may always not be the case as it is plausible that the opposite non-drafting party may have access to or possess more pertinent information with regard to the contingency that might be the point of contention.13
Contra proferentem is applied with particular vigour in instances of insurance contracts wherein it is believed that insurance companies should inherently shoulder the superior burden of noncoverage risk stemming from uncertainties14 as observed in the case of Houghton v Trafalgar Insurance Co. Ltd.15 wherein a disagreement concerning an insurance agreement emerged due to a provision in the contract that absolved the defendant from insurance coverage if the claimant's vehicle carried excessive weight during the accident. The claimant had an accident with the vehicle accommodating 6 individuals instead of the designated 5. The court sided with the claimant, deeming the clause overly unclear. The court advised the defendant to incorporate precise details, such as weight specifications, into the contract and suggested using red ink for emphasis. The importance of the principle has also been highlighted in the Indian context in the case of KSL & Industries Ltd. v. National Textiles Corporation Ltd16 and Sushilaben Indravadan Gandhi v. New India Assurance Company Limited.17
Concerning determination of intent of the contracting parties, the courts are not to engage in the analysis of supplementary evidence18 if the language of the contract is established as unequivocal or explicit as per the four corners rule.19 However, in instances of terms characterised as ambiguous, the courts are authorised to delve beyond the agreement's explicit confines for ascertaining the genuine intent of the involved parties.20 However in instances wherein the practitioners engaged in the process of drafting do not heed to their ethical obligation to reveal known inconsistencies that may result in dispute within the agreements21, it gives room for possibilities of violation of "mutually agreed upon" or consent and other theories rooted in contractual autonomy22 upon an interpretation by the court that declines enforcement of mutually consented upon commitments.23 The courts have also been seen to incline towards the "extrinsic nonevidence" or the "best guess" rule wherein it is needed to venture beyond the confines of the contracts. Upon exercise of this principle, contractual uncertainties are settled without reference or entanglement in factual disputes but rather by the application of level headed sound judgement or common sense which "is as much a part of contract interpretation as is the dictionary or the arsenal of canons." 24
The forthright negotiator principle posits that during contract negotiations, parties must exhibit forthrightness and candour.25 If a party is cognizant, or should be cognizant, that the counterparty is interpreting a contract in a certain manner, that party cannot subsequently assert that the contract is ambiguous. Upon instances wherein the determination of the provisions is entrusted to the courts owing to a lack of convergence upon a shared interpretation by the parties, the courts shall consider the subjective understanding of one party evident in object actions or expressions, reasonably expected to be known by the other party.26 The forthright negotiator principle carries substantial significance as it advances fairness and good faith within contract negotiations.27 Moreover, it functions as a deterrent against parties capitalising on ambiguities within contracts for their own advantage. The case of United Rentals Inc. v. RAM Holdings Inc.28 Delaware Court of Chancery rendered a significant decision which emphasised on the principle that parties to a contractual agreement cannot exploit conscious ambiguity within the contract as a means to evade the contractual obligations.
Even while the court is to interpret the contract with as little deviation from the written text as possible, it also does not amount to precluding judicial recognition of glaring grammatical or syntactical errors that might impede rather than facilitating the intended outcome by the parties. Furthermore, the courts may use their constructive powers for the purpose of rectification of the inadvertent omission of an evident or crucial term as was recorded in the case of Sanders v. Rudd,29 that contained the provision "Anything in this lease to the contrary notwithstanding, if oil and/or gas production is not established or a new bona fide exploratory test is [*] drilled on or before September 14, 1982, this lease will become null and void." Upon meticulous examination it was discerned that, according to the provision, failure in establishment of timely production would result in the forfeiture of rights granted under the lease. Paradoxically, any drilling of a well for production would also result in such a forfeiture. The court supplied the word 'not' (instead of the asterisk above) to align with the intent of the parties intent and in order to ensure that the lease was not rendered meaningless altogether.
Contracts often employ illustrative references to delineate the subject of regulation of the contract. As per Black's Law Dictionary, "ejusdem generis" stipulates that when general terms are followed by a numeric indication of individuals or items by a particular and distinct import, such overarching terms are to be not to be construed expansively but rather as pertaining solely to individuals or items of the same category or class as the ones explicitly specified.30 A new variant of the ejusdem generis presumption, "reverse ejusdem generis" also finds space in the ambiguity discussion. Upon application, the broader term curtails the meanings of the precursory narrow terms. Its inception can be traced to the interpretation of a criminal enactment stipulating that the occupancy of "a position of organiser, a supervisory position, or any other position of management" by the person is necessary in order for a crime to be committed.
Another parallel doctrine established as the legal maxim "inclusio unius est exclusio alterius doctrine" meaning that "the inclusion of one implies the exclusion of others."31 It affirms that the specific inclusion of an entity or object is implicative of the intentional exclusion of all other entities or objects32 i.e. when such a specificity is explicitly mentioned and the contract finds no invocation of the principle of ejusdem generis, it is assumed that such mention is indicative of exclusive application of the contract rather than illustrative. However, these principles may still not yield desirable results when applied in instances such as the case of Frigaliment Importing Co. v. BNS International Sales Corp33 wherein the matter of interpretation of the term "chicken" arose owing to the divergent understandings of the contracting parties wherein one believed the term to indicate "a young chicken suitable for broiling and frying" whereas another believed it to denote "any bird of that genus". Upon comprehensive analysis, the court determined that there existed valid grounds for argument on both sides and that the onus to prove that the term was used in a narrow context was on the plaintiffs.34
While these rules and doctrines of interpretation may seem simplistic enough on their surface, the intricacies of interpretative process offer a labyrinth of complexities which are further compounded by the potential subjectivity of the interpreters35. In addressing these challenges, judicial officers and other legal practitioners must cautiously navigate the fine line between following established precedents and adapting to the evolving landscape of contract law. The linguistic scrutiny must be synthesised with contextual comprehension to discern the most equitable and nuanced interpretation. Regardless of the doctrine employed, the ultimate goal of the courts boils down to the determination of the "correct answer" or a resolution that aligns with the parties' intended actions36 and no obligations can be enforced upon either party based on something that the other party could not have reasonably understood the original party to mean;37 except for instances of mutual mistakes such as in the case of MR Building Corporation v. Bayou Utilities, Inc.38 upon which the contractors may resort to the remedy of reformation of the contract.
Footnotes
* Shivya Khanna is a Third Year Student,
BA LLB Hons. (2022-27), Gujarat National Law University.
** Khushi Patel is a Third Year Student, BBA LLB Hons. (2022-27),
Gujarat National Law University.
1. Corbin, Conditions in the Law of Contract, 28 YALE L.J. 739, 740-41 (1919).
2. La Civ Code art 2045.
3. Charles J. Goetz & Robert E. Scott, Principles of Relational Contracts, 67 VA. L. REV. 1089, 1092-95 (1981); Robert E. Scott, A Relational Theory of Default Rules for Commercial Contracts, 19 J. Legal Stud. 597 (1990).
4. Bell Atd. Meridian Sys. v. Octel Commc'ns Corp., Civ. A. No. 14348, 1995 WL 707916
5. Eustis Mining Co. v. Beer, Sondheimer & Co., 239 F. 976, 984 (S.D.N.Y. 1917)
6. Scott, Robert E. and Triantis, George G., Principles of Contract Design. Yale Law Journal, Vol. 115, 2005-06,
7. ibid, 2.
8. Kenneth A. Adams, Understanding "Best Efforts" and Its Variants (Including Drafting Recommendations), 50 PRAC. LAW. 11 (2004).
9. Triple A Baseball Club Assocs. v. Northeastern Baseball, Inc., 832 F.2d 214, 225 (1st Cir. 1987); W. Geophysical Co. of Am. v. Bolt Assocs., Inc., 584 F.2d 1164, 1171(2d Cir. 1978)
10. Kroboth v. Brent , 215 A.D. 2d 813, 814 (N.Y. App. Div. 1995); Coady Corp. V. Toyota Motor Distrib., 361 F. 2d 50, 59 (1st Cir. 2004); National Data Payment Systems v. Meridian Bank, 212 F. 3d 849, 854 (3d. Cir. 2000); T.S.I. Holdings, Inc. V. Jenkins, 924 P.2d 1239, 1250 (Kan. 1996).
11. Petroleum Mktg. Corp. V. Metropolitan Petroleum Corp., 151 A. 2d 616, 619 (Pa. 1959)
12. Kuhn v. Stan A. Plauche Real Estate Co., 249 La. 85,185 So. 2d 210 (1966); Kenner Indus., Inc. v. Sewell Plastics, Inc., 451 So. 2d 557 (La. 1984); The Ouachita Nat'! Bank in Monroe v. Williamson, 338 So. 2d 172 (La. App. 2d Cir. 1976).
13. Patrick S. Ottinger, 'Principles of Contractual Interpretation' (2000) 60 La L Rev 765
14. Francis Bacon, The Elements of the Common Law of England, in The Works of Francis Bacon 225, 225 (1857)
15. Houghton v. Trafalgar Insurance Company, Ltd. [1953] 2 Lloyd's Rep. 503
16. KSL & Industries Ltd. v. National Textiles Corporation Ltd., 2012 SCC OnLine Del 1273.
17. Sushilaben Indravadan Gandhi v. New India Assurance Co. Ltd., (2021) 7 SCC 151
18. W.W.W. Assocs., Inc. v. Giancontieri, 566 N.E.2d 639, 642 (N.Y. 1990);Alan Schwartz & Robert E. Scott, 'Contract Theory and the Limits of Contract Law' (2003) 113 Yale Law Journal 541, 569, 572.
19. Frischhertz Elec. Co.. Inc. v. Housing Auth. of New Orleans, 534 So. 2d 1310, 1312 (La. App. 4th Cir. 1988), writ denied. 536 So. 2d 1236 (La. 1989).
20. Rabenhorst Funeral Home, Inc. v. Tessier, 674 So. 2d 1164 (La. App. 1st Cir. 1996).
21. Model Rules of Professional Conduct R. 1.1 (2008).
22. Randy Barnett, 'A Consent Theory of Contract' (1986) 86 Colum. L. Rev. 269, 300-09.
23. Joseph M. Perillo, 'The Origins of the Objective Theory of Contract Formation and Interpretation' (2000) 69 Fordham L. Rev. 427, 427.
24. Fishman v. LaSalle Nat'l Bank, 247 F.3d 300, 302 (1st Cir. 2001).
25. Steven R. Ratner, 'The Forthright Negotiator Principle: A New Approach to Contractual Ambiguity' (2003) 57 U. Miami L. Rev. 1059.
26. Mark P. Gergen, 'Conscious Ambiguity in Contract Drafting: The United Rentals Case and the Forthright Negotiator Principle' (2004) 57 Rutgers L. Rev. 135.
27. Restatement (Second) of Contracts § 201(2) (1981).
28. United Rentals, Inc. v. RAM Holdings, Inc., [2007] Del Ch 175; 937 A.2d 810, 836.
29. Sanders v Rudd [1983] 2 WLR 427 So. 2d 1271 (La. App. 2d Cir.).
30. Black's Law Dictionary (7th ed, 1999) 535.
31. La. Civ. Code art. 2050; La. Civ. Code art. 2050.
32. DeLaeW v. Dep't. of HA. [1996] 4 WLR 672 So. 2d 1025, 1029 (La. App. 4th Cir.).
33. Frigaliment Importing Co., Ltd. v. BNS Intl Sales Corp. [1960] 190 F. Supp. 116, 117 (S.D.N.Y.).
34. ibid, 121.
35. United Rentals, Inc. v. RAM Holdings, Inc., [2007] Del Ch 175; 937 A.2d 810, 836.
36.Alan Schwartz & Robert E. Scott, 'Contract Theory and the Limits of Contract Law' (2003) 113 Yale Law Journal 558.
37. ibid, 569.
38. MR Building Corporation v. Bayou Utilities, Inc. [1994] 2 WLR 637 So. 614 (La. App. 2d Cir.)
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