Minnesota has a well-established legal system that helps promote business and commerce. One of the essential aspects of doing business in Minnesota is understanding contract interpretation.
Contract interpretation is a critical aspect of the legal process that helps to determine the meaning and intent of a contract. In Minnesota, courts use several methods to interpret contracts, including plain language, the objective intent of the parties, and the surrounding circumstances. See Seagate Technology, LLC v. Western Digital Corp., 854 N.W.2d 750 (Minn. 2014). This blog post will explore these methods in more detail.
The plain language rule is one of the most fundamental principles of contract interpretation in Minnesota. The rule requires that contracts be interpreted based on the plain and ordinary meaning of the words used in the document if the contract is unambiguous. See Trebelhorn v. Agrawal, 905 N.W.2d 237 (Minn. Ct. App. 2017); Bank Midwest Minnesota, Iowa, N.A. v. Lipetzky, 674 N.W.2d 176 (Minn. 2004). This means that courts will look to the dictionary definition of words in the contract and will not interpret the document in a way that goes beyond the language used. See Sylvester Bros. Development Co. v. Great Cent. Ins. Co., 480 N.W.2d 368 (Minn. Ct. App. 1992).
For example, suppose a contract states that a party must pay “all costs associated with the project.” In that case, the court will interpret this language to mean that the party must pay all costs, including those that are not specifically listed in the contract. However, if the contract states that a party must pay “all costs associated with the project, including but not limited to materials and labor,” the court will likely interpret this language to mean that the party must pay only the costs specifically listed.
Objective Intent of the Parties
Another method of contract interpretation in Minnesota is the objective intent of the parties. See Buchwald v. Univ. of Minn., 573 N.W.2d 723 (Minn. Ct. App. 1998). This principle requires that courts look at the language of the contract from the perspective of a reasonable person in the position of the parties at the time the contract was signed. See Int’l Assoc. of Sheet Metal, Air, Rail and Transportation Local Union No. 10 v. A-1 Refrigeration of Hibbing, Inc., 447 F.Supp.3d 844 (US Dist. Ct for Minn. 2020). The objective intent of the parties is determined by the language of the contract, the circumstances surrounding the contract, and the conduct of the parties before and after the agreement was signed.
For example, suppose a contract states that a party must deliver a product to another party within 30 days of receiving payment. If the party receives payment but does not deliver the product until 45 days later, the court may find that the party breached the contract. However, if the party has a history of delivering products 45 days after receiving payment and both parties knew this, the court may find that the objective intent of the parties was to allow for a 45-day delivery period.
The surrounding circumstances rule is another critical principle of contract interpretation in Minnesota. This principle requires that courts consider the circumstances surrounding the formation of the contract when interpreting its meaning. See Donnay v. Boulware, 144 N.W.2d 711 (Minn. 1966). These circumstances may include the negotiations leading up to the contract, the course of dealing between the parties, and the industry or market conditions at the time the contract was formed.
For example, suppose a company signs a contract with a supplier for the delivery of raw materials. The contract specifies that the supplier will deliver the materials within 10 days of receiving the purchase order. However, the supplier knows that the company has a history of consistently placing orders with a delivery deadline of 15 days. If the supplier fails to deliver within 10 days, the court may find that the surrounding circumstances indicate that the parties intended to allow for a 15-day delivery period.
In conclusion, contract interpretation is a critical aspect of doing business in Minnesota. Understanding the principles of contract interpretation, including plain language, the objective intent of the parties, and the surrounding circumstances, can help businesses avoid costly legal disputes.