In today's Freedom Friday blog and email newsletter, I'm going to answer a question I am often asked about contracts, but not necessarily the way I'm phrasing that question.  I get asked to review a lot of contracts for many of my clients.  I get asked all sorts of questions about these contracts, e.g., whether it's enforceable, whether it would hold up in court, etc.  No one ever asked if the contract is ambiguous, but please hear me, if a contract is ambiguous, its may or may not be enforceable, and it may or may not hold up in court.  However, if a contract is not ambiguous, and the terms are clear, then such a contract is likely enforceable and would probably hold up in court.  So, in today's Freedom Friday blog, I'm answering the question, “Is my contract ambiguous?”.

First of all, individuals, small businesses, and other entities sign written contracts, agreements, leases on a daily basis.  In Oklahoma it is easy to form a contract.  One of the parties only needs to make an offer, and another party accept that offer, and in exchange, the parties exchange “consideration,” which is something of value, i.e., money, in exchange for goods, services, or a promise to perform something, etc.  Oklahoma has enacted its own version of the “statute of frauds”.  One part of the “statute of frauds” is that if the contract is for a sale of goods of $500 or more must be in writing and signed by the person against whom enforcement is sought (or by his or her authorized agent or broker).  The other “statute of frauds” is that certain contracts are not valid unless they are in writing and signed by the person to be charged, and such contracts include an agreement, by its terms, which cannot be performed in one year; a special promise to answer for the debt, default, or miscarriage of another (but not a personal guaranty); pre-nuptial agreements; and a lease agreement for a period longer than one year, or for the sale of real property or an interest therein.  All of those must be in writing and signed by the person to be charged for such contracts to be enforceable.

But what if two people sign a written contract or agreement, and they later disagree as to how to interpret a term or clause in the contract, or how it should be performed?  Sometimes, despite their best efforts, parties do sign an ambiguous contract, which means the contract to subject to different interpretations.  Traditionally, the “parol evidence rule” does not allow parties to introduce any verbal or written evidence to assist in interpreting the contract.  Parol evidence is any evidence other than the written terms of the contract itself.  For example, you cannot introduce as evidence in court evidence of written or verbal negotiations leading up to the formation of the contract.

However, there are exceptions to the “parol evidence rule,” especially when a contract is deemed to be ambiguous.  Under modern contract law, sometimes the parties may introduce parol evidence to assist with contract interpretation when the court determines there is ambiguity in the contract.  Parol evidence can also be admitted to show that a condition must be met in order for the contract to become effective.

Meanwhile, there are some techniques in drafting contracts to avoid the probability of a contract dispute regarding disagreement over the interpretation of a term or clause in the contract.  These include avoiding vague terms, like “standard quality” and “reasonable expenses” and similar phrases.  You should also consider hiring an attorney to assist you in negotiating and creating a contract for your small business.

Thinking about starting a small business?  Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth?  Please contact me at [email protected] to schedule a FREE strategy session.

For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com/