What Is the Bargain?

AuthorVal Ricks
Pages1-200
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I. What Is the Bargain?
Promises and contracts are made up of words. The words’ meaning might be clear
or unclear. The words might be written or oral. They might be gathered in one place or
scattered among many documents. They might even be placed in a document by mistake.
The words might be words of promise, but contracts often also contain conditions,
representations, statements of factual background, and other terms. Sometimes courts by
law read into” or imply in contracts terms that the parties were not aware they needed but
that are suggested by the parties’ bargain.
In this first section of the casebook, we examine all the ways by which courts
determine the content of the bargain. We will examine how a court determines what words
in a contract mean (Subsection A), how the court decides which words are included in the
contract (Subsection B), what other obligations are implied by the parties’ bargain
(Subsection C), what courts do with language of condition (Subsection D), and how courts
decide who should perform first if the parties have not said (Subsection E).
A. The Meaning of the Words: Interpretation or Construction?
After a contract forms, any attempt to enforce it requires the parties and the court
to know what the words of the contract mean. As you might expect, the meaning of
contractual words is sometimes not obvious. What is a court to do when the parties have
agreed to words the meaning of which is unclear?
1. The Plain Meaning Rule or NotWhen to Take Evidence About Meaning
The following case, Tips, illustrates what the law calls the plain meaning rule.
This case involves a negotiable instrument, namely, a promissory note. “Negotiable”
means the instrument can be signed on the back by the promisee and traded (often at near
face value) to someone else, like a check when it is cashed or deposited at a bank.
Negotiable instruments are in a standard form that is supposed to be easily tradable, almost
like cash. You can perhaps see why we would not want the terms of a negotiable instrument
to be endlessly debatable. But this case also involved non-negotiable contracts, namely, a
mortgage and a guaranty. These are just ordinary contracts. They cannot be negotiated
(though they can be assigned). Should the rule in this case apply to all contracts? Or should
we call some witnesses?
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CHARLES R. TIPS FAMILY TRUST, HAZEL W. TIPS FAMILY TRUST, AND
CHARLES T. WATKINS v. PB COMMERCIAL LLC
Tex. App. (2015), 459 S.W.3d 147
OPINION
MICHAEL MASSENGALE, Justice.
[¶1] The parties to this appeal entered into a residential loan agreement and guaranty for
the principal amount of "ONE MILLION SEVEN THOUSAND AND NO/100
($1,700,000.00) DOLLARS." The loan documentation thus identified the amount of the
loan in two different ways, with one number favoring the borrowerone million seven
thousandwritten out in words and a larger number favoring the bank$1,700,000set
out in numerals. The bank alleged a default on the loan, and litigation ensued. The parties
filed competing motions for summary judgment, and the trial court rendered a final
summary judgment in favor of the bank.
[¶2] The borrowers and their guarantor appeal, arguing that the written words control
the meaning of the document and that the note has been satisfied in full. Applying the well-
settled interpretive rule that "words prevail over numbers" in the event of such a
discrepancy, we reverse in part, affirm in part, and remand the case to the trial court for
further proceedings.
Background
[¶3] In 2007, the Charles R. Tips Family Trust and the Hazel W. Tips Family Trust
executed a "Balloon Real Estate Note" in favor of Patriot Bank. The note was secured by
real property in Harris County pursuant to a "Deed of Trust and Security Agreement." The
same day, Charles Watkins, a trustee of both trusts, executed a "Guaranty Agreement" in
favor of Patriot Bank, obligating himself to personally pay the loan if the trusts defaulted
on their payment obligations. The note, the security agreement, and the guaranty agreement
all described the principal amount of the loan as follows:
ONE MILLION SEVEN THOUSAND AND NO/100 ($1,700,000.00) DOLLARS
This language appears five times in the three documents, in exactly the same form each
time, and no other language in the documents describes the amount of the loan.
[¶4] Before the note matured, the trusts made payments totaling $595,586. Neither the
trusts nor Watkins made any further payments, and Patriot Bank initiated this action to
collect the balance due on the note as well as unpaid interest. PB Commercial, LLC
("PBC") subsequently acquired the note and sold the property securing it at auction for
$874,125. PBC was then substituted as plaintiff.
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[¶5] PBC filed a motion for traditional summary judgment, seeking recovery on both
the note and the guaranty agreement. PBC argued that the original principal amount of the
loan was $1,700,000, and on that basis it calculated a deficiency under the note and
guaranty agreement of $815,214.50 after application of all payments and the proceeds from
the foreclosure sale. PBC attached the note, security agreement, and guaranty agreement
to its motion, but it made no mention of the conflict between the printed words and
numerals. It also attached a payment history showing how Patriot Bank applied payments
against the loan, treating the principal amount as $1,700,000.
[¶6] The trusts and Watkins responded by amending their answer, filing a counterclaim,
responding to PBC's motion for summary judgment, and filing a cross-motion for summary
judgment. In these filings, the trusts and Watkins argued that the original principal amount
of the loan under the note and guaranty agreement was $1,007,000. They argued that both
documents are negotiable instruments governed by Section 3.114 of the Texas Business
and Commerce Code, which provides: "If an instrument contains contradictory terms,
typewritten terms prevail over printed terms, handwritten terms prevail over both, and
words prevail over numbers." TEX. BUS. & COM. CODE § 3.114. According to the trusts
and Watkins, applying past payments and the foreclosure sale proceeds to the lower amount
leads to the conclusion that the note was fully satisfied after the foreclosure sale and, in
fact, PBC has collected a surplus of $189,111 beyond the amount to which it was entitled.
[¶7] The amended answer included a counterclaim, which sought a declaration that:
(a) the . . . Note . . . was for the original principal amount of $1,007,000; and not
$1,700,000;
(b) the Note has been fully paid and satisfied as a result of the payments made
thereon prior to the Trusts' alleged default, and the amount collected by Plaintiff
through the post-default foreclosure upon and sale of the real property pledged as
security under the Note;
(c) Watkins is relieved of any further obligation under the Guaranty; and
(d) [PBC] is retaining and holding money obtained through the foreclosure sale that
is in excess of the amount necessary to fully pay and satisfy the amounts due under
the Note.
The counterclaim also sought unspecified statutory damages under the Business and
Commerce Code and an award of attorney's fees. Notably, however, the cross -motion for
summary judgment requested only that the trial court deny PBC's motion and award the
trusts the alleged surplus resulting from the foreclosure sale. The cross-motion did not
mention the claims for attorney's fees or statutory damages, nor did it provide any legal
basis or evidentiary support for those claims.
[¶8] After a pair of hearings, the trial court granted PBC's motion and denied the cross-
motion filed by the trusts and Watkins. The trial court's final judgment awarded PBC
damages in the amount of $815,214.50, prejudgment and postjudgment interest, court
costs, and trial and appellate attorney's fees. The trusts and Watkins appeal.

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