Know These Interpretation Principles Before You Draft a Contract

• Publication year: 2018
• Author: Posted on June 18, 2018, by Julie Brook, Esq.

Know These Interpretation Principles Before You Draft a Contract

Posted on June 18, 2018, by Julie Brook, Esq.¹

Julie Brook, Esq. has been with CEB since 1995. Before that, she practiced civil litigation with Landels, Ripley & Diamond in San Francisco. She is a volunteer arbitrator with San Francisco's Department of Human Services.

When a contract dispute arises, there may be differing interpretations of the contract terms. A court asked to construe the disputed terms will look to statutory principles. But don't wait for a dispute to learn these principles—be aware of them when drafting an agreement to ensure that they won't counteract your client's intent.

Here are 11 of the most common principles that the courts use in interpreting contracts:

1. If possible, a contract is interpreted to give meaning to all its provisions (CC §1641; CCP §1858) and to be lawful, operative, definite, reasonable, and capable of being given effect (CC §1643).
2. Technical words are interpreted according to their technical meanings, and nontechnical words are interpreted according to their ordinary meanings. CC §§1644-1645.
3. A contract is construed according to the law of the place where it's to be performed or, if the place of performance is not indicated, where it was made, except that the parties can choose to have California law apply for many contracts involving more than $250,000. CC §§1646-1646.5.
4. Ambiguous or uncertain promises are interpreted according to what the promisor believed that the promisee understood the promise to be. CC §1649.
5. Written terms control printed terms, and printed terms added to a contract control terms on a preprinted form. CC §1651; CCP §1862.
6. Uncertainties are construed against the party that caused the uncertainty (usually, the drafting party). CC §1654.
7. Promises of multiple parties who benefit from the agreement are presumed to be joint and several. CC §1659.
8. Particular provisions control general provisions. CC §1650.
9. If two constructions of a provision are equally proper, the provision is construed in favor of the party for whose benefit the provision was made. CCP §1864.
10. The courts consider trade usage to interpret agreements governed by the Commercial Code. Express terms of an agreement and the course of dealing or trade usage are construed to be consistent when possible but, if not, express terms...