Litigation Law

Contract Interpretation

By: Clark, Campbell, Lancaster & Munson, P.A.

 Q: When does a poorly drafted contract become unenforceable?

A: Having someone with a background in contracts and litigation help you draft agreements will decrease disputes over the interpretation and effect of your bargains. But even with the best legal assistance, unanticipated circumstances may arise that lead you wishing you had clearer terms in the beginning.

Courts do not want to interfere with freely made deals. If everyone agrees that the contract should have said X even though it really says Y, you can agree to live with X. If the other side wants to take advantage of the mistake but you can prove X was his original intent, you can ask a court to “reform” the agreement to match the intention. When there is a dispute over original intent, however, the original intent must be “clear and convincing” to overcome the clear terms of the written agreement.

Reformation is used for many purposes, including inserting obligations, signatures, and property erroneously not in the original writing or even deleting property erroneously added to the contract. Depending on the facts, you typically have to ask the court within four or five years to reform the deal, but a twenty-year period applies to reformations of deeds.

Similarly, if the other side knew and took unfair advantage of your mistake, reformation may be appropriate. In the absence of unfair conduct, however, courts cannot help resolve a one-sided mistake except to rescind (or undo) the contract and put the parties back in the positions they were in before the agreement. That option is available only if the mistaken party was not negligent and the non-mistake party will not be significantly harmed.

Like with mistakes, if a contract has ambiguities or vague terms but the parties agree what was intended, they can live by whatever legal terms they wish. Where the parties do not agree on interpretation, however, courts will review for two types of ambiguities: those clearly existing on the face of the contract due to insensible or unusual language (“patent ambiguity”), and those that become apparent only when some outside evidence is presented, including how the contract plays out in practice (“latent ambiguity”). Showing that a particular term makes sense in the four corners of the contract but could have multiple meanings to the parties because of other information is the classic latent ambiguity. Patent ambiguity, if not resolvable through reformation of mistake, may lead to an unenforceable contract, because Florida does not allow evidence beyond the four corners of the document to explain the ambiguity. Latent ambiguities by their nature, however, require resorting to outside evidence.

Through these processes, courts look to determine what parties actually intended and avoid preventing receipt of intended benefits.

The June 16th edition of “The Law” will cover when leases become equitable ownership and create property tax liability.

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