Understanding how contracts are interpreted can make or break a legal dispute. Even a small wording error can shift hundreds of thousands of dollars, as one borrower named Charlie found out the hard way.
A Costly Case of Contradictory Terms
Charlie borrowed $1,700,000 from the bank to buy a home. He actually received the $1,700,000. No one disputed that.
However, the bank made a mistake when it prepared the loan documents. In all of the documents, it said that the principal amount of the loan was:
“ONE MILLION SEVEN THOUSAND AND NO/100 ($1,700,000.00) DOLLARS.”
Clearly, the written words contradicted the numerals. Had Charlie repaid the full $1,700,000 (with interest), it would not have been an issue. But Charlie repaid only $600,000. The bank called him in default, foreclosed on his house, then sued Charlie for the deficiency. Charlie responded that he owed them nothing because the principal amount of the loan was only $1,007,000.
The Surprising Outcome
How did the case turn out? Charlie won.
It turns out that there is a rule that written words control over numerals in a document that contains contradictory terms.
Surprised? Most people would be — because the rules of contract construction are not exactly dinner-table conversation. That’s why this column explores some of the more interesting principles that can shape how contracts are interpreted in court.
Key Rules of Contract Construction
Understanding the rules of contract interpretation can help you avoid disputes before they happen. Here are a few of the most common and consequential ones.
1. Written, Typed, and Handwritten Terms
If an instrument contains contradictory terms, then typewritten terms prevail over printed terms, and handwritten terms prevail over both.
- If a preprinted form required a $50 deposit, and the parties typed in “$100 deposit,” then the deposit is $100.
- If the parties handwrote “$25 deposit,” then the deposit is $25.
2. Words Take Their Ordinary Meaning
Words in a contract are given their ordinary or common meaning.
If a contract provided that the project would be completed by June 1st, then it means the project must be fully, not partially, completed by June 1st.
3. Clarifying Unclear Terms
If an unclear term is used, then the court can consider:
- How the parties have behaved under the contract
- How they acted in prior contracts
- Common meanings within the industry
For example, if a drilling agreement pays “per foot completed,” the court will adopt the trade usage in the oil industry to clarify that term.
4. Material Terms Must Be Present
A contract is unenforceable if it fails to contain all material and essential terms.
If a seller agrees to sell “some property in Dallas County” without identifying which parcel or the price, the contract is unenforceable because it lacked material terms like price and property description.
Latin Rules of Construction: Impress Your Dinner Guests
Interested in more rules? Let’s take it up a notch — in Latin. These maxims of contract construction are ancient, but they still guide modern legal interpretation.
Noscitur a Sociis
The meaning of a word or phrase is known from the words surrounding it.
If a clause refers to “explosion, rupture, or bursting of a pipe,” then the word “bursting” is intended to mean a sudden failure like explosion or rupture — not a slow leak.
Ejusdem Generis
General words following specific words are construed to include items of a similar nature.
If a contract granted use of “trucks, tractors, and other vehicles,” then “other vehicles” refers only to land-based motor vehicles similar to trucks and tractors.
Contra Proferentem
Ambiguity in a contract is construed against the drafter.
If an insurance company defined coverage for “sudden and accidental” events, the phrase would be interpreted in favor of the insured, not the insurer.
Expressio Unius Est Exclusio Alterius
The expression of one thing implies the exclusion of another.
If a lease states that the landlord will provide “water and electricity,” then the omission of “gas” means the tenant must pay for it.
Final Thoughts: Why Contract Clarity Matters
Some types of documents — such as wills — carry their own unique rules of construction. That, however, is pro alio die (for another day).
The takeaway? Precision in drafting matters. From word choice to handwritten notes, every detail can influence how a contract is read — and who wins when disputes arise.
Plan Ahead: Ensure Your Contracts Protect You
At Hammerle Morris Law Firm, we understand that even the smallest details in a contract can have significant legal and financial consequences. Clear, precise language — and a solid understanding of the rules of construction — can prevent costly disputes and protect your interests.
Whether you’re drafting a new agreement, reviewing an existing contract, or facing a disagreement over contract terms, our experienced attorneys can help ensure every word reflects your intent and safeguards your rights. Schedule a consultation today to gain clarity and confidence in your contracts — before a simple mistake becomes an expensive problem.
Virginia Hammerle is an accredited estate planner and represents clients in estate planning, probate, guardianship, and contested litigation. She may be reached at legaltalktexas@hammerle.com. This blog contains general information only and does not constitute legal advice.
