Contract Interpretation in California: Understanding the Basics
Contracts are an essential aspect of doing business, and they are used to formalize agreements between parties. In California, contracts are governed by statutory law and common law. Contractual disputes are often at the forefront of litigation, and it is vital to understand how contracts are interpreted in California to avoid these disputes.
What is Contract Interpretation?
Contract interpretation refers to the process of determining the meaning and intent of the parties in a contract. The goal of contract interpretation is to ascertain the parties` agreement and enforce it to the best of the court`s ability.
California Contract Law
In California, contracts are interpreted according to the objective theory of contracts. This theory holds that the parties` intentions are determined from the contract`s language and surrounding circumstances at the time of contracting. The court`s primary goal in interpreting a contract is to give effect to the parties` intentions as expressed in the contract itself.
Ambiguity in California Contracts
When a contract is ambiguous, the court will look to extrinsic evidence such as prior negotiations, course of dealing, and trade usage to determine the parties` intended meaning. However, California courts have a strict standard for when extrinsic evidence can be considered.
To admit parol evidence, which is any evidence outside of the written contract, the court must find that the contract is ambiguous. An ambiguous contract is one that is susceptible to more than one reasonable interpretation. If the contract is unambiguous, the court will not look to parol evidence to interpret its terms.
Interpreting California Contracts in Favor of Non-Drafting Parties
California public policy favors interpreting contracts in favor of non-drafting parties, which is why courts tend to read silent terms against the drafter. Additionally, California courts will construe contracts against the party with greater bargaining power, such as an employer or corporation.
Conclusion
Interpreting contracts in California requires a thorough understanding of contract law, and careful attention to detail. By understanding the basics of contract interpretation, businesses can benefit from clear and concise contracts that protect their interests while minimizing the risk of litigation.