Legalese: September 2014

It is tempting to throw away those loose papers that are polluting your desk or office, but you may want to think about how much each piece of paper matters to you before you do so. A common mistake people make is to not keep proper records of their actions in their businesses.

Let’s say you just made a deal and there is a contract that lays out everything you think is worth mentioning — every party is pleased with the results and knows what the contract is and what is agreed upon. Well, you would be surprised to learn how often details a person thought were clear quickly become hotly contested. Extrinsic evidence is often relied upon to help interpret the contract and decipher the
intentions of the parties involved.

The contract is not the “be all, end all” of an agreement. That is why it is beneficial for you to keep proper written records of every business transaction or interaction you have. When there is ambiguity in a contract, the courts will look at the intentions of the parties at the relevant time. This includes the facts, circumstances and overall context of the agreement. More particularly, some of the factors the courts can consider are: the conduct of the parties before the agreement was made; the conduct of the parties while the agreement was made; and the conduct of the parties after the agreement had been put into words.

Emails, letters, phone conversations, voicemails, information discussed at meetings and many other forms of communication can become admissible in court as evidence in order to help clarify ambiguity in a contract. If you keep track of your documents in an organized, easy-to-find manner, you can possibly help save your business from some unfortunate situations.

Sometimes the meaning behind a contract or a specific term cannot be interpreted by referencing a dictionary or other standard resources. For example, Company A has a deal with Company B that Company A will obtain permits to “make feasible” the supply of oil. The context of this expectation to “make feasible” can be ambiguous, but may not be to a person who is familiar with this particular business and how business deals are usually orchestrated in this field. This is why courts may need other evidence – to help interpret the intentions of the parties when they made the contract. Perhaps, in that particular industry, there is a general consensus of what it means to “make feasible” a product. This general consensus can then be applied to how the court views the agreement and the intentions of the parties. In fact, when someone in a particular business industry uses and understands a word to have a different meaning during contract negotiations, it can be expected that the other party to the deal should know what that meaning is.

Courts have written about how business people are likely to rush and hurry deals because of their busy schedules and pressures to meet certain expectations. The quality of the agreements can then suffer accordingly. Very often this does not lead to problems. Businesses with good relationships with one another may carry on business in a loose manner because of the high level of trust and respect present. However, legal issues can arise despite the strongest of relationships so it is important to have a good record of each business deal just in case. It is better to be safe than sorry, and, at the very least, keeping a stack of papers in a filing cabinet is not going to cause many problems other than taking up a bit of space.

Nothing in this article should be considered legal advice. The purpose of the article is to provide you with a general idea of how courts have approached one of the many issues in the interpretation of contracts. In fact, the application of this specific area of the law is polarizing and approaches have differed throughout the courts accordingly. Nevertheless, consult a lawyer who is entitled to practice law in your local jurisdiction if you have any questions about contracts, sales agreements, or any other dealings between parties.