Signing a formal contract with a supplier, a client or an employee helps clarify your relationship and expectations. Being explicit about what you want, what you will pay or what you expect from the other party is crucial to getting what you pay for in business.
Unfortunately, contracts don’t always eliminate disputes between parties. People can intentionally breach a contract and leave the other party at risk of losses. They can also make mistakes in their performance of contractual obligations due to miscommunication.
Sometimes, a misunderstanding about the nature of the contract could lead to disagreements and allegations about one party failing to uphold their contractual obligations to the other. People might claim that they fulfilled their obligations or that the contract violates the law and is invalid. What happens when the individuals or businesses that signed a contract disagree about what the contract means?
Careful review and litigation may be necessary
Disagreements about the implications of a contract often stem from misunderstandings during contract negotiations. If someone uses different terminology or jargon than the other party, what they say in person and include in the contract may not reflect their preferences or expectations.
Occasionally, just having a lawyer review a contract in dispute can be enough to resolve the matter. If the lawyers for both parties agree about the meaning or interpretation of the contract, that can put a quick end to the matter. However, if the lawyer representing one of the parties interprets the contract differently than the other, the only choice left may be to go to court and have a judge review the contract.
During judicial review, a judge reads over the contract and rules on what it really means. Such proceedings can often be incredibly pedantic. There have historically been rulings where the final decisions came down to the placement of a comma in the contract.
How do you protect yourself from interpretive contract disputes?
Perhaps the simplest way to avoid interpretive disputes regarding a contract is to be clear and explicit both in person and in the paperwork. Clarify any specialized terminology, and reword things in a way that makes your expectations obvious.
Creating customize documents for your business’s needs and reviewing the entire contract in depth with the other party could help you eliminate disputes after you sign.