Reasonable Interpretation of Overall Contract Language Determining Factor in Contract Enforcement

Mar 27, 2018

A typographical error in a heading is not enough to void an entire clause.

There are a number of standards a court can apply when interpreting the meaning of a contract. One is the actual wording, and sometimes punctuation, of the contract. Another is the intent of the party based upon the language of the contract in its entirety.

Kent Holland, Jr.’s article in ConstructionRisk outlines the Nebraska Appellate Court’s reasoning in a recent case that addresses this issue. Frohberg Electric Company, Inc. v. Grossenberg Implement, Inc., 297 Neb. 356 (Nebraska 2017).

The subcontractor filed a claim for non-payment and eventually “sued the general contractor (GC) and project owner to enforce liens it put on the property for non-payment.”

The general contractor demanded that the issue be decided in arbitration based upon “arbitration provisions of the prime agreement … incorporated by reference into the subcontract, thereby requiring the subcontractor to first seek mediation and then ultimately resolve disputes through arbitration instead of litigation.”

The subcontractor responded that it was not bound by the provision in question because the heading for the provision was titled “’The Contractor Agrees’” rather than “’The Subcontractor Agrees.’” According to Mr. Holland, this was a typographical error.

The trial court found for the subcontractor. The Appeal Court reversed ruling that “subtitles in contracts don’t take precedence over or change the content in the text that follows.”

The Court also explained that in this contract an ambiguous word did not result in  “’two reasonable but conflicting interpretations or meanings.’” Only one interpretation was reasonable. Therefore, it stipulated that the case be resolved in mediation and then, if required, go to arbitration.

Source—

Arbitration Provision of Prime Contract Incorporated by Reference into Subcontract, Requiring Subcontractor to Arbitrate its Claims, J. Kent Holland, Jr., Construction Risk.com, February 2018.