Words prevail over numbers, so bank loses $693,000

Ken Adams reports on a Houston court of appeals case: A bank sued to recover $1.7 million from defaulting borrowers and their guarantor and won on summary judgment. Unfortunately for the bank, though, the loan documents referred to the amount borrowed as “one million seven thousand and no/100 ($1,700,000.00) dollars” (capitalization modified, emphasis added). Reversing in part and remanding, the appeals court said that the words, not the numbers, controlled. See Charles R. Tips Family Trust v. PB Commercial LLC, 459 S.W.3d 147 (Tex. App.–Houston [1st Dist.] 2015).

The Uniform Commercial Code states the precedence

The appeals court said that “[u]nder the Uniform Commercial Code, which governs negotiable instruments such as the Note, ‘[i]f an instrument contains contradictory terms, typewritten terms prevail over printed terms, handwritten terms prevail over both, and words prevail over numbers.'” Id. at 153, quoting Tex. Bus. & Com. Code § 3.114 (emphasis added, extensive case citations omitted).

Parol evidence isn’t considered on summary judgment

The court said that for purposes of summary judgment, it didn’t matter that the evidence showed that the borrower had in fact received the $1.7 million stated in the numbers, as opposed to the $1.007 million recited in the words. This bothered Ken, who says that “[t]he bank in this dispute has reason to feel hard done by,” because “[t]he court should have considered parol evidence,” that is, evidence extrinsic to the “four corners” of the contract document(s).

This discomfiture might be justified if there’d been a full trial on the merits. But in a summary judgment proceeding, parol evidence is not allowed to be considered — as the appeals court explained:

[A] court may not consider extrinsic evidence about a contract’s meaning unless the contract is ambiguous. PBC does not contend that the documents are ambiguous; any material ambiguity in the contracts would have made summary judgment for PBC improper for that reason alone.

* * *

The agreements unambiguously set the amounts of the promissory note and guaranty obligations at $1,007,000.00 each. Because the amount of principal set forth in the Note and Guaranty Agreement is not ambiguous, for purposes of interpreting the documents as a matter of law, neither the trial court nor this court may consider extrinsic evidence such as the amount of money that actually changed hands amongst the parties, and such evidence could not have supported the trial court’s [summary] judgment.

Id. at 155-56 (emphasis added, citations omitted).

Perhaps feeling sympathy for the bank, the appeals court drew a road map for the bank’s counsel to follow on remand:

We need not and do not express any opinion on what legal or equitable remedies the parties might have in such a hypothetical scenario. On the appellate record before us, the only issue is what the terms of the written agreements mean as a matter of law.

Neither party sought an equitable reformation of the loan in the trial court, so no issue of equitable relief has been presented in this appeal. The scenario proposed by PBC thus has no bearing on how we must apply the law to the record before us.

Here, the words “one million seven thousand” control over the numerals “$1,700,000” to set the amount of the promissory note and guaranty obligations.

Id. at 155 (emphasis and extra paragraphing added).

Drafting tip: Write numerical amounts in numbers, not words

Ken makes a good point (one that’s new to me, and to him too, he says) about the danger of writing both words and numbers:

… saying the same thing twice also reduces the likelihood of spotting an error. … If I say $1,000 and the number should be $2,000, there’s a good chance I’ll notice the mistake. … [I]f I say one thousand dollars ($2,000), there’s a decent chance that I’ll focus on the more eye-catching digits and not notice that the words state an incorrect number.

So using words and digits to express a number not only introduces inconsistency, it also makes it more likely that you’ll fail to spot that inconsistency.