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Recent Opinions Interpreting Contract Terms Highlight the Importance of Carefully Drafted Agreements

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Seth A. Drucker
Foster Swift Commercial Litigation News
October 16, 2014

Several recent cases highlight the importance of careful attention to detail in contract drafting and enforcement.  Attention to these details at the time of contract formation will guide the parties’ conduct under the agreement and avoid surprise in the event of breach by one or both of the parties.

In Jefferson v. Benteler Auto. Corp., 2014 Mich. App. LEXIS 507 (2014), the court interpreted a contract that had two clauses addressing the parties’ indemnification obligations.  The first provided that indemnity would lie for all claims “resulting from these products and/or services.”  The second provided that indemnity would lie for all claims that are “in any way related to” seller’s performance.  In construing the parties’ liability, the court held that the phrase “resulting from” was narrower than the phrase “in any way related to.”  Based on this ruling, care should be taken to ensure consistent indemnity triggers in agreements and, where different language is used in the same agreement, that the parties understand the scope of their indemnity undertakings.

When entering into a requirements contract, be sure that it is a requirements contract.  In Crown Battery Mfg. Co. v. Club Car, Inc., 2014 U.S. U.S. Dist. LEXIS 18907 (N.D. Ohio 2014), the court found that the contract at issue, which required Crown to manufacture and have available for purchase by Club Car 12,000 batteries per month, imposed no obligation on Club Car to purchase any of those batteries. Because the contract did not obligate Club Car to purchase any batteries, it was not liable to Crown for any damages.

Parties must be aware that provisions other than those in a survival clause may be enforceable, even after the contract has expired.  In Huffman v. Hilltops Cos., LLC, 747 F.3d 391 (6th Cir. 2014), the court enforced an arbitration clause in an expired contract even though the arbitration clause was not included in the survival clause of the contract.  The court found that the strong presumption in favor of arbitration outweighed any ambiguity as to whether the parties intended the arbitration provision to survive. 

Two cases illustrate that parties must promptly enforce their contractual rights or risk losing them.  In Bev Smith v. Atwell, 301 Mich. App. 670 (2013), a collector learned the hard way that contract rights must be promptly enforced.  Here, the collector bought a classic car that he was told was “original.”  It turned out much of the vehicle had been replaced during restoration – a fact the purchaser claims he did not learn until sometime later.  Nearly two years after purchasing the vehicle, the purchaser sued the seller.  Evaluating the sale under the UCC, the court found that the purchaser had failed to give timely notice of a defect which he could have discovered (UCC § 2-607(3)(a)).  The court found that given the nature of the product, the plaintiff had a full and fair opportunity to inspect the vehicle prior to purchasing it, and even more time after making the purchase. 

A court may also question a contractually agreed upon right to injunctive relief if the aggrieved party does not promptly seek to enforce its rights.  In Nexteer Automotive Corp. v. Korea Delphi Automotive Sys. Corp., No. 13-CV-15189, 2014 WL 562264 (E.D. Mich. Feb 13, 2014), the Court found that despite a contractual provision entitling Nexteer to equitable relief (an injunction), it was nonetheless obligated to analyze whether Nexteer was entitled to injunctive relief.  Upon doing so, the court found that Nexteer was not entitled to such relief because it had not proven it would suffer irreparable harm.

Finally, parties must take care in following contractual procedures for notifying the other party of a default or intent to enforce their rights under a contract.  The court in Majestic Golf, LLC v. Lake Walden Country Club, Inc., 495 Mich. 909 (2013), found that a letter from the non-defaulting party to the defaulting party requesting that it perform its duties under the contract was not sufficient notice of default under the contract.  The court reasoned that because the letter was not clearly identified as a notice of default it did not trigger the default remedies under the contract.

Are you in the process of entering into a contract? Please contact a Foster Swift attorney with your contract questions.