How an Ohio Court Handled a Contract Typo

Everyone who writes and signs contracts knows that each word and phrase is critical. But what happens when there is an obvious error to which one party would never knowingly agree?

This question was addressed in a recent case in Ohio, Hanuman Chalisa, LLC v. BoMar Contr., Inc. In this case, Hanuman Chalisa LLC (the owner) signed an agreement with BoMar Contracting, Inc. (BoMar) to build a hotel in Columbus, Ohio. The contract was written based on the American Institutes of Architects (AIA) document A101-2007 and AIA A201-2007.

During the course of the project, the owner terminated BoMar, stating there were deficiencies in BoMar’s work. However, the parties disagreed about whether the owner had terminated the contract “for cause” or “for convenience.” The confusion lay in the contract.

What the Contract Stated

The case went to trial, and the court ruled that the termination had been made for convenience, not cause. In Section 14.4.1, the contract stated if the owner terminated for convenience, the “Owner shall pay the Contractor according to the terms of Section 13.1 … .” However, the reference to Section 13.1 was an error. This section speaks to laws in the state where the project is located:

§ 13.1 Governing Law:

The Contract shall be governed by the law of the place where the Project is located except that, if the parties have selected arbitration as the method of binding dispute resolution, the Federal Arbitration Act shall govern Section 15.4.

BoMar explained that the reference to Section 13.1 was an error. Instead, both parties intended to reference Section 14.1.3:

§ 14.1.3: If one of the reasons described in Section 14.1.1 or 14.1.2 exists, the Contractor may, upon seven days’ written notice to the Owner and Architect, terminate the Contract and recover from the Owner payment for Work executed, including reasonable overhead and profit, costs incurred by reason of such termination, and damages.

The owner countered that the main heading for Section 14.1 is “Termination by the Contractor,” so that section could not have been intended when outlining the “Termination by the Owner.”

What the Court Decided

The court ruled that the cross-reference to Section 13.1 was merely a typographical error. Based on Section 14.1.3, it awarded BoMar damages that included a 25% margin for profit and overhead. The court explained that it was obligated to follow the logical meaning of the contract, and in this case, it would not be logical for BoMar to be unpaid for the work if the owner terminated for convenience. “That would be a nonsensical result because it would allow the Owner to exceed the benefit of the bargain, which is not something [BoMar] would rationally agree to. Courts are permitted to interpret a contract so as to not create a manifest absurdity.”

How the Appeals Court Ruled

When the case proceeded to an appellate court, the initial ruling was affirmed on two bases. First, the court agreed that the trial court was correct in recognizing and interpreting the obvious error in Section 14.4.3 and that decision was in keeping with the remedy of reformation. The court decision states:

“Reformation is available where it is shown that the written instrument does not express the true agreement entered into between the contracting parties by reason of mistake common to them. Reformation is an equitable remedy that allows a court to change the language in a contract where the parties’ true intentions have not been expressed due to a mutual mistake, meaning a common mistake by all the parties to the contract.”

Second, the appellate court agreed that the damages awarded to BoMar were consistent with Ohio law. In that state, breach of contract damages are usually based on the other party’s reliance interest, expectation interest, or restitution interest. In contrast, terminations for convenience damages generally include restitution damages but not expectation damages.

However, the appeals court revised the amount of the damages awarded. The contract specified a 5 percent margin for profit and overhead, so the court reduced the 25 percent margin. The contract form provided several blank spaces where parties could indicate payments for work related to change orders. But in this case, neither party filled in those blanks. If the parties had intended to provide a higher margin for profit and overhead on change order work, they should have indicated that in the contract. So, the appellate court determined that the trial court made a mistake by not applying the contract as written for that detail.

Takeaways From This Case

In the end, the contractor received the damages it was legally entitled to, but it took years for the issue to finally be resolved. This case clearly illustrates how problematic a typographical error in a contract can be, even if the final restitution is appropriate. When reviewing a contract, it is essential to ensure that every word and phrase is written as intended — and every blank is filled.

Author’s note: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

About the author: Trent Cotney is a partner and Construction Practice Group Leader at the law firm of Adams and Reese LLP and NRCA General Counsel. For more information, please contact the author at [email protected].