The party assigning the contract (or legal rights) is the assignor; the party receiving them is the assignee.
See: Assignment
Showing posts with label interpretation. Show all posts
Showing posts with label interpretation. Show all posts
Wednesday, April 28, 2010
as of
Why does a contract state, “This Agreement is dated as of November 27, 2010,” instead of “This Agreement is dated November 27, 2010”? It’s because the magic words, “as of,” refers to the date that an agreement is effective. The “effective date” (or the “as of” date) can be different than the date of signature, so it’s common practice to use “as of” in the preamble to indicate when an agreement was reached and to include a separate date for signatures. Another simple workaround is to state, “This Agreement is effective as of November 27, 2010 (the “Effective Date.”))
See: preamble
as is
You’re about to buy a car and the owner tells you he’s selling it “as is.” You suddenly feel uptight. What is he hiding? A missing gear shift, faulty brakes, a dead body in the trunk? A century ago, all purchases were “as is” and the buyer had an obligation to seriously inspect every purchase before making it. The age-old legal rule was caveat emptor: Let the buyer beware. But during the 20th century, laws were enacted to protect consumers, including laws requiring that goods and services be merchantable and useful for their intended purposes. This implied warranty of merchantability does not apply when property is sold “as is.” As long as the buyer had a reasonable opportunity to inspect the property beforehand, the “as is” buyer takes the goods in their current condition and cannot complain about problems later.
See: warranties
any/each
‘Any’ and ‘Each’ are often (and incorrectly) used interchangeably in contracts. Here’s the scoop.
‘Any’ refers to one member of a group without specifying which member—for example, ‘any general partner’ refers to one (unspecified) general partner from a partnership. If ‘any’ is used with a plural noun—for example, ‘any general partners’—then it refers to two or more partners from the partnership without specifying which partners.
‘Each’ refers to every member of a group considered individually—for example ‘each officer’ refers to every officer in the company from vice-president to CEO. Because ‘any’ and ‘each’ are adjectives that sometimes cause contract ambiguity, contracts expert Tina L. Stark recommends using ‘any’ when creating discretionary authority—for example, when someone may do something (“Any officer may sign checks without the consent of the board”), and to use ‘each’ when creating affirmative obligations—for example, when somebody must do something. (“Each officer shall furnish proof of citizenship prior to commencing employment.”)
antecedent, rule of the last
In 1891, attorney Jabez Sutherland wrote a book on interpreting contracts and statutes. He created a simple rule for deriving the meaning of contract clauses that contained multiple obligations or conditions. Sutherland said that when a qualifying word or phrase is used with a group of obligations or conditions, the qualifying terms are presumed to modify only the condition or obligation that immediately precedes it (the “last antecedent”).[i]
EXAMPLE 1: A contract clause states: “Subject to the termination provisions of this Agreement, this Agreement shall be effective from the date it is made and shall continue in force for a period of five (5) years, and thereafter for successive five (5) year terms, unless and until either party terminates it by providing one year prior notice in writing to the other party.” The qualifying phrase: “unless and until either party terminates it by providing one year prior notice in writing.” The last antecedent: “successive five year terms.” Applying the rule to this clause, either party could terminate the agreement under the notice provision only during “successive five (5) year periods,” not during the initial five-year period.
EXAMPLE 2” The U.S. Constitution states: "No person except a natural born Citizen, or a Citizen of the United States, at the time of the Adoption of this Constitution, shall be eligible to the Office of President...” The qualifying phrase: “at the time of the Adoption of this Constitution.” The last antecedent: “a Citizen of the United States.” If the rule were not applied and the phrase was intended for both of the conditions, then the U.S. would have run out of presidential possibilities—natural born Citizens at the time of Adoption of this Constitution—sometime in the 19th Century.
Unfortunately for those seeking contractual clarity, Jabez Sutherland muddied the waters by added a qualifier to his rule: “̀Evidence that a qualifying phrase is supposed to apply to all antecedents instead of only to the immediately preceding one may be found in the fact that it is separated from the antecedents by a comma.” Although still used by some American courts[ii], this exception could lead to unintended results, because it conflicts with common grammatical usage of commas. Like all rules of construction, courts generally apply this one with a dose of common sense in order to avoid potentially absurd results.
ambiguity
If an artist-model agreement states, “The artist shall paint the model nude,” is it the artist or the model who should appear sans clothing? This is an example of ambiguity: when contract language can be reasonably interpreted in more than one way. Some ambiguities are semantic—a word has multiple meanings—but most are the result of misuse or improper placement of words, making the language confusing or inconsistent, or in some cases, producing an absurd result. For example, one employment contract we’ve seen states that the employee “must wear the uniform in the employee locker.” (Claustrophobic applicants need not apply.)
Consider a contract between a lawyer and a client that provides for payment of the attorney’s out-of-pocket expenses. The clause states that:
“These [out-of-pocket] expenses include court reporting services, expert witness fees, reasonable travel expenses, if any, fees paid to trial witnesses and the cost to create demonstrative trial exhibits.”
In this case[i], the client argued that the word “include” was a term of limitation that should be interpreted as “include only. Therefore, he shouldn’t have to pay for anything that wasn’t on the list, such as photocopies and online research. The lawyer argued that “include” was a term of expansion, used to preface a few common examples. In other words, the client had to pay for all reasonable out-of-pocket expenses, whether or not they were on the list.
The court agreed that both interpretations were reasonable but concluded that as a matter of public policy—and perhaps, poetic justice—ambiguities in attorney fee agreements should be construed against the attorney, who after all wrote the agreement. The client didn’t have to pay the extra fees.
How do courts interpret ambiguity? Some ambiguities may not be obvious to the ordinary observer but may arise because the contract language has an unusual meaning under the circumstances. For example, in one historic case, a contract for horsemeat provided a discount if the meat was less than 50% protein. This seems clear enough on its face, but the supplier successfully claimed that trade custom in the horsemeat business was that 49.5% protein meets a 50% standard.[ii] In other words, the term “50%” was ambiguous in this context, in that it could actually mean “49.5%.”
What evidence is considered? Courts differ as to what types of evidence they will consider when resolving ambiguities in a contract. For many years, courts looked only to the “four corners” of the document and to the “plain meaning” of its words. In a 1968 case, however, the California Supreme Court broke with the past and considered evidence outside of the contract in interpreting its meaning.
EXAMPLE: A contractor agreed to indemnify a public utility for any harm caused during the replacement of a turbine cover. (“Indemnify” means that the contractor would compensate the utility for damages.) When the contractor caused $25,000 in damage, the public utility sued to get the money back under the indemnity clause. The contractor argued that the indemnity clause was meant to insure only against harm to third parties, not to the utility itself. The words “third-party” didn’t appear in the contract, but other evidence of trade practices by the parties proved that the contractor’s interpretation was correct. The California Supreme ruled in favor of the contractor stating that evidence outside a contract (extrinsic evidence) should be admitted as long as it is offered to prove a meaning to which the language of the writing is “reasonably susceptible.”[iii]
In summary, although courts sometimes differ, external evidence—for example, previous contracts between the parties or previous courses of action between the parties—can generally be used to clarify or explain an ambiguity, as long as that evidence does not vary or contradict the terms of the contract.
Two other things to consider about ambiguity.
- Vague language is not necessarily ambiguous. Common contract terms – for example, ‘reasonable,’ ‘satisfactory,’ and ‘immediately’ -- are vague but not necessarily ambiguous within the context of an agreement.
- Plain language can avoid many ambiguities. Lawyers have a fondness for unusual word order (“as in this deed provided”) as well as obscure language (“therein referenced”). In addition there is a paranoia among lawyers that leads to over drafting—for example, saying “shall not now, or in the future” instead of just saying, “shall not.” The solution is unambiguous: Use plain language whenever possible.
Ambiguities clause. Sometimes—as in the fee agreement mentioned above—ambiguities are interpreted against the drafter of the contract. In other words, if terms could be reasonably interpreted in different ways, the could will likely rule in the way most beneficial to the person who didn’t write the contract. After all, the drafter was responsible for writing the ambiguous language in the first place, and shouldn’t get to benefit from his or her lack of clarity. Parties who don’t want this default rule to apply can include the following clause (sometimes referred to as an “ambiguities clause”) in their contract:
EXAMPLE: Ambiguities. Both parties and their attorneys have participated in the drafting of this Agreement and neither party shall be considered the “drafter” for the purpose of any statute, case, or rule of construction that might cause any provision to be construed against the drafter of the Agreement.
[i] Guerrant v. Roth, 334 Ill.App.3d 259, 777 N.E.2d 499, (Ill.App. 1 Dist.,2002).
[ii] Hurst v. W.J. Lake & Co., 16 P.2d 627 (1932)
[iii] Pacific Gas & Elec. Co. v. G. W. Thomas Drayage & Rigging Co. 69 Cal.2d 33, 69 Cal.Rptr. 561 (Cal.1968)
Tuesday, June 30, 2009
acceptance
When you click the “Place Your Order” button at Amazon.com, tell the cab driver where you want to go, or hand a $20 bill to the cashier at the movies, you are accepting an offer to enter into a contract. All of these actions—despite the lack of fanfare—communicate an unconditional willingness to be bound by the other party’s offer. An acceptance is a necessary part of a legally binding contract: If there’s no acceptance, there’s no deal.
There is no acceptance if … Occasionally, one party disputes whether the other accepted an offer. In general, acceptance has not occurred if:
- one party’s response to an offer doesn’t communicate a readiness to be bound (“Sounds good, let me think about it”);
- the response has strings attached (“I’m willing to do it if you’ll pay me ten thousand dollars more”); or
- the offer is based on lies (“You said you had title to the car.”)
Also, if the person making the offer indicates how the other party must accept it—“Call me with your response before Saturday”—then, the other party must accept under those conditions to create a contract. In this example, accepting on Sunday will not create a contract.
Conditional acceptance and counter offers. When one party responds to an offer with additional conditions or qualifications, the response is generally considered to be a counter offer, not an acceptance. A counter offer isn’t an acceptance because it materially changes the terms of the proposed contract. Legally, a counter offer is considered a rejection of the original offer and the proposal of a new offer in its place.
EXAMPLE: A customer asks a carpenter to build a cabinet for $1,000 and the carpenter replies, “OK, if you also pay for my supplies.” The carpenter has made a counteroffer. The customer must accept the counter offer in order for an agreement to be formed.
However, under the Uniform Commercial Code—legal rules governing the sale of goods—the rules are sometimes more liberal.[i] Under these rules, a qualified acceptance might create a binding contract, despite adding new conditions, unless the modifications cause surprise or hardship. For example, “I accept your offer to sell your car, but you’ll have to arrange to deliver it to California, instead of New York.”
Acceptance by actions. Acceptance isn’t always communicated by words; sometimes actions suffice. For example, if a buyer places an order to buy goods at a certain price, and the seller responds by shipping the goods, the seller’s actions signal acceptance of the offer. However, silence by itself – that is, if one party doesn’t say or do anything—rarely constitutes acceptance. That principle is derived from a 19th century English contract case in which a man offered to buy a horse and stated that unless he heard otherwise from the seller, “I consider the horse mine.”[ii] The British court ruled that his assumption didn’t create a contract; the other party’s acceptance had to be clearly expressed. Acceptance of goods that weren’t ordered may also create a binding contract except when a consumer receives unsolicited merchandise. For example, in California, the receipt of unsolicited merchandise is an unconditional gift, which the recipient need not return or pay for.[iii]
Open offers and options. Parties that want some time to consider an offer—for example, for a home purchase—can enter into an option agreement. In an option agreement, one party pays for the exclusive right to accept an offer during a fixed period. This gives the potential buyer an opportunity to consider the deal without having to worry that someone else will snap it up—or that the terms of the deal will change—in the meantime.
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