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The Dangers of Ambiguity in Business Contracts

business lawyer

Verbal or handshake agreements can be enforced if you prove all the terms. When a dispute arises, you will fight over what he said, or what she said, and spend money to convince a court your recall is right. Why drive over this particular landmine? 

Have a written agreement whenever you can. Write the contract when you can. Use clear and concise language and terms. Ambiguity gets litigated. 

Words can be legal landmines

Words can be legal landmines. Really. Think I’m overreacting? I’ve litigated over the definitions of “unique” and “exclusive.” I’ve litigated cases about what was meant by the phrase “organic dirt.” Do you think the comma placement doesn’t matter? There is a difference between a “dirt-cheap contract” and a one that’s “dirt, cheap.” In the first case, whatever the item is, it’s being sold very inexpensively. In the second, the item sold is limited to “dirt.” There’s a woman in Ohio who got out of a parking ticket because of where the comma was in the law. Ambiguity, whether in definition or grammar, is the quickest ticket to litigation. A reputable business lawyer can spot potential issues like these in your official documents saving you time and headaches down the road.

Avoid ambiguity in legal contracts

A word, provision or contract is ambiguous when it can have two or more meanings. Look in any dictionary. Most English words have more than one meaning. To paraphrase Inigo Montoya, the swordsman-for-hire from The Princess Bride, sometimes legalese means that a word does not mean what you think it does. 

Business contract terms that seem simple can get complicated

Consider this example. Once a court was asked to determine if “shall” meant “must.” After a book’s worth of pleadings, the court ruled that “shall” sometimes means “may,” depending on context. Again, though this seems weird, the ruling makes sense based on the facts before the court at the time. The court noted that, while the law used the word “shall,” the government was given a choice of options. If the police officer “shall do X or Y,” then he has a choice. This choice only meant that officer could do X or Y but had no other options. “Shall” was permissive, and in context the provision read, the “Officer may do only X or Y.” Once “shall” was interpreted as the permissive “may,” then every “shall” in the document meant “may.” 

When writing your agreements, avoid ambiguity. Meeting with a lawyer at the contract drafting stage means the lawyer can change “shall” to “may” for permissive actions and use “must” for mandatory actions. 

Another example of a word that might not mean what you think it does is “solicit.” If your former employee can’t “solicit” your customers, does the former employee violate the restriction if he puts an ad on Angie’s List, Craig’s List, or hundreds of similar fora? After all, he’s asking for sales. Has the former employee “solicited” someone who calls him and asks him to perform competing work? 

The Merriam -Webster dictionary has eight definitions of the word “solicit.” Dictionary.com has seven definitions. Because of the multiple meanings of “solicit,” a court could rule that the term “solicit” is too ambiguous or broad to enforce, and your protection against former employees poaching your clients, which you thought was armor, might afford as much security as a wet paper towel. 

Let me tell you a secret that will help when you’re talking contracts: the other side probably doesn’t understand the provision that confuses you either. You’re not giving away your ignorance or acting stupid by asking what a contract term means. If the other side will look down on you for asking, then you probably don’t want to be in business with them anyway. I had one case where my opposing counsel, Fred, was from a very large and expensive law firm and had been practicing law twice as long as I had. We were working through a teaming contract and I asked him what his non-circumvention provision (legalese for a contract term that prevents one side of the contract from pursuing the opportunity without using the services of the other party) meant because years of other attorneys working on the same template had turned the language into gobbledygook. 


This was the language actually used:

(1) It is hereby agreed by and between the Parties hereto, to NON-CIRCUMVENTION as to: (a) the knowledge, efforts, opportunities, and procedures that the Parties involved may learn from one another or from the principals; (b) addresses, telephone and Fax numbers of sellers, buyers, customers, clients, suppliers or other providers, prospective buyers carriers or providers of insurance or others, all hereinafter referred to as CONTACTS. It is understood and agreed that such CONTACTS of each Party herein are and shall be recognized as exclusive and valuable CONTACTS and the Parties hereto will not attempt to contact, deal with, utilize or disclose or in any manner solicit the CONTACTS introduced by any of the other Parties, at any time or in any manner, without the express written consent of the Party introducing said CONTACT, as well as entering into a written Fee Agreement or other arrangement acceptable by all participants with the Party who first provided such CONTACT. Each of the undersigned hereby agree, warrant and covenant not to, in any way whatsoever, CIRCUMVENT or attempt to CIRCUMVENT the other, in any present or future transactions.

Did you understand that provision? 

Good. ‘Cause I didn’t either. 

So, I did what I always do when opposing counsel wants something I don’t understand. I called him. An email wasn’t going to work for this, but a ten-minute call can, and did, do wonders. The discussion went something like this. 

“Hey, Fred. I was just looking at the contract you sent me in the Williams matter.” 

“Great. Is your client ready to sign it?”

“Ah, no. I have a question about a provision.” 

“I don’t know why; it’s our standard teaming agreement. There shouldn’t be anything objectionable in it,” he said, sounding a bit peeved. After all, it was a “standard” agreement. More on that in a second. 

“No, no, I get that. I’m just having a bit of trouble deciphering what you’re trying to say in Section 32, the non-circumvention clause.” 

Throat clearing comes across the line as Fred switches into a condescending professor tone. “Well, it means if Company X pursues the opportunity X has to hire Company Y. Simple. The provision couldn’t be clearer.” 

I nodded even though he couldn’t see it and twirled the phone cord between my fingers. “I get that’s what you meant to say, but that’s not actually what it says. It seems like this protects the contact information and is a general and unlimited restriction against competition which wouldn’t be enforceable. Or am I misunderstanding something?” 

Silence cracked across the line. 

I waited. 

“Maybe we could tighten up the language a bit,” Fred finally said. 

We took a week to straighten the provision out. If I hadn’t pushed on the language, my client, who was the less dominant party in the arrangement, might have been left out in the cold because the original provision was so confusing and overly broad that it was unenforceable. Most people aren’t trying to trick or take advantage of you. If you point out that you “do not think that (word) means what you think it does,” most of the time, everyone will work to clarify the term. If they refuse to clarify the agreement, you might be better off walking away. 

Meet with a business attorney

“Shall” and “solicit” are only two of many landmine words. Meet with a business lawyer and take the time to know what everyday words have special meanings in the law and how to avoid the common pitfalls that come with them.

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