Sunday, June 23, 2013

Managing how Contract terms get interpreted

I had the following question from a reader and thought it and my answer should be shared.

“In our contract there are lot of cross references, and almost 40 % paragraphs end up with such wording as "this paragraph A is without any limitation or prejudice to paragraph B mention under clause 20"
I need you to clarify what does this wording mean ....”

The general rule in interpreting contracts is contract terms are considered to be complimentary and will be read in their entirety to determine the intent of the parties, This means that a contract terms in one section could limit or restrict what was stated in another area. It also means that in interpreting the intent of the parties, what was stated in one section could potentially impact how another section is interpreted. A classic example of this is you could have language in one area that provides for a specific remedy in the event of a breach, but a limitation of liability section in another location could limit that remedy.

The language shows the intent of the parties for interpretation of the contract. It is saying that for that specific section where it is used, you don't want the general rule for interpreting the intent of the parties to be followed. You want both of those sections to be interpreted independently. What is said in paragraph “A” cannot be interpreted to limit what is stated in “B”. Further you want was stated in “A” to also not prejudice the interpretation of “B”. That way “B” is interpreted independently of “A”.