Reprinted with permission from the Sep. 4, 2025, edition of Law.com. All Content © 2005-2026, ALM, Inc.
Private credit is “one of the fastest-growing segments of nonbank financial intermediaries (NBFIs) over the past 15 years or so.” Berrospide, Jose, “Bank Lending to Private Credit,” Federal Reserve (May 23, 2025). And according to a recent JPMorgan post, private credit “effectively requires understanding the wide variety of financing options and how they align with your business goals.” “Understanding commercial lending,” (Aug. 25, 2025).
Undoubtedly, it is important to understand available financing options and how they align with a business’s goals. But understanding the terms of financing agreements is just as important for both parties—if not more important. Here steps in the rules of contract interpretation (also sometimes called doctrines, principles, or canons), which courts often use to interpret complex transactional agreements.
On Aug. 20, 2025, the Dallas Court of Appeals filed a detailed opinion applying the rules of interpretation to key terms in a revolving credit facility arrangement. PrimaLend Capital Partners, LP v. Benit, No. 05-23-01261-CV, 2025 WL 2412008 (Tex. App.—Dallas, Aug. 20, 2025, no pet. h.) (PrimaLend opinion). This included a detailed legal analysis concluding that a “notwithstanding” provision in one agreement prevailed over arguably inconsistent provisions in that same agreement and another agreement. In so doing, the court of appeals affirmed the judgment of the trial court finding that the lender breached the pledge agreement, and awarding millions of dollars in damages to plaintiffs.
The PrimaLend opinion is a good reminder for all commercial litigators and transactional attorneys as to how Texas law interprets contracts—both in the context of financing transactions and frankly other complex commercial transactions. Accordingly, this article examines some key rules of contract interpretation under Texas law and how they were employed in the PrimaLend opinion. Although the opinion also addresses other issues, such as the admissibility of expert testimony, they are not covered by this article.
Rules of Interpretation Generally
As a preliminary matter, courts often use the phrases “rules of construction” and “rules of interpretation” interchangeably. See, e.g., Boulanger ex rel. Westlum Tr. v. Waste Mgmt. of Texas, 403 S.W.3d 1, 5 (Tex. App.—Houston [1st Dist.] 2012, pet. denied); Elder v. Anadarko E & P, No. 12-10-00250-CV, 2011 WL 2713817, at *2 (Tex. App.—Tyler July 13, 2011, no pet.) (mem. op). For this article, the phrase “rules of interpretation” will be used to refer to the rules governing the interpretation and/or construction of an unambiguous contract
Nonetheless, there is a line of opinions originating from an Eastland Court of Appeals decision indicating the “rules of interpretation” are different from the “canons of construction.” See Moon Royalty v. Boldrick Partners, 244 S.W.3d 391, 394 (Tex. App.—Eastland 2007, no pet.) (citing Stewman Ranch v. Double M. Ranch, Ltd., 192 S.W.3d 808, 811 (Tex. App.—Eastland 2006, pet. denied)); see also In re Sanchez Energy, 648 B.R. 592, 611 (Bankr. S.D. Tex. 2023) (similar).
Many courts have rejected Eastland’s distinction between the two phrases. See, e.g., Boulanger ex rel. Westlum Tr. v. Waste Mgmt. of Texas, 403 S.W.3d 1, 5 (Tex. App.—Houston [1st Dist.] 2012, pet. denied) (“the two-step procedure adopted by the Eastland Court of Appeals is not the method used by other Texas courts, including this Court”). Moreover, the Texas Supreme Court implicitly rejected such a distinction.
In Piranha Partners v. Neuhoff, the Texas Supreme Court held that “we must rely on ‘well-settled contract-construction principles’ to determine whether a contract is ambiguous and to interpret the contract if it is not.” 596 S.W.3d 740, 747 (Tex. 2020). While the Court refused to delineate the well-settled construction principles, it did determine some of the key rules, often cited by courts, including that: (i) plain and ordinary meaning controls unless the instrument provides otherwise; (ii) words should be interpreted in context; (iii) provisions should not be rendered meaningless; and (iv) all provisions of an agreement must be construed as a whole. Moreover, the Texas Supreme Court recently held the principle that a specific provision controls over a more general one is a subset of (3) above. Wal-Mart Stores v. Xerox State & Loc. Sols. 663 S.W.3d 569, 587 (Tex. 2023).
Background Facts in PrimaLend
The underlying dispute in the PrimaLend opinion involves an automobile-dealership that defaulted on its revolving line of credit agreements with PrimaLend Capital Partners, LP (PrimaLend) and PrimaLend’s actions taken after the default. Specifically, an automobile-dealership business and its principals (the borrowers) entered into a series of revolving credit line agreements with PrimaLend, which included a loan and security agreement and a pledge agreement (the loan agreement and pledge agreement respectively). PrimaLend opinion at *1.
As part of those agreements, the borrowers provided collateral, including the equity interests in the automobile-dealership entities themselves (the equity interests). The pledge agreement restricted foreclosing on the equity interests in part as follows:
Notwithstanding anything to the contrary in this agreement, the loan agreement, or any loan document, lender may not exercise its remedies with respect to the equity interests until the following conditions precedent have been satisfied … (3) Lender has exhausted its security rights and interests with respect to all collateral, other than equity interests, pledged by debtor under the loan agreement and an amount owing remains thereunder.
After the borrowers defaulted and failed to timely cure the default, the lender then proceeded to foreclose on the equity interests for a de minimis amount before it proceeded to foreclose on other assets.
After the foreclosures, one of the borrowers assigned his claims against PrimaLend to plaintiffs. Plaintiffs filed suit alleging PrimaLend breached the pledge agreement by foreclosing on the equity interests first. Ultimately, the trial court held PrimaLend liable for breaching the pledge agreement, that plaintiffs’ contractual damages were $4.21 million, that the lender and its general partner were jointly and severally liable, and that plaintiffs were also entitled to approximately $1 million for prejudgment and post-judgement interest, and reasonable and necessary attorneys’ fees.
The PrimaLend Opinion Employs Rules of Interpretation
On appeal, PrimaLend made five arguments that the credit agreements gave it the right to foreclose first on the equity interests. PrimaLend argued the “notwithstanding” provision was improperly construed because: (1) on its face, the provision did not prohibit foreclosing on the equity interests first; (2) such an interpretation conflicts with another provision of the pledge agreement; and (3) such an interpretation conflicts with provisions of the primary loan agreement. PrimaLend also argued the “notwithstanding” provision did not apply because it (4) was preempted by the Texas UCC and (5) was irrelevant because of the borrowers’ prior material breach.
On Its Face. The Court rejected PrimaLend’s argument that the “notwithstanding” provision merely required discussing the foreclosure of the other collateral. Instead, based on definitions from Merriam-Webster and other dictionaries, the court held the plain and ordinary meaning required PrimaLend to use up or consume entirely the other collateral.
Conflicting Pledge Provisions. PrimaLend argued that the following provision in the pledge agreement itself prohibited the trial court’s interpretation of the pledge agreement’s restriction on the equity interests:
Lender shall not be liable for failure to collect any account or instrument or for any act or omission on the part of the lender, its officers, agents or employees, except for its or their own willful misconduct or gross negligence.
The Court rejected this argument because (i) a provision with “notwithstanding” language should be interpreted to prevail over any other potentially conflicting provisions in a contract and (ii) the “willful misconduct” carveout applied because PrimaLend intentionally foreclosed on the equity interests first.
Conflicting Loan Provisions. PrimaLend argued the following loan agreement provisions conflicted with the “notwithstanding” provision in the pledge agreement:
All rights and remedies of lender set forth in this agreement and in any of the other loan Documents may also be exercised by lender … and not in substitution or diminution of any rights now or hereafter held by lender under the terms of any other agreement …
PrimaLend argued that those provisions controlled because the loan agreement contained the following clause:
[I]n the event any term or provision of this agreement is inconsistent with or conflicts with any provision of the other loan documents, the terms and provisions contained in this agreement shall be controlling.
The Court rejected PrimaLend’s argument and held the “notwithstanding” provision in the pledge agreement controls over arguably conflicting provisions in a different agreement because a “notwithstanding” provision is given priority and multiple agreements must be interpreted together, if the agreements are part of the same transaction.
Interestingly, the court did not rely on or recite the rule that a specific provision controls over the more general provision—although the provisions in the loan agreement are silent about equity interests specifically.
Superseded By Texas UCC. PrimaLend argued that section 9.610(b) of the Texas UCC preempted such constraints on foreclosure other than the statute’s requirement that the disposition of collateral be commercially reasonable. However, the court held that PrimaLend ignored section 9.603(a) which permits parties to impose additional restrictions if such restrictions are not manifestly unreasonable—and implicitly held that the “notwithstanding” provision was not manifestly unreasonable.
Prior Material Breach. PrimaLend argued it was not bound by the “notwithstanding” provision because the borrowers were in default. The Court flatly rejected PrimaLend’s argument because it would render the “notwithstanding” and other post-default provisions meaningless.
Takeaways
It remains to be seen if PrimaLend will appeal the PrimaLend opinion to the Texas Supreme Court. In the meantime, the PrimaLend opinionserves as a good reminder of the rules of interpretation when drafting or litigating contracts. For example:
- Carefully examine any transactions involving multiple contracts and consider steps to take (or, for litigators, arguments to make) regarding whether they should be read together.
- Carefully examine any “notwithstanding” provision which may supersede other provisions—in the same contract or another contract for the same transaction.
- Pay close attention to the use of words with multiple meanings, especially if there is not any surrounding context indicating the less common definition was intended.
- Be cognizant of post-breach provisions, whether you are or represent the breaching party or another party.
