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Contract intepretation – avoiding an absurd result

Where possible, courts generally try to interpret contracts in a way that would avoid absurd results. A federal appeals court explained this principle with some examples:

Courts apply this rule to reject one party’s strained, literal reading of contract language in favor of the other party’s reasonable, commonsense reading. See[:]

  • Beanstalk (granting judgment for the defendant even though the plaintiff’s broad reading of a representation agreement’s terms was literally correct);
  • Dispatch Automation, Inc. v. Richards (rejecting the plaintiff’s contractual interpretation that made no economic sense and granting judgment for the defendant);
  • Merheb v. Ill. State Toll Highway Auth. (rejecting an employee’s literal, “insane” reading of a workplace discipline manual and granting judgment for the employer);
  • Nuckolls (concluding that an insurer’s broad, literal reading of a coverage exclusion would produce an absurd result and construing the contract in favor of the insured).

BKCap, LLC v. Captec Franchise Trust 2000-1, Nos. 08-3239 & 08-4038, at 13-14 (7th Cir. Jul. 13, 2009) (Tinder, J., reversing summary judgment, on grounds that contract language was ambiguous, and remanding for fact-finding) (extra paragraphing and bullets added, citations omitted).

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