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Interpretation of a letter: has the buyer invoked the financing arrangement clause?

Interpretation of a letter: has the buyer invoked the financing arrangement clause?

Disputes on the interpretation of agreements are a regular occurrence. See my previous contributions (1, 2) on this topic. In a recent ruling by the Supreme Court, another interpretation issue was the focus of attention. In brief, in this case the Court had to determine how a letter between business parties had to be interpreted. The Supreme Court approached the case differently from the Court of Appeal Den Bosch.

Facts

The dispute originated in the purchase/sale of a multistorey car park. The purchase agreement contained a financing arrangement clause in favour of the buyer. At one point, the buyer sent the seller a letter – on enclosure of two rejection letters – indicating that it had not been possible to organise financing for the purchase. The seller was also requested to extend the term of the financing arrangement clause by one month. This because the buyer was still in discussion with a (third) bank. If the seller would not be prepared to extend the term, the buyer called for the termination of the purchase agreement.

The seller agreed with the extension and stated that the agreement in all other aspects would remain unchanged. When the required financing was subsequently definitely not obtained, a discussion arose. The buyer stated that with the aforementioned letter, he had invoked the financing arrangement clause on time and correctly. However, the seller disputed that the letter could be interpreted in this way.

Assessment by Court of Appeal Den Bosch

On the question as to how the buyer’s letter must be construed, the Court of Appeal stated that it first and foremost concerned an agreement between business partners and related to a purely commercial transaction. According to the Court of Appeal, the principle must be that a grammatical interpretation of the letter, read in the light of the other provisions in the agreement relevant for the interpretation, should have decisive weight. On that basis, the Court of Appeal ruled that the letter by the buyer did not contain a legally valid invocation of the resolutive condition.

Cassation

The Supreme Court assessed the case differently. According to the Supreme Court, the meaning of the letter must be determined on the basis of the reliance doctrine (Article 3:33 and 3:35 of the Dutch Civil Code). It therefore came down to the meaning the seller could reasonably attach to the letter and to what he, in the given circumstances, could reasonably expect. All the circumstances of the case are important in this respect and so – unlike the Court of Appeal’s assessment – not only the most obvious linguistic meaning of the words used in the letter.

The Court of Appeal had apparently sought a link with the ruling by the Supreme Court on the interpretation of (finalised) negotiated written contracts in commercial relationships, as the formulation used by the Court of Appeal was virtually the same as the wording in the Meyer Europe/Pontmeyer ruling. This approach by the Court of Appeal does not wash however, as said ruling was clarified and qualified in subsequent judgements by the Supreme Court (the Lundiform/Mexx case, for example). From those cases it follows that the Haviltex-criterion remains decisive, even if under certain circumstances great weight can be attached to a linguistic interpretation of the wording used.

The latter, however, would conflict with this case as the aforementioned case law of the Supreme Court always related to written agreements that had been formed with legal assistance. The Court of Appeal had expressly considered that this element was actually not present here. In addition, in this case it concerned the interpretation of a letter and not of an agreement. Although it was a purely commercial transaction, that particular circumstance on its own does not mean that, as a principle, decisive weight must be attached to the most obvious linguistic interpretation.

By Jeroen Naus

 

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