Owners of Carvel Ice Cream franchises in East Coast states were shocked when they discovered their franchisor, Carvel Corp. of Farmington, Connecticut, had started selling its ice cream in supermarkets at prices that undercut the franchise stores. They thought their contracts gave them protected territories. But when they hired attorneys to look into those contracts, they discovered the wording was ambiguous.
For instance, some contracts guaranteed the company would not establish other Carvel stores within a quarter mile of a Carvel franchise. But did a supermarket count as a Carvel store? A U.S. District Court judge ruled that because the contracts were ambiguous, it would be up to a jury to determine the intent of the company in drafting the contracts and the expectations of the franchisees who signed them.
Ambiguous language in contracts is a common problem, says Gregg Weiner, an attorney with Fried, Frank, Harris, Shriver and Jacobson in New York City. Courts have not established a standard for determining whether contract language is ambiguous or clear. Generally speaking, he says, the question is whether the language is objectively susceptible to more than one meaning. But appellate courts have overturned trial courts, disagreeing over whether a particular contract is ambiguous.
If a judge rules a contract is ambiguous, the matter goes to trial where the jury determines the meaning of the contract by examining not only the language of the contract itself but also other documents, such as letters, that might indicate the parties' intent. The dispute can take years to settle, draining energy that could be going toward building the business.
Make sure your contracts are clear and unambigous. Weiner advises having someone experienced with contract disputes-preferably a lawyer who specializes in contract litigation-go over contracts with an eye toward future problems.
Use language broad enough to cover circumstances that might arise, Weiner advises. For instance, a lease should address whether you have to pay rent if you don't have access to the space. "There might be a hundred reasons why you wouldn't have access to your space, [such as a] flood [or] a strike," he says. But even if you list as many as you can think of in the contract, something else could happen. So be sure that the meaning of the language is clear enough to govern the relationship when the unexpected happens.
Steven C. Bahls, dean of Capital University Law School in Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane easter Bahls specializes in business and legal topics.