How is a Missing Term in a Contract Interpreted?
Full Question:
Answer:
If ambiguity exists, it is best to clarify the issue with terms in writing covering the issue. The parol evidence rule applies once parties have agreed to a final, written contract. Once there is a final, written contract between the parties, the parol evidence rule forbids the parties to introduce evidence in court of any previous agreements between the parties on the subject matter of the contract. The parol evidence rule generally permits the judge or jury in a contract dispute to look only at the written contract and not at any previous discussions between the parties. The intent of the parol evidence rule is that all factors that are important to the contract and have been decided by the parties should be stated in the final, written contract. The parol evidence rule does not forbid the introduction of subsequent agreements between the parties.
It will be a matter of subjective determination for the court what a reasonable interpretation is. The general rules of contract law follow a hierarchy of evidence when determining the terms of a vague or incomplete contract, as follows:
a) The terms stated in the discussions and writings exchanged by the parties that don't contradict the contract terms;
b) Terms implied by the current and past conduct of the parties;
c) Terms implied by industry custom and practice; and
d) Terms implied by applicable law, i.e., damages for breach, liability for negligence, jurisdiction and venue, etc.
