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One Word in a Business Contract Can Make a Huge Difference

It’s often surprising how major business deals or complex financial transactions can be determined by the meaning of a single word or phrase in a contract or agreement. A number of business disputes end up in court just over the interpretation of an ambiguous term. A recent case is another reminder of how important it is to have an attorney review your business agreements.

The Meaning of a Single Word

The case involves residents who moved into a retirement community that had an upscale club. As part of the required membership to the club, the residents had to pay upfront fees, startup fees, and a monthly service fee.

The contract did say that fees paid would be refunded if the owners wanted to cancel, and if the unit was not occupied within a certain number of days from the contract’s signature.

The residents moved some of their furnishings in, but never physically lived there. They cancelled within the required time period, and asked for a full refund, given they never lived in the unit. The community refused the refund, saying that the residents had “occupied” the unit, and thus, the refund clause was not operable.

And therein arose a conflict that went to court over the meaning of “occupy.” The court found in favor of the resident, and the community appealed.

How Contracts Are Interpreted

When there is ambiguity in a contract, the first thing a court will look at to interpret meaning is the intent of the parties. This may involve obtaining evidence of the parties’ intent and expectations at the time of the contract.

If the intent cannot be determined, the court will then apply a rule that interprets language against the drafter. We presume that the drafter of an agreement had every opportunity to clarify terms and put whatever they wanted in a contract. If there is an ambiguity, the party that should be faulted for it is the drafter. Thus, the court interprets ambiguous terms against the party that drafted the agreement.

Court Sends Case Back to Trial

The appellate court found that the trial court never considered the intent of the parties, when it could and should have. The trial court simply interpreted the agreement against its drafter, but that’s only proper if intent can’t be determined. In other words, the trial court jumped directly to “step 2.”

The appellate court felt that there was some indication that the intent of the parties could be determined if the trial court had tried. For example, there could have been evidence that the parties intended the statutory definition of “occupy” to control. There was also evidence that intent could be determined by the residents’ having moved some of their possessions into the unit.

Get Agreements Reviewed

A lot of rumors or urban legends about law are false. But the one about millions of dollars turning on the interpretation of a single word can often be true. It’s easy for business owners to draft their own agreements without a critical eye. But doing so can be a costly mistake.

A little time and effort having a seasoned business lawyer review contracts and agreements can save a lot of trouble and money later on. Contact Tampa business attorney David Toback to discuss your needs and review documents your business relies upon to survive.

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