Interpreting Ambiguous Contract Terms

One of the main reasons that contract disputes arise is because of ambiguous contract terms.  Of course, this can be prevented with meticulous drafting, but in the event that issues do come up after the contract is completed and signed, it is important to understand how the provisions will be interpreted.

Most contracts include an “Interpretive Provision” or “Other Definitional Provision.”  There may also be  certain clauses that provide that some clauses or terms will supersede conflicting clauses or terms found in another part of the contract.  If these clauses do not help solve issues of inconsistency or ambiguity (or simply are not present), California statutes and case law (court rulings) will be guide how the contract clauses or terms will be interpreted.

The California Civil Code §§ 1635-1663 provide rules of interpretation that are used when no provision in a contract helps clear up an apparent ambiguity.

  • All contracts must be interpreted to give effect to the mutual intention of the parties at the time of contracting.
  • The language of a contract is to govern its interpretation, and the whole contract is to be considered together.
  • If there are several contracts between the same parties relating to the same matters, they can be interpreted together to resolve ambiguities.
  • Words in a contract that are technical or particular to an industry will be interpreted as they are understood by people in that industry.
  • California law also allows a contract to be explained by reference to the circumstances under which it was made.
  • If there are words in a contract that are inconsistent with the contract nature, or with the main intention of the parties, they will be rejected.

It bears repeating that the best way to avoid ambiguity in contract disputes is in the drafting phase. Even form contracts can and should be tailored to the specific party agreement. If at any point a party guesses or assumes the meaning of a contract provision, a written clarification or definitional paragraph should be added to avoid misunderstanding or ambiguities later.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. Contact us at (310) 277-7747 to see how we can help you with any business dispute or related concerns you may have.

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