The Georgia Court of Appeals has reached the end of its November 2013 term. Two decisions issued towards the end for that term indicate the problems that parties face when an unclear or ambiguous contract ends up in court.
One of those cases was DJ Mortgage, LLC v. Synovus Bank, Case No. A13A1046 (decided November 22, 2013). Synovus Bank loaned money to DJ Mortgage which DJ Mortgage in turn used to fund mortgages. The parties’ agreements required that when DJ Mortgage made a mortgage loan, it would assign the relevant documents to Synovus. The parties disputed whether the bank was obligated to hold the assignment documents in escrow or whether the bank could record them. The bank had recorded some assignment documents, and DJ Mortgage claimed that the bank had breached the agreements.
The trial court had granted summary judgment to the bank, but the Georgia Court of Appeals reversed. It found that the provisions of the various agreements were in conflict as to the bank’s rights and that only a jury could resolve those conflicts. The Court cited a number of rules of contract construction but decided that none of them pointed to a clear resolution of the conflicts in the documents. Opinion, pp. 14-18. However, three dissenting judges believed that the conflicts in the contract language could be resolved by applying rules of contract construction.
The Court took a somewhat difference course in Citrus Tower Blvd. Imaging Center, LLC v. Owens, Case No. A13A1121 (decided November 20, 2013). Part of that case involved the construction of a guaranty agreement. The case involved a lease agreement under which a professional corporation leased certain equipment. There was an ancillary guaranty agreement. The dispute in the case was whether the guaranty was given by the professional corporation or by the individual principal of the professional corporation. The plaintiff sought to enforce the guaranty against the principal. The trial court rejected that claim, and the Court of Appeals affirmed. The Court noted that the guaranty agreement in two places identified the guarantor as the professional corporation and that the principal appeared to execute the guaranty agreement as the “managing member” of the professional corporation. The Court noted that having the professional corporation guarantee its own obligation “does not appear to be particularly meaningful” (Opinion, p. 12), nevertheless, the plain language of the guaranty agreement compelled the conclusion that the professional corporation and not the principal was the guarantor. In its opinion, the Court was critical of attempting to use rules of contract construction to alter what it perceived to be the plain language of the guaranty. Opinion, p. 13.
Cases like these two cases indicate how courts often have a difficult time wrestling with contract construction issues and applying rules of contract construction. What might look like an ambiguity to one judge can seem perfectly clear to another judge who applies the same rules of construction.