When drafting or negotiating a contract, it is important to consider key time-related facts. In other words, if there are important provisions dealing with time, you don’t want to leave them undefined as that can create an ambiguity in the contract.
In a recent case dealing with an investment contract, discussed here, that’s exactly what happened. The contract allowed investors to exercise an option to return their equity in exchange for a refund of their investment but the contract didn’t contain an expiration date on when the option must be exercised. The investors tried to exercise the option two years later leading to a dispute as to whether that was a “reasonable time.” This is because the lack of clarity regarding this temporal fact led to a latent ambiguity meaning it was a question of fact as to whether the investors exercising the option two years later was reasonable under the circumstances.
Could this have been avoided? Yes, with an expiration date as to when the option could be exercised, which was a key fact related to time. But even without it, reasonableness does apply and reasonableness is typically a question of fact for others to decide a fact you would prefer, if you could do it over, to bring certainty to through the contract.
Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.