When two parties end up in a dispute about what was agreed to in a written contract, how do courts generally resolve that? How do they determine if a provision is ambiguous? What evidence is used to determine the meaning of a provision if it is found to be ambiguous?
This answer is based on this primer on contract interpretation from Reed Smith LLP.
They include a helpful flowchart:
These are the main takeaways:
Whether a provision is ambiguous is judged without reference to the actual interpretation claimed by either party.
In determining whether a provision is ambiguous, courts look to the context of the provision within the contract in its entirety. Courts use many standard canons of statutory interpretation in contract interpretation. This is generally a question of law not fact.
If the court determines that a provision is unambiguous, then the text of the contract controls.
If the court determines that a provision is ambiguous, then the parties can present extrinsic evidence to support their interpretation and the court decides based on the balance of probability, sometimes deciding ambiguity against the drafter or party with the stronger negotiating position as a rule.
Gregory Klass - Contract Law in the USA
John McCamus - The Law of Contracts