The Mistake of a Business Owner Regarding Contract Provisions

Certain contract provisions appear to be a “bunch of legal mumble jumble” that are often ignored. Ignoring contract provisions, regardless of how mundane they appear can have serious consequences. Do not overlook a notice provision in a contract or lease. Consider the following examples:

Hypothetical: Ella enters into an equipment lease for her business. She owes $5,000 a month under the terms of the lease. The equipment continually breaks down, so Ella wants to bring a lawsuit.

Analysis: The contract requires that Delaware law governs the terms of the contract and that the lawsuit must be heard in Delaware courts. Ella then consults with a Delaware attorney who informs her of Delaware’s laws, which are not as favorable to Ella as Minnesota law would have been.

Hypothetical: Kendra enters into a lease for her commercial space. The lease terms are five years with an option to renew. The renewal period requires 120-day notice. Kendra provides notice to her landlord 60 days prior to the expiration of the five years and she does so via e-mail. The landlord rents the space to a different tenant.

Analysis: Kendra has no recourse against her landlord. Not only did she fail to provide 120-day notice, but even if she had, her notice would not have been valid. The reason why is because of the notice provision in her lease. That provision requires that she provide notice via certified mail to her landlord to a specific address. Notice provisions are often overlooked. Overlooking a notice provision – even with oral permission of the other party – is more likely than not detrimental.

Hypothetical: Rosa enters into a contract drafted by the other party that has the following provision: “This agreement shall be considered as drafted jointly by all the parties, and no uncertainty or ambiguity found in its terms shall be construed for or against any party based on an attribution of drafting to any party.” There are a few terms that Rosa does not agree with as they actually favor the other party’s rights to the detriment of hers. However, she does not make any proposed changes to the contract prior to signing it because she does not believe that she has the right to do so, the provisions are vague and also because she does not believe there will be any issues. The other party then breaches the contract causing $50,000 of damages to Rosa.

Analysis: Rosa’s arguments as to why she did not make any proposed changes are going to be unsuccessful. Therefore, she is not going to be able to rely on the common doctrine that ambiguities are held against the drafter because that common doctrine does not apply to her contract.

Spangler and de Stefano, PLLP assists business owners with understanding, reviewing, drafting and revising of contracts and leases.

The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Spangler and de Stefano, PLLP and the reader. The information contained herein is not offered as legal advice and should not be construed as legal advice.