How California Courts Interpret Contracts
It can be said that all San Diego and California businesses “run on contracts.” This article discusses the way(s) in which California courts interpret contracts if there is a dispute between the parties. This is important because, when drafting a contract, it is crucial to know the potential pitfalls of contract interpretation. For contract drafting and review, every San Diego business, no matter the size, needs a good corporate lawyer.
California Contract Interpretation: Giving Effect to the Intent of Parties
In general, the when interpreting contracts, California courts are tasked with the goal of giving effect to the intention of the parties to the contract. The “intent” is the “mutual intent” of the parties and intent is judged as it existed at the time the contract was formed. There are many judicial cases interpreting contracts, but there are also several statutory provisions related to how to interpret contracts. See, for example, Cal. Civ. Code, §§ 1635 – 1663.
The parties’ mutual intent is discovered, first, in the words used in the contract. Thus, Cal. Civ. Code, §1639 states that “[w]hen a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible.” See also Cal. Civ. Code, §1638 (“language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity”). Furthermore, the words in a contract are to be understood “in their ordinary and popular sense” and the “whole of [the] contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.” Cal. Civ. Code, §§ 1641 and 1644.
California Contract Interpretation: Ordinary and Popular Meaning of Words
As noted, the courts are to give the words used their “ordinary and popular” meaning. A good example of this is the word “tomato.” In its ordinary and popular use, “tomato” means a type of vegetable. But, from a scientific and technical standpoint — the field of botany — a “tomato” is a fruit. From the scientific standpoint, “vegetables” are stems and leaves (and maybe root structures). Celery, for example, is scientifically a vegetable being all stem and leaves. But any part of a plant that forms from the pollination of the flower is, from the scientific standpoint, a fruit. But as noted, contract terms are given their “ordinary and popular” meaning. Thus, unless the contract says otherwise, the word “tomato” means a vegetable. In a very old case, Nix v. Hedden, 149 U.S. 304 (1893), even the US Supreme Court agreed that “tomato” meant “vegetable” for purposes of customs regulations under tariff laws.
California Contract Interpretation: What if the Meaning of Words is NOT Clear?
When the intent, as expressed by the words of a contract, is NOT clear and explicit, then the courts will look beyond the words of the contract to other evidence, like what the parties said verbally or in correspondence at or near the time the contract was formed.
As an example, assume the contract says “Vendor will deliver a truckload of fruit on Saturday for $1,000.” The vendor/seller works at San Diego State University in the botany department and has a truckload of edible plant parts that have formed from the pollination of the plants’ flowers (tomatoes). By contrast, the buyer is a regular person expecting apples or oranges. When the vendor botanist delivers a truckload of tomatoes, there will be a dispute because to many regular-folk, tomatoes are not “fruit.”
Because of the dispute, the buyer files a lawsuit claiming breach of contract (or maybe the vendor/seller/botanist files suit because the buyer refused to accept the truckload of “fruit”). In interpreting the contract, the court will start from the vantage that “fruit” has its ordinary meaning. In our example, the parties dispute the “clear” meaning of the word “fruit” and, as such, the court will then look beyond the words in the contract to what is called “extrinsic” or “parol” evidence. One example of extrinsic evidence would be email correspondence.
In our example, let’s say there is an email exchange where the buyer writes: “so you know, by ‘fruit’ I mean something sweet like apples or grapes.” In response, the vendor botanist says: “no problem, I understand.” Under those circumstances, the court will hold that “fruit” was used in the contract in the ordinary way. The court will then hold that delivering tomatoes was a breach of contract.
However, in a contrary example, assume that the seller/botanist writes an email saying: “hey, by the way, I never use the word ‘fruit’ in the normal way. I only use that word in a scientific way.” In response, the buyer says: “Wow, me too. I agree with the way you use the word ‘fruit.’ Botany is a big hobby of mine.” Under those circumstances, the court will hold that the parties were using “fruit” as the word is used scientifically. In that case, delivering tomatoes will be deemed NOT a breach of contract.