Common words often have specific legal definitions and might not mean what you think. Sometimes, the definition is specific to a contract. Sometimes it’s industry-specific. And sometimes a regular dictionary is the right reference source.
ORLANDO, Fla. – The practice of law is built on words. Whether it’s a written contract, oral argument, or analysis of a case, words are at the center. Precision matters. Therefore, it’s important to know where to find definitions and, once located, where there’s room to debate a definition.
Words defined within a contract
Contract drafters know the value of precision, so they often take control by writing contract-specific definitions. When they do this, they typically capitalize an otherwise common word to signal the reader that the contract uses its own internal definition that has little connection to what the word means outside of the contractual relationship.
Here’s an example: Some members using the Florida Realtors/Florida Bar CR-5 Rider G Short Sale Approval Contingency have reported that a lender gave short sale approval, but then, weeks later, objected to something on the closing statement. Where do parties stand if they can’t work this out? The answer lies in something the parties overlooked – the contractual definition of “Short Sale Approval.”
Short Sale Approval is defined in paragraph 1 of the addendum. The definition includes, among other things, “Seller’s lender(s) and all other lien holder(s) (collectively “Seller’s Lender”) approving the Purchase Price, terms of the Contract and the HUD-1 settlement statement …”
Applying this definition to our scenario, the problem becomes obvious. Although the parties thought a written approval message from the main lender was short sale approval, the contract’s definition requires approval of the purchase price, all terms of the contract, and the HUD-1 settlement statement (now called the Closing Disclosure, or generally called a closing statement). Since the lender never reviewed the closing statement when they issued an approval letter, the parties were mistaken about having received Short Sale Approval.
In the same vein, if the lender’s approval letter requires anything different from what the parties have in their purchase and sale agreement, like a shorter closing date, then that is also not Short Sale Approval, since the lender did not approve “terms of the Contract.” In these situations, the parties should be flexible and can hopefully smooth over any issues that arise, despite not receiving Short Sale Approval as defined in the contract.
Note that the rider defines “Seller’s Lender” within the definition of Short Sale Approval, and references “Seller’s Lender” multiple times after that. Normally, you’d assume this is singular – one lender – right? Wrong. Because this specific contractual definition includes “all lender(s) and lien holder(s),” the capitalized term Seller’s Lender will frequently refer to multiple parties. Therefore, it’s very important to seek short sale approval from all lenders and lien holders.
What’s the takeaway? Any time you see capitalized terms in a contract, you should never assume it matches everyday use. You must check to see if that contract has a specific definition, which could differ quite a bit from a dictionary definition.
Words with industry-specific definitions
Specialized areas of study often have their own jargon. These definitions are often difficult for those outside the industry to understand. The contract mentions “marketable title” in a few different places but doesn’t define it. Marketable title refers to a concept that real estate attorneys and title industry experts should understand. Sure, you could find a very basic definition in a law dictionary or even in a general dictionary, but Section 18(A) points to the correct place to look for further information, as “Marketable title shall be determined according to applicable Title Standards adopted by authority of The Florida Bar and in accordance with law.”
This isn’t really a definition, but instead points to two resources that real estate attorneys in Florida will know (or will know how to research). Note that the word “Title Standards” is capitalized here. Although it’s not defined in the contract, as you might expect after reading the last section, the fact that it’s capitalized signals that it’s referring to a very specific document, which is The Uniform Title Standards published by the Florida Bar Real Property, Probate & Trust Law Section.
The second source, if it applies, is simply “the law” generally, to cover circumstances where a case or statute impacts a particular title issue. The reason is that this word doesn’t lend itself to an easy definition – it requires familiarity with those industry-specific sources to understand what marketable title means.
Words with general definitions
Finally, there are just … words. If there’s any question about what they mean, you go to a dictionary. If there are multiple definitions, you use context clues to figure out which definition is most fitting. If the parties can’t agree, then a court’s interpretation is the ultimate tiebreaker.
One example of a word we find ourselves defining frequently on the Florida Realtors Legal Hotline is the word “calendar day.” People often get confused on when time periods end, since they’re looking for a precise clock time in the contract. However, the Florida Realtors/Florida Bar contracts simply say in Section 18(F) “Calendar days shall be used in computing time periods.”
If you look up the word “calendar days” in the dictionary, Merriam-Webster defines it as “a civil day: the time from midnight to midnight.” Therefore, if you’re looking for a precise minute on the clock, the calendar day expires when the clock strikes midnight, due to its dictionary definition.
Joel Maxson is Associate General Counsel for Florida Realtors
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