Carefully Drafted Agreements are a Paramount Necessity

When drafting an agreement it is vitally important that the goal is to set forth language that is indisputable. While this may be an impossible goal, careful drafting of the terms can limit expensive costs of collection.

A good example of the issue occurred in the recent case of Cranberry Fin. v. S&V P'ship, 2010 Ohio 464. In that case the parties entered into a promissory note and mortgage. The mortgages recited three properties as collateral for the notes. Sometime after the agreements were drafted the notes and mortgages were rewritten. One of the properties was mistakenly omitted from the subsequent agreements. But, the second agreement contained the following language:

"COLLATERAL. Borrower acknowledges this Agreement is secured by a Mortgage dated April 27, 2001, to Lender on real property located in Huron County, State of Ohio, all the terms and conditions of which are hereby incorporated and made part of this Agreement.”

"CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of the original obligation or obligations, including all agreements evidenced or securing the obligation(s), remain unchanged and in full force and effect. * * *."

The Plaintiff sought judgment on the notes and foreclosure of all three properties against the Defendant and two individuals that were personal guarantors. The guarantors claimed the omission of the one property precluded the Plaintiff from foreclosing on that property.

While the court ultimately sided in favor to Plaintiff, due to the terms quoted above, one can only imagine the cost of litigation in having to try and appeal this matter because the drafter of the second agreement was not careful in their rewrite of the agreement.

Proper drafting is a key to limiting the cost of litigation. As this court stated:

“A promissory note is a contract and rules of contract interpretation apply to the interpretation of promissory notes...If a contract is clear and unambiguous, then its interpretation is a matter of law and there is no issue of fact to be determined...If, however, an ambiguity is present such that parol evidence is necessary to resolve the ambiguity, a factual determination of intent or reasonableness may be necessary to supply the missing term. The fact-finder may also examine the surrounding circumstances of the transaction to determine the parties' intent...It is axiomatic that contracts -- including promissory notes -- are construed against the drafter... The rule is well established that where there is doubt or ambiguity in the language of a contract it will be construed strictly against the party who prepared it...In other words, he who speaks must speak plainly or the other party may explain to his own advantage."

Luckily for the Plaintiff, there was sufficient language in the subsequent agreement to protect its secured interest in the omitted property. But, the failure to carefully draft the subsequent agreement severely increased their cost of collection.