MIAMI BUSINESS LITIGATION: INTERPRETING CONTRACTS USING PAROL EVIDENCE

Commercial relationships are governed, in significant part, by contract law. When disputes arise between businesses, the interpretation of the terms of the parties’ agreement often will determine which side prevails. Litigants in contract disputes will often seek to gain advantage by bringing in testimony and evidence which supports their own interpretation of a contract. Testimony and evidence may not be introduced to interpret contracts which are unambiguous. As reflected by the recent case, Thompson o/b/o R.O.B. v. Johnson, 45 Fla. L. Weekly D2710 (Fla. 5th DCA Dec. 4, 2020), this principle applies even when there exists significant evidence that a party likely did not consider a particular term to have that meaning. Peter Mavrick is a Miami business litigation lawyer, and also represents clients in business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

Generally, when a contract is unambiguous, contract interpretation is accomplished by applying the principles of contract interpretation to the text of the contract. “Where a contract is clear and unambiguous, it must be enforced pursuant to its plain language” without resort to outside evidence. Hahamovitch v. Hahamovitch, 174 So. 3d 983 (Fla. 2015). “In such a situation, ‘the language itself is the best evidence of the parties’ intent, and its plain meaning controls.’” Crawford v. Barker, 64 So.3d 1246 (Fla.2011).

In business litigation, ambiguous contracts may be interpreted by the judge without considering outside evidence or the expense of a jury. Langford v. Paravant, Inc., 912 So. 2d 359 (Fla. 5th DCA 2005) (“Contract interpretation is generally a question of law for the court, rather than a question of fact”). When the language of the contract is ambiguous, the parties are allowed to bring in evidence from outside the contract to help with interpreting the contract. For example, a party would likely be able to testify what the parties really meant when using a term with multiple meanings, such as “light bulb.” However, a party would likely not be permitted to testify about what was meant by a specific term, “4 pin Gx24q base 10-watt LED bulb.”

“Although it is true that when a contract contains a latent ambiguity a court may consider parole evidence to divine the intent of the parties, it is equally true that parole evidence may not be used to add to the terms of an otherwise valid contract.” Langford v. Paravant, Inc., 912 So. 2d 359 (Fla. 5th DCA 2005). Furthermore,

[n]o parol evidence that is offered can be said to vary or contradict a writing until by process of interpretation it is determined what the writing means…. Even if a written document has been assented to as the complete and accurate integration of the terms of the contract, it must still be interpreted; and all those factors that are of assistance in this process may be proved by oral testimony.

Centennial Mortg., Inc. v. SG/SC, Ltd., 772 So. 2d 564 (Fla. 1st DCA 2000), quoting 3 Arthur Linton Corbin, Corbin on Contracts § 579 (1960).

A contract term is ambiguous when it is subject to multiple interpretations. However, merely because a term is not defined does not mean the contract is ambiguous. “[T]he lack of an operative term’s definition does not, by itself, create an ambiguity.” Botee v. S. Fid. Ins. Co., 162 So. 3d 183 (Fla. 5th DCA 2015). In such situations, courts in business litigation will often simply evaluate the contract term based upon its own common definition.

Florida’s Fifth District Court of Appeal in Thompson o/b/o R.O.B. v. Johnson, 45 Fla. L. Weekly D2710 (Fla. 5th DCA Dec. 4, 2020), evaluated whether to consider parole evidence in determining whether a life insurance contract was ambiguous concerning its terms. In Johnson the parents and the biological child of an insured decedent disputed which party was entitled to the proceeds of an insurance policy. The insurance policy provided that if an insured had not designated a beneficiary, the life insurance proceeds would go first to a child, and if there was no surviving child, then to the insured’s parents. The fundamental dispute was the question as to whether the biological child of the decedent qualified as the child pursuant to the insurance contract. Before his death, the decedent agreed to terminate his parental rights over his biological child.

The trial court considered the termination of parental rights, and found that the decedent did not consider the child to be his. Johnson disagreed, because parol evidence can only be brought to help evaluate the intent of the parties when a contract is ambiguous. The biological child of the decedent fit the common definition of “child” pursuant to Black’s Law Dictionary and lay dictionaries. It was, thus, unnecessary for the court to consider what the decedent intended.

By being specific, contract drafters can avoid a protracted lawsuit and the risk that a court could come to an alternate interpretation. Peter Mavrick is a Miami-Dade business litigation attorney who also practices business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.