This article is written by Madhuri Pilania, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.com.

Introduction

Every business needs one contract at a time. They are everywhere. Whether you are a struggling artist, a world-renowned photographer or a gallery owner, you will grapple with contracts from non-art industry members such as art vendors, agents, exhibitors, publishers, advertising agencies, museums, as well as homeowners and contractors. If a contract has to ensure that both parties meet their obligations, then why are there so many breaches of contract? This is partly because there is so much uncertainty and undefined terms within the essential elements to have a viable contract. But it doesn’t have to be.

When entering a contract, you should consider: What if this happens? What does this term mean? Do both sides have the same understanding at this or that point? By not playing the devil’s advocate, loopholes that one party can jump to escape from their obligations are left in the contracts. However, if we make sure that all the essentials are strict, the violating party will have no choice but to comply or violate its obligations in the first place.

For a contract to be valid and valid when a contract action is required to be breached, the following elements must be proven (these can be slightly different in each case):

Offer, acceptance and mutual agreement

Each contract must contain a specific offer submitted by one party and the other party must accept the terms of the offer. Both parties must agree on the terms of their free will. If either party forces or forces the other to agree, the contract may be overridden.

Consideration

Something valuable, such as money or services, should be exchanged between the parties. If neither party exchanges something of value, it is considered a gift, not a contract.

Mental competence

Both parties should be “firm minded”. Parties who are mentally ill or intoxicated will void the contract. Contracts with minors are not applicable, but what is underage for contractual purposes may vary by state.

Legal purpose

The contract must be for a legal purpose. A contract cannot be enforced to sell drugs, steal or commit any other illegal activities.

Ambiguous Contracts 

If the contract is reasonably subject to more than one interpretation, the contract is considered ambiguous. Sometimes this can mean that it is unclear what the parties are aiming for in general. But often a vague convention means that a particular term, word, phrase or definition is vague or unclear.

If a contract is ambiguous, it can sometimes be resolved by further negotiations by the parties. If not, the document may need to be reviewed in court to resolve the issues.

A common type of ambiguous contract is when the definition of a word is not clearly defined in the contract. For example, a contract may refer to a dollar amount for a Canadian insurance contract. The word “dollar” may be ambiguous here because it can mean either the US dollar or the Canadian dollar.

A court may see that this term means Canadian dollars if both parties are from Canada and have a history of using Canadian dollars to measure insurance limits. Thus, a court can use a wide variety of information from the circumstances surrounding the contract.

How can it be avoided?

Parties to a contract always want to draft a contract in a way that avoids future disputes. Some ways to avoid uncertainty in a contract are:

Writing

It is best to have all the terms of the contract in writing.

Different Meanings

If a particular term or phrase has two meanings, make sure it means the same for both parties and note the alternative meanings.

Other Documents

Include in the contract any other relevant documents that can be used later to resolve disputes. Other documents are sometimes not allowed under the parole evidence rule.

Parole Evidence Rule

The parole evidence rule states that once the parties enter into a contract and the contract becomes the full and complete expression of the parties’ contract, no external verbal or written agreements can be made to add, change or contradict the terms of the contract. However, if the language in the contract is vague and unclear, conditional evidence allows the parties to bring external evidence only to resolve the ambiguous language and explain the parties’ intent. If uncertainty arises after the contract has been signed, the parole evidence rule can only be used to interpret the language and explain the parties’ true intentions, but never add, contradict, or change any terms of the original contractual contract.

Review

Have each party review the entire agreement before approving and signing the agreement.

Legal Advice

Get professional advice from an experienced contract lawyer and have them review the contract to resolve uncertain terms that could cause problems in the future.

Uncertain timeline

Contracts suggest that the task should be performed “on time”, “as soon as possible”, “as soon as reasonably possible”, “as soon as possible” or “immediately”, rather than agreeing on a specific time frame for performance. indicates in the way. It is much better practice to set a few days each party has to complete a task.

Uncertain terms

Avoid using critical terms in the contract and instead, generally refer to important terms in the contract. For example, by reference to “profits”, “costs” and “revenues”, “reasonable expenses” or “standard quality” in the contract, or by relying on what is perceived by the parties as standard terms that are not actually uniformly defined by industry-wide or expert witnesses in the event of a dispute.

Contradictory terms

Contradictory terms are basically adding conflicting terms to a contract. They are the terms within the contract which cannot be met as some conflicts can arise in the contract. Terms may become contradictory when the parties of the contract are not clear about the terms of a contract. Frequently, in order to avoid agreeing on a specific, mutually agreed term during the term of the contract, the parties will enter into agreements that set a contract term of one, two or three years and simultaneously agree that either party may terminate the contract at any time. time on written notice. For example, if Clause 1 says that the notice must be provided at least within 5 days in advance of changes to price. While Clause 2 says that price must be changed within three days of increase in cost. So, basically clauses 1 and 2 can come into conflict with each other depending on the situation. 

Uncertainty

Terms in a contract may be void if the terms are too uncertain and cannot be enforced. Uncertain means if the term is not clear or vague or if the language is not clear. The role of the court is to give legal effect and if the court finds out that the term in the contract is too uncertain then the court can render the term void. 

Inapplicable provisions

At the extreme, include provisions in a contract that are known to be unenforceable under applicable law, and plan to allow a judge to “dissolve” and change the provision to make it enforceable. Including, for example, the non-compete clause, which includes an unenforceable geographic area and an implementation time that is too long to be enforceable.

When confronted with the task of interpreting and applying vague and unenforceable contractual clauses, courts will look at the implied meaning, common use and industry use, evidence outside the actual deal, previous proceedings, reasonableness and expert testimony. However, besides the additional legal costs, lengthy delays and opportunity costs associated with the judicial process, the parties will not be able to make a predictable interpretation of the contract. Prudent entrepreneurs should take the time to fully agree on all terms before entering into a contract.

Treatment of Ambiguous Contracts

If there is no fraud or misrepresentation, the court will ask the parties to rewrite the contract to resolve ambiguous terms and conditions. However, when a court initially examines the dispute and materials provided, it will look at the following to help determine if there is a fraud or misrepresentation:

• General use
• Parole evidence
• Industry use
• Previous relationships
• Reasonableness
• Implied meanings

Common usage refers to a term that is known to have contradictory meanings, but has a common meaning where the term is often used. In this case, the court will look up the lexical meaning of the term.

Proof of parole refers to the verbal agreements between the parties prior to signing the written contract. Usually, such verbal agreements are made at the negotiation stage.

Industry usage is how the term is used in a particular industry. This is common in the language defined in technical contracts for which the other party does not know the definition of the term.

Previous agreements are also looked at, particularly regarding how the parties have used this term in the past. This is useful if the parties enter into a similar contract that used the same terms in the past.

Reasonableness is another important factor to be considered. Can a reasonable person conclude that the term means something? Or can someone come to the conclusion that this means what the other side means?

If terms are left blank, implied meanings may be used; however, if the parties intend to leave these terms blank, the court will not change the contract by any implied provision.

Most courts will resolve the contractual dispute against the party drafting the contract. Therefore, the party not drafting the contract is likely to benefit from court intervention. This is because the court assumes that the party drafting the contract has additional information and bargaining power compared to the other party. Therefore, this could cause a nuisance for one of the parties, namely the party with greater bargaining power.

Conclusion

As the world moves towards greater accessibility and removes barriers between law enforcement and those enacted in the interests of the law, the use of appropriate and simple language in legal documents is growing widespread. Countries like the United States have even passed laws to direct their executive agencies to use simple and appropriate language when drafting documents.

In India, progress has been made towards such reforms. The Vidhi Legal Policy Center even provided a guide for aspiring drafters to consider when drafting legal documents. However, unless the Indian legislature takes concrete steps to use appropriate and simple language in drafting documents, the process will be snail-paced.

References 

• https://www.bizjournals.com/bizjournals/how-to/growth-strategies/2017/06/7-ways-to-avoid-signing-vague-contracts.html
• https://ccbjournal.com/articles/how-courts-interpret-ambiguous-contracts
• https://www.legalmatch.com/law-library/article/ambiguous-contracts.html#:~:text=A%20common%20type%20of%20ambiguous,U.S.%20dollars%20or%20Canadian%20dollars.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.