If There Are Disputes Concerning Ambiguities In A Contract, Whose Interpretation Should Prevail? An Overview Of Contract Rules Of Interpretation
If There Are Disputes Concerning Ambiguities
in a Contract, Whose Interpretation Should Prevail?
An Overview of Contract Rules of Interpretation.
William C. Last, Jr.
Most modern construction contracts incorporate into the contract certain general conditions, special conditions project plans and specifications. Any of these documents may also include by reference certain construction industry trade standards. It is almost inevitable that during the course of construction there will be a dispute concerning the interpretation of inconsistencies and ambiguities in the contract, plans, conditions and/or specifications.
Many contracts include clauses which provide interpretation rules or designate the clauses in one portion of the contract to supercede conflicting provisions found in another part. Even though such clauses may exist, they may not provide the answer to resolving a given inconsistency or ambiguity. In such an event the parties can turn to California statutes and appellate court cases to find other interpretation rules. The remainder of this article will set forth a number of the interpretation statutes and principles that are relevant to interpreting construction contract terms.
Basic Contract Interpretation Provisions
A well drafted construction contract and/or set of specifications will include clauses that set forth a method for interpreting such ambiguities and conflicts as well as avoid introducing them in the first place. Basically, an ambiguous provision is a clause which can reasonably read in more than one way. Conflicting provisions exist where the provisions cannot both be complied with. For example, in Weeshoff Constr. Co. v. Los Angeles County Flood Control Dist. (1979) 88 Cal.App.3d 579, 152 Cal.Rptr. 19, the contract prohibited “temporary resurfacing,” but required the contractor to maintain three open lanes of traffic-a requirement found impossible to satisfy without the use of temporary pavement. The District refused to issue a change order, however, contending that the term “temporary resurfacing” had a meaning different than “temporary pavement.”
A precedence clause sets forth which documents (e.g. general conditions, special conditions, plans or specifications) take precedence over other documents. For example, if there is ambiguity between the plans and specifications, the precedence clause may state that the document that requires the greater amount of work will prevail.
Many American Institute of Architect standard contracts include a provision that in the event of a dispute concerning the interpretation of an ambiguity in the contract documents, the dispute shall be submitted to the project architect or engineer for interpretation. The clause will also state that the project architect or engineer’s interpretation shall be binding on the parties.
Many contracts include an “integration clause” that states, in essence, that the contract is intended to be a complete and final expression of the parties’ agreement. That clause to a certain extent sets forth California law, but is also subject to exceptions. Under California law, when a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible; subject to certain exceptions. Those exceptions exist when, through fraud, mistake, or accident, a written contract fails to express the real intention of the parties, such intention is to be regarded, and the erroneous parts of the writing disregarded. Otherwise, an integration clause will usually prevent either party from raising any pre-contract statements or negotiations to vary, contradict, or even supplement the written agreement.
Statutory Interpretation Rules
If the contract does not include a clause that aids in the interpretation of disputes concerning the contract terms, the parties maybe able to turn to the interpretation rules that have been by enacted by the Legislature. These statutes can be found starting at section 1635 of the California Civil Code. They set out rules of interpretation were enacted as early as 1872.
One of the interpretation statutes provides that for the purpose of ascertaining the intention of the parties to a contract, if otherwise doubtful, the statutory rules are to be applied. Some of the exact language of some of the more relevant statutes and a possible brief comment about court cases that may address the principle set forth in the statute are as follows:
1. Civil Code ‘ 1635. UNIFORMITY OF INTERPRETATION. All contracts, whether public or private, are to be interpreted by the same rules, except as otherwise provided by this Code.
Comment: Public entities sometimes seek to have contracts interpreted in their favor based on the “public interest.” This section has been held to defeat such arguments.
2. Civil Code ‘ 1636. CONTRACTS, HOW TO BE INTERPRETED. 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.
Comment: Appellate courts have held that the courts can ascertain the parties’ intentions by reviewing their conduct relative to the clause in question.
3. Civil Code ‘ 1638. INTENTION TO BE ASCERTAINED FROM LANGUAGE. The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.
Comment: This provision emphasizes that if the contract can be interpreted from its language, it will be. Section 1639 goes on to state that in such cases, other evidence will be disregarded. The exception for cases of fraud, mistake or accident is stated in Civil Code § 1640. The term “mistake” however is a legal one and refers to mistakes of fact made by both parties or caused by one party, not to a promissor’s errors in judgment.
4. Civil Code ‘1641. EFFECT TO BE GIVEN TO EVERY PART OF CONTRACT. The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.
Comment: The drawings, specifications, and other contract documents must be construed together. If the contract does not require certain portions of the work to be performed by the contractor, that exclusion may include, by implication, other portions of project are within the contractor’s scope of work. (Meyers v. Housing Authority (1966) 241 Cal App. 2nd 721)
5. Civil Code ‘1642 SEVERAL CONTRACTS, WHEN TAKEN TOGETHER. Several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together.
6. Civil Code ‘1643. INTERPRETATION IN FAVOR OF CONTRACT. A contract must receive such an interpretation as will 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.
7. Civil Code ‘1644 WORDS TO BE UNDERSTOOD IN USUAL SENSE. The words of a 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.
Comment: There are a number of trade organizations that publish trade standards (e.g. ASTM), which maybe reviewed to determine the custom and practice in the construction industry. If the contract, plans or specifications do not reference such standards and there is a custom and usage dispute, the parties may want to review those standards.
8. Civil Code ‘1645. TECHNICAL WORDS. 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.
9. Civil Code ‘1646. LAW OF PLACE. A contract is to be interpreted according to the law and usage of the place where it is to be performed; or, if it does not indicate a place of performance, according to the law and usage of the place where it is made.
Comment: This rule may relevant to the construction industry since the climate and building practices vary throughout the state. For example, roof design for a project in the Sierras will be different from a project in the desert. What may be a common practice in the Sierras will not necessarily be true in a desert community.
10. Civil Code ‘1647. CONTRACTS EXPLAINED BY CIRCUMSTANCES. A contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates.
11. Civil Code ‘1648. CONTRACT RESTRICTED TO ITS EVIDENT OBJECT. However broad may be the terms of a contract, it extends only to those things concerning which it appears that the parties intended to contract.
12, Civil Code ‘1649 INTERPRETATION IN SENSE IN WHICH PROMISSOR BELIEVED PROMISEE TO RELY. If the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promissor believed, at the time of making it, that the promisee understood it.
13. Civil Code ‘1650. PARTICULAR CLAUSES SUBORDINATE TO GENERAL INTENT. Particular clauses of a contract are subordinate to its general intent.
14. Civil Code ‘1651. CONTRACT, PARTLY WRITTEN AND PARTLY PRINTED. Where a contract is partly written and partly printed, or where part of it is written or printed under the special directions of the parties, and with a special view to their intention, and the remainder is copied 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. And if the two are absolutely repugnant, the latter must be so far disregarded.
Comment: If a contract is comprised of a pre-printed form and handwritten or typed modifications, the handwritten or typed material will prevail. Integrated, Inc. v. Alec Fergusson Elec. Contractors (1967) 250 Cal.App.2d 287.
15. Civil Code ‘1652. REPUGNANCIES, HOW RECONCILED. 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.
Comment: In essence, where two clauses of contract appear to be contradictory, the court should attempt to reconcile conflicting clauses so as to give effect to whole of instrument, assuming that is possible within framework of general intent of the contract.
16. Civil Code ‘1653. INCONSISTENT WORDS REJECTED. Words in a contract which are wholly inconsistent with its nature, or with the main intention of the parties, are to be rejected.
17. Civil Code ‘1654. INTERPRETATION AGAINST PERSON CAUSING. In cases 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.
Comment: Some contracts include a clause that modifies this statutory interpretation rule. Such clauses will state, in part, that the contract should be construed as though both parties to the agreement drafted it.
18. Civil Code ‘1655. REASONABLE STIPULATIONS, WHEN IMPLIED. Stipulations which are necessary to make a contract reasonable, or conformable to usage, are implied, in respect to matters concerning which the contract manifests no contrary intention.
Comment: For example, California law implies a covenant of good faith and fair dealing in every contract to ensure one contracting party does not unfairly frustrate the other party’s right to receive the benefits of their agreement. It should be noted that a court can neither add nor reject material stipulations in contract.
22. Civil Code ‘1656. NECESSARY INCIDENTS IMPLIED. 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.
Comment: An example is when two parties entered into a contract whereby the contractor undertook to construct a dwelling house for owner, the law implied a promise on the part of owner to permit the plaintiff to build and according to the details of the contract. (Armstrong v. Smith (1942) 49 Cal App. 2nd 258)
Most change orders disputes arise as a result of the parties disagreeing as to their respective interpretations of the contract terms and conditions. As a result, contracts, including the plans and specifications, should be objectively and carefully reviewed for inconsistencies and ambiguities before signature. Even form contracts should be tailored to the specific contract and additions and deletions to form contracts should be completely integrated into the agreement to avoid conflicts.
In particular, parties may wish to expressly adopt or exclude local trade practices as an aid to interpretation. When either party finds it is making an assumption about the meaning of a provision, it is usually best to bring it up early.
If there is a disagreement relative to the interpretation of the contract documents, the parties should review the contract to determine if it includes interpretation-related clauses. If the contract doesn’t include such clauses, the parties may be able to turn to California interpretation rules as set forth in statutes and cases to get further guidance.
This article, 8 2004, was written by William C. Last, Jr. Mr. Last is an attorney who has been specializing in Construction Law for over 20 years… In addition to belonging to a number of construction trade associations, Mr. Last holds a California [email protected] and [email protected] license. He can be contacted at 415-764-1990 or 650-696-8350. A number of his past articles can be found on his website (lhfconstructlaw.com). This bulletin is published periodically to provide general information about current legal issues. The articles are not intended to be a substitute for the advice of an attorney as to a specific problem. If you have a specific legal question or need legal advice, you should contact an attorney.