A Contract Should Say What is Meant

Posted almost 2 years ago. Applies to Oregon, 2 helpful votes

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When a contract isn’t clearly written, bad things can happen to the party who wrote it. At least that’s the cautionary lesson of a recent Oregon Court of Appeals decision: Dial Temporary Help Service, Inc. v. DLF International Seeds, Inc., 252 Or App 376 (2012).

In that case the plaintiff, Dial, wrote a contract for providing DLF with temporary workers. The contract stated that the temporary workers Dial provided would not be authorized to operate DLF’s machinery, equipment and motor vehicles without Dial’s prior written approval. The contract also provided that the insurance Dial had for the temporary workers Dial provided DLF would not cover liability for injury or damages caused by Dial’s employees’ operation of DLF’s equipment or motor vehicles. Finally, the contract stated that DLF accepted full responsibility for any loss or damages resulting from the operation of DLF’s equipment and vehicles without Dial’s prior written consent.

A DLF shift supervisor directed one of the workers Dial provided DLF to turn off a seed blender and to then go into a pit beneath that blender to remove debris. Dial’s worker had failed to use any lock out procedures to keep the blender from being turned on before going into the pit. One of DLF’s employees turned on the seed blender while Dial’s employee was in the pit thereby cutting off one of the Dial employee’s hands.

SAIF, plaintiff’s workers’ compensation carrier, covered the claim and then charged Dial a retrospective premium of $241,000.00 for which Dial sought reimbursement from DLF as damages under Dial’s contract. Dial claimed that DLF had breached the contract arguing that this was precisely the kind of loss which the contract provision prohibiting Dial’s employees from operating DLF’s equipment was intended to address. In support of its position Dial submitted an affidavit from its CEO stating that Dial’s intent in writing the contract was to protect against just such a retrospective workers’ compensation insurance premium charge. DLF argued that the retrospective premium was not damage resulting from the operation of its equipment by Dial’s employee without Dial’s prior written consent and that its assumption of liability and full legal responsibility was limited to third party claims against Dial or DLF resulting from the unauthorized operation of DLF’s equipment, not from a charge for increased insurance premiums to Dial.

The trial court granted DLF summary judgment because the injury to Dial’s employee wasn’t caused by the Dial worker’s operation of the blender. The Court of Appeals chose a more subtle path to the same result. Instead of focusing on the causation issue, the Court of Appeals decided that the contractual provision in which DLF assumed full legal responsibility for any loss or damage resulting from the unauthorized operation of its equipment and vehicles was ambiguous. It ruled that the affidavit of Dial’s CEO had no bearing on the court’s interpretation of the contract because there was no indication in the affidavit that the CEO’s subjective intent had ever been expressed to DLF during contract negotiations. Finally, the Court of Appeals resolved the ambiguity it had found against Dial solely because Dial had drafted the contract.

On balance, the trial court’s reasoning was simpler, more straightforward, and more harmonious with both the language of the contract and its apparent purpose. The Court of Appeals’ opinion seems intent on first complicating the problem before struggling to untie its own knot to nonetheless reach the same conclusion as the trial court.

Regardless, the case itself is a reminder that in drafting any contract you should not only mean what you say but also say what you mean.

© 10/15/2012 Lawrence B. Hunt of Hunt & Associates, P.C. All rights reserved.

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