What’s difficult about drafting commercial contracts? Consider a recent Texas Supreme Court breach of contract case, U.S. Polyco v. Texas Central Business Lines Corporation. Polyco, a manufacturer, contracted with Texas Central, short-line freight railway company, when Polyco decided to expand its operations to gain direct access to rail. Polyco paid $1.2 million to improve Texas Central’s land and gain space and railroad access.

Construction Cost Overages

A dispute arose when the cost of improvements far exceeded the original deposit under the Railroad Allowance Agreement which outlined the details of how land would be developed and costs allocated. Most of us know construction costs can quickly exceed budgets. What’s concerning and costly is the contract did not appropriately address how to handle the matter. Texas Central refused to pay for some of the construction, claiming Polyco should have gotten their written permission for the concrete slabs which were a large part of the overages. Under the contract, infrastructure improvements agreed to were . . .

“…[V]arious concrete and ground surface improvements, including without limitation slabs for truck scales and racks, tank and appurtenant structures to house personnel, oil heating and steam generation equipment, curbs and planters for parking areas, and other items in or adjacent to the Designated Areas as are agreed upon by TCB and [Polyco] in writing. …”

The parties disagreed on the interpretation of the contract, resulting in several years of commercial litigation which is not over yet.

Trial Court

The trial court ruled that the contractual “in writing” requirement only modified “other items in or adjacent to the Designated Areas,” and did not apply to the entire list in the paragraph. The jury then awarded Polyco $9 million in damages plus $2 million in prejudgment interest and attorneys’ fees.

Appellate Court

Texas Central appealed. The Appellate court applied two rules of contract construction:  the series-qualifier canon and the last-antecedent canon. Do you think these legal principles are correctly applied in AI contracts? That’s a question for another day.

The Supreme Court spent quite a bit of time discussing an Oxford comma (or lack thereof), but I feel your eyes glazing over as you read about word placement and punctuation. The Texas Supreme Court agreed with the Appellate Court’s contract canon analysis, but unfortunately that was not the end of the case.

The Court of Appeals overturned the trial court ruling that the commercial contract language was ambiguous. In doing so the Appellate Court concluded there were “multiple reasonable interpretations.” The Supreme Court disagreed.

Supreme Court

The Supreme Court provided commercial contract drafting suggestions to prevent others from facing a lengthy commercial breach of contract lawsuit.  “. . .[T]he ‘in writing’ provision is simply part of the final item in the list. The point is that something is needed to link that phrase to what goes before—perhaps a comma, perhaps distinct placement of the requirement, perhaps making it a separate sentence.” Texas Supreme Court Opinion

Contract Drafting Lesson

If you seek prior written approval, make the requirement clear and distinct. Give the instruction its own paragraph, or at least its own sentence. Adding a dollar amount to what needs to be approved might be useful as well.

Unfortunately, the Supreme Court is not the last court in which these parties will litigate. The Texas Supreme Court remanded the case back to the Appellate Court in order to address other outstanding issues raised by Texas Central. More court costs and attorneys’ fees to settle this Texas breach of contract case. Getting the contract language correct in the beginning can avoid costly litigation.

Need a Breach of Contract Attorney? Contact Us Today

When you have questions about a commercial transaction dispute, what the appropriate legal action is or how long it will take to resolve a legal matter, that’s when the experience of a commercial lawyer and breach of contract attorney comes in handy. Whether you want to avoid expensive, lengthy litigation matters or you need aggressive representation, we are ready to put our decades of winning experience to work for you.

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