What are the well-recognized Principles of Construction of a Contract

Contract Law : The Supreme Court‘s order in the case of Bank of India Vs. K. Mohandas, (2009) 5 SCC 311 while in the court held as under:

  • The true construction of a contract must depend upon the import of the words used and not upon what the parties choose to say afterwards.
  • Nor does subsequent conduct of the parties in the performance of contract affect the true effect of the clear and unambiguous words used in the contract.
  • The intention of the parties must be ascertained from the language they have used, considered in the light of the surrounding circumstances and the object of the contract.
  • The nature and purpose of the contract is an important guide in ascertaining the intention of the parties.
  • It is also a well-recognized principle of construction of a contract that it must be read as a whole in order to ascertain the true meaning of its several clauses and the words of each clause should be interpreted so as to bring them into harmony with the other provisions, if that interpretation does no violence to the meaning of which they are naturally susceptible.

The Supreme Court order in another case on construction of contracts/surrounding circumstances is in the case of Sundaram Finance Ltd. Vs. State of Kerala, AIR 1966 SC 1178 wherein the Supreme Court held as under:-

  • The true effect of a transaction may be determined from the terms of the agreement considered in the light of the surrounding circumstances.
  • In each case, the court has, unless prohibited by statute, power to go behind the documents and to determine the nature of the transaction, whatever may be the form of the documents.