Oops! The Contract Doesn't Mean What it Says?
The worst contracts I have ever seen were put together by parties without the aid of a lawyer. They can be poorly written, contain language that is based on unstated assumptions, and many times the contract doesn't even describe the agreement. However, even lawyers don't draft perfect documents.
To save money parties sometimes just get old contracts (probably from colleagues,) add a few things, and “cut and paste” or "copy and paste" from different documents those terms they like. Is it a surprise the contracts are not always consistent. Some contracts are literally jotted down on a napkin at a restaurant, or hand written when parties meet and decide to make a deal.
What happens when the parties decide that they are not the friends they once thought they were, and want to change the arrangement, but the contract does not appear to allow the change.Peter Mahler has reported on an interesting decision relating to problems with poorly thought out contract terms. A court in NY had to decide what to do when the parties enter into an agreement governing the operation of an LLC in the state. Arguably the agreement had inconsistent provisions. The court made an unusual decision that the express terms of the contract didn't count. This is the type of decision that reinforces my concern that many times litigation is a "crap shoot."
In the operating agreement in question all of the members agreed to vote for named members the as the LLC managers. Instead, the members voted to remove one of the member managers from that position. But, the agreement was silent about the rights of the members to remove managers. If you must vote for specified parties as managers, how can you vote to remove the same specified party? Yet another part of the agreement discussed the effects of the expulsion of the manager. As Mahler noted:
"In fact, Section 8 of the contract provided for election of a new manager by majority vote of the members should there be less than three managers due to "the death, retirement, resignation, or insanity of a manager." (Note the omission of any forced removal.)"
So the parties litigated to rights and duties of the members of the LLC to remove the manager. A lesson for all of us is that if you are going to put together an agreement, make sure it is consistent. And, alway assume that there might be circumstances when the parties will disagree, and make provisions in the beginning for handling the disagreements.
