When a contract is being analyzed in court, is it the understanding of the parties or the written contract that is to be established?

Question

This is a difficult question to phrase so bare with me. From reading questions on this site, I understand that a written contract (e.g. a lease) is only a written record of the actual contract, that is to say the understood "abstract" contract takes precedence. So someone can't argue something silly like "the contract said I must pay them $100 but never specified the currency". But in complex situations, different parties may have different interpretations of the contract, even after signing it in writing. Just because something is in writing doesn't mean it's clear.

My question is, isn't it wrong to think that in court the judge and jury are trying to establish the actual understood contract? It is very well possible that the parties were not on the same page when the contract was formed. If this were the case, then what is the job of the judge/jury?

For example if Bob and Joe are going to court because Bob believes Joe owes him $100 in accordance with a contract they both signed, but Joe believes he doesn't, if the contract really is ambiguous and both Joe and Bob really do believe they are in the right, what is the job of the Judge and Jury? You can't really say it's to find out who was right because there was a misunderstanding when the contract was formed - but I don't think that invalidates the contract because businesses do this all the time to rip people off for money :P

Is it possible the a judge/jury actually decides who wins the case based on the judge's/jury's own interpretation of the contract and not the plantiff's or defendant's?

UPDATE: sorry for the confusing question, I think what I was trying to get at is what happens when a party finds an "alternative" interpretation to a clause before agreeing to it, so they can find a loophole if/when a dispute arises. I think large corporations do this a lot.

Answer 1

The court's job is to resolve the dispute.

The parties are in court specifically because there isn't agreement on what the terms of the contract were or even if there is a contract at all.

If one of the parties contends that there is no contract then the court will have to determine if there is or isn't. Even if both parties agree there is a contract the court will need to satisfy itself that there is. This is a jurisdictional matter; in the absence of a contract the court can't make a ruling.

Having decided there is a contract, there is something about the contract they don't agree on - if they agree then why are they in court? Each party will state their position on the dispute and provide evidence that supports that position. The court will decide based on the evidence and on the balance of probabilities which version is more correct.

It is a given that the parties are in dispute about the exact terms of the contract, whether this was because of an initial misunderstanding, someone didn't read it or someone saw an opportunity to screw someone else doesn't matter. The court will decide what it thinks the parties thought (or should have thought) at the time on the basis of the evidence and the law.

Answer 2

The purpose of a contract is to memorialize the parties' agreement. When a dispute about the terms of the contract arises (as distinguished from a dispute over whether a valid contract exists in the first place--that's an entirely different issue and not one you asked about) the court will look to the language of the contract. You used the term "ambiguous" and that is the first issue the court must address: is the language, in fact, ambiguous? A mere misunderstanding by one party is not relevant if the language of the contract itself is clear and unambiguous. Otherwise, all anyone would have to do to change a contract would be to claim they misunderstood. That's not enough. If you didn't understand the clear and unambiguous terms of the contract, that's your problem. Read it more carefully next time, or get someone to read it for you. Where the language is clear and unambiguous, the language controls regardless of any misunderstanding or disagreement by one of the two parties, even if that misunderstanding arose at the time the contract was entered. In fact, if the contract language is unambiguous, the court won't even allow the admission of evidence about the parties' intent. Where there is no ambiguity, the terms of the contract are limited to what's said in the document itself.

If, however, the court determines that the language is, in fact, ambiguous, then the court will accept evidence outside the written terms of the contract in an effort to determine the parties' intent at the time they formed the contract. The language of the contract is generally strictly construed against the drafting party and potential ambiguities will be resolved against the party that wrote the contract. Where both parties were active participants to the drafting, however, there will be no such assumptions. Changes in the parties' current positions are once again irrelevant. The key is the parties' intentions at the time the contract was formed.

In your update asking about corporate efforts to create "alternative" readings as part of the original process in order to create loopholes, they actually try very hard not to do that. The reason is that the corporations usually write the contracts and, as a result, any "alternative readings", i.e. ambiguities, in the contract will be strictly construed against them as the writer of the contract, and will be resolved in the way most favorable to the non-writer of the contract (you). In fact, once they insert language susceptible of an "alternative reading" they've created the ambiguity that allows you to introduce evidence of intent. It's much better for them to simply write an ironclad contract with no ambiguities. That's the very reason that contracts are often so full of redundancies like "the parties do hereby promise, warrant, covenant and agree...", etc. Its an effort to prevent any ambiguities at all.