![]() ![]() But Provision III of the contract states that the fixed fee shall increase or decrease if the actual value of the services provided is above or below the fixed fee. Provision II does not refer to any potential decrease in the fixed fee. In this provision, the "annual fee" is referred to as the "fixed fee." Provision II of the contract also refers to the annual fee as the "fixed fee" and states that the fixed fee is subject to increase only as set forth in Provision III. Provision I of the contract states that Party B will be paid an "annual fee" of $100,000 per year for the work performed. Assume Party A enters a contract with Party B, whereby Party B is to provide advertising services to Party A in return for the payment of an "annual fee." Also assume that both parties are highly sophisticated and retain counsel to prepare or review their agreement. To understand a court's analysis where there is a dispute about the meaning of ambiguous contract terms in an arms-length transaction, it is helpful to use a hypothetical. Recent New York court decisions provide guidance on exactly where the court will focus its inquiry in such a situation: the parties' course of conduct during the contract negotiations and the contract term. Rather, a court interpreting ambiguous contract terms will look outside the four corners of the contract to determine the parties' intent. The general rule stated above will not apply in this circumstance. More common is the situation where contracting parties have equal bargaining power and similar levels of sophistication, and both are represented by counsel. But this rule only applies where one contracting party is in a superior bargaining position, usually either as a result of greater experience or the assistance of counsel. 1īut how will courts interpret an ambiguous contract? There is a general rule that a court will construe ambiguous contract terms against the drafter of the agreement. When a contract's provisions are clear, a court will enforce the contract as written, without any reference to evidence outside the contract, such as testimony about what the parties negotiated or intended the provisions to mean. ![]() A court's objective in a case involving the interpretation of a contract is to ascertain what the parties intended. ![]()
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