## Facts

- Merced County negotiated separate memoranda of understanding (MOUs) with (1) the Merced County Sheriff’s Employees’ Association (SA) and (2) the Merced County Professional Firefighters’ Association (FA) to govern three-year wage increases beginning July 1, 1985.
- Both MOUs used a salary survey of nine comparable counties and referenced “percentage differentials” between Merced deputy pay and the survey average to set increases over the contract term.
- After execution, the parties disputed what the negotiated percentages multiplied:
  - SA/FA contended the percentages applied to the pay *differential* between Merced deputies and the survey average, gradually closing the gap.
  - The County contended the percentages applied to the *survey average salary itself*, setting deputies at no less than 90%, 95%, and 100% of the survey average in successive years.
- During negotiations, the County’s chief labor negotiator made calculations referencing the “% Difference” and applying the negotiated percentage to that differential.
- The FA MOU included additional language intended to tie firefighter pay to a percentage relationship with deputy pay; the County represented that it would keep firefighters 5% below deputies.
- SA and FA sought mandamus compelling the County to implement the MOUs according to their reading.
- The trial court ordered the SA salary paragraph rescinded and renegotiated due to ambiguity and “mutual good faith mistake,” but enforced the FA MOU as unambiguous.
- Both sides appealed.

## Issues

1. Whether the SA MOU’s salary formula was enforceable, and if so, whether it should be interpreted as applying negotiated percentages to the differential (SA) or to the survey average (County).
2. Whether the FA MOU’s salary formula was enforceable as written or unenforceable due to ambiguity and lack of mutual assent.

## Decision

- The Court of Appeal reversed.
- It held the SA MOU was enforceable and must be applied under SA’s interpretation (percentages applied to the differential between Merced deputy pay and the survey average).
- It held the FA MOU’s disputed salary formula unenforceable because the ambiguity was irreconcilable and the parties lacked a meeting of the minds.
- It rejected rescission of the SA salary provision and rejected enforcement of the FA salary provision.

## Legal Principles

- Contract interpretation permits consideration of extrinsic evidence when contractual language is reasonably susceptible to more than one meaning.
- Where parties attach different meanings to an ambiguous term, the contract is interpreted in accordance with the meaning of the party whose understanding the other party knew or had reason to know.
- Rescission for “mutual mistake” is improper where the evidence shows one party had reason to know of the other’s interpretation and failed to correct the misunderstanding.
- If an essential term is subject to irreconcilable ambiguity and neither party can be charged with knowledge or acceptance of the other’s meaning, there is no meeting of the minds and the term is unenforceable.

## Conclusion

The court enforced the deputies’ wage formula as SA reasonably understood it because the County had reason to know that understanding, but refused to enforce the firefighters’ wage formula because the competing interpretations could not be reconciled and mutual assent on that essential term was not shown.


Merced Cnty. Sheriff’s Emps.’ Ass’n v. County of Merced, 188 Cal. App. 3d 662, 233 Cal. Rptr. 519 (Ct. App. 1987)