Breach of Contract: Interpreting A Contract

Breach of contract lawsuits often involve the interpretation of the language of a contract (or multiple contracts).  California’s Civil Code sets forth the basics of how the court will (or should) interpret a contract.  Attorneys who handle breach of contract lawsuits should be conversant with these basics of contract interpretation but even a party with no legal knowledge can read the short statutes in this section and understand how a court will approach a breach of contract action.  These statutes set forth a step-by-step process for interpreting a contract.

All contract interpretation starts with the basic premise 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 [Civil Code section 1636].    This intent is to be ascertained from the language of the contract so long as the language is clear and explicit and does not involve an absurdity [Civil Code section 1638].  If the contract is written, the intention of the parties is to be ascertained from the writing alone if possible (subject to other provisions explained below) [Civil Code section 1639].

If a written contract fails to express the real intention of the parties because of fraud, mistake or accident, the real intention is to be regarded and the erroneous parts of the writing disregarded.  [Civil Code section 1640].

A court will look at the whole of the contract taken together so as to give effect to every party if reasonably practicable, each clause helping to interpret the other.  [Civil Code section 1641].  In the event of several contracts relating to the same matter between the same parties and made as parts of substantially one transaction, the several contracts are to be taken together.  [Civil Code section 1642].  The interpretation of a contract must make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.  [Civil Code section 1643].  The words of the contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed.  [Civil Code section 1644].  Technical words are to be interpreted as usually understood by persons in the profession or business to which they relate, unless clearly used in a different sense.  [Civil Code section 1645].

A contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates.  [Civil Code section 1647].  However broad the terms of a contract may be, the contract extends only to those things concerning which it appears that the parties intended to contract.  [Civil Code section 1648].  If the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it.  [Civil Code section 1649].  Particular clauses of a contract are subordinate to its general intent.  [Civil Code section 1650].

In the event of a printed form in which handwritten interlineations are made (a contract partly written and partly printed where the printed part is from a form originally prepared without special reference to the particular parties and the particular contract in question), the written parts control the printed parts, and the parts which are purely original control those which are copied from a form.  If the two are absolutely repugnant, the latter must be so far disregarded.  [Civil Code section 1651].  Repugnancy in a contract must be reconciled, if possible, by such an interpretation as will give some effect to the repugnant clauses, subordinate to the general intent and purpose of the whole contract.  [Civil Code section 1652].

Words in a contract which are wholly inconsistent with its nature, or with the main intention of the parties, are to be rejected.  [Civil Code section 1653].  In the case of uncertainty not removed by the preceding rules, the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist.  [Civil Code section 1654].

Stipulations which are necessary to make a contract reasonable, or comfortable to usage, are implied in respect to matters concerning which the contract manifests no contrary intention.  [Civil Code section 1655].  All things that in law or usage are considered as incidental to a contract, or as necessary to carry it into effect, are implied therefrom, unless some of them are expressly mentioned therein, when all other things of the same class are deemed to be excluded.  [Civil Code section 1656].

If no time is specified for the performance of an act required to be performed, a reasonable time is allowed.  If the act is in its nature capable of being done instantly–as, for example, if it consists in the payment of money only–it must be performed immediately upon the thing to be done being exactly ascertained.  [Civil Code section 1657].

These are the basics of contract interpretation as set forth in California’s Civil Code.  A body of case law exists to more finely examine specific situations regarding specific contracts.  The first protection against a contract interpretation which does not match up with your expectations is to, of course, have a properly drafted contract in the first place.  Surprisingly, even experienced business people rely on casually drafted contracts which may seem clear at the time but are ambiguous.  However, attorneys who handle breach of contract lawsuits have to take the contracts as they find them and formulate an interpretation that will pass muster and persuade a jury or judge.  The basics of contract interpretation are the best place to start when faced with the interpretation of a contract.

Breach of contract attorney Laine T. Wagenseller is the founder of Wagenseller Law Firm in Los Angeles.  He specializes in real estate and partnership litigation and has handled many breach of contract lawsuits.  He can be contacted at (213) 286-0371 or ltw@wagensellerlaw.com.