Understanding the Plain Meaning Rule

The plain meaning rule states that all language used in contracts should be a simple and transparent as possible while still managing to convey the terms of the contract. It is intended to reduce ambiguous language as much as possible. When reading a contract, the meaning of the words used should seek to avoid overly obscure definitions.

Some contracts, however, cannot adhere to the plain meaning rule by nature of the subjects the contracts cover. As a result, the rule does not require that a contract's meaning be simplistic. It only requires that the language used be as transparent as possible.

If technical words are used in the formation of the contract, a court interpreting the contract meaning will use the technical meaning of those words. Common words are defined according to their normal meanings. Other words are granted their meanings as determined to be applicable.

When attempting to assign meaning to a contract, a court or arbitration hearing may also examine the circumstances surrounding the formation of the contract in an attempt to understand the meanings of the terms used in the contract as they would likely have been understood by the participants in the contracts.

In the event that the plain meaning rule is violated by one of the parties to the contract in an attempt to defraud the other party, the court or arbiter is likely to find in favor of the party acted with a reliance on the fraudulent statements.

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