Opinion ID: 1349036
Heading Depth: 3
Heading Rank: 3

Heading: Defects of the Majority's Approach

Text: In an earlier part of this opinion, I have emphasized the particular need for predictability and protection of the parties' justified contractual expectations in the commercial context. Until today, California law governing contractual choice-of-law and choice-of-forum provisions served that need. Sophisticated commercial parties who desired choice-of-law and choice-of-forum provisions to control all related contractual and noncontractual aspects of their relationship could achieve their aim by using clauses that resembled those this court enforced in Smith, supra, 17 Cal.3d 491, governing any matters arising under or growing out of the agreement. Other sophisticated parties who desired more narrow clauses could draft specific clauses suited to the parties' needs in the expectation that those clauses would be enforced as they were intended. But under the majority's approach, as I understand it, when two commercial entities agree to a choice-of-law clause in a contract, as a matter of law the clause applies to all conceivably related noncontractual causes of action, regardless of any ambiguous language in the clause or of the parties' actual intent regarding its coverage. The party resisting application of the choice-of-law clause will have no opportunity to show that it was intended to apply only to contractual causes of action. This rigid rule has, in my view, serious defects. The majority ignores the most fundamental statutory command of contract law interpretation: 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. (Civ. Code, § 1636; see Code Civ. Proc., § 1859 [In the construction of a statute the intention of the Legislature, and in the construction of an instrument the intention of the parties, is to be pursued, if possible; ...].) It is not at all difficult to foresee situations in which contracting parties intend a choice-of-law clause such as the one at issue here to govern only contractual causes of action. A party could demonstrate such intent by showing, for example, that the scope of the choice-of-law clause was a subject of negotiation, and that early drafts of the parties' agreement contained a choice-of-law clause similar to the clause in Smith, supra, 17 Cal.3d 491, while the final version, after negotiation, more resembled the clause at issue here. Such documentary evidence of negotiation that successively narrowed the scope of the clause would strongly indicate that the parties intended the clause to apply only to contractual causes of action. But the majority would simply disregard the parties' intent even in cases in which it could be demonstrated that the parties intended the choice-of-law clause not to apply to noncontractual causes of action. The majority would do so in direct violation of the command of Civil Code section 1636, which requires the courts to ascertain and give effect to the intention of the parties. And the majority would do so in the name of certainty and predictability, while, ironically, defeating the expectations of the parties that the choice-of-law clause would, certainly and predictably, apply only to contractual causes of action. It is unrealistic to conclude that the choice-of-law clause in this case is not ambiguous. Certainly, reasonable minds may differ as to whether the clause in this case, which states only that [t]his Agreement shall be governed by and construed in accordance with Hong Kong law ..., should be interpreted to cover noncontractual causes of action. Indeed, the ambiguity in the scope of this clause proceeds not so much from its language as from its context. Taken without reference to context, the clause is unambiguous, but not in the manner suggested by the majority. Because the clause refers only to this Agreement, and not, like the similar clause at issue in Smith, to matters arising under or growing out of this agreement. ...' ( Smith, supra, 17 Cal.3d at p. 497 (italics in original)), it appears on its face not to apply to noncontractual causes of action. Given the context of the agreement, the parties may well have intended a clause that would assure that all their disputes would be governed by Hong Kong law, but simply have failed to make this explicit. On the other hand, the parties may well have intended what Justice Panelli, in his separate opinion, joined by Justice Mosk, assumes they intended: that only their contract disputes be governed by Hong Kong law. Indeed, the very fact that Justices Panelli and Mosk disagree with the majority regarding the meaning of the clause, and that both the majority and these two justices find the clause clear, but conclude it has opposite meanings, ironically and convincingly demonstrates that the clause is ambiguous. Even under circumstances in which the ambiguity arises more from context than language, extrinsic evidence is admissible to show the meaning the parties intended. The majority mistakenly assumes that, because the term this Agreement means to four members of this court this Agreement and all related controversies, it could reasonably have no different meaning to the parties or anyone else. Outside of the choice-of-law area, however, the courts of this state have rejected such a narrow view of meaning. As Chief Justice Traynor put it in the landmark case of Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 38-39 [69 Cal. Rptr. 561, 442 P.2d 641, 40 A.L.R.3d 1373] ( Pacific Gas ): [T]he meaning of a writing `... can only be found by interpretation in light of all the circumstances that reveal the sense in which the writer used the words. The exclusion of parol evidence regarding such circumstances merely because the words do not appear ambiguous to the reader can easily lead to the attribution to a written instrument of a meaning that was never intended....' [Citations.] Under the majority's approach, contractual obligations flow, not from the intention of the parties but from the fact that they used certain magic words. ( Pacific Gas, supra, 69 Cal.2d at p. 38.) The majority's primitive magic words approach is inconsistent with statutory rules of contract interpretation. The majority's approach is also inconsistent with the approach taken by Justice Richardson in his thoughtful opinion for this court in Smith, supra, 17 Cal.3d 491. There, Justice Richardson interpreted the meaning of a choice-of-forum clause by focusing on the particular language chosen by the parties, as the language reflects the parties' intent. Without admitting it, the majority has abandoned this traditional and sound approach.