Good lawyers pay careful attention to the words of a contract to avoid vague, confusing, and ambiguous language that can cause an outcome has nothing to do with what at least one of the parties intended if they have a disagreement…and also, so you don’t lose your baseball team.
Several years ago, unclear, ambiguous, and inconsistent contract language (not to mention some bizarre lawyer shenanigans) cost the owner of the Los Angeles Dodgers one-half of the team in divorce proceedings. It did not need to happen. This prominent case, and others, make clear how important precise contract language is, and explains why good lawyers spend so much time working on the exact words and punctuation in a contract.
Precision word use in a contract locks in what is said today and what is intended for posterity. Clients who send their attorney a form contract from a vendor for a “quick review” are often looking for the attorney to either say the contract is fine or make a couple corrections and move on. But sometimes those form contracts are so bad, they must be tossed in the trash and started over to protect the client.
The reason why is not always easy to explain to a client, which is why I’m going to explain the importance of contract language. Not every contract has to be in writing. Some people like to do a contract or an agreement based on a handshake, which can be enforceable unless a written contract is required by law.
If the contract is not written, however, and the parties disagree on anything, how will a client prove what the terms of the contract are? It becomes one party’s word against the other. People’s memories tend to change to fit what they want to happen later. In a dispute, the judge’s decision may come down to who the judge believes in a classic she said, he said scenario, which can be no better than a coin flip.
So, when a client tells me that a handshake is good enough because they trust the other party, that handshake deal completely misses the biggest risk of any agreement based on trust – what if the person they trust is no longer there, or gets dementia, or is incapacitated? If anything happens to that trustworthy person, who will the client have a contract with? The spouse? The kids? More distant heirs? A receiver? A bankruptcy trustee?
It will probably be someone who has no knowledge of what the trustworthy person promised, and no incentive to preserve that relationship settled in a handshake deal. For the sake of clarity among parties, every agreement that will be performed over time should be in writing so that it can be enforced if something happens to one of the parties.
The rules of law that apply to contracts make precise word use in contracts important. If the language in a contract is clear, explicit, and unambiguous, no additional evidence can be considered regarding what the contract means and what the parties intended.
That means in a dispute, the judge or jury will determine what the contract says, and whether a party has breached or defaulted, based solely on the words in the contract. The court cannot consider and will not even listen to the parties testify what they meant, or what their intent was, or what they think the contract says. The contract speaks for itself – end of analysis.
On the other hand, if the words in the contract are unclear, confusing, or there is a mistake, then the court cannot rely solely on the words of the agreement. The court must determine the intent of the parties.
When that happens, there are two general factors used to determine what the parties intended. The first is called parol evidence, and the second is the application of the rules of contract interpretation. Either one might not result in the outcome a party wants or expects when they enter the contract.
Parol evidence is evidence from outside the words of the contract. If the case is open to parol evidence, then each party can testify what they think the contract means, and what they intended when they entered the contract. In that case, it may come down to which party is most believable. As we all know, people tend to remember things the way they want to when there is a disagreement later.
In addition to parol evidence, the court has rules of contract interpretation that can be applied to decide what the confusing language means. For example, precatory terms are words expressing a wish or desire or intention, as opposed to an obligation such as “one party shall pay $100 to the other.” Precatory terms are generally not considered when interpreting a contract. The court will only consider plain statements of obligation, not desires.
Vague language, descriptions or requests are not considered if there is ambiguity in the contract. And, in general, confusing language is interpreted against the party that drafted the contract. If your lawyer wrote the contract, and the contract language is confusing, you will probably lose.
There is also the Latin rule of Ejusdem Generis, which applies when general words are followed by specific words, and the general terms will be limited by the specific terms. For example, in West v. Aetna Life Ins. Co., a person conveyed all of their “mineral, oil and gas rights” to another person. Later, there was a dispute over the meaning of mineral, oil and gas rights. The buyer said it meant all minerals, including gold and silver. The seller insisted that it meant only oil and gas related minerals. The court applied Ejusdem Generis and held that “minerals” were limited by the more specific “oil and gas” statement and therefore the buyer only got hydrocarbons, and not the gold and silver.
Another Latin rule, Inclusio Unius Est Exclusio Alterius, means inclusion of one is exclusion of the other. This rule applies when a contract lists and addresses numerous items but does not address the items that are not listed. That is why lawyers, unfortunately, are fond of writing “including without limitation” whenever they write a list.
These and other rules demonstrate that, in a dispute over unclear contract language or a contract mistake, the interpretation applied to resolve confusion may end up having nothing to do with what the parties wanted, and might cause an outcome that at least one of the parties did not want.
A couple of cases highlight the confusion that can happen when imprecise language is used. Both of these cases boiled down to the misuse of two letters, causing an outcome one of the parties did not want.
The first case mistakenly used the predicate “in” versus “of.” In FindWhere Holdings Inc. v. Systems Env. Optimization LLC, the contract stipulated that jurisdiction for any dispute would be “the courts of North Carolina.” One party sued in North Carolina state court. The defendant wanted to move the case to U.S. federal district court in North Carolina and the court rejected the request.
If the contract had said jurisdiction would be “the courts in North Carolina,” that would include federal court. But the contract said jurisdiction was “the courts of North Carolina.” Federal court is not a court “of North Carolina”, even though it is in North Carolina. Only state courts are courts of North Carolina.
A much more dramatic case is a story known as “how to lose a baseball team through legal malpractice.” The case similarly hinged on the use of two-letters, “in” versus “ex”.
In 2004, Frank and Jamie McCourt were married lawyers who bought the Los Angeles Dodgers and planned to move to California. California has some specific and unique divorce property laws, which makes it a good idea for wealthy people to have an agreement about what assets belong to each spouse and what assets are jointly owned.
The McCourt’s hired lawyers at a prestigious law firm to prepare a Marital Property Agreement intended to clearly state what property belonged to Frank, what property belonged to Jamie, and what property was joint property. This is what the agreement said:
Exhibit A
Frank’s Separate Property Assets
“all securities currently listed solely in Frank’s name inclusive of the following,” then followed a list of assets that included the Los Angeles Dodgers baseball team and the ownership of the Chavez Ravine baseball stadium.
First, we have to ask, what was going through the lawyer’s mind when he wrote “inclusive of?” A good contract rule of thumb is if you are not going to say it, do not write it. Are you going to say, “I’ll have a cheeseburger, inclusive of tomato, lettuce and french fries?” No, you are not. So, why would you write that in an important contract?
While “inclusive of” sounds like Elizabethan English, it is not particularly confusing. But, hold on, it gets much worse. There were multiple copies of the agreement and the copies did not match. There were six originals of this agreement. Three of the marital property agreements said “inclusive of the L.A. Dodgers.” But the other three agreements said:
Exhibit A
Frank’s Separate Property Assets
“All securities currently listed solely in Frank’s name exclusive of the following:” Frank’s stock in the baseball partnership “including within this exclusion,” the Los Angeles Dodgers baseball team and Chavez Ravine.
All the lawyer had to do was make three lists: Frank’s stuff, Jamie’s stuff, joint stuff. There was absolutely no reason to write “inclusive of,” “exclusive of” or “including within this exclusion.”
Now the agreement has two problems. First, bad legal writing that either party can claim is ambiguous. And worse, Frank and Jamie had two different signed versions of the same contract that, if you can figure out what they say, are opposite to one another regarding who owns the Dodgers. There was more to this case, including a lawyer changing the exhibits after they were signed without telling the parties, the law firm preemptively suing Frank McCourt, and on and on.
In the end, when the McCourt’s divorced, Frank claimed he owned the Dodgers, Jamie claimed she owned one-half of the Dodgers. Jamie won when the court threw out the Marital Property Agreement on several grounds, including that it was so poorly written that it did not meet the requirement of a full and knowing waiver of property rights under California law. In addition, the lawyers had an undisclosed conflict of interest; the lawyers did not tell Jamie they were representing Frank and that she should get her own lawyer.
According to Frank, he lost one-half of the L.A. Dodgers over two letters, “in”clusive versus “ex”clusive, and lawyer shenanigans. Frank subsequently had to buy Jamie out of her half-share of the Dodgers, and Frank sued that law firm for malpractice (after they sued him first!). That law firm no longer exists.
So, while that is a dramatic example of how a mistake in two letters, and bad legal writing in general, can have a huge financial impact, these stories and cases are common, and the case law is full of similar outcomes caused by confusing language or writing mistakes (though usually not involving professional sports teams). That is why good lawyers spend so much time and pay so much detailed attention to the words of your contract so that when you buy the Los Angeles Dodgers, you will not lose them.
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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