A business contract, like any other contract, is formed by mutual assent of the parties. Agreements to arbitrate are enforceable only if they constitute contracts. In a recent ruling in a class action lawsuit for damages for alleged failure of a bank to pay its mortgage loan officers minimum wages, a federal trial court found the bank’s arbitration contract ambiguous because of the signature line.
Business Contract Ambiguous Because of Signatures
The loan officers had signed the bank’s five-page contract divided into six sections, including one providing for arbitration.. The Bank claimed the employees were bound to arbitrate their claims before an arbitrator since they had signed the five-page contract at the bottom of the last page. The Judge agreed that typically “a party’s signature on an agreement objectively manifests assent to agree to the entire contract.” However, the employees pointed to the words immediately before their signature . Those words were merely a certification that they had received a copy of a separate commission plan. Nothing was mentioned about the five-page contract.
The Judge found “the purpose of the signature” could be construed in more than one way.” It could be that it only acknowledged receipt of the commission plan. Or, it could as well intended to show assent to the entire five-page document plus acknowledgement of receipt of the commission plan.
The Judge decided that he could not decide this business contracts case on the documents alone. He required the parties to conduct discovery to resolve the intent of those who signed the ambiguous signatures.
Cascading Consequences of Ambiguity
The purpose of the written business contract is to be clear. A clear right to arbitration, with clear assent by the bank officers, could have likely moved the dispute immediately out of the court system into arbitration. Had the arbitration clause been immediately enforced, then the bank could have relied upon language in the contract that the officer waived any right to bring a class, collective or representative action. For the bank, the difference was huge between defending a single claim for minimum wage or an action brought on behalf of many loan officers.
Because this business contract lacked clarity, the bank not only did not immediately secure arbitration, and but was also forced into discovery concerning the bank officers’ intent. Even then the lack of clarity triggered a rule construing this business contract against its drafter, the bank. Applying the ordinary rule, the Judge stated that since the Bank supplied the contract, “any ambiguous language is construed against them as the drafters of the contract.”
Lessons to be learned include:
- It’s not enough to just have a written business contract; it should be clear and without ambiguity.
- Bad drafting causes ambiguity with potentially cascading consequences.
- Ambiguity could have been avoided by putting the commission plan in a document with its own signature lines.
- The certification could have been “tacked on” after the five-page business contract was prepared by a lawyer.
- Business contracts, particularly with such an important clause as an arbitration clause, merit the review of a lawyer.
Raneiri v. Banco Santander, S.A., No. CV 15-3740, 2016 WL 1306013 (D.N.J. Apr. 4, 2016).