The Court of Appeals has once again shown that the importance of a case’s legal issues, and not the amount in controversy, drives its decision whether to review a case.

In a collection action that started in the District Court of Maryland, and then appealed to the Circuit Court for Montgomery County, the Court of Appeals addressed the appropriate standard of appellate review a circuit court should use when reviewing an appeal on the record from the District Court. The Court also discussed and applied fundamental principles of contract interpretation. In Credible Behavioral Health, Inc. v. Johnson, 466 Md. 380 (2019), in an opinion authored by Judge Clayton Greene, Jr., the Court held that, when sitting as an appellate court, a circuit court reviews the District Court’s factual findings under the clearly erroneous standard, but reviews legal conclusions de novo. That portion of the Court’s opinion is unremarkable. The Court also reminded that “the interpretation or construction of a contract is a legal determination subject to de novo review,” explaining that contracts should be interpreted as a whole, reading separate provisions harmoniously, and striving to do so “in accordance with common sense.” Id. at 392, 395, 396 (latter internal quotation marks omitted and citations omitted). This portion of the Court’s opinion, on the other hand, may help inform the bar about the Court’s attitude toward contract interpretation.

Credible Behavioral Health had a tuition loan program for its employees. The amount of the loan to be repaid depended on how long the employee stayed employed by Credible after completing his or her education. The longer the employee stayed with Credible, the lower the employee’s repayment obligation. Each employee who received a loan signed a promissory note. Paragraph 1(a) of that note told the employee, “[i]f you terminate employment with the Company” within twelve months of receiving a degree, the amount owed was “100% of the Loan.” Id. at 385. If the employee terminated employment between twelve and twenty-four months after receiving a degree, the amount owed decreased to “75% of the Loan.” Id. If the employee terminated employment between twenty-four and thirty-six months after receiving a degree, the repayment amount decreased to “50% of the Loan,” and if the employee stayed employed with Credible for over thirty-six months after receiving a degree, the employee owed nothing. Id. at 385-86. While the promissory note’s repayment schedule used the phrase, “[i]f you terminate employment,” a subsequent portion of the note used different language in defining when that repayment became due, providing: “The appropriate percentage of the Loan set forth above, plus all accrued interest thereon shall be due and payable (i) ninety days after the termination of your employment, whether by you or the Company, for any or no reason whatsoever.” Id. at 386 (emphasis added). That discrepancy — between “if you terminate employment” and upon “termination of your employment, whether by you or the Company” — ultimately brought the case to the Court of Appeals.

Emmanuel Johnson was a Credible employee, who borrowed $12,529. A little over a year after he borrowed that money, however, Credible fired him, before he earned a degree. Johnson paid $325 toward the balance of his loan, but he made no other payments. Credible ultimately sued Johnson in the District Court, seeking payment of the unpaid balance of the loan. That Court noted the inconsistency between the language of the repayment schedule and the later language in the note, and concluded, “the schedule set forth in Paragraph 1(a) only applied in situations where employees quit and therefore there was no basis to determine the amount Mr. Johnson owed by reference to Paragraph 1(a), because he was fired.” Id. at 387. According to the District Court, it was interpreting the promissory note “as it exactly is written. At worse [sic] it’s an inconsistency which goes against the person who drafted the contract.” Id. (internal quotation marks omitted). Credible appealed to the Circuit Court for Montgomery County, which affirmed the District Court, finding it was not “clearly erroneous in its interpretation of the promissory note at issue in this case.” Id.

The Court of Appeals granted Credible’s cert petition and reversed the lower courts. The Court first discussed “the applicable standard of review when a circuit court reviews a judgment of the district court under Maryland Rule 7-113(f).” Id. at 388-89. Rule 7-113(f) governs appeals on the record from the District Court to the circuit court, and in language strikingly similar to that found in Rule 8-131(c) — which governs the Court of Appeals’ or Court of Special Appeals’ review of a decision rendered in a bench trial—provides that a “circuit court will review the case on both the law and the evidence,” and will not set aside the decision “on the evidence unless clearly erroneous.” 466 Md. at 389 (quoting Rule 7-113(f)). After discussing its prior decisions, along with “a comparison between Rule 7-113(f) with its appellate analog Rule 8-131(c) and their predecessors,” the Court held “that, in an appeal on the record under Rule 7-113(f), the circuit court reviews the district court’s factual determinations for clear error and its legal conclusions de novo.” Id. at 392. Consequently, the circuit erred when it employed a clear error standard in reviewing the District Court’s decision.

After explaining, “the interpretation or construction of a contract is a legal determination subject to de novo review,” id., the Court described the parties’ competing positions:

“Mr. Johnson contends that, based on the promissory note’s plain language, the circuit court correctly interpreted the note to require repayment of the underlying loan only in situations where an employee quits his or her job with Credible. In contrast, Credible argues that the terms of the promissory note, taken as a whole, reveal that the parties intended the loan to be repaid upon termination of employment within the relevant time period—regardless of whether an employee is fired or quits. Moreover, neither party contends that the provisions of the promissory note are ambiguous.”

Id. at 393.

The Court then began interpreting the promissory note, observing that Maryland follows the objective theory of contract interpretation, by which courts strive to ascertain the parties’ intent in entering the contract and then interpret the contract in a way consistent with that intent. If a contract is unambiguous, a court should interpret the language of the contract objectively, “based on what a reasonable person in the position of the parties would have understood the language to mean,” and not subjectively, based on what the parties might claim was their actual subjective intent when they entered the contract. Id. at 393-94 (citations omitted). The Court explained that, in ascertaining that intent, courts should consider the plain language at issue in context, which requires consideration of the contract’s entire text, along with the contract’s character and purpose and the parties’ circumstances when they executed the contract, and the language’s ordinary and accepted meaning. Id. at 394. And citing Calomiris v. Woods, 353 Md. 425, 436 (1999), the Court said that the language in a contract “is ambiguous where a reasonably prudent person could ascribe more than one reasonable meaning to it.” 466 Md. at 394 (emphasis added).

The Court turned to the use of the word “terminate” in the repayment schedule found in paragraph 1(a) of the Note, and grappled with the interplay between the phrase “if you terminate employment” and the provision that says the amount owed is due ninety days “after the termination of your employment, whether by you or the Company, for any or for no reason whatsoever.” The Court recognized that the pertinent “language could be interpreted in two different ways.” Id. at 395. The note could be construed so that “employees are obligated to repay the loan in both situations where the employee is fired or quits.” Id. at 395. Conversely, the note could be read so that “employees are obligated to repay the loan only in situations where he or she quits.” Id. The Court ultimately decided that the latter interpretation was not reasonable, and as a result, the plain language of the note supported the former reading.

In reaching that conclusion, the Court relied on a few observations concerning the language of the note and the application of a few fundamental principles of contract interpretation. First, and maybe most significantly, the Court pointed out that despite the language in the repayment schedule of paragraph 1(a), “the provision that follows it requires employees to repay the loan in situations where he or she is fired.” Id. at 396. Second, the Court reminded that contracts are to be construed as a whole, so the various provisions are read harmoniously, giving full effect to each. Id. Third, the Court said that contracts are to be read in accordance with common sense, and there were two reasons why the Court thought the alternative interpretation of the note “defies such a common sense approach.” Id. at 397. For one, the alternative reading “results in the disparate treatment of employees based upon whether they are fired or quit,” and the Court could find “no reason why, under the promissory note, an employee who is fired should be treated more favorably than one quits.” Id. at 398. Plus, the note provided that, “if a borrower drops or fails a class, it is construed as an event of default under the promissory note, and the borrower is required to pay the portion of the loan attributable to that class within thirty days.” Id. Again, the Court found it defied common sense to conclude that “an employee would be required to pay back funds for a class he or she dropped or failed but would not be required to repay any portion of the loan if he or she was fired.” Id. Indeed, the Court reasoned that, even if it “were to adhere to Mr. Johnson’s interpretation, i.e., that Paragraph 1(a) only applies in situations where an employee quits,” the Court would interpret the “conflicting contractual provisions” in a way that effectuated “the intention of the parties as collected from the whole instrument, the subject matter of the agreement, the circumstances surrounding its execution, and its purpose and design,” and if those conflicting provisions can be reconciled “by a reasonable interpretation, such interpretation should be given to the apparently repugnant provisions, rather than nullify any.” Id. at 399 (internal quotation marks omitted) (citations omitted). The Court concluded:

“In sum, Credible’s interpretation of the promissory note is the only reasonable interpretation of the two competing interpretations advanced. Indeed, Credible’s interpretation of the note is in accord with our common sense approach to contract interpretation. Further, out of the two interpretations, Credible’s is the only interpretation of the promissory note that harmonizes the substance of Paragraph 1(a) with the remaining provisions of the note. Moreover, our review of the promissory note, as a whole, including its context and the underlying intent of the parties, evinces that the parties intended the loan to be repaid regardless of whether the employee quits or is fired by Credible. Any contrary construction is ill-founded based on the promissory note’s context and the practical consequences of such a construction.”


The Court gave short shrift to Johnson’s argument that it “must construe any inconsistency in the promissory note against Credible, its drafter.” Id. That principle comes into play only “when a court finds the contractual terms at issue to be ambiguous.” Id. (citations omitted). But neither party claimed the language was ambiguous and the Court concluded it was not. The principle was not applicable.

Some valuable lessons can be drawn from the Court’s opinion. One is the importance of identifying the appropriate standard of appellate review. A trial court’s decision regarding the alleged ambiguity of contract language is not reviewed for clear error, but is reviewed de novo, with no deference to the trial court’s decision. Another lesson to be drawn relates to the definition of ambiguity. Contractual language is ambiguous if it is susceptible of more than one reasonable interpretation. It is not enough that the language can be read in more than one way. The multiple readings must be reasonable ones, given the context and intent of the parties, and the other provisions of the contract. This case drives home the need to read contracts in a common-sense manner, giving purpose to all its provisions, and reading those provisions harmoniously.