Anaya Nolan
Contracts are an integral part of our daily lives, from purchasing a home to signing up for a social media platform. Contract law is generally governed by state common law, and while there is a degree of consistency across the country, some court interpretations of a particular element of a contract may vary between states. In the US, common law is derived from customs and judicial precedent, and there is a lot of discretion for judges in interpreting contracts. When two clauses in a contract come into conflict, the court will first examine the entire contract and all its parts, applying the principle that a contract should be interpreted as a whole. If the conflict is irreconcilable, the terms or the entire contract may be void for uncertainty.
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What You'll Learn
Conflicting clauses
The court will then interpret the contract by assessing what a reasonable person, with all the background knowledge available to the parties at the time of the contract, would have understood by the language used. It will ignore any subjective evidence about either party's intentions and focus on the objective meaning of the contractual language. The court will also consider the commercial consequences of each interpretation.
If the conflicting terms are specific performance terms, they will typically be construed against the drafter and in favour of the non-drafting signatory. Additionally, the more specific of the two conflicting provisions will generally prevail, but this is a question of fact that will be determined by the jury or judge. In some cases, the court may interpret the terms creatively or look for a reason to favour one term over the other based on the context of the contract. For example, using the Nigerian Legal System as a case in point, courts tend to view the latter clause as amending or modifying the earlier clause.
If the conflicting terms cannot be reconciled, they may knock each other out, and the court will either fill in the gap with a reasonable term or deem the entire contract invalid if it is not possible to sever the term fairly and reasonably. However, the court will generally try to interpret the terms in a way that avoids contradiction if possible.
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Common law vs UCC
In the United States, contract law is primarily governed by a combination of common law and statutory law within the states where they are applied. Common law is a type of legal doctrine born of custom and judicial precedent rather than statutory authority. Common law contracts generally apply to contracts for services, real estate, insurance, intangibles, and employment agreements.
The Uniform Commercial Code (UCC), on the other hand, is a statutory law that standardizes the laws across all 50 US states. The UCC specifically covers transactions related to the purchase of goods and securities. The UCC allows greater flexibility for contract modifications without new consideration, unlike the rigid requirements of common law. For example, a counter-offer is considered a brand-new offer under common law, whereas the UCC allows a counter-offer to be considered part of the original offer.
Another difference lies in the eligibility to sue for breach of contract. Under common law, privity of contract is required to litigate, but this is not the case under the UCC. The UCC also has a uniform four-year statute of limitations, while common law statutes vary by state and can range from four to six years.
In terms of contract terms, the UCC only specifies quantity as a required term in its contracts. Common law, on the other hand, requires a description of the quantity, price, time for performance, nature of work, and identity of an offer to be part of a valid contract. The UCC also allows for non-revocable merchant offers even without consideration, whereas common law requires price to be included in a contract.
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Contract formation
Contracts are an integral part of everyday life, from buying a home to signing up for a social media platform. They are promises that the law will enforce. In the US, contract law is generally governed by state common law, and while there is consistency across the country, some court interpretations of a particular element of the contract may vary between the states. Similarly, in Ireland, the Rome I Regulation applies to contracts made after 17 December 2009.
The basic elements required for a legally enforceable contract are mutual assent, expressed by a valid offer and acceptance; adequate consideration; capacity; and legality. The offer involves one party proposing certain terms and conditions and making a particular proposal, such as offering to buy goods. Acceptance is where the other person accepts the offer either verbally or by actions. Consideration is where something of value is passed and exchanged, i.e., a bargain. This can take the form of a significant expenditure of money, a promise to perform a service, an agreement to not do something, or reliance on the promise. Both parties must clearly understand and agree to the terms outlined in the contract.
In the US, most contracts are governed by a combination of common law and statutory law within the states where they are applied. Private agreements between non-governmental parties can sometimes supersede statutory rules and common-law precedents. For example, the Virginia Supreme Court has held that even an agreement made on a napkin can be considered a valid contract if the parties were both sane and showed mutual assent and consideration.
In Ireland, the validity of a contract is determined by the proper law of the contract. The capacity of an individual is governed by the law of the country with which the contract is most closely connected or by the law of the domicile of the person concerned. If the person has capacity under either of these laws, the contract will be valid in relation to capacity. A contract which is void or illegal under the proper law will not be enforced.
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Private law
While certain aspects of contract law may vary from state to state, there is a substantial degree of consistency across the country. Private agreements between non-governmental parties can sometimes supersede statutory rules and common-law precedents. For example, the Virginia Supreme Court has held that even an agreement made on a napkin can be considered a valid contract if the parties were sane and showed mutual assent and consideration.
In the event of a dispute, courts will attempt to interpret the terms of the contract harmoniously. Terms that appear to be in conflict when read in isolation may not be in conflict when interpreted in their full context, considering the rest of the contract, its purposes, and background known to the parties. For example, a contract may have a term that appears to impose a broad prohibition on some activities, but also includes a specific obligation to perform an activity that seems to be prohibited by the first term. In this case, a court may interpret the obligation as an exception to the prohibition.
If the terms are irreconcilable, even after a full contractual interpretation, the terms or the entire contract may be void for uncertainty. If the primary purpose of the contract can still be achieved, only the conflicting terms will be void. In some cases, the court will fill the gap with a reasonable term, or it will deem the entire contract invalid if it is not possible to sever the term in a fair or reasonable way. However, in practice, the court will try to read the terms in a way that avoids contradiction if possible. This may include interpreting the terms creatively or looking for a reason to favor one term over the other based on the context of the contract.
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Common law precedents
Common law, as a legal doctrine, is shaped by customs and judicial precedents rather than statutory authority. It is particularly relevant in contract law, where judges have a significant amount of discretion. Common law contracts are grounded in precedent, with rulings often based on prior court decisions. This means that previous court rulings can set a standard for how future cases with similar circumstances are decided.
The Uniform Commercial Code (UCC) and common law of contracts are two distinct bodies of law that can apply to contracts. The UCC applies to the sale of goods and securities, while common law generally covers contracts for services, real estate, insurance, and intangible assets. Understanding these differences is crucial when dealing with contract disputes, as they can significantly impact the outcome.
For example, under common law, a contract modification requires additional consideration, whereas the UCC allows for greater flexibility in modifications without new consideration. Additionally, the UCC has a uniform four-year statute of limitations, whereas common law statutes vary by state, typically ranging from four to six years. Common law also requires privity of contract for litigation, which is not always necessary under the UCC.
In the context of conflicting clauses within a contract, courts will typically interpret the contract as a whole rather than clause-by-clause. They may try to interpret the terms in a way that avoids contradiction and may favour one term over another based on the context. If the conflict cannot be resolved, the court may deem the entire contract invalid or fill in the gap with a reasonable term.
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Frequently asked questions
Contracts are promises that the law will enforce. They are mainly governed by state statutory and common (judge-made) law and private law (i.e. the private agreement).
The basic elements required for a contract to be legally enforceable are mutual assent, expressed by a valid offer and acceptance; adequate consideration; capacity; and legality.
Courts will first examine the entire contract and all addendums, specifications, plans, etc. when interpreting competing or conflicting clauses. If the terms are in conflict with each other, they will knock each other out, and the court will either fill the gap with a reasonable term or deem the entire contract invalid.
Common law contracts are grounded in precedent, meaning rulings are based on prior court decisions. The Uniform Commercial Code (UCC), on the other hand, applies to the sale of goods and securities, and allows for greater flexibility in contract modifications without new consideration.
