Definitions and interpretation: Overview, definition and example
What are definitions and interpretation?
Definitions and interpretation refer to the sections of a contract that clarify the meaning of specific terms and establish rules for how the contract should be read and understood. Definitions specify the precise meanings of words or phrases used throughout the agreement, while interpretation provisions guide how ambiguities or inconsistencies in the contract are resolved.
For example, a contract might define "business day" to mean any day other than a weekend or public holiday, ensuring clarity about timelines.
Why are definitions and interpretation important?
Definitions and interpretation are important because they eliminate ambiguity and ensure that all parties understand the terms of the contract consistently. Clearly defining key terms prevents disputes, streamlines communication, and ensures that the contract is applied as intended.
Interpretation clauses provide rules for resolving uncertainties, such as prioritizing specific sections of the agreement or addressing inconsistencies. Together, these provisions support the enforceability and practical use of the contract.
Understanding definitions and interpretation through an example
A service agreement includes a definitions section specifying that "Services" refers to the consulting activities described in Schedule A. It also includes an interpretation clause stating that if there is a conflict between the main agreement and its schedules, the main agreement takes precedence. These provisions ensure clarity about the terms and how to resolve potential conflicts.
An example of a definitions and interpretation clause
Here’s how a definitions and interpretation clause might appear in a contract:
“Definitions: For the purposes of this Agreement, the following terms shall have the meanings assigned to them: (a) ‘Effective Date’ means the date this Agreement is signed by both Parties; (b) ‘Confidential Information’ means any non-public information disclosed under this Agreement. Interpretation: In the event of ambiguity or inconsistency, the provisions of this Agreement shall be interpreted to give effect to the Parties’ mutual intent as reflected herein. Headings are for convenience only and shall not affect interpretation.”
Conclusion
Definitions and interpretation are foundational components of contracts, ensuring precision, clarity, and consistency. By clearly defining terms and establishing rules for interpretation, contracts prevent misunderstandings and provide a framework for resolving ambiguities. Well-drafted definitions and interpretation clauses enhance the enforceability and practical application of agreements.
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.