Archive for November, 2010

The Devil is in the Documentation

Monday, November 29th, 2010

I’m sure you’re all familiar with the saying that “the Devil is in the details” – meaning that one should make sure that all issues are covered in a contract, for example, and that the more detailed you make the contract the better the contract.  That, of course, is true.  But I want to step back and look not at the trees but at the forest (to mix my metaphors a bit).

I recently argued a motion for summary judgment and the decision is still pending.  However, my client took the position that there were numerous verbal agreements that had been reached – each of them relating to various changes to the written contractual terms between the parties.  The problem is that none of these verbal agreements were set down in explicit writing – for example, an amending agreement.  Think of it like this: Bill and Bob agree that Bob will pay Bill $10 if Bill washes Bob’s car and their agreement is put in writing.  Then, when Bill is half way through the job, they both agree that Bill is doing only a mediocre job so they both agree that to compensate for the poor quality, Bill will also wash Bob’s truck – so that Bob will get a washed car and truck for $10.  But they do not put this revised version of the agreement into writing.  When Bill finishes washing the car, he puts his sponge down and says to Bob “please pay me the $10″.  Bob refuses and Bill sues him for $10.  Bob’s defence is that Bill only did half of the work that he had agreed to do.  Bill, in turn, points to the contract and says “I only had to wash the car, which I did, so now I’m entitled to my $10, please give me a judgment against Bob for $10.”

In this situation, Bob has two problems – one legal and one practical.  As a practical matter, how does Bob prove the existence of a verbal contract without Bill agreeing that such a contract existed?  Unless there is something else (another witness or supporting documentation), as a practical matter it becomes a battle of who is telling the truth.  If the Court cannot determine that one or the other is lying, then Bob will lose because it is his allegation that there was this “side deal” and so the burden of proof rests on him to prove it and if the Court cannot choose, then Bob hasn’t satisfied his burden of proof.  On the legal side, Bob will run into what is known as the “parol evidence rule”.  The rule is a very simple rule, on its own, but it has so many exceptions and variations that its actual application becomes difficult.  But the over-simplified version of the rule is: where the parties have taken the time to put their agreement in writing, then it is assumed that everything they wanted in the contract is reflected in the contract and that no evidence will be allowed of any other discussions to the extent that such discussions are at odds with the terms of the contract.

In my summary judgment motion, it remains to be seen whether my client will be able to continue to fight with the other side or if the judge will find either that the absence of sufficient proof in writing of the variation of contractual terms or the application of the parol evidence rule will be fatal and there will be judgment against my client.  And yet all of this could have been avoided if my client had sat down with the other side and had everyone sign a simple agreement formally amending the first agreement.  Instead, my clients focused on the trees and ignored the forest and now there is a possibility that the Court will find that there is no proof that the forest ever existed.

Something to think about.

CALC