In a per curiam opinion, the Texas Supreme Court, without hearing oral argument, has granted a petition for review and reversed the Waco Court of Appeals’ judgment in a straightforward contract construction case.
U.S. Polyco, Inc. v. Texas Central Business Lines Corporation (No. 22-0901; delivered November 3, 2023) arose from a dispute between an asphalt manufacturer and a railroad over the meaning of a contract provision allocating costs for certain infrastructure construction. The entities entered into a contract under which Polyco agreed to build an asphalt manufacturing plant on undeveloped land leased by Texas Central and then use Texas Central’s railroad service for shipping. Polyco further agreed to advance $1.2 million for infrastructure improvements. The contract contained a provision defining “infrastructure improvements” to include, among other things, “various 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.” Subsequently, Polyco contracted with a third party for the construction of concrete slabs that ended up costing more than the $1.2 million advance. Texas Central refused to pay for the slabs because Polyco did not obtain a written agreement in advance. Polyco sued Texas Central for breach of contract.
The trial court awarded partial summary judgment to Polyco, determining that the contract did not require prior written agreement for the slabs. A jury subsequently determined that Texas Central breached the contract and awarded Polyco $9 million in damages and $2 million in prejudgment interest and attorney’s fees. Texas Central appealed. The Waco Court of Appeals reversed, holding that the contract provision at issue was ambiguous. The court of appeals remanded to the trial court for new trial. Polyco sought review.
SCOTX reversed, taking issue with the court of appeals’ reasoning that “[t]he record demonstrates that the parties strongly disagree about the intent of the [contractual provision] and its application. Given the disagreement about the intent behind and application of [that provision], and the multiple, reasonable interpretations of [it] outlined above, we conclude that [it] is ambiguous and cannot be construed as a matter of law.” SCOTX rejected this reasoning, first because the court of appeals had no business talking about the parties’ “intent” or “disagreement” about intent, and second that there were no “multiple, reasonable interpretations” that rendered the contract ambiguous.
The question boiled down to whether the “as agreed upon [the parties]” language modified the clause listing the specified infrastructure (e.g., slabs, etc.) or just “other items” not so specified. Noting that the court of appeals applied the correct rules of construction, the so-called “series-qualifier canon” and “last antecedent canon,” it nevertheless reached the wrong result because the only “reasonable” interpretation of the contract in context dictated application of the last antecedent canon. This interpretation was clear because of the absence of an Oxford comma between “other items” and “as agreed,” as well as the earlier itemization of infrastructure for which a second agreement was not necessary (which included the slabs at issue). Otherwise, the contract would require a second written agreement for anyinfrastructure, including the specified items. SCOTX thus sent the case back to the court of appeals to address Texas Central’s other arguments.
This case strongly reinforces one of the most important consistencies of this Court’s approach to contract interpretation: it will hold parties to the bargain they made and closely scrutinize a court of appeals’ conclusion that a contract provision is ambiguous. This approach protects every party equally, even if somebody has to lose an individual case.