Wednesday, March 10, 2021

Literal Interpretation of Contracts

Literal Interpretation of Contracts

Article 1732 of the code which can be compared to that of Article 1713 of the same code, states the principle that contracts, when found unclear or ambiguous or where its incidental effects are not known to the parties, but impliedly accepted, are to be interpreted according to good faith. The principle here is essential for it guides the parties to take reasonable care and to act honestly towards the other contracting party.

Article 1732 – Interpretation in accordance with good faith

Contracts shall be interpreted in accordance with good faith, having regard to the loyalty and confidence which should exist between the parties according to business practice.

Although the parties should be instructed always to act in good faith, one must be reminded that the judge should not go beyond in the name of good faith, on a search for the intention of the parties which may easily become a pure speculation than an intended intent.

Article 1733 – Limits of interpretation

Where the provisions of a contract are clear, the court may not depart from them and determine by way of interpretation the intention of the parties.

Article 1733 of the civil code states this quite clearly that the court may not depart from the terms of the contract when they are clear. In other words, this is to say that the judge has no right of interpretation when the contract is clearly drafted. There has to be something that needs interpretation. The literal rule of interpretation states that when the law is clear no need of interpretation. And a contract being a law for the parties, if it is very clear, it seeks no interpretation. If the court did not abstain from such interference without any justifiable ground, it is against the constitutional right of contractual freedom: and also most probably shows that it is partial to the particular position of one party by preference to the other. Be it even out of the grounds of compassion, such an attitude on the part of the court as a whole and the judge at the bench in the particular is a violation of his duties.  To do so would result in an obligation on one of the contracting party which he has never declared his intention to that effect. One can compare the present Article (1733) with Article 1714, which expresses a similar rule where the object is not precisely defined. It states that the court is not to make a contract for the parties under the guise of interpretation.

The judge must resist the temptation to redraw the contract, either because it would seem in better conformity with the law or because he would like to make it fair for a party. This is the temptation of judging in equity, which the judge must avoid any risk of imposing his own views arbitrarily to the parties.

Even though the rules under Article 1732 and 1713 stated that contracts has to be interpreted according to good faith and affirms the principle that parties should take reasonable care, for courts, however, the principle is limited by exception: the judges to interpret the contract only when interpretation is required, and is expressly reminded of this by Article 1733, coming as it does directly after Article 1732. When the contract is clear, the court may not depart from it and determine by way of interpretation the intention of the parties. The courts are not to distort the contract under the guise of interpretation and make it say something other than what a reasonable man, knowing the circumstances in which the contract was made, would understand by reading its terms. If the terms of the contract are clear the judge must give them effect.

The remedy available to a person who claims that his intention was incorrectly stated is invalidation of the contract based on the ground of mistake as in the sense of Article 1698 and 1699 of the civil code. The court  may not under the guise of interpretation , revise the contract and thus impose on the other party a contract to which he has never forward his agreement by the declaration of his intention.

Contracts require interpretation only when their terms are ambiguous. In such cases, the parties can bring the case to the court of law and ask courts to seek the common intention of parties. Article 1734 requires the court to ascertain the common intention of the parties.

Article 1734 – Common intention of the parties

(1)    Where the provisions of the contract are ambiguous, the common intention of the parties shall be sought.

(2)    The general conduct of the parties before and after the making of the contract shall be taken in to consideration to this effect.

The court has several avenues to explore in ascertaining the common intention of the parties. It will start probably by looking for a clarification of a meaning of the words intended by the parties. The key word here will be the common intention of the parties 1ies as in the sense of Article 1734, and of course not the intention of one party only. But the ground is not always level for the court and there are cases where there is not an element allowing for the identification of such element (common intention where the contract is completely silent). In such case, therefore the judge shall to have a creative approach and for this the law gives him the guidelines for the proper way he has to follow.

The judge at the bench has to search, therefore, the intent of the parties using subjective approach. He will look for what the parties intended and of course their intention. But in the absence of sufficient element as to this subjective intention of the parties, the judge will choose the objective approach, that is to refer to what a reasonable, abstract person would have stipulated, in consideration of good faith, customs (especially in business disputes) or equity that is a requirement justice, equality and the respect for the right of others.

Under Article 1680(1) of the civil code, we have said that the Ethiopian law of contracts regarding consents which primarily rests on the declaration of will for the law wants to give more emphasis to the security of trade and commercial transactions that are taking place in our daily lives.

It therefore gives priority and places the declared will before search for motives and the remedy for the discordance between the real will and its exterior form (manifestation) will have to be looked for in the rules governing mistake as in the sense of Article 1696-1698 of the civil code of the empire of Ethiopia.

But once it is discovered that interpretation should be made, the court shall seek the common intention of the parties. In finding the common intention of the parties sub article (2) of 1734 prescribes the consideration of the parties conducted in the search for their common intention. Their conduct can be shown by what they wrote, said or have done in connection with ambiguous terms. Their conduct after the contract can also consists in the performance of the dispute in certain sense.

In general, therefore, the interpretation of a contract must come from the contract and not the contract from the interpretation.

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