Legal Memorandum: Advance Payment on Scheduled Monthly Installments

Issue: Is a party to a contract obligated to make monthly installment payments if the party has made an advance payment?

Area of Law: Business Organizations & Contracts
Keywords: Advance payment; Scheduled monthly installments; Rules of contract construction
Jurisdiction: Federal
Cited Cases: 185 P. 853; 470 S.W.2d 633; 528 P.2d 1041; 421 So. 2d 758; 265 P.2d 160; 228 P.2d 333; 972 F. Supp. 1194; 446 P.2d 220
Cited Statutes: None
Date: 05/01/2011

The application of an advance payment under the terms of an agreement calls for a careful review of the language used by the parties such that the parties’ intent can be honored.  As an Iowa federal court noted in a decision reviewing a prepayment clause,

In construing a written contract, the intent of the parties controls.  Except in cases of ambiguity, the parties’ intent is determined by what the contract itself says.  "Consequently, where the intent of the parties is expressed in clear and unambiguous language, we enforce the contract as written."

However, ambiguities in a contract are strictly construed against the drafter of the contract.  A contract term is ambiguous if, after application of rules of interpretation to the face of the instrument, a genuine uncertainty exists as to which of two reasonable constructions is proper.  Thus, the test for ambiguity is an objective one: "Is the language fairly susceptible to two interpretations?"

When interpreting a contract, the court seeks to give effect to the language of the entire agreement in accordance with its commonly accepted and ordinary meaning.  Thus, an interpretation that gives a reasonable meaning to all terms is preferred to one that renders a term superfluous or of no effect.  The context in which an agreement is made may influence interpretation when appropriate.  This is so, because a court should not give a contract a meaning that the parties did not in fact intend. 

Prudential Ins. Co. v. Rand […]

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