The Neccesity of Articulating Party Intent When Drafting Contract Terms
A recent decision from the Superior Court of New Jersey highlights the neccesity of ascertaining and memorializing party intent when drafting contract terms. In Toys.R.Us.com LLC v. Amazon.com, the parties battled over the meaning of the "exclusivity" provision in their strategic alliance agreement. Toys.R.Us argued that, in exchange for 50 million dollars a year, it was bargaining for the exclusive right to sell toys and baby products on Amazon's website. Accordingly, when other retailers were allowed to sell these products by Amazon, Toys.R.Us filed suit.
Amazon responded that the "exclusivity" provision in the agreement was only intended to provide Toys.R.Us with the exclusive right to sell certain selected products.
As the Court noted:
[T]his Court agreed to hear from witnesses and accept evidence presented by Plaintiffs and Defendants as to the parties’ basic understanding of what “exclusivity” meant in this Agreement. The Court needed to understand what the parties intended in 2000. Did “exclusivity” mean that there would be no competition with TRUCC on the Amazon website in the sale of toys, games and baby products, and whether these products were all Exclusive Products or merely products selected exclusively by TRUCC for sale, i.e. a Selected Exclusive Product. TOYS’ position is that it bargained and paid Amazon for total “Exclusivity” as part of the contract base fee, which is currently set at fifty million dollars annually...
While the words utilized are common words in ordinary speech, it is clear this dispute goes beyond a simple disagreement over definitions. Rather, there is ambiguity in the use of language that has allowed the drafters of this agreement and the parties themselves to develop different views of critical sections of the Strategic Alliance Agreement. These differences go to the heart of the relationship envisioned in the Strategic Alliance Agreement and this Court’s decision.
Ultimately, the court found that, as a matter of equity, it could not grant the primary relief sought by either Toys.R.Us. (recision and damages) or Amazon.com (enforcement of the agreement according to its proposed interpretation and damages). Instead, the Court found the only equitable solution was to order the termination and wind up of the Strategic Alliance Agreement.
This case in a prime example of why, to the extent possible, careful analysis and memorialization of party intent is crucial. Resolving ambiguities after the fact is usually accompanied by the time and expense associated with litigation.
Read the full (and lengthy) opinion here.