Interpretation of Contracts

Unless you have spent no time around people, you are probably aware that people get into disputes in relationships, and contractual relationships are no exception to that rule. Usually, disputes arise over questions of performance – that is, did one or the other party to the contract fail to adhere to the terms of the contract in some way. Occasionally, this is because one party is incapable of performing (has gone out of business, for instance) or the parties disagree as to the meaning of a term in the contract.

What a court will first attempt to do is determine the intent of the parties to the contract at the time they formed the contract. As explained further:

The court must accept an interpretation of the contract that harmonizes its provisions as opposed to one that causes the provisions to be conflicting. Id. In interpreting a written contract the court will attempt to determine the intent of the parties at the time the contract was made as disclosed by the language used to express their rights and duties. Id. The unambiguous language of a contract is conclusive upon the parties to the contract and upon the courts.^[1]

In other words, the court will not permit either party to unilaterally change the terms or meanings of terms in the contract. In addition, in determining the parties’ intent, it is as expressed in the contract – the parties’ subjective desires, thoughts, or feelings are irrelevant. As noted by the court:

[T]he intent relevant in contract matters is not the parties' subjective intents but their outward manifestation of it….[t]he cardinal rule of contract interpretation is to ascertain the intention of the parties from their expression of it. The court does not examine the hidden intentions secreted in the heart of a person but, rather, examines the final expression found in conduct.^[2]

[1] Bank of Am., N.A. v. Ping, 879 N.E.2d 665, 669-70 (Ind. App. 2008)

[2] Real Est. Support Services, Inc. v. Nauman, 644 N.E.2d 907, 910-11 (Ind. App. 1st Dist. 1994).