A software company enters into a contract with a developer, agreeing to pay the developer a bonus for 'significant progress' on a custom application. However, the contract does not define the term 'significant progress.' A dispute arises when the developer claims to have met the requirement for the bonus, but the company disagrees. What is the most appropriate way for the court to interpret the term 'significant progress'?
The court will enforce its own understanding of the term without considering external evidence to avoid adding terms to the contract.
The court will prioritize the developer's interpretation of the term since it is more favorable to them as the performing party.
The court will instruct the parties to renegotiate the ambiguous term since it is undefined.
The court will interpret the term by considering evidence of the parties' intent, such as prior negotiations and industry standards.
The correct answer is based on the principle that ambiguous terms in a contract are interpreted by examining the intention of the parties, as evidenced by the language of the agreement, industry standards, and other relevant circumstances. Courts will often attempt to determine meaning by considering evidence outside of the written text (such as trade customs or prior dealings) if the terms are unclear. Incorrect answers reflect common misunderstandings about contract interpretation, such as relying solely on subjective beliefs or refusing to address ambiguities in the contract. Interpretation aims to reflect the reasonable expectations of the contractual parties.
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