As an attorney that regularly practices commercial
litigation, I read a lot of contracts. Some good, most bad. One disturbing
trend that I have noticed is the willingness of businesses – both small and
large – to use form contracts or contracts created for other companies. The
justification I hear is the belief that the contract must be good enough
because a larger or older company is using it. The thinking is simple – “if it works
for them, why wouldn’t it work for me?”
This isn’t a knock on Blumberg forms or other form
contracts. They have their purpose and may work for some people. I do, however,
take exception to the thought that because it’s good enough for someone else,
it is good enough for your business. It’s not, and the fact that I just
finished a trial on a ten year old breach of contract litigation confirms that
every business needs its own tailored contract.
Form contracts and contracts written for other businesses do
not take into account the traits that make your business unique. Every business
has a differentiator, especially in highly regulated fields. When you use a
form contract, you are failing to include language that accounts for and takes
advantage of the differentiator that makes your business successful.
Form contracts typically are overbroad and are not
sufficiently specific. Blumberg doesn’t know the nuances of the agreement
between your business and your clients, so their contracts are intentionally
drafted using vague, ambiguous and broad terms and topics. In a breach of
contract litigation, ambiguities are the death of your contract. Not only are
ambiguities construed against the drafter of the contract (yes, you are
considered the drafter of the contract if you choose a form contract[1]),
but once a court finds an ambiguity, the door is open to parole (extrinsic)
evidence which can potentially modify the written contract.[2]
If you are fighting about what the parties “thought” the contract meant, you have
already lost the battle.
My ten year old breach of contract case likely never would
have gone to trial if the business had used a contract tailored to their
specific business instead of using a generic contract used for their industry
in general. Because the form contract included services and methods of payment
that were inapplicable to the business, following a motion for Summary Judgment
(asking for a pre-trial decision by the Court as a matter of law), the Court
held that the contract was ambiguous. Once it was determined that the contract
was ambiguous, the defendant was allowed to introduce a slew of evidence of
oral representations allegedly made by the business which made the defendant
misunderstand the written terms of the contract. If the business had retained
an attorney to draft a contract specifically for the services that they
provided instead of using a form contract shared between multiple businesses in
the industry, there likely would have never been a lawsuit in the first place,
let alone a trial.
If you have the ability to control the contents of your
contract and you take a shortcut or the cheap way out, you are being penny-wise
but pound-foolish. A rock solid contract decreases litigation costs and
increases the chances that you will be compensated for your goods or services.
A defaulting party is less likely to challenge a contract in Court if the
language is straightforward and tailored specifically to address the dispute in
question. Finally, in the event that you are forced to go to Court to enforce
your contract, a tailored agreement decreases the chances that there will be a trial[3]
to resolve what the parties were really agreeing to when they entered into a
written contract that was supposed to memorialize their understanding and
agreement.
Be wary of forms.
[1]
Interested Underwriters at Lloyds v. Ducor’s Inc., 103 A.D.2d 76 (1st
Dept. 1984)
[2]
Hartford Accident & Indemnity Co. v. Wesolwski, 33 N.Y.2d 169
(1973).
[3]
The interpretation and application of an unambiguous contract is a matter of
law that may be disposed of in a motion for Summary Judgment, obviating the
need for a trial. Hartford Accident & Indemnity Co. v. Wesolwski, 33
N.Y.2d 169 (1973).
