3 Lessons from Challenging Contract Interpretation in Litigation
Contract interpretation can be a minefield in the legal world, often leading to costly disputes and prolonged litigation. This article delves into three critical lessons drawn from challenging contract interpretation cases, offering valuable insights from legal experts. By examining real-world examples of ambiguous clauses, notice periods, and vague language, readers will gain a deeper understanding of the pitfalls to avoid in contract drafting and interpretation.
- Option to Purchase Clause Sparks Legal Battle
- Ambiguous Notice Period Leads to Contract Dispute
- Vague Language Creates Costly Contract Interpretation Challenge
Option to Purchase Clause Sparks Legal Battle
One of my most challenging contract interpretation cases involved a lease with an option to purchase. The contract provided the tenant with the ability to purchase the property, but there was another clause in the lease that stated if the tenant defaulted on any term of the lease, then the option to purchase was forfeited. While the tenant faithfully performed all the terms of the lease, he did have a check that bounced a year prior. Despite immediately replacing the check, the landlord/seller used that opportunity to now prevent the election to purchase. This turned into a two-year litigation since the lease contained a "grace period," and it was argued that the tenant was not technically late.
From a litigation perspective, it became a battle over strict construction versus equitable interpretation. The landlord took the position that the option clause was to be strictly interpreted and a grace period still equated to a late payment. The tenant's position was that the payment was not late; rather, it was paid and honored within the grace period and therefore not late.
I approached the case on behalf of the tenant by researching case law on grace periods and interpretations by different courts. I also used pattern, equity, and fairness arguments. I learned that courts and judges are human and generally dislike forfeitures, especially when a party has invested significant sums into the property. So we appealed to the humanity part of the deal and the trier of fact.
The case is still ongoing and set for trial, but this was a huge learning lesson for me to not rely on contract headings. The heading labeled "Option to Purchase" would lead one to believe that nowhere else in the contract would there be mention of or changes to the terms of the option to purchase. However, this is completely false. One clause later in the contract, with a completely different heading, can entirely cancel out this clause, despite a different heading. It is crucial to read the contract as a whole and see what other clauses in the contract affect the prior clause, despite a different heading.
Ambiguous Notice Period Leads to Contract Dispute
One of the most challenging experiences I had with contract interpretation in litigation was around a notice period. The contract simply stated "X days' notice" without specifying whether those were calendar days or business days. Of course, that became a huge point of contention—one party argued it meant calendar days, while the other insisted on business days, which made a significant difference in timing.
The lesson I learned—and now always apply when drafting—is to clearly specify whether "calendar" or "business days" are meant for any notice period. It sounds simple, but it can prevent numerous headaches later. Ambiguity in something as basic as timing can turn into costly disputes, so I'm now very strict about spelling that out upfront.
Vague Language Creates Costly Contract Interpretation Challenge
One of the most difficult situations I faced involved a contract where key obligations were defined with vague language. Both parties believed the wording supported their position, leaving the court to resolve the ambiguity. I approached the case by breaking down the document clause by clause, highlighting inconsistencies, and supporting my client's interpretation with external evidence of intent.
The lesson was clear: precision in drafting prevents costly disputes. Today, I avoid broad terms without concrete definitions. I use plain language, outline responsibilities in detail, and ensure all parties understand the implications before signing. Ambiguity is rarely accidental, and eliminating it reduces risk.
