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 of
The Indian Evidence Act
The Indian Contract Act

Art No.
S. 91 to 99
S. 115

4.25
4.22

Provisions of the Standard form contracts

FIDIC

Clause : 62, 63

4.9

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:
1. 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 subjectmatter, having regard to the spirit of the law, jurisprudence, usages and
equality.
3. "Close", "Strict" or "Literal" interpretation: It is adopted when, for just
reasons, one is induced to take the words in their narrowest meaning.
4. "Extensive" or "Liberal" interpretation: It adopts a more comprehensive
significance of the word.
5. Extravagant: Beyond the true one

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:
(1) 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 contract
Fundamental breach of the contract