Boilerplate Blurb: Interpretive Clauses

Hey everyone I hope you are ready for Thanksgiving (and for fowl talk, as I will be talking chickens today), and because I will be so stuffed with stuffing I will not be doing a Draw the Law this Friday. However, let’s get to some provisions that you see all the time, interpretive clauses.

What are They?

These clauses provide the reader some indication on how to read the agreement. The point of these is to pigeonhole the interpretation, and to insure that there is only one preferred method of enforcement. Why?

The Rule: Contra Proferentem

The goal, and it is usually the drafter, wants to avoid certain court rules. There is one in particular the drafter is trying to get out of, and that is ambiguity is construed against the drafter. When there is a dispute, a court will find a contract term ambiguous if it is interpreted as to have more than one meaning. In those situations, the ambiguity cuts against the drafter. The rationale is that the party preparing the agreement is deemed to have more knowledge of the intent of the parties.

For example, if you said “I want to get chickens from the country.” Most people would assume probably that would be out in agricultural lands where there are a lot of farms. However, a lot of people who have English as a second language would ask “Which country?” meaning another foreign state. If you are a parent, and your child says, “I want that one” while pointing to balloons, and you grab any balloon thinking that will satisfy their desire, but in actuality they wanted the red one, you have seen (and heard) what ambiguity does when they start crying.

Types of Interpretive Clauses

So what do you do if you are drafting the contract?  You turn to interpretive clauses. These clauses tells a reader, which may include a court if there is dispute, that there is only one way to read the terms in the agreement.  Here are some types of interpretative clauses:

  • Headings – whenever you get a long contract, drafters like to make it easy for you to read, so they include headings. However, the headings are merely reference guide and the drafter uses some language to say that the headings are not intended to affect the interpretation of the agreement.
  • Defined Terms – why do contracts read like an encyclopedia or dictionary? It might be because often times in the beginning the drafter has laid out the meaning of every word. In a lot of complex and abstract industries, drafters like to tell the other side what trade terms mean because it tries to clear the ambiguity. Therefore, in a marketing services contract it might be understandable to see that the term “social media” is defined, and it may be limited in a contract to mean only “Twitter, Facebook, and Linkedin.”
  • Person – this really belongs under “Defined Terms”, but I want to touch upon it specifically to get people in business to realize that if they have a LLC or corporation that is a separate entity, and that is because this clause usually state that the word “person” means persons in the singular and plural, is not gender specific and includes companies, unincorporated associations and partnerships. Therefore, in an agreement, where that is defined “person” may not be referring to a living, breathing human, but the corporate entity.
  • Gender-neutral – speaking of gender, many drafters would like to avoid sexist overtones or making it so that the agreement only applies to one gender, so if they use “he” or “she”, they may include a statement that says use of a specific gender, really means both.
  • Mutual Drafting – this provision is used to deal with the rule that ambiguities are construed against the drafter by making it seem that both parties had a hand in the contract. In those cases they will throw in a mutual drafting clause, like this one:

The parties are sophisticated and have been represented (or have had the opportunity to be represented) by their separate attorneys throughout the transactions contemplated by this Agreement in connection with the negotiation and drafting of this Agreement and any agreements and instruments executed in connection herewith. As a consequence, the parties do not intend that the presumptions of laws or rules relating to the interpretation of contracts against the drafter of any particular clause should be applied to this Agreement or any document or instrument executed in connection herewith, and therefore waive their effects.

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

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