The Modern Firm Website Analytics

Providing legal expertise to our clients, nationwide

Contracts: when the writing is not on the wall

In recent months we have seen a lot of situations where clients have dug themselves a hole by signing a contract.  In some cases the client didn’t read the contract.  In others the contract didn’t reflect the agreement.  In others, the contract was just a bad deal for them.  In all of them, we didn’t see the contract until there was a problem.  That is less than ideal.  Regardless, two common sayings apply: “Don’t be a penny wise and a pound foolish” and “If it looks too good to be true, it probably is.”

Bad Fit

I have been asked to read insurance contracts in which clients, with warehouses filled with fragile objects, assumed liability for “breakage” in these facilities.  If you’re not insuring a building full of things that break against those things being broken, how much is that insurance really worth to you?  Not worthless, but not worth as much as it might be.  Similarly, clients who sell valuables have asked me to review insurance policies that disclaim theft.  Again, not as useful an insurance policy as you might want, and it is probably worth paying more for a policy that protects against your primary risk.  Additionally, clients who do long-distance transportation have ended up with insurance policies based on the number of miles driven, which makes such a policy likely more expensive.

If a contract is a bad fit, you definitely can’t sign it. This becomes especially true when the contract is worded in such a way as to make it one-sided, ambiguous, unenforceable, or otherwise problematic.  As attorneys, we look very closely at contracts with words that direct an absolute, such as “in any way,” “anything that may be considered to be,” or “whatsoever.”  If those words are in a contract, you need to have considered all options.  Moreover, sometimes major, valuable, risky provisions make it into a contract.  “Indemnification,” for instance, means that you will pay for any damages in the case where the other guy gets sued.  Sometimes such a clause will even include costs of defense, which means you may have to pay for their lawyer after the fact if you don’t take over a claim up front.  It’s not that you can’t agree to such things, you just need to make sure you intend to when you do.

The bottom line is, just because you have a contract in front of you does not mean that you have to, or even should, sign it.

Duty to read

In Virginia (and, frankly pretty much in America as a whole) a party is required to read, and presumed to have read, any agreement it signs.  Quoting the Virginia Supreme Court, “When no confidential relationship exists between parties to a contract, and the parties have ample time to read a contract, the law imputes a duty to read on all parties and will not allow failure to read to defeat the terms of a written agreement.”  T.D. Bank N.A. v. Frey, 83 Va. Cir. 68 (2011) (citation omitted).  It generally does not matter what you thought the contract said, or what makes or doesn’t make sense, or even what you intended or agreed for the contract to say, once you sign it the contract is presumptively binding.

This is particularly important when you are signing a contract drafted by another party (more likely their lawyer), and especially important if you are contracting with them in an area they frequently contract in.  Such a contract will be, intentionally, self-serving and one-sided in favor of that party.  Where there are words or terms in a contract that are unclear, or that you don’t understand, or where there are apparent typographical errors, misnomers, etc. you are buying chest pain by signing it.

The bottom line is, if you have a contract in front of you and are even considering signing it, read it.

Parol Evidence

In Virginia (and, frankly pretty much in America as a whole) an agreement reduced to writing is presumptively enforceable as written unless it is clearly ambiguous – in other words, if the words can only be reasonably interpreted in one way they will be interpreted in that way regardless of how unfair the result may be.  Frequently clients will say they are not concerned because they discussed an issue with the other party before reducing the matter to writing, and in some cases even have an email or letter discussing such an issue.  Bluntly, if this doesn’t make it into the contract, it doesn’t matter.  “[W]here an agreement is complete on its face, is plain and unambiguous in its terms, the court is not at liberty to search for its meaning beyond the instrument itself . . . . This is so because the writing is the repository of the final agreement of the parties.”  Berry v. Klinger, 225 Va. 201, 208 (1983) (Citations omitted).

While there are unusual and narrow exceptions, “parol evidence,” or evidence outside the “four corners of the contract itself” generally cannot be used to alter or explain the terms of the contract.  Thus it doesn’t matter whether you have an email, a letter, a voicemail, or a video of the other party stating different terms to your written contract, if you later sign a document that is not ambiguous reflecting other terms than such a document you at best are going to have to argue your position in court, and at worst are likely to lose without ever getting to put that evidence forward.  Don’t put yourself in that position.

Worse, most lawyers, including lawyers who write contracts, are not dumb and don’t want their contract disputed by such evidence.  To avoid this, they will include a “merger clause,” or a provision in the contract that specifically says there are no other agreements between the parties related to the subject of the contract.  “The parol evidence rule is particularly applicable where the writing contains an integration or merger clause…”  Williams v. Commonwealth, Record No. 3096-08-1, 2010 Va. App. LEXIS 382, *10 (Va. App. Unpub. Sept. 28, 2010) (citation omitted).  In such a case, you’ve not only agreed to an agreement other than the agreement you thought you had, you agreed you didn’t have the agreement you thought you had.  Definitely don’t put yourself in that position.

The bottom line is, if you have a contract in front of you and it doesn’t say what you expect or planned for it to say, don’t even considering signing it.

Contracts are often long and boring.  When they aren’t long and boring, they are usually vague, incomplete, and not worth the paper they are written on.  Unfortunately, contracts are also a part of life.  Avoid letting them be a part of the downside of life by exercising appropriate care when contracting.

If you have questions about this article, please contact Dov Szego (804-377-1263) at dszego@setlifflaw.com or Steve Setliff (804-377-1261) at ssetliff@setlifflaw.com.