Covering the Bases—A Cautionary Tale from the Litigation Minor Leagues

Because so much litigation has its roots in deficient drafting, I keep half an eye on new case law, and I can be counted on to leap on anything that has a bearing one of my pet subjects. But I suspect that most cases that arise out of poorly drafted contracts don’t involve hot-button drafting issues such as the meaning of best efforts.

Instead, many disputes arise simply because the drafter was aware of an issue, took a vague swipe at it, and missed by a mile. I just encoutered an ever-so-humble instance of this in Wollaston v. E-Scrap Tech., Inc., 2007 U.S. Dist. LEXIS 27484 (D. Az. Apr. 12, 2007).

In 2005, E-Scrap Technologies, Inc. (“E-Scrap”) and Wollaston dba ScrapComputer.Com (“Scrapcom”) signed a contract in which the parties agreed to create a Chicago branch of Scrapcom’s computer-scrap business. Evidently, the plan was that E-Scrap would find customers who had computer scrap to unload and Scrapcom would arrange for that scrap to be shipped to Malaysia or some other destination for “demanufacturing.”

In 2006, E-Scrap terminated its relationship with Scrapcom. Shortly thereafter Scrapcom filed a complaint against E-Scrap asserting, among other things, breach of contract, causing E-Scrap to file an answer and a counterclaim. In the counterclaim, E-Scrap contended, among other things, that Scrapcom had billed E-Scrap for shipping charges that the parties had previously agreed Scrapcom would pay.

The pertinent provision of the agreement reads as follows:

Owner [E-Scrap] agrees to provide suitable warehousing and commercial transportation at owners’ expense.

Scrapcom sought summary judgment on the issue of who was responsible for the shipping costs. It contended that under the plain language of the agreement, E-Scrap was responsible for the shipping costs.

E-Scrap countered that the issue couldn’t be decided on summary judgement—the pertinent language in the agreement was ambiguous, in that the meaning of “commercial transportation” was unclear. E-Scrap claimed that the parties had intended that E-Scrap would be responsible for finding customers and picking up the scrap from them but that Scrapcom would be responsible for shipping the scrap from the warehouse to the demanufacturing facility and would pay all related shipping charges.

The court held that “commercial transportation” was susceptible to more than one meaning and denied Scrapcom’s motion for summary judgment.

For me, the moral of this story is that a drafter needs to consider every element of a transaction and address all the implications. I don’t have a neat system to offer you. Instead, I can only suggest that you do what I do and constantly ask yourself a series of questions: Who? What? Where? When? Why? How much? And especially, What if?

In E-Scrap, the drafter failed to address adequately who had to pay what transportation costs. (The provision in question isn’t ambiguous—capable of expressing two or more different meanings—so much as vague; courts tend to get carried away in their use of the word “ambiguous.”) Note that hallmark of weak drafting, the abstract noun—framing the sentence around “transportation” allowed the drafter to get away with not saying what was to be transported where. (While we’re at it, note suboptimal use of “agrees to” to express an obligation and the misplaced apostrophe in “owners’.”)

I might have said something like this: “E-Scrap will be responsible for all expenses incurred in transporting scrap to the Warehouse.” Note that I’d use language of policy rather than language of obligation—Scrapcom doesn’t care whether E-Scrap actually pays the expenses, it just wants to make sure that Scrapcom doesn’t have to pay them. And if I were counsel for E-Scrap, I’d make a point of avoiding any suggestion that E-Scrap is obligated to provide transportation, as opposed to paying for any transportation that it does arrange.

I would then have gone on to describe the arrangements for Scrapcom’s shipping scrap from the warehouse to any demanufacturing facility. In the process, I would have specified that Scrapcom would be responsible for any related expenses.

E-Scrap’s deal with Scrapcom was obviously not the deal of the century. But that makes it all the more poignant that they find themselves in court. The confusing vagueness on display in their agreement also occurs in contracts for much bigger deals, with similarly unfortunate consequences. Whatever the value of the deal, the remedy is the same: having the imagination to consider what needs to be addressed and having the fluency to find the best language to express it.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.