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San Diego Business Contracts: What Happens if There is a Conflict Provisions?

With longer business contracts, there is a potential for conflict between the provisions in the contract. Indeed, the more provisions and the more pages, the more likely there may be a conflict among the provisions in the contract. This is the reason that it is important to retain an experienced San Diego corporate attorney to review and customize your business contracts. A talented and proven corporate attorney can ensure that all the provisions in your contracts are harmonized.

However, what happens if there is disharmony between provisions? If there is a conflict between provisions in your business contract, the result is that, in the event of a dispute reaching a court or arbitration, likely the court or the arbitrators will deem the contract to be ambiguous. This means that the court/arbitration will look beyond the “four corners” of the contract to determine the meaning. Most often, the operative provisions — the ones specifically negotiated between the parties — will prevail. But the courts and arbitrators must hear testimony, see rough drafts of the contract, and review other evidence to determine the intent of the parties.

When resolving a dispute, the courts and arbitrators are tasked with determining the intent of the parties and operationalizing that intent. The requirement that the parties’ intent be operationalized is set out in the California Civil Code. Section 1636 states, for example, that “[a] contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.” Further, section 1638 provides that “[t]he language of a contract is to govern its interpretation…” And finally, section 1639 states that “… the intention of the parties is to be ascertained from the writing alone, if possible …” Where the intent is not possible because provisions in the contract are in conflict, then, as noted, the court or the arbitrators must look beyond the words in the contract.

A good example of these legal principles is found in the case of Dong v. Ryu, Case No. B289871 (Cal. App. 2nd Dist. June 3, 2019) (unpublished). In that case, the issue relevant to this article was whether the defendant, Ou J. Ryu, was included in the scope of a settlement agreement between the plaintiff and Victoria Wu. Both Ryu and Wu were sued by the plaintiff. However, Wu settled and signed a settlement agreement releasing Wu from all claims. The settlement agreement also contained boilerplate language whereby the agreement was to be binding upon the parties and “… their assigns, parents, affiliates, partners, joint venturers, owners, predecessors, successors, heirs, administrators, trustees, receivers, spouses, agents, representatives, contractors, subcontractors, laborers, materialmen, equipment providers, lawyers and all persons acting by, through, under or in concert with them, whether past, present or future.”

As one might expect, Ou J. Ryu argued that she was included in the persons release by the Settlement Agreement because she and Ms. Wu were partners and joint venturers in the relevant enterprise. As can be seen, there is arguably a conflict between the provisions. This, according to the court, created an ambiguity in the contract. The court then looked at the related evidence to determine the intent of the plaintiff and Victoria Wu in drafting and signing the Settlement Agreement and to determine if Ms. Wu and Ms. Ryu were indeed joint venturers. The court did not find any evidence to suggest that Ms. Ryu was intended to be included among those persons released. As such, the operative provisions were given precedence over the boilerplate language.

Contact San Diego Corporate Law

For more information, call Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard focuses his practice on business law, transactional, and corporate matters, and he proudly provides legal services to business owners in San Diego and the surrounding communities. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.