Commercial Contracts: Literal and Purposive Approach.
Mondaq Business Briefing › Nbr. 2006, January 2006
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Commercial Contracts: Literal and Purposive Approach.
Originally published on Mondaq, July 2002
The dichotomy between the literal and the purposive approach on interpretation of written contracts has been a very hot topic during the last twenty years. A lot of words have been spent in order to decide which was the best approach on interpretation for the interests of the commercial community: certainty and predictability on one side and the possibility to have more flexibility on the other. The English approach to interpretation is based on the intention of the parties in the construction of contracts and commercial textbooks confirm this assumption. However this assumption is modified by the idea that the intention of the parties is relied upon by the law only to extent of the outward manifestations of contractual intent. This means that there is no space for subjective considerations. As Justice Holmes commented one hundred and five years ago: "Nothing is more certain than that parties may be bound by a contract to things which neither of them intended, and when one does not know of the other's assent"1. For the literalist methods of Lord Simonds it is not important what the parties meant but what is the "natural meaning" of the words. In recent times Hobhouse L.J. said: "A contracting party cannot escape liability by saying that he has his fingers crossed behind his back"2 However, there is an apparent contrast between the scope of the interpretation of the contract, t...See the full content of this document
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