One of my favorite books growing up was The Cat in the Hat by Dr. Seuss. The out-of-control characters running around causing trouble was humorous, but those whimsical drawings really pulled it together. In sparsely worded stories that leave room for the imagination, the drawings provided an example of what was going on in Dr. Seuss’s brain when he wrote the story. The drawings gave the child reading the story a visual image of how a “Thing 1” and “Thing 2” looked. The drawings made parts of the story clearer.
A contract or formal agreement, in a way, tells a story. It tells the story of how that relationship will exist and move forward. Furthermore, the written agreement captures the story of the past—the negotiations and past experiences of both parties going into the agreement. All of this—past, present, and future—come together on paper as a concrete version of what will be the life of the deal.
Unlike a Dr. Seuss book, contracts are not meant to be entertaining (although some of my law school professors would disagree). A contract must not stimulate the imagination, but stop the imagination in its tracks. In other words, if a company is selling something to someone, it needs to be clear as to what that something is. If, for example, a food supplier is selling one hundred pounds of “green eggs and ham” to a restaurant, both parties need to be clear as to whether both the eggs and the ham are green, or just the eggs.
When a term is not defined clearly in a contract there is room for misunderstanding by one or both of the parties. And where there is room for misunderstanding, there is room for errors that can eventually lead to litigation or, at the very least, money lost due to inadequate performance or a delay in performance. Even if you understand the document, it is crucial that you make sure the other party does as well. If the other party is mistaken (a “unilateral mistake”) a court may be able to issue one of two costly remedies on behalf of the mistaken party:
1) Reformation: The contract is changed to reflect the parties’ original understanding.
2) Rescission: The contract is cancelled IN ITS ENTIRETY and the parties restored to their position before the contract was entered into. (Available if the non-mistaken party knew or should have known about the mistake.)
For those of you small business do-it-yourselfers, this is an incredibly important issue. It’s always recommended that you consult an attorney to prevent these kinds of oversights from happening. However, if you choose to create an agreement on your own, ask yourself, “Could that word or phrase mean more than one thing to a reasonable person?” If you answer “yes,” then you might want to consider adding more descriptors – maybe even a diagram, chart, or illustration.