Contractual Interpretation: How To Read a Contract?

Here are some tips on how to read a contract: 1. Understand the contract structure 2. Read the contract thoroughly 3. Understand the clauses in your contract

Anyone should be able to know how to read a contract and understand the legal dictionary – no matter if you’re the one proposing the contract or not. But if you’re not a lawyer, the contract language might be daunting and confusing, especially with so many unknown legal terms. 

So, here are some tips to help you in contractual and juridical interpretation and what you should be aware of when signing a contract.

Tips on How to Read a Contract

1. Understand Contract Structure

Contractual interpretation relies on knowing how to write a contract in the first place. This way, we understand the structure of a contract and specific contract clauses that must be included in our contract. 

Almost every legal contract will include the parties, the purpose of the contract and what it is for, who is responsible for what, and who is paying what, how much, and when. All this information should be as detailed as possible to ensure there are no misunderstandings – especially regarding the contract terms and the rights and obligations of both parties. 

So, if necessary, ask the person drafting the legal contract to include all the essential information regarding the deal. But make sure that there are no intricate legal terms or other contract clauses you have not discussed before. 

2. Read the Contract Thoroughly

Yes, a contract might be long and complicated – especially if you deal with multiple clauses and terms. But we cannot stress enough how important it is to read the entire contract. Read it numerous times if necessary. We also recommend that you print it out, take your favorite pen, and start taking notes for each page. Consult a legal dictionary, check out our Contract Wiki page for clarification, or talk to a lawyer if you need extra help with the legal terms.

Ensure that you understand all the clauses and terms stated in the agreement. This way, you will know your rights, obligations, and the conditions the other parties must fulfill. The purpose of a contract is to protect you – so make sure that the clauses within the contract really protect you. 

3. Understand the Clauses in Your Contract

Not every contract will have the same clauses. However, it’s essential to understand what each clause actually means. 

Legal contracts are filled with technical jargon and legal terms we might not understand. Take the time to define and understand key terms and phrases used throughout the document. At the same time, ensure that there are no additional clauses not previously mentioned in the deal. Even more so, identify the rights and obligations of each party outlined in the contract. This includes duties, responsibilities, deadlines, and conditions both parties must meet. Read these terms carefully to ensure the legal terms are fair. 

4. Ensure That The Contract Terms are Fair

Yes, determining whether the legal terms are fair is subjective. However, one of the first signs that a legal contract might be unfair is represented by the lack of clarity. If the terms are ambiguous or contain complicated legal terms, chances are that there is a questionable meaning behind it. So, ask the party drafting the contract to state down everything relevant to the agreement.

At the same time, be cautious of terms that are excessively one-sided or might favor one party’s interests more. This could include clauses that include hidden fees, a disproportion regarding obligations or liabilities, or even non-negotiable clauses. 

Pro Tip: Remember that you can always negotiate your terms if you think they are unfair. 

5. Make Sure the Contract Respects the Jurisdiction

One of the most critical aspects of judicial interpretation is ensuring that the contract adheres to the laws imposed by the legal system. In other words, to be legal. However, this may be pretty challenging for those with little to no expertise in the legal field. 

But we recommend reading about the jurisdictional requirements for enforcing contracts in your industry and what is required or not to be included in the agreement terms. Consult legal expertise if needed. 

What are the risks of signing a contract that I did not understand?

If we do not know how to read a contract or don’t understand specific legal terms, we might face legal repercussions that do not favor us. Not only would we unknowingly agree to certain terms that we do not understand, but in case anything goes wrong, the contract might not protect us. Even more so, if the contract contains unfair, misleading, or illegal terms, it might lead to us dealing with financial and legal consequences.

Remember: Never to sign a contract you have not read! 

Gabriel Pană
July 8, 2024

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