By Jonathan Schmidt / Guest Column
Do you issue or apply for RFPs or other proposals? Do you sign agreements with clients or other businesses? Protect yourself and your organization through precise language.
Many businesses use some type of a formal or informal agreement to engage with clients and customers. Some businesses use a simple agreement or estimate, some a more detailed proposal, and some use formal contracts, which are crafted by attorneys.
All of these are, in fact, forms of contracts, and contracts are meant to be a form of communication. Each party should understand what they are giving up and what they are receiving in return. However, some contracts can leave us more vulnerable to harm than others. The critical difference in the protection – or lack thereof – in contracts is in the language.
In spite of what the hundreds of pages of Apple’s Terms of Service may cause you to think, “the more words the better” in contracts is not necessarily true. For businesses and organizations, the precise and concise language of the contract they use with clients and customers is especially important. This is because ambiguity or uncertainty found in a contract’s language is typically held against the party who wrote the contract, not the party who signed.
When adjudicating a disputed contract, a court will often find in favor of the party who did not write the contract if the language is vague or otherwise unfair. Troublesome ambiguity can also include lack of notice or other surprises, even what is called “unconscionability,” which may include undue influence, unequal bargaining power, duress (threats) or a limiting warranty.
Such is sometimes the case with contracts of adhesion. An adhesion contract is standard form contract drafted by one party (for example, a company or business) and typically signed by a “weaker” party (for example, a customer), who, in order to purchase needed products or services must adhere to the contract and cannot negotiate or change the terms of the contract.
Some examples of adhesion contracts include mortgages, car rental agreements, and insurance policies. These types of contracts are sometimes referred to as “take-it-or-leave-it” contracts because of the imbalance in the lack of negotiation or bargaining power on behalf of the second party.
Wherein the party of the first part (Us) is entitled to the first-born child of the party of the second part (You)…
While it may seem more convenient to businesses or organizations to use standardized forms with broad language for all clients and customers, it can backfire.
A family in Missouri* was threatened with sanctions, fines, and possibly even jail time in relation to an argument with their homeowners association (HOA) about a swing set – a child’s swing set, which the family painted purple. The HOA argued that the association contract, which the family signed, contained this language: “play equipment must be subdued and within harmony with other colors of the community.” The problem is, what is the definition of “subdued and within harmony?” What other colors of the community? The issue of color is not detailed or explained in the association guidelines, and therefore is ambiguous.
The ramifications for this HOA went far beyond the lawsuit and the burden of living in a neighborhood containing a purple swing set. Many of the other residents were outraged by what they saw as the association’s unreasonable inflexibility and sided with the family. There were also many negative stories in the press about the HOA and their dispute with the family, their vague association contract at the root of it all, and the resultant lawsuit.
When ambiguity is found within a contract, courts may look to information that exists outside of the contract language itself. For example, the court may look to the relationship between the parties, the subject matter of the transaction, and the usage of specific language and meanings in the particular trade. In general, this means that the interpretation of disputed provisions of a contract will favor what a reasonable person – one who is not a lawyer, nor trained in contracts – would understand. In most situations this means that language within a contract that is found to be unclear, unequal or potentially unfair, will be interpreted through the eyes of the “weaker” party and favor what he or she expected, even if that expectation is what is outside of or different from what is strictly contained in the contract.
This may seem grossly unfair to a business or organization that has written a proposal or an agreement to protect itself from dispute. But it can be avoided with careful consideration of not only what the business itself needs and gains from the contract, but also with consideration of what the customer or client will expect from it as well. Careful wording will serve both parties.
While not illegal, and even though it may seem easier to have one standard form contract for all customers, in many cases, businesses would be wise to craft careful and concise language within agreements to protect themselves and their customers.
*A judge dismissed the HOA’s lawsuit, ruling the purple swing set can stay. You can read an article here: http://theantimedia.org/parents-may-face-jail-owning-childs-swing-set/
Jonathan Schmidt is an attorney and partner with Nazette, Marner, Nathanson & Shea LLP. He practices in areas of business and litigation. He can be contacted at jschmidt@nazettelaw.com or www.jschmidtlaw.com.
