Construction of agreement: Overview, definition, and example
What is construction of agreement?
Construction of agreement refers to the process of interpreting and giving meaning to the terms, provisions, and language of a contract or agreement. It involves determining how the terms of the contract should be applied and understanding the intent of the parties involved when the agreement was created. This can involve resolving ambiguities, clarifying vague language, and ensuring that the contract is read and understood in a manner that reflects the purpose and expectations of both parties. Legal principles, such as the "plain meaning" rule, and other aids to interpretation, such as extrinsic evidence, may be used in the construction process.
Why is construction of agreement important?
The construction of an agreement is important because it ensures that the terms of the contract are applied in a way that aligns with the intentions of the parties. Clear construction avoids disputes and litigation by helping all parties understand their rights, obligations, and expectations. Without proper construction, ambiguous or unclear contract terms could lead to confusion, misinterpretation, and legal challenges. The process of construction also helps resolve contradictions within the contract and ensures that the contract remains enforceable as intended by the parties.
Understanding construction of agreement through an example
Imagine two companies enter into a partnership agreement to jointly develop a new product. The agreement includes a clause about how profits will be split, but the language used is unclear. The agreement says, "profits will be shared based on contributions," but does not specify how those contributions should be measured (financial input, time spent, resources used, etc.). In this case, construction of the agreement will be necessary to determine how the contributions are evaluated and how the profits will actually be divided, based on the parties' intentions.
In another example, a contract between an employee and employer includes a non-compete clause that is vague about the geographical area where the employee is restricted from working. If the employee breaches the clause by taking a job with a competitor in a region not explicitly mentioned in the agreement, the court may engage in the construction of the agreement to determine the scope of the non-compete clause, considering the contract’s purpose and the reasonable expectations of the parties.
An example of construction of agreement clause
Here’s how a construction of agreement clause might appear in a contract:
“In the event of any ambiguity or dispute regarding the interpretation of this Agreement, the Parties agree that the Agreement shall be construed in a manner that reflects the intent of both Parties as understood at the time of execution, and in accordance with the principles of law governing contractual agreements.”
Conclusion
Construction of agreement is an essential legal process for interpreting the terms of a contract and ensuring that the intent of the parties is accurately reflected. It helps resolve ambiguities, contradictions, and vague language, providing clarity and preventing disputes. Proper construction ensures that a contract is enforced in a way that aligns with the parties' expectations and the contract's objectives, making it a crucial step in ensuring the agreement’s effectiveness and enforceability.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.