IS STRIKING CONTRACT LANGUAGE SUFFICIENT?
Everybody redlines contracts. But will your strikethroughs and handwritten notes stand up in a court proceeding, even if initialed and agreed to by all parties?
A Missouri Court of Appeals has ruled on what can happen as the result of a dispute over stricken contract clauses in a case related to interest on unpaid balances. The results may surprise you.
The General Contractor’s representative on a sewer project, in negotiating their contract with the boring subcontractor, struck through an existing provision in the contract setting the interest rate at 18% per annum “or the highest rate allowed by law, whichever is lower”. Then in the margin next to the stricken clause, the representative handwrote a clause calling for 5% retainage. The subcontractor’s representative initialed and dated the stricken language on interest charges, as well as the handwritten retention language.
A payment dispute arose during the project over payment for the sub’s bore work. It escalated to a court trial and the jury ruled against the GC who was arguing that the sub had agreed to the amended terms by virtue of initialing and dating the changes as marked. The trial court ruled against the GC and their Surety, and in favor of the subcontractor for the pre-judgement interest of the statutory 9% rate. The GC and their surety appealed the ruling because the two parties had clearly stricken the original clause language and assumed their intent was clear.
The Court of Appeals that the case was referred to concluded the contract should be enforced as written –the final amended/noted version- striking the interest charges and reversing the ruling. However, it noted that when no agreed interest rate is specified in the contract, the parties are entitled to the applicable statutory rates for creditors, which the GC was ruled to be, when no other rate is specified. In Missouri, the statutory rate is 9%. Oklahoma’s 2019 pre-judgement interest rate is 1.94%.
The GC certainly was arguing that striking the interest clause equated to the parties agreeing that no interest would be paid, in lieu of the original contract language. The Appellate Court ruled that the clear intent of the parties was expressed in unambiguous terms via the striking of the interest charge language, that the stricken language must not be considered. They reasoned that when language is redlined, erased, or otherwise removed, it is no longer a part of the agreement. (No brainer, right?) The Appellate Court also concluded that courts should evaluate contracts at face value and consider intent, disregarding stricken/redlined language. But in the absence of amendments reflecting intent, rulings may default to state statute.
A couple of takeaways:
1. Be clear. Crystal clear. After striking unwanted language, note what the agreement IS, not just what it IS NOT.
2. Better yet, whenever possible, don’t just strike the clause, but edit the printed contract language itself so there is no ambiguity.