It Speaks for Itself

Shutterstock / Dilen
Shutterstock / Dilen

For as long as people have been making contracts, they have been making imperfect ones. When a court is asked to make sense of faulty agreements—before a judge throws up his hands and says, “I can’t make any sense of this”—they first apply some old and reasonable rules of contract interpretation.

Enforceable contracts do not need to be in writing. They can be oral, or partly oral and partly written, or composed of a group of back-and-forth communications. The fundamental question always is: Did the parties intend to enter into a contract? If the answer is yes, then certain rules apply. But, first, some language issues for you to consider:

1. An army tank repair shop was a hazardous area requiring explosion-proof fittings. The specifications provided that areas “adjacent to” hazardous areas shall be deemed hazardous. The electrical subcontractor brought its cable into the building then up through a concrete floor into a bath/shower area that was separated from the repair shop by a block wall. The question is: was the bathroom “adjacent to” the shop?

2. The subcontract allowed the general contractor to order extra work on a cost-to-be-determined basis. Payment for the extras would be “based on” actual costs. The EC thought the language meant it would be paid for all actual amounts incurred; the GC expected actual costs would be an outside limit of what would be paid and that payment would not be based on estimates.

3. A partial lien waiver form stated that, with the payment made, the subcontractor was deemed “paid in full” for all work performed through the date of the waiver. As the job progressed, existing extras continued to be negotiated before and after the lien waiver forms were signed. Later, the GC rejected a large claim saying it was barred by the prior waiver language.

These rules of contract interpretation should help you analyze these problems.

More definite means higher rank

Many, if not most, contracts have conflicting terms or terms capable of more than one meaning. To get to the parties’ intent, an order of precedence is applied—the more definite the language, the higher the value the phrase is given. Generally, precedence is given to handwritten language over typed, followed by preprinted.

Unless the contract says otherwise, specifications take precedence over drawings and drawing details over specifications.

Exercise caution as contract language can modify the rule. In one case, the owner’s language was “large scale drawings shall take precedence over small, scaled drawings.” Here, the word “scale” is used in two different senses. The clause means that details took a backseat to concept drawings, turning the specific/general rule on its head.

Lists of like kind

The contract drafter may want to list items that the subcontractor is responsible for providing but does not list all possibilities. The language may be that you are responsible for “all nuts, bolts, connections, clamps, etc., whether or not shown on the drawings.” If there is a dispute over what was included in the “etc.,” the rule applied is called “ejusdem generis,” meaning things of like kind. So, a cleavis hanger might be considered to be included in the list, but not a generator.

Course of dealing/performance

Course of dealing concerns how the same parties acted with each similar contract language on past comparable jobs. For example, on all past jobs, the GC allowed the sub to use its ladders and scaffolding.

Course of performance concerns how the parties acted on the current job. For example, the GC allowed the subcontractor to use the same area for storage for many months.

In both of these examples, if the GC changed the practice, the sub could have a claim. The courts have ruled these side understandings cannot add to, or delete from, the written terms of the agreement.

The merger clause

Your subcontract may contain a provision that states: “No promises, representations, or understandings are valid unless expressly contained herein.” Any precontract communications or assumptions, to be enforceable, must be merged into the written agreement. The clause is a warning to subcontractors that they must insert into the final agreement any precontract clarifications, exclusions, assumptions, etc.

Burden is on the drafter

If the contract has ambiguous language, the drafter is held responsible and the other party’s reasonable interpretation governs. The term of art is “contra proferentem”—against the party that created the problem. For example, the specifications say “paint all exposed surfaces.” The drafter/owner wanted the interior attic walls painted, but the contractor thought “exposed” meant exposed to the public or the elements, a reasonable interpretation.

Using the rules from this article, how would you resolve these contract interpretation/ambiguity problems?

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