Brief Fact Summary.
Plaintiff contracted to purchase real estate from Defendant. The conditions of the offer stated that possession of the property is “subject to tenant’s rights.” Plaintiff refused to purchase the property and sued Defendant after he found out that the tenant had an option to purchase the property. The trial court ruled in favor of Plaintiff after considering extrinsic evidence. Defendant appealed.
Synopsis of Rule of Law.
When there is a misunderstanding about an ambiguous contract terms, the party less at fault for that misunderstanding will receive the most favorable interpretation by the courts.
A contract is to be construed as a whole, giving meaning and effect to every provision thereof, if possible, since it is presumed that every clause in the contract was inserted deliberately and for a purpose.View Full Point of Law
Mayol (Plaintiff) signed a contract to purchase real estate from Somers (Defendant). Weiner Companies, Ltd. (Defendant) aided Defendant as a sales agent. One of the conditions of the offer stated that possession of the property is “subject to tenant’s rights.” After signing the contract with Defendant and receiving a copy of the current tenant’s lease, Plaintiff learned for the first time that the tenant had an option to purchase the property. Plaintiff thereafter refused to purchase the real estate and sued for $1,000.00 held in escrow. Due to the ambiguity of the relevant provision of the contract, the trial court considered extrinsic evidence and determined that Plaintiff agreed to purchase the property subject to all the tenant’s rights contained in the lease, including the option to purchase. The trial court awarded Defendant the $1,000.00 as damages for Plaintiff’s breach of contract. Plaintiff appealed.
Whether it is appropriate for a court to award a favorable interpretation of an ambiguous contract terms to the party less at fault.
Yes. The trial court’s ruling is reversed and remanded. When there is a misunderstanding about an ambiguous contract terms, the party less at fault for that misunderstanding will receive the most favorable interpretation by the courts.
The phrase “subject to tenant’s rights” was ambiguous and the trial court properly considered extrinsic evidence to determine the parties’ actual intention. The contract contained a separate provision enumerating various encumbrances on the title, which included easements and zoning regulations but notably excluded the phrase “subject to tenant’s rights.” Furthermore, neither Defendant nor the Weiner’s sales representative disclosed to Plaintiff such a crucial encumbrance to the title even though Plaintiff inquired about the lease. An option to purchase is not typically a tenant’s right, so Plaintiff would almost certainly not have intended the phrase “subject to tenant’s right” to encompass such an option. Therefore, the contract construed as a whole does not favor the trial court’s interpretation. Generally, where there is a misunderstanding about a contract’s terms, the party less at fault for that misunderstanding will receive the most favorable interpretation. Plaintiff is least at fault for the misunderstanding.