Tuesday, January 14, 2014

How Clear is the Deal?

Business can be unpredictable, even in the regular course of business.  Most businesses have a clear understanding of their marginal rates of return, and know exactly what they need to most effectively conduct their operations.  But every business owner knows that some problems are not foreseeable.  In a contract, business owners write down what they need and what they expect.  Often an understanding appears simple – or is simple – but problems come up when conditions change or unexpected events take place.  The words chosen for a contract can lead to expensive and time-consuming litigation.   To minimize costs, every businessperson needs some basic information about contract drafting and contract interpretation.
The interpretation of a contract is a search of the terms in the contract and their use in the contract for the intent of the parties.  The intent of the parties is determined by what they write in the contract, as a whole, as written, and not a later interpretation according to what a party meant to express or later says that he or she meant.  Courts in Texas and most jurisdictions look to the “plain meaning” of the language written in a contract.  The “plain meaning” is just what the phrase sounds like:  the plain grammatical meaning, unless it definitely appears that intention of parties would be misconstrued.
Unfortunately, problems come up and people claim different understandings of what they say and mean, and “plain meanings” are taken to mean different things.  Courts will only look beyond the plain meaning of the words you choose in a contract when the terms are ambiguous.  A court will not change a contract just because it or one of the parties comes to dislike its provisions or thinks that something else is needed. 
The terms of a contract are ambiguous only when competing interpretations offered are reasonable after the application of the relevant rules of construction.  The rules of construction consist of customary uses of terms and grammar, and are described in legal opinions, dictionaries and academic treatises.  An example of a rule or construction is the Doctrine of Ejusdem Generis,” which, aside from being fancy Latin, provides that, if words of a specific meaning are followed by general words, the general words are interpreted to mean only the class or category framed by the specific words.
Only if any ambiguity remains after applying the rules of construction may evidence from outside of the contract itself be used to interpret the contract-what the parties meant.  If there is any ambiguity, the relevant portions or omissions of the contract are construed against the drafter.  Courts are staffed by generalists who may not have specialized knowledge and who are removed from the expectations in the operations of a specific business.  In the long-term, it is prudent to have a professional draft a contract that minimizes this risk. 
Whether for businesses with numerous relationships with clientele and suppliers, or for specialized relationships and large accounts, at the Vethan Law Firm, PC we listen to the needs of business owners for their business’s transactions and we draft instruments that limit potential ambiguities and inconsistencies, and that identify points in a contract that may be ripe for a potential dispute.
If a business already has a dispute, our experienced litigators protect the rights of business owners – and their pocketbooks – with dignity and with vigor. 


  1. That is why it is important to have a lawyer to draft any kind of business contract. Nice article.


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