CONTRACT AMBIGUITIES

Clients oftentimes ask me to forecast how much a lawsuit will cost. In the context of contract disputes, the answer invariably depends on the nature of the written documentation. If the parties relied on an oral agreement, then it becomes much more difficult to prevail in the case on what is known as summary judgment. In summary judgment, one of the parties files a written motion asking the court to make a final ruling concerning a particular issue, count, or the entire case. When the parties don’t have a written agreement, it becomes more problematic to proceed on summary judgment because the issues are subject to the fallacies of human memory. People may hear things differently; understand the same words differently; recall things differently; and with the passage of time memories can literally alter. All of these issues make it more likely that your opponent will find some issue of fact to contest and summary judgment will be thwarted. This means that the case will proceed toward trial and legal expenses will rise. When the parties have written contracts, the prospect of prevailing on summary judgment is improved.

Having said all that, it is vitally important that the written contract be clear and not ambiguous. I have literally written thousands of contracts in my career. The overwhelming concern in each document is to capture the intent of the parties. Even lawyers must constantly remind themselves to listen to the client and to identify the unique features of any given transaction. Standard contract templates are a great beginning point. But they are only that – a beginning. Whether you are hiring an attorney or you are relying on your own layman’s agreement, remember that ambiguities invariably cause problems. Even if these issues don’t lead to litigation, they can cause disputes or friction between the parties when an issue surfaces down the road. When the parties appear before a judge to enforce the terms or conditions of an agreement, written or oral, the first and foremost concern of the court is to identify the “intent” of the parties. If that intent can be determined from the agreement, then that agreement will govern the decision-making process of the court. If the intent of the parties is not contained in the agreement, then the court will look to matters outside of the confines of the agreement. This type of evidence is known as parole evidence. With all of this in mind, the goal of preparing a written contract is to clearly state the intent of the parties. Again, ambiguities in essential terms will produce problems. Due to the short nature of a blog, it is not possible to identify or address all of the matters to be contained in any given contract. However, all contracts should properly identify the parties, the fundamental nature of the transaction, the quantity or price of any items being exchanged or acquired, the timing of performance, and the place of performance. As a general principal, if the client expects something from the other side then the subject of that expectation should be in the written agreement. A contract provision will not be enforced if the provision is ambiguous. Lawyers learn in law school that a breach of contract case must show offer, acceptance, consideration, breach, and damages. If you want to protect yourself from a possible breach of a contract, then each of those elements or a way to determine each of those elements must be set forth in the contract.

Some side notes. If a written agreement is ambiguous, courts usually construe the ambiguity against the party that drafted the agreement. If you are preparing the contract, it is incumbent upon you to make the agreement clear and definite. The words, phrases and terms contained in an agreement will be given their ordinary meaning. If you are using industry specific terms, make sure they are clearly defined. Contracts should not have conflicting provisions. If there are conflicting provisions, then the agreement should clearly identify the unique circumstances triggering the application of the provisions. Finally, I encourage client to be active in the contract writing process. Clients should read the agreement, understand the terms, and provide active feedback to the attorney concerning the identification of important issues and the clarification of all terms and conditions. When the attorney and the client actively work together, the work produce is greatly improved. If you have questions concerning your contracts, please don’t hesitate to call Corporate & Estate Legal Services, Ltd. We are here to serve your business needs.

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