Ohio courts recognize that individuals have the fundamental right to make contracts with the expectation that the terms of the agreement will be honored and enforced. This means that parties may include contractual terms as they see fit, including terms that may go against the common law, so long as both sides agree. However, parties cannot enter into a contract that's illegal or against what's considered good for the public.
What is a Contract?
A contract is generally defined as a promise, or a set of promises, actionable upon breach. The essential elements of a contract include an offer, acceptance, contractual capacity, consideration (the bargained-for legal benefit and/or detriment), a manifestation of mutual assent, and legality of object and of consideration.
Contracts can be either written, verbal, or implied. Even agreements that aren't fully finalized can be enforced, as long as both sides clearly meant to be bound by the deal and the terms are specific enough to follow through.
When Do Contracting Parties Find Themselves in Dispute?
Aside from the failure to exchange the agreed-upon consideration (i.e., the failure to perform or to pay), this article will informally explore some of the five (5) most common contract disputes.
1. Ambiguous Contract Language
The first, and often most obvious, is when a contract is ambiguous. Contractual language is 'ambiguous' only where its meaning cannot be determined from the four corners of the agreement or where the language is susceptible to two or more reasonable interpretations. When both parties offer plausible interpretations of the agreement drawn from the contractual language itself, this demonstrates that the provision is ambiguous. Even when a contract is ambiguous, it can still be enforced, but courts (and juries) must look to extrinsic evidence, like communications or past behavior, to determine intention. In commercial contracts, evidence of course of performance, course of dealing, and usage of trade may be considered.
2. Disputes Over Indemnification Clauses
Frequently disputed contract terms include indemnification clauses, representations, warranty and covenant clauses, and limitations or exclusions of remedies. To avoid conflict and dispute, careful consideration should be given to the language used in these types of clauses.
The nature of an indemnity relationship depends on what the parties intended, as expressed by the contract's language. Ohio courts interpret indemnity clauses strictly and will not extend them beyond what is clearly and unequivocally expressed. These clauses are typically used to shift or specify which party is responsible for errors, omissions, and/or performance (or lack thereof) under the contract.
3. Misrepresentations & Disputes Over Representations
A representation in a contract is an assertion or statement of fact, given by one party (maker) to induce another party (recipient) to enter into a contract or take some other action. A representation must be truthful to avoid claims of fraudulent inducement. Language may be used in a representation to avoid or limit the impact, such as "to the best of the maker's knowledge" or "to the maker's actual knowledge, without investigation."
4. Warranty Disputes
A warranty is a promise that something is true. If that promise turns out to be false, the person making it may be responsible for any resulting harm. Warranties can cover both present conditions and future performance. Some warranties are express, which are clearly stated in the contract to induce a prospective purchaser to buy. Others are implied considering the nature of the deal, the relationship between the parties, or the surrounding circumstances. In a warranty, a maker should only give truthful statements and should use language to limit the impact.
A covenant is a promise or agreement about a future act. Some covenants are implied, while others are specific.
5. Limitations or Exclusions of Remedies
A limitation or exclusion of remedies must be a part of the parties' bargain in fact. These clauses are used to prevent certain types of damages or remedies, including indirect, consequential, punitive, or treble damages. Limitations or exclusions of damages or remedies should stand out in the contract, so they are brought to the other's attention, often in bold print, all capitals, and/or larger print.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
