Contracts II, Pages 724–731

C. & A. Construction Co. v. Benning Construction Co.

Supreme Court of Arkansas, 1974

Facts:

Plaintiff and defendant are subcontractors who entered into an agreement about installing sewer lines. One paragraph said that the second subcontractor would receive $20,000 for supervision, to be added to the actual cost figure, and that the difference between actual cost and bid price would be divided ⅓ to the second subcontractor and ⅔ to the first.

Plaintiff was paid $517,451.11 and brought suit for an alleged deficit of $55,243.20.

Procedural History:

Trial court, sitting as a jury, after hearing parol evidence, awarded plaintiff judgment for $40,349.11.

Defendant's Argument:

The $18,600 for the salary and living expenses of plaintiff's president while he was supervising the construction is a double recovery since the contract designates $20,000 for supervision.

Issue:

Does plaintiff's president's salary allowance conflict with the $20,000 supervision allowance?

Rule:

A contract must initially be construed according to its plain language. If court determines it to be ambiguous, then a latent ambiguity arises and parol evidence is admissible.

Reasoning:

The contract said that they were to receive $20,000 for supervision. If they intended an additional $20,000 on top of other supervision costs, the contract should have said that.

Holding:

The salary allowance is excluded. Affirmed as modified.

Dissenting Opinion:

Fogleman: A latent ambiguity actually means an ambiguity which arises only when the words of the contract are applied. Since extrinsic evidence reveals the latent ambiguity, it must always be considered. The trial court considered the parol evidence and found the contract to be ambiguous for good reason. The contract does not say what was covered by this language and it contradicts itself whether the supervisor that should be paid personally or whether the company is to be paid.

There is substantial evidence of plaintiff's interpretation, and it should have been affirmed.

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