Interpretation: Definition, Example and Related Terms
What is a Interpretation ?
It's the process of finding out the true meaning of those words or phrases, so everyone is on the same page.
Interpretation is not just about looking up words in a dictionary though. It's also about considering the whole context of the contract, including the circumstances when it was made, and the intentions of the parties involved. Every word in a contract is assumed to have a purpose and to be there for a reason. So, when interpreting a contract, the aim is to give effect to every word and not to leave any part of it without meaning.
Interpretation is very important in commercial contracts because it can affect the rights and obligations of the parties involved. For example, how a clause about payment or delivery is interpreted could determine how much a party has to pay or when they have to deliver goods. So, understanding interpretation can help a contracts manager make sure their company is getting what it expects from a contract, or defend their company's actions if there's a dispute.
Example(s)
Scenario Description A contract between a manufacturer and a supplier includes a clause that says the supplier must deliver 'promptly'. The word 'promptly' could be interpreted in different ways. One party might think it means within a few days, while the other might think it means within a few weeks. If there's a dispute, the parties or a court would have to interpret what 'promptly' means in the context of the contract. They might consider factors like industry standards, the nature of the goods, and any previous dealings between the parties. A contract for the provision of IT services includes a clause that the service provider will 'regularly update' the client's software. What does 'regularly update' mean in this context? Daily, weekly, monthly? The interpretation of this phrase could significantly impact the service provider's workload and the level of service the client receives. If the parties disagree, they might need to look at other parts of the contract, or at their correspondence during contract negotiations, to try and determine what they both intended 'regularly update' to mean.