As anyone who has ever glanced over a business contract knows well, the language often reads as highly technical and redundant. Though it can make contracts more complicated, there is a good reason that contracts are drafted with legalese: an agreement must be clear and precise to reduce the risk of confusion.
Ambiguous language can lead to disputes over the true meaning. This raises an important question: How are contract ambiguities resolved in California? Here, our Riverside business litigation attorneys provide an overview of the key things you should know about ambiguities and contract interpretation in California.
Contract Interpretation in California: Ambiguities
In reviewing a disputed contract, one of the first things a California court will do is to look for a clause that speaks directly to ambiguous language. Some commercial agreements already include an agreed upon process for resolving ambiguities. If there is such a clause that aids in contract interpretation, then the court will likely use it. Beyond that, state law instructs state courts to use the following four key principles in deciphering ambiguous language:
- Mutual Intention: Mutual intent is required for a contract to be created in the first place. Two or more parties must have come together with a meeting of the minds and made an agreement with mutual obligations. Under California Civil Code § 1636, courts must give effect to the mutual intention of the parties at the time the contract was drafted. In trying to interpret ambiguous language, the actual intent of the parties is the core thing that courts are looking to ascertain.
- Meaning from Language: The language of the contract matters. Pursuant to California Civil Code § 1638, courts are instructed to derive meaning out of the text. This section of California law clearly states that as long an ambiguity can be resolved by looking to the actual language of the text, it will be. Only when there is an inherent ambiguity or contradiction on the language should outside evidence be brought in.
- Plan Meaning Holds, But Custom/Practice Matters: For the most part, California courts will interpret words and phrases in a manner that is most consistent with their plain and ordinary meaning in everyday life. That being said, the customs and practice of an industry will always be considered when appropriate. As an example, if a certain phrase is used in a particular manner in real estate, then that information is relevant in interpreting the meaning of agreement for the sale of commercial property.
- Resolved Against Drafting Party: Not all contract ambiguities can necessarily be resolved. In cases where an ambiguity remains, the Judicial Council of California Civil Jury Instructions instruct courts to interpret the contract against the drafting party—meaning the ambiguous provision should be interrupted in a manner that benefits the side that did not write the agreement.
Of course, it is important to note that every contract dispute is not resolved by a judge. Companies involved in the early stages of contract litigation may still be able to reach a settlement outside of the courtroom—potentially through a structured legal process such as arbitration or mediation. Whether a settlement is possible or advisable will always depend on the specific circumstances of the case.
Contact Our California Business Litigation Lawyers for Help
At Wagner Zemming Christensen LLP, our Riverside business law attorneys are experienced, solutions driven advocates for clients. If you have questions about contract ambiguities, we are here to help. To arrange a confidential consultation, please contact our law firm now. From our office in Riverside, we represent businesses throughout Southern California, including in Rancho Cucamonga, Pomona, Jurupa Valley, Corona, and Yorba Linda.