ConstructionPro Week, Volume: 3 - Issue: 50 - 12/12/2014

Is a Liberal Reading of Contracts Going Too Far?

By Bruce Jervis

It is frequently stated that a contract speaks for itself. Answers regarding contract interpretation should be found within the four corners of the contract. If a contract is ambiguous, it may be necessary to rely on extrinsic evidence. If not, rely on the express language of the contract.

The highest court of New York recently interpreted the insurance provisions of a construction contract. There had been no ruling that these terms were ambiguous. The majority of the Court of Appeals read the express language of the insurance provisions and came to a logical conclusion.

In what is indicative of a disturbing trend, however, two dissenters took a more “organic” approach to contract interpretation. They focused on the comprehensive effect of the insurance provisions and what the contract was intended to say rather than the actual express language of the contract itself.

Do you believe it is reasonable to use the overall intent of an agreement to flesh out the details – matters that may never have been expressly addressed by the parties? Or, do you prefer the traditional approach, which, in the absence of ambiguity, limits contract interpretation to the black-letter language of the contract? I welcome your comments.

COMMENTS

I believe that the trier-of-fact must also weigh the relative bargaining power of the parties that have entered into a contract. Everyone needs insurance yet almost no one has the ability to bargain with insurance companies. It is far from a level playing field so I am not upset when courts try to compensate the gross imbalances that exist between insured and insurers, organic or not.
Posted by: tim barrett - Friday, December 12, 2014 10:49 AM

Why bother having any contract language at all if it is all subject to interpretation? We would all interpret everything to suit our own best interest. That's simply human nature. Next the courts will be trying to interpret the intent of our Constitution. Um...Oh, yeah.
Posted by: Ken - Friday, December 12, 2014 11:03 AM

Here's the thing, which I come to after 40 years of professional experience, which includes almost every trade on a construction site, production management experience, litigation and negotiation of contract issues around the world. The question that is begged, in almost every instance is whether there really is "black-letter language". As far as my experience shows me, the language that both sides "see" and allow to survive negotiation at the time of contract creation has nuances at that time and those nuances can change as the contract proceeds, especially when you consder the interaction of other provisions, the relationship of which may not have been considered to apply at the time of contracting. In my practical experience, contracts are an evolving document and any change in circumstance that varies from what was (either mutually or unilaterally) considered/contemplated at the time of creation affects the application (and by necessity the interpretation) of the language. Lastly, I am not so sure that the characterization of the "traditional approach" is accurate, as one only has to look at the centuries of case law to see that changes and adjustments have been continuous.
Posted by: Dave Hazlett - Friday, December 12, 2014 11:04 AM

I think it depends on the context and the interpretation. There are times when someone obviously guilty isn't convicted because of a technicality (similar to express language) while other times a reasonable interpretation can be made on the basis of the intent and what can be easily inferred ("comprehensive effect"). I could probably be convinced either way based on the facts.
Posted by: F D Brookshire - Friday, December 12, 2014 11:07 AM

Can you post a link or add content from the case at hand so we can read it and make a better interpretation?
Posted by: J Tate - Friday, December 12, 2014 12:11 PM

One wonders how the dissenters would determine what the contract was intended to say, if they don't use the actual language? are they looking at the extrinsic evidence first?
Posted by: J. W.O'Neil - Friday, December 12, 2014 1:43 PM

Contractors cannot put a price on what is not in the contract documents, whether there is an ambiguity on the material specified or the insurance requirements. To assume otherwise is to invite all sorts of abuse of the contractors by owners/CM's over what the "intent" was. The owner's position would almost always be to reduce costs and claim there was no ambiguity and even if there was, that the contractor should have included the item since it is "generally known/accepted practice" to be required to complete the work.

Again, if it's not in the documents, the contractor cannot put a price on it.
Posted by: Anthony J Bianchi Jr - Friday, December 12, 2014 3:19 PM

In life, politics and law included, pursuit of absolutes is futile, and counter-productive. Ambiguity and uncertainty define the environment in which we live. Absolutists are disassociated from reality. Courts exist to help us resolve a few of the ambiguities. Above, Dave Hazlett describes the real world. Those who resist judicial interpretation of contracts, or of our Constitution, deny a fundamental truth of our existence.
Posted by: Hank Chamberlaikn - Sunday, December 14, 2014 10:53 AM

Well, in 30 years of contracting experience, I've yet to see a contract document whose provisions couldn't be challenged as ambiguous, it seems to me that the time to work through all that is during contract negotiations and/or prebid inquiries by the bidders. Many ambiguities can be successfully cleared up if the parties are willing to honestly dialog with each other. Of course, it's the nature of courts to examine these issues and they will always keep us guessing on the correct way to write a "black letter" contract provision.

J.W. O'Neil provides a facinating look at the issue.

Posted by: Chris Akers - Monday, December 15, 2014 12:43 PM