Supreme Court of Maryland Reiterates Important Clarification to Rules of Contract Interpretation

If you’ve litigated a contract dispute in Maryland, you’ve likely referred to the “four corners” rule, which means the reviewing court interprets a contract based on the language within the document itself. If that language is unambiguous, the terms of the agreement control regardless of the parties’ subjective intent. A court considers “parol” or extrinsic evidence (evidence outside the contract itself) only if the terms of the contract are ambiguous. This foundational rule of contract interpretation appears in many cases, so a litigator could hardly be faulted for describing it this way.  See, e.g., Walton v. Mariner Health of Maryland, Inc., 391 Md. 643, 660 (2006).  But, as two recent Maryland Supreme Court opinions make clear, it’s not exactly right.

 

In Lithko Contracting, LLC v. XL Insurance America, Inc., 2024 WL 3407452 (Md. July 15, 2024), the Court clarified that review of a contract’s language does not occur “in a vacuum,” and may include consideration of the “contract’s character, purpose, and the facts and circumstances of the parties at the time of execution.” Indeed, consideration of this “relevant context may necessarily require consultation of evidence beyond the ‘four corners.’” (Emphasis added.) What a reviewing court can’t do, absent ambiguity in the contract, is consider parol or extrinsic evidence “of the parties subjective intent.”  (Emphasis added.)

 

In case readers missed the point in Lithko, the Court’s just-released opinion in Adventist Healthcare, Inc. v. Behram, 2024 WL 3945067 (Md. Aug. 27, 2024), reiterated it. In both cases, the Court explained that its previous references to the “four corners” rule were addressing “extrinsic evidence of the parties’ subjective intent, such as documentation of their course of dealings in negotiating the contract at issue or other agreements,” not “information about the context in which the contract at issue was entered.”

 

This clarification of Maryland contract law is subtle but significant. Extrinsic evidence is now fair game to provide “relevant context” to a contract’s plain language. The only evidence that can’t be considered, absent ambiguity, is extrinsic evidence of the parties’ subjective intent. The rub will be determining which bucket the extrinsic evidence falls into. Look for future opinions to address this issue as attorneys increasingly supplement their “four corners” arguments with extrinsic evidence of the contract’s formation.

 

If you need help with a contract dispute or have questions about contract interpretation, feel free to contact me, Todd Hesel, Esq. directly at 443-895-4195 or thesel@silvermanthompson.com.