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Contract interpretation

If the parties to a contract agree, there is no further need to interpret the contract. Even if the parties use a different term, the contract is concluded if the parties actually meant the very same (principle of falsa demonstratio non nocet).

Simple contract interpretation starts with the common literal meaning of the wording of the contract. If the contracts wording is not clear enough, or the parties in hindsight cannot agree what certain words mean or should have meant, the courts interpret the contract by applying the 'reliance theory' to determine the true intention of the parties at the time of the conclusion of the contract. The court aims to determine how the meaning of the declaration of intent could have been objectively understood by the recipient of this declaration. Therefore, the wording of the contract primarily is the starting point, whereas the exercise of fair dealing must be considered as well. If the wording of the contract does not provide a succinct interpretation, non-mandatory statutory law may fill in any gaps of meaning. As a third step, supplementary interpretation is applied, if an issue arises that the parties did not provide for in the contract. The court tries to determine what fair and reasonable parties would have negotiated.

If interpretation cannot solve the vagueness of the contract, Section 915 of the Austrian Civil Code stipulates that if contracts are only obligatory for one party, it is assumed in doubt that the obliged party wanted to accept the lesser rather than the more cumbersome burden; in the case of contracts that are obligatory for both parties, an unclear expression is interpreted to the detriment of the party who used such expression. Thus, when drafting a contract it should be kept in mind that unprecise or ambiguous language, while often employed to give the parties certain flexibility in their dealings, could affect the party drafting the unprecise or ambiguous clause negatively in the end.

If the parties clearly dissent and the court cannot determine unequivocally the contract's reasonable meaning, the contract is void.