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Read contracts
BEFORE you sign
By Kent Hanszen
HANSZEN � LAPORTE LAW
FIRM
Contracts not only govern day-to-day operations with clients, but contracts often provide the road map for resolving disputes. Companies often negotiate contracts harmoniously and operate under their agreements for years without incident. In many cases, the parties may not follow the exact terms of their agreement, and theses small deviations are accepted because of the continuing harmonious relationship between the parties.
Then, months or even years later, the once harmonious relationship sours, and the parties run to their filing cabinets, dust off the old contracts and try to muddle their way through the legalese to determine who�s right. The problem, however, is that, although the two parties are reading the same key provision, they have very different interpretations of the provision�s language. In some instances, one of the parties may remember the contract�s negotiations and the discussions which ultimately led to the contract, and they believe that a simple reminder of those discussions should finally resolve the current dispute. Unfortunately, no one may ever get to hear that story.
There is a rule called the �parol evidence� rule, and no, it has nothing to do with being released from jail. Rather, the parol evidence rule is a legal principle that precludes consideration of any evidence outside of the parties� agreement. That is, if the contract�s language can be given a certain or definite legal meaning or interpretation, then the courts will rule on the contract without considering any other evidence. They will rely only on the contract�s language in determining the dispute. Accordingly, in many cases, the language may not accurately reflect the parties� pre-contract discussions, but since no one read the contract before they signed it, they didn�t realize that the contract actually said something different than agreed. Now, everyone is stuck with this language.
If the provision�s language is confusing, then a court may rule that the contract is ambiguous, and the question of the contract�s meaning becomes a fact question for a jury or court to decide based on the evidence. If this occurs, a court (or a jury) may consider evidence outside of the contract, and then, and only then, will one�s recollection of the negotiations related to the contract be considered. One should keep in mind that an ambiguity does not arise simply because the parties offer conflicting interpretations of the contract�s language. Rather, an ambiguity exists only if the contract is susceptible to two or more reasonable interpretations.
It should be noted that the parol evidence rule does not exclude evidence offered to show that a contract is invalid for fraud, accident, duress, undue influence, illegality, or mistake. So, if a party gets bamboozled, then that party may show evidence related to the other party�s bad conduct. Typically however, breach of contract lawsuits relate to more basal matters like �he didn�t pay me,� or �her officers never showed up to work.�
In the end, it is worth taking the time, before one signs a contract, to read through it, understand the agreement, and make changes then, if necessary. Once executed, one is likely stuck with that agreement. And paying a lawyer to help undo a mess is substantially more expensive than taking the time to read the agreement thoroughly at the outset.
So, read your contract before your sign.
To reach Kent Hanzsen, call (713) 522-9444 or e-mail [email protected].
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