INTERPRETATION OF CONTRACT

INTRODUCTION

Interpretation is the method by which the sense or meaning of the word or provision is understood.

The question of interpretation can arise only if two or more possible constructions are sought to be placed on a provision - one party suggesting one construction and the other, a different one.

It is, therefore, in the best interest of all parties to a contract that they express their intention without ambiguity.

However, the meaning of a contract or some of its terms is often obscure.

More often than not this becomes a source of dispute between the parties.

In order to settle such a dispute, the disputed term or provision has to be interpreted or given a proper meaning.

PROVISIONS OF THE LAW

Section ofArt No.The Indian Evidence ActS. 91 to 994.25The Indian Contract ActS. 1154.22Provisions of the Standard form contractsFIDICClause : 62, 634.9

WHAT IS INTERPRETATION?

The dictionary meaning of the word 'interpretation' is "...expound the meaning of" Black's Law Dictionary gives the meaning of interpretation as:

"The art or process of discovering and ascertaining the meaning of a Statue, will, contract or other written document." But this alone does not help.

So the interpretation of the contract almost always involves ascertaining the intention of parties to the contract -as conveyed by the words set out in writing or by the spoken words the parties used in case of an oral contract.

CONSTRUCTION

Cooley explained the difference between them (Constitutional Limitations,) by saying that interpretation" is the art of finding out the, true sense of any form of words, that is, the sense which their author intended to convey", while construction is:

"The drawing of conclusions, representing subjects that lie beyond the direct expression of the text, from elements known from and given in the text; conclusions which are in the spirit, though not within the letter of the text".

It is thus clear that in the strict usage, the term "construction" is wider in scope than interpretation.

While the latter is concerned with ascertaining the sense and meaning of the subject matter, the former may also be directed to explaining the legal effects and consequences of the document in question.

The interpretation, as such, must necessarily stop at the written text.

The two are not the same. "A rule of construction is one which either governs the effect of an ascertained intention, or points out what the Court should do in the absence of express or implied intention, while a rule of interpretation is one which governs the ascertainment of the meaning of the maker of the instrument".

The profession, however, has not accepted the distinction, and the two expressions are in practice synonymous. The more common term is construction.

KINDS OF INTERPRETATION

The interpretation is of various kinds and includes: Authentic interpretation: It is given by the legislator and is obligatory on the Courts. For example, each Statute gives an interpretation clause, which defines the meaning of certain words occurring frequently in the other Sections.

2. "Customary" or "Usual" interpretation: It is that which arises from successive or concurrent decisions of the Courts on the same subject-matter, having regard to the spirit of the law, jurisprudence, usages and equality.

"Close", "Strict" or "Literal" interpretation: It is adopted when, for just reasons, one is induced to take the words in their narrowest meaning.

"Extensive" or "Liberal" interpretation: It adopts a more comprehensive significance of the word.

Extravagant: Beyond the true one

Unrestricted: In good faith but not bound to any principle

AUTHORITY WITH WHOM INTERPRETATION RESTS

A construction contract invariably provides that decisions of an architect or engineer

as to questions arising in respect of the following shall be final and conclusive:

The interpretation of drawings and specifications. (2) Quality of materials and workmanship. (3) Sub-letting of the contract. .

Where a construction contract embodies a stipulation such as the above the decisions of the engineer or of the architect have the effect of the award of an arbitrator.

It has been held in several cases that in the absence of fraud or such gross mistakes as imply bad faith or failure to exercise an honest judgement, the decisions of the engineer or architect are conclusive and binding upon the parties.

All disputes or differences other than those in respect of which the engineer's or architects decision is expressed to be final and binding are referred for adjudication to an arbitrator,

if the contract contains an arbitration clause or to the Court. The interpretation of the contract then rests with the arbitrator or the Court.

NATURE OF RULES OF INTERPRETATION

We have, to understand the principles of interpretation as judicially noted. Historically, these rules have evolved with the passage of time.

These are not rules of law. These are only guiding principles.

There are a number of rules of construction. Many of them are called golden rules.

Many of these rules are artificial, some are contradictory, some are uncertain ones so much so, that no less a person than His Lordship Hon. Mr. Justice Krishna Iyer observed: "The golden rule is that there is no golden rule".

Whenever there is a dispute regarding interpretation of contract provisions, almost always each side will have its own interpretation fully supported by some rules of interpretation.

Simple RULES OF INTERPRETATION English Law and Court Decisions how far and when relevant?

Conflict between Written and Printed Parts

Ignorance of Contract Terms

Words Given their Plain Meaning

Conduct of Parties

Intent of Parties

Every Word and Provision to be Given Effect

Law will not make a Better Contract

Erasures and Alterations

Ambiguity in phrase -Evidence of subsequent conduct of both parties is relevant

Intention -Surrounding Circumstances when considered

Departure from Literal Interpretation -When Permissible

Interpretation put upon a document in one case -how far relevant in another case

Two Constructions possible

Conflict between Earlier and Later Clauses

Equitable Principle -When applicable?

Construction tending to make Part of a Statute Meaningless

Severance of the Good from the Bad

Use of Marginal Note or Para Headings -When Permissible

General Rules of Interpretation: (doctrine principles)

In deciding the "Breach of Contract" the adjudicating forum reads the terms and conditions within a framework of certain rules. reading intentions of parties from contract documents. These rules are as follows :-

Words be given plain meaning - Plain Meaning Rule Words which could have two meanings will be given that meanings which makes Contract valid rather than void.

If certain things are expressly mentioned, it will exclude other things of similar nature - Expressio Unius Rule

General word like "etc." be narrowed down to mean only things of same genre - Ejusdem generis Rule.

Words have to be construed forcibly against the drafter - Contra Profrentem Rule.

Need of Contra proferentum rule

Exemption clauses creating unfair contract( equal bargaining capacity)Unconscionable contractFundamental breach of the contract