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Court of Chancery Uses Parties' Actions To Decide Their Contract Rights

Viking Pump, Inc .v Liberty Mutual Insurance Company, C.A. No. 1465-VCS (Del. Ch. April 2, 2007).

Perhaps no rule of contract construction is more often applied to ambiguous contracts than the rule that the parties' actions show their intent. This decision applies that maxim with full force to decide the parties' obligations over a 20 year old dispute on insurance coverage.

While this decision turns on its unique facts, the Court's reasoning illustrates a method of proceeding that has implications for all contract disputes. First, the Court carefully considered the business problems faced by the parties at the time they entered into their contract. Next it considered how a rational business would have resolved those problems to fit the business needs. Then the Court reviewed what the parties actually did as evidence of what they intended their contract to mean. 



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