When Contract Interpretation Matters in Mediation

Written by:  Hon. Victoria Wood (Ret.) 

February 16, 2026

A significant number of the mediations I handle turn on contract interpretation principles. The dispute is often not so much about what happened, but about what the parties intended the agreement to mean. A single undefined term or an inconsistency between clauses can drive the entire case. In these kinds of matters, resolution depends on a realistic assessment of how a court is likely to interpret the contract.

How the Courts Approach Ambiguity 

The central task in contract interpretation is determining the mutual intention of the parties at the time of contract formation. That is the guiding principle. Courts look first to the language used, read in context and as part of the agreement as a whole, to discern what the parties intended when they entered into the contract.

There is a common assumption that if a term is ambiguous, it will automatically be construed against the drafter. That rule exists, but it is a rule of last resort. Before getting there, courts first apply a structured set of interpretive principles. They strive to adopt a reasonable construction, avoid interpretations that lead to absurd results, and consider whether the language is reasonably susceptible to the meaning urged. They may examine admissible extrinsic evidence, and in some circumstances consider which party was in the better position to clarify an ambiguity. Legal treatises attempt to lay out all of these interpretation rules in a clear and objective way, but in practical reality, how a court will ultimately interpret an ambiguity is often far from clear. (See, i.e., 1 Witkin, Summary of California Law (11th ed. 2017) Contracts, §§ 740-761.)

How an Evaluative Mediator Can Help 

These types of cases often call for a mediator to take on a more evaluative role. When both sides are confident in their reading of the contract, it becomes necessary to reality test how a trial court is likely to approach the ambiguity and what risks each party faces. An informed evaluation can recalibrate expectations and open the door to practical compromise.

As a long-time research attorney at both the trial and appellate levels, as well as a former trial court judge, much of my work was devoted to precisely this kind of analysis. I spent years dissecting contracts, addressing parole evidence arguments, and crafting rulings grounded in established interpretive principles. That experience informs my approach in mediation today. 

When a case turns on what the parties intended at the time they signed the agreement, having a mediator with a disciplined understanding of contract interpretation often makes the difference between stalemate and resolution.