THAT’S A DEALBREAKER!
Avoid Misinterpretations in Written Contracts
(part 2 of 2)
By: Rachel Kerlek, Esq.
In Part 1 of this article, we discussed the importance of businesses having written agreements to govern their relationships. A well-written agreement allows the parties to eliminate doubt regarding their rights and obligations, and provides a road map to help predict how a dispute may end. However, if parties are not careful, those agreements can act as a double-edged sword. This article discusses a second issue that often leads businesses to court—failing to read, understand and follow those all-important agreements.
Written agreements come in many different forms, ranging from standard “boiler-plate” documents to a contract drawn up from scratch to meet the specific needs of the parties. Either way, businesses should be certain to read and understand all of the terms of an agreement before signing, and before taking any action. If the written agreement dictates the rights and obligations of the parties, neither party will be able to claim ignorance after the fact. Especially for sophisticated business people entering into an arms-length transaction, the law presumes that parties to a contract knew and understood what they signed. This includes those “boiler-plate” provisions that people tend to skip over. Examples of “boiler-plate” provisions include selection of venue in the event a suit is filed, waivers of certain rights, and obligations to pay attorneys’ fees in any litigation. Skimming over “boiler-plate” provisions could result in waiving your right to a jury trial, or agreeing to participate in a lawsuit in another state without even realizing it!
Equally important is consulting the agreement before taking a significant action. For example, a 51% owner of a company may believe that she has authority to take actions on behalf of the company simply by virtue of her majority ownership interest. Depending on the terms of the company’s operating agreement, however, that might not be true. The agreement might vest all major decisionmaking in a manager, or require a 75% vote for certain decisions. Before assuming that she has authority, the 51% owner should consult the written agreement to make sure that she is not acting outside of her authority and potentially inadvertently breaching her duties to the other owners. Finally, the agreement should always be consulted before declaring the other party in default. Many agreements have specific default provisions that require notice to be provided in a certain form, or allowing an opportunity to cure.
Failing to comply with these pre-suit requirements can cause problems in a lawsuit that could easily have been avoided.
WWM&R’s litigation team can help spot these potential pitfalls before they lead you or your business to court.
WWM&R partner Rachel Kerlek, Esq., practices in the areas of commercial, business, real estate, construction and trust and probate litigation. She also handles issues related to land use and zoning on behalf of landowners, homeowners’ associations and local government entities.