Legal Memorandum: Rules for Interpreting Terms of a Contract

Issue: Under California law, what rules does a court follow when interpreting the terms of a contract?

The basic rules of contract construction should apply in resolving the dispute.  “The goal of contract interpretation is to determine and give effect to the mutual intention of the parties.”  Safeco Ins. Co. of Am. v. Robert S., 26 Cal. 4^th 758, 763, 110 Cal. Rptr. 2d 844, 849 (2001).  A court construing a contract will ascertain the parties’ intent from the written terms when the “contract language is clear and explicit and does not lead to absurd results.”  Ticor Title Ins. Co. v. Employers Ins., 40 Cal. App. 4^th 1699, 1707, 48 Cal. Rptr. 2d 368, 373 (1996).  The words of the contract will be given “their ordinary and popular meaning unless the parties mean them in a technical sense.”  Id. at 1707, 48 Cal. Rptr. 2d at 373.

When a provision of the contract has two or more reasonable constructions, it is considered ambiguous.  Safeco Ins., 26 Cal. 4^th at 763, 110 Cal. Rptr. 2d at 849.  The ambiguity is resolved by interpreting the provision at issue in the sense that the promisor believed the promisee understood it at the time the contract was formed.  Id.  If this does not resolve the ambiguity, the ambiguous provision is resolved against the party that caused the ambiguity to exist, such as the drafter.  Id.

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