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How Do New York Courts Interpret Disputed Terms In Contracts?

disputed terms-contract

Contracts are essential to good business, and to good business relationships. Any responsible company will have a number of written contracts with vendors, subcontractors, and even among its employees. Perhaps the most frustrating thing is to have disputed terms in a contract. A disagreement like this may prove costly because it could lead to a lawsuit and someone having to pay damages. If you’re a New York business, you know the importance of careful, comprehensive contract drafting. That’s why so many organizations trust the experience of Rosenbaum & Taylor.

Let’s walk through what the courts will do when disagreements over contract language arise.

The Court’s Role in Settling Disputed Terms in a Contract

There is an assumption, when parties enter into a contract, that the language therein will reflect their agreement. Further, the language is assumed to represent both their understandings and intentions with respect to the terms. If a dispute arises, New York courts will start by examining the parties’ intent as expressed by the contract language. Documents that are clear and complete will be enforced according to their terms.

The court will consider whether there are any ambiguous terms in the contract. Ambiguity will be determined by looking at the four corners of the document, rather than anything outside of it. And parties cannot manufacture ambiguity where there is none. For example, interpreting terms differently does not necessarily make them ambiguous. Where the language gives rise to an interpretation that is sensible, practical, reasonable, and fair, courts will go with it.

Courts, in taking the above steps, apply something called the parol evidence rule. This rule controls whether the parties may introduce evidence of prior or contemporaneous negotiations to interpret disputed terms. Integrated contracts – those that contain the final expression of the parties’ agreement – exclude parol evidence. In other words, neither party can bring in prior or contemporaneous negotiations to modify or contradict the meaning of terms.

This general rule applies especially where the parties are commercially sophisticated, and to contracts with merger clauses. Also referred to as integration clauses, merger clauses make clear that the written contract is the final agreement. Only if there is evidence of fraud or mutual mistake will a court consider admitting parol evidence.

Having this rule is important to keep the parties to a contract honest. It forces everyone to abide by the terms of their agreement, rather than attempt to evade their obligations. Without it, a party could say that the contract is different because of negotiation or conversation that was had. This would introduce tremendous difficulty in interpreting the contract, enforcing its provisions, and doing justice to the agreement.

Complete, Clear, and Unambiguous Language

The above principles reflect the fact that New York courts enforce contracts with complete, clear, and unambiguous terms. But what does this phrase mean? A contract is complete, clear, and unambiguous where:

  • The terms used have precise, definite meanings
  • There’s no risk of misconceiving the terms within the agreement
  • There’s no justification for a difference of meaning or interpretation

That last provision gets back to an earlier rule stated: parties cannot artificially introduce ambiguity into a contract.

Contract Drafting Is Critical To Your Business – Let Us Help

This is only one example of why contract drafting matters so much. Errors in drafting can open the door to not just costly litigation, but damaged business relationships and reputations. Don’t leave the future of your New York business to chance. Retain the services of a knowledgeable contract drafting attorney. Call Rosenbaum & Taylor today.

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