Unambiguous Language Must be Enforced

By: Cordell Parvin

The material facts in the case were not in dispute. The Massachusetts Bay Transportation Authority (MBTA) solicited bids for construction work on four projects. Part of the bid solicitation package for each project included allowance items, the amounts of which were filled in the bid form by MBTA. Those allowance items consisted of costs for railroad flagmen, police details and similar expenses related to railroad and traffic control. All four contracts clearly and unequivocally stated that although the contractor would be reimbursed for allowance item costs actually incurred over the amount estimated by MBTA, the contractor would not be reimbursed for any overhead associated with administering the allowance item costs.

As readers might imagine, White Contracting incurred costs for allowance items that far exceeded the MBTA estimates. In fact, the costs incurred by White and paid by MBTA were six times the estimates. White claimed that under the circumstances, it was entitled to its overhead costs because it did not expect the actual costs it incurred for the allowance items would so greatly exceed MBTA's estimates. When MBTA, relying on its contract language, refused to pay White for the claimed, unanticipated overhead costs, White filed suit. The MBTA was granted a summary judgment and White appealed.

Contractor appeals

White's arguments were as follows:

-- The estimates by MBTA were intended to be relied upon by the contractor

-- The estimates constituted an "implied warranty" that they were "approximately" correct

-- White was entitled to equitable relief under the doctrine of fraud or mutual mistake, and

-- The summary judgment decision violated sound contract principles.

The court of appeals disagreed. First, the court ruled that it is elementary that an unambiguous agreement must be enforced according to its terms. The MBTA contract clearly provided that the contractor would not be reimbursed for overhead.

Second, the court found that the estimates for the allowance items were not intended to be relied upon. The contract specifically provided that only the actual costs incurred by the contractor would be reimbursed. That language also precluded an implied warranty that the estimates were reasonably accurate.

Third, the court found there was no evidence supporting White's claim that it was entitled to equitable relief under the doctrines of fraud or mutual mistake.

Finally, the court ruled that contrary to White's argument, sound contract principles dictated the results reached by the court. The court noted that White entered into the contract "without compulsion and of its own choice." While recognizing White incurred substantial overhead costs that were not reimbursed, the unambiguous terms of the contract had to be enforced even though they created hardship.

Comment

White was nothing more than a conduit of funds from MBTA to the union employees performing railroad and traffic control. It seems MBTA got quite a deal. It incurred no cost to administer the payments that exceeded its estimate by six times.

Parvin is a shareholder in the law firm of Jenkens & Gilchrist, which has offices in Austin, Texas; Dallas; Houston; San Antonio; and Washington, D.C. You may write him in care of the editor.