Landmark California Cases on Contract Interpretation
The fundamental goal of contract interpretation is to give effect to the mutual intention of the parties as it existed at the time they entered into the contract. (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264; Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865; see also Civ. Code, 1636.)
That intent is interpreted according to objective, rather than subjective, criteria. (Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1126 (Wolf III).)
When the contract is clear and explicit, the parties' intent is determined solely by reference to the language of the agreement. (Civ. Code, 1638 "language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity"; 1639 "when a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible".)
The words are to be understood "in their ordinary and popular sense" (Civ. Code, 1644) and the "whole of the contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other." (Civ. Code, 1641.)
Although parol evidence is inadmissible to vary or contradict the clear and unambiguous terms of a written, integrated contract (Code Civ. Proc., 1856, subd. (a); Wolf III, supra, 162 Cal.App.4th at p. 1126), extrinsic evidence is admissible to interpret the agreement when a material term is ambiguous. (City of Hope Nat. Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 395 (City of Hope); see Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co. (1968) 69 Cal.2d 33, 39-40 (Pacific Gas & Electric) if extrinsic evidence reveals that apparently clear language in the contract is, in fact, "susceptible to more than one reasonable interpretation," it may be used to determine contracting parties' intent; Code Civ. Proc., 1856, subd. (g) extrinsic evidence admissible to interpret terms of ambiguous agreement.)
As we explained in Wolf III, supra, 162 Cal.App.4th 1107, when the meaning of words used in a contract is disputed, the trial court engages in a three-step process: "First, it provisionally receives any proffered extrinsic evidence that is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. (Pacific Gas & Electric, supra, 69 Cal.2d at p. 37; Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 391.)
If, in light of the extrinsic evidence, the language is reasonably susceptible to the interpretation urged, the extrinsic evidence is then admitted to aid the court in its role in interpreting the contract. (Pacific Gas & Electric, at pp. 39-40; Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1350-1351.)
When there is no material conflict in the extrinsic evidence, the trial court interprets the contract as a matter of law. (City of Hope, supra, 43 Cal.4th at p. 395 interpretation of written instrument solely a judicial function 'when it is based on the words of the instrument alone, when there is no conflict in the extrinsic evidence, or when a determination was made based on incompetent evidence'; Parsons v. Bristol Development Co., supra, 62 Cal.2d at pp. 865-866.)
This is true even when conflicting inferences may be drawn from the undisputed extrinsic evidence (Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 439; Parsons, at p. 866, fn. 2) or when extrinsic evidence renders the contract terms susceptible to more than one reasonable interpretation. (Parsons, at p. 865; New Haven Unified School Dist. v. Taco Bell Corp. (1994) 24 Cal.App.4th 1473, 1483.)" (Wolf III, at pp. 1126-1127, )
Wolf III, supra, 162 Cal.App.4th 1107 and the cases on which it relied do not contemplate a separate proceeding for resolution of contract issues. Rather, this established case law simply outlines the steps a trial court properly takes, either in response to a motion for summary judgment/summary adjudication or a motion in limine to allow or exclude extrinsic evidence, to determine whether the interpretation of a contract is a question of law for the court or whether it requires resolution of conflicting extrinsic evidence, thereby creating a factual issue for the jury to decide. (See City of Hope, supra, 43 Cal.4th at p. 395.)
The trial court apparently did not engage in this process when ruling on the summary judgment/summary adjudication motions, but revisited the question after Capitol filed its motion in limine.
Whether the trial court's ultimate ruling in favor of Capitol's interpretation of the 1968 agreement is properly characterized a reconsideration of its earlier denial of Capitol's motion for summary judgment, as Bagdasarian Productions asserts (see Le Francois v. Goel (2005) 35 Cal.4th 1094, 1096-1097 trial court has inherent authority to reconsider sua sponte earlier interim ruling to correct its own errors whether or not any new issues or facts have been asserted; In re Marriage of Barthold (2008) 158 Cal.App.4th 1301, 1308-1309 trial court's inherent authority to correct its error applies even when trial court's sua sponte decision to reconsider its earlier ruling was prompted by an improper motion; accord, Nieto v. Blue Shield of California Life & Health Ins. Co. (2010) 181 Cal.App.4th 60, 73), or a ruling following a bifurcated bench trial on the question of contract interpretation, as Capitol contends, the effect, for all practical purposes, is the same: Finding no conflicting extrinsic evidence, the court decided the meaning of the 1968 agreement as a matter of law.