Every day meanings vs. technical terms
When it comes to drafting a contract, Courts give common words their generally prevailing meaning, unless the parties state otherwise. A Court construes “words of art” and “technical terms” to give them their technical meanings when a contract involves a technical matter. See La. CC Art. 2047. We see some contractual terms in everyday language which usually need no further explanation. Other terms may need refining to clarify the parties’ intentions. Webster’s Dictionary defines the common term “earn” to mean “to receive as a return for effort and especially for work done or services rendered.” In practice the term “earn” could have multiple meanings. For instance, does a salesperson “earn” the commission when the customer places an order OR when the company manufactures its product. Or, does the salesperson “earn” the commission when the product is shipped… received… invoiced… paid for. It is important to consider which terms are common and work with their common meaning. It is also important to pay attention and carefully consider terms that may have different meanings. Use of common language is a start. But, the trained eye of a seasoned lawyer can help avoid ambiguous terms.
A contractual ambiguity is any term or phrase with uncertain meaning or potentially multiple meanings. “Where a word is susceptible to or suspected of different meanings, a court is generally required to apply the meaning that best conforms to the object of contract and renders the contract effective versus ineffective.” La. CC Art. 2048, 2049. Example: “Compensation under this agreement is based on gross revenue from the previous year.” From this phrase alone, it is unclear whether “the previous year” refers to a calendar year from January to December, a fiscal year that does not coincide with the calendar year, a twelve-month period running from the effective date or date of execution, or some other annual measure. As a result, parties will craft some pretty good arguments to tilt the scales of justice in their favor. The Court’s decision might hang on the language of other provisions in the contract, dealings between the parties, industry standards or other considerations. A seasoned lawyer can help eliminate ambiguities by zeroing in on exactly what the parties mean.
Contract Read As A Whole
Also, terms in a contract are not considered in isolation. Courts interpret the meaning of contractual terms based on the meaning given the whole contract. See La. CC Art. 2049, 2050. Courts should reject narrowly drawn arguments attempting to limit the meaning of a particular word to a single phrase or paragraph. This is especially true when a very different meaning is gleaned from reading the contract as a whole. Consistency in language usage throughout a contract helps avoid interpretation disputes. Using different terms or defining the terms for clarity minimize confusion. Taking things slowly by reading and rereading draft agreements is really to best way to minimize uncertainty and ambiguity.
Finally, where the parties do not provide for a specific situation, it is assumed they intended to bind themselves to express provisions and whatever the law, equity, or usage regards as implied in such a contract and to achieve its purpose. See La. CC Art. 2054. Fortunately, our laws are based on common sense and reason. Getting a lawyer involved — one who has experience in business and contract matters — early on in the negotiating and drafting phase of your next deal can help minimize the risks and costs of a dispute later.