Word Games Beware of ambiguous language in your contracts, and you'll avoid the headache of court battles.
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Owners of Carvel Ice Cream franchises in East Coast states wereshocked when they discovered their franchisor, Carvel Corp. ofFarmington, Connecticut, had started selling its ice cream insupermarkets at prices that undercut the franchise stores. Theythought their contracts gave them protected territories. But whenthey hired attorneys to look into those contracts, they discoveredthe wording was ambiguous.
For instance, some contracts guaranteed the company would notestablish other Carvel stores within a quarter mile of a Carvelfranchise. But did a supermarket count as a Carvel store? A U.S.District Court judge ruled that because the contracts wereambiguous, it would be up to a jury to determine the intent of thecompany in drafting the contracts and the expectations of thefranchisees who signed them.
Ambiguous language in contracts is a common problem, says GreggWeiner, an attorney with Fried, Frank, Harris, Shriver and Jacobson in New YorkCity. Courts have not established a standard for determiningwhether contract language is ambiguous or clear. Generallyspeaking, he says, the question is whether the language isobjectively susceptible to more than one meaning. But appellatecourts have overturned trial courts, disagreeing over whether aparticular contract is ambiguous.
If a judge rules a contract is ambiguous, the matter goes totrial where the jury determines the meaning of the contract byexamining not only the language of the contract itself but alsoother documents, such as letters, that might indicate theparties' intent. The dispute can take years to settle, drainingenergy that could be going toward building the business.
Make sure your contracts are clear and unambigous. Weineradvises having someone experienced with contractdisputes-preferably a lawyer who specializes in contractlitigation-go over contracts with an eye toward futureproblems.
Use language broad enough to cover circumstances that mightarise, Weiner advises. For instance, a lease should address whetheryou have to pay rent if you don't have access to the space."There might be a hundred reasons why you wouldn't haveaccess to your space, [such as a] flood [or] a strike," hesays. But even if you list as many as you can think of in thecontract, something else could happen. So be sure that the meaningof the language is clear enough to govern the relationship when theunexpected happens.
Steven C. Bahls, dean of Capital University Law School inColumbus, Ohio, teaches entrepreneurship law. Freelance writer Janeeaster Bahls specializes in business and legal topics.
