It’s the Law: Contract ambiguity can be fatal

Q: I am selling some property on my own. I wrote up a contract with a buyer and we now disagree on what the contract means. How will this get resolved?

A: Your question evidences the importance of careful contract drafting. Words can be interpreted differently by each party to a contract. Language that seems clear at time it is written may prove ambiguous when one party wants to cancel the contract.

If the parties cannot agree on meaning of a contract, construction of the instrument is often a question of law. That means a judge will determine the meaning as opposed to a jury, which would determine factual issues. Where contract terms are in dispute and arguably subject to more than one interpretation, an issue of fact is presented concerning intent of the parties. In a jury trial, the jury decides fact issues. In a non-jury trial, the judge decides all issues.

It is intent of the parties that generally governs interpretation of ambiguous clauses.

Contract interpretation of ambiguous terms requires the Court to mirror the situation of the parties at time the contract was drafted; as that is the time that intent matters

The courts strive to interpret a contract in a manner that will make the contract enforceable and binding. It is assumed that the parties intended to create a binding agreement and Florida Courts attempt to further that goal.

In interpreting contract language, normal meaning of words is generally important. Words that have a specialized usage in a trade or that are terms of art may be construed in accordance with those special uses. Where there is an ambiguity, terms are generally construed against the party drafting the contract.

The law does not require that every conceivable term be included in a contract before it is enforceable. The parties must agree on all material terms such as description of the property, price and identity of the parties. Other terms may be implied, such as reasonable time for performance. When a term is omitted or ambiguous, the parties run the risk that the contract will be held unenforceable if it is material. The recent case of Duck Dog, L.C. versus Brownstar Properties, LLC is illustrative.

In the Duck Dog case, a special assessment was levied by a community development district in October of 2004 on property owned by Brownstar. The assessment totaled $1,943,122.

In March of 2006, Brownstar and Duck Dog executed a contract for sale of the property to Duck Dog. Sale price was $6,325,000. Duck Dog refused to close after the parties disagreed on who should pay the assessment.

The contract between the parties included a clause that read “at the closing, the taxes and CDD assessments on the property shall be pro-rated between the parties on the bases of the taxes paid for the most recent year that has been assessed and billed… special assessment liens certified as of closing shall be paid by the seller. Pending liens shall be assumed by the buyer provided, however, that where the improvement has been substantially completed as of the closing, such pending lien shall be treated as a certified lien and shall be paid by the seller. Private charges assessments pursuant to the Master Declaration of Covenants, Conditions and Restrictions…. shall also be pro-rated…”

The Trial Court found there was no ambiguity in the contract and that the intent of the parties was that Duck Dog pay the $1.9 million dollar special assessment. The Appellate Court reversed. In reversing, the Appellate Court noted that the contract called for special assessment liens certified as of closing to be paid by Brownstar. However, the contract was silent as to what constituted a “certified” special assessment or who certifies. Using the conventional meaning of certified as “to attest, especially authoritatively or formally” the Court concluded that the contract “suggested” Brownstar was responsible for the full $1.9 million dollars.

The Court went on to note the special assessment was not to be collected in one payment. It was due in installments, spread over 30 years. The Court concluded that it would also be reasonable to interpret the contract to provide for proration of the annual portion for the year of closing and only that portion would constitute a certified lien. The Court explained that interpretation would not be fully supported by other language in the section dealing with pending lien, which, in circumstances of substantial completion of improvements, are the responsibility of Brownstar.

The Appellate Court ended by concluding the contract was hopelessly ambiguous and that the parties had never had a meeting of the minds. The contract failed and Duck Dog got refund of its deposit.

Contract language is often taken lightly by the parties. Preprinted forms are not read or are modified on the spot with hand written changes. Later, one or both parties wishes they had been more careful.

It is prudent to retain an experienced attorney for contract review and drafting. Since you did not do that, it is now critical that you retain an experienced attorney to review the facts of your situation and contract language.

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William G. Morris is a lawyer with offices at 247 N. Collier Blvd., Marco Island. The column is not intended to be legal advice for specific circumstances. General questions can be sent by e-mail to wgmorrislaw@embarqmail.com or by fax to (239) 642-0722. Read other columns at http://www.wgmorris.com.