Acknowledgement and Agreement Defined
In legal terms, acknowledgement refers to acts or statements that generally indicate an awareness of, or concern about, a specific fact or situation. It does not carry the same weight as agreement does. For example, a financial statement signed by an individual that reads, "I acknowledge that the information presented here is true," will not hold up in court as evidence that the person signing it also comprehends the information or the consequences of the information. As noted above , it is possible for acknowledgement to be present while an agreement or understanding is not.
Agreement on the other hand is the term used to refer to a meeting of the minds regarding the validity of a specific statement or situation. In the case of documents signed in front of a witness or Notary Public, the signer is going on record as agreeing to what is spelled out on the document. It acknowledges that the signor has taken the time to, at the minimum, read the contents of the document, and knows what it means.
Distinguishing Acknowledgement from Agreement
The primary distinction between an acknowledgement and an agreement is the absence of a dispute at the outset of an acknowledgement. Parties usually enter an acknowledgment to memorialize an event that has already occurred. The meaning is typically agreed upon and both parties fully understand the event at issue. An example of a common acknowledgement would be a delivery acknowledgement signed through an e-signature. Both parties agree that delivery occurred on a specific date and all details of the delivery are true and accurate.
Conversely, an agreement is considered as a legal baby step into a contract. Parties can draft an agreement between them that creates a legal commitment to some future act even if they ultimately sign some other document that serves as a contract. An example of an agreement would be where two parties enter an agreement to build a house but never sign the contract. They could stipulate in a document that if one party fails to comply with their obligations under the agreement, they waive certain defenses of damages.
Initially, it may not be intuitive to name your document an agreement as opposed to an acknowledgement, which you may think is more applicable because the parties are entering into the document. However, the key difference to remember is that an acknowledgement usually occurs after the fact and has a single meaning, while an agreement is usually a prelude to several commitments and might not be the final document that memorializes your understanding.
The Significance of Acknowledgement in a Contract
Acknowledgement is a common method by which parties to an agreement indicate their intention that the terms of the agreement are accepted. Acknowledgements can take various forms, such as check-the-box acknowledgements or addendums following the principal terms of an agreement. It is important to recognize that unless specifically required by law, such acknowledgement clauses are not themselves requirements for a contract to be valid and enforceable. Courts are not in the business of making sure parties fill out the right forms and requests for relief are typically considered on their merits even if an acknowledgement form has not been signed.
However, an acknowledgement clause may still be critical in terms of whether the contract is enforceable. Acknowledgements – even ones which do not require a signature – can help prevent a plaintiff from prevailing on a claim because the party cannot demonstrate that they did not see or understand the relevant contract provision. Acknowledgements come into play when a court is asked to decide a dispute between the parties. The agreement may not be properly cited to the court, the plaintiff may state that they were not aware of certain provisions until it was too late to appeal them, or the plaintiff simply argues that they were specifically unaware of a term or waiver and so the provision is void. An affidavit showing that the acknowledging party acknowledged the provision, and the acknowledgement clause, will give the court reason to constructively stop the particular argument being made by the plaintiff in their opposition to the defendant’s position.
An importance reason for having an acknowledgement clause is highlighted by the case of Frerick v. Bayou Paradise, Inc., No. W2010-01911-SC-R11-CV, 2013 WL 4505838, at *9 (Tenn. Sept. 20, 2013), which confirmed that parties can agree to prevent each party from being able to argue that they did not see or understand important provisions: A waiver of this right [to a jury trial] is enforceable if there is "a clear and unmistakable waiver" and nothing in state law prohibits enforcement of the waiver. . . . . . .
The record clearly establishes that by signing their employment agreements, each employee agreed to waive his or her right to a jury trial. Each employee signed an acknowledgment form at the end of the employment agreement attesting that each employee: ‘understand[s] that . . . any and all claims and controversies . . . shall be settled by final resolution . . . by either a private judge or a mediator. . . .’ The acknowledgment form specifically states that employees ‘understand[] that the Commercial Arbitration Rules and the appropriate state arbitration laws apply to all Arbitrations and Mediations covered by this Agreement.’ Moreover, the acknowledgment form advises each employee that he or she ‘understand[s] that by signing [the employment agreement] [he or she] wa[i]ve[s] the right to go to court and have a jury decide any issues covered by this Agreement or submit them to a mediator.’ Further, there is no proof in the record showing that any employee contested the process or the procedures outlined in the employment agreement. . . .
[T]his Court finds that an employee’s waiver of the right to a jury trial, as expressly set out in the employment agreement with its acknowledgment and agreement provisions, is "clear and unmistakable." Thus, the employees are bound to their jury trial waiver as provided in the employment contract and subsequent acknowledgment. . . . . . .
The employees’ acknowledgement and agreement forms clearly observe the requirements for affirmative waiver of one’s constitutional right to a jury trial. . . . . . .
[T]he employees acknowledged their individual understanding of the waiver of their rights through the requirements of the arbitration acknowledgment and agreement forms, and further agreed and attested pursuant to the arbitration acknowledgment and agreement forms that they in fact fully understood the provisions of the employment agreement. . . . . . .
Because the provisions of the employment contract clearly and unmistakably incorporate the arbitration acknowledgment and agreement form into the overall agreement, any argument as to whether the arbitration acknowledgment and agreement form conformed with applicable state law requirements (such as the requirement that the waiver be in writing) is no longer relevant. . . .
In addition, the consideration that is paid in exchange for the employees’ release of their right to jury trial in the acknowledgment and agreement forms is the same consideration paid to defenadants for waiver of the right to a jury trial in the employment agreement. . . . . . . . .
As discussed above, the documents constitute one overall agreement between the parties and are governed by the applicable state statute under these circumstances. Thus, the employees’ releases of their rights to jury trial are valid and the employees are bound to arbitrate their disputes with the defendants before a private judge or a mediator.
These principles apply equally to waivers of other rights and obligations.
When to Include Clauses for Acknowledgement and Agreement
Acknowledgement and Agreement (sometimes called an "A&A") clauses are common in many contexts. Generally, the parties to a contract use A&A clauses where one party wishes to make clear what serves as an effective notice of a default, what action will be required by which party in order to cure that default, and what the time frame is in which the defaulting party must fix its default. In leases, for example, the A&A clause typically requires a lessee to make timely payment of rent, although the clause may not require the landlord to provide notice of a lessee’s failure to make such a timely payment. If a lessee provides a check to its landlord for rent, and the bank fails to honor the check, the A&A clause provides that the landlord need not provide a notice of default.
Relatedly, one often sees A&A clauses in Connection with employment contracts. For example, a company may inform an employee that he is required to work each day from 9 a.m. to 5 p.m., but the A&A clause informs the employee that the company need not provide notice of any deviation from the typical work schedule. Similar A&A clauses may appear in connection with workers’ compensation settlements or other settlements, as well. In those situations, the parties often agree ahead of time that the A&A clause does not amend – or modify – the written agreement between the parties. Rather, the A&A clause merely makes the existing written agreement effective once all parties whom the agreement purports to affect have signed it.
Contractors and sub-contractors – and their company representatives – frequently find A&As in construction contracts, as well. For example, the parties may agree that a change order becomes effective once the person with authority signs the document, rather than when the contracting parties exchange the executed documents.
The world of sales contracts and purchases orders dictates that the buyer may have to first provide a notice of default to the seller. Then, if the seller fails to cure the default within 30 days, the buyer may cancel the contract.
Finally, most agreements to arbitrate litigation or even make administrative filings contain A&A clauses. The clauses require one party to provide notice of a default before the other party may commence a New York arbitration or domestic federal court proceeding.
Pitfalls and How to Avoid Them
One of the most common mistakes is for individuals or entities to simply check the box or click the "I agree" button without reading the document. While it’s impossible to truly know how many of the lawsuits on file involved an acknowledgement or agreement that was never read, if they had, there would be far fewer cases on these issues. For example, under California Civil Code section 1638, "the words of a contract are to be understood in their ordinary and popular sense, rather than according to their legal signification, unless the latter be used by the parties themselves." Despite this rule, businesses draft their agreements in their own legalese, and we often see websites that are purposely designed to be difficult or impossible to read on a mobile phone. When attempting to make a claim, one of the biggest defenses is jauntiness: "I read it and didn’t understand that I was waiving my rights" or "I never even saw that terms of service." The courts occasionally understand through discovery that a business didn’t really have it’s act together , but even where the situation appears to be decidedly in the customer’s favor, it’s just too easy for a business to win by getting the case thrown out on a technicality, meaning you may be out of luck.
Here are some practical tips on how to try to avoid a legal ambiguity down the line:
If someone at work or at home is attempting to make an agreement to the company or website with something like "I am authorized to bind…" or "I am authorized to settle this claim by…" insist on them providing verification that they are at least an officer of the company or a registered agent or appear on the state bar’s website as an attorney. If it’s a website, verify their information on the Secretary of State’s site. For companies, only a CEO or an officer can make agreement or acknowledgement binding on the company; for an individual, only an attorney-of-record or a person who has a written power of attorney may bind the individual and corporation.
Legal Risks of Inattention to Acknowledgements and Agreements
The legal consequences of neglecting acknowledgements and agreements can be significant and costly. One area that presents particular risk is availing oneself of the protections of the Canada Business Corporations Act (the "CBCA") in respect of compromises of creditors of corporations. A CBCA company which proposes to make a plan of compromise or arrangement must comply with section 192 of the CBCA. Under section 192(1), the compromise or arrangement may be binding on the company or companies, it’s creditors or members or any class of them if the creditors approve the compromise or arrangement at a meeting.
When it makes a compromise or arrangement proposal to its creditors, the company will seek to obtain sufficient approvals and related judicial recognition so that the compromise or arrangement binds those classes of creditors that granted the approval. The purpose for obtaining such approvals are two-fold: 1) to bind dissenting creditors; and 2) to ensure that the company benefits from the "cram down" provision found in section 192(4). The cram down provision permits an agreement to bind a dissenting class when approved by a class whose interest would be "contrastically better off" under the proposed compromise or arrangement than such possibly occurring in a liquidation scenario. In consequence, the level of approval required in some respects operates to establish a floor beneath which the company cannot descend.
In respect of the compromise/arrangement context, the failure to correctly word the agreement can have fatal consequences. The recent decision of the Ontario Superior Court of Justice in Reelco Ltd. v. Taylor-Newport Corp., 2020 ONSC 402 (Taylor-Newport) is a good example of this. Taylor-Newport, a US company, commenced an application for a recognition order in Ontario under the US Bankruptcy Code while a Related Entity sought and obtained a rescue order for Canadian subsidiaries under the CBCA. The Related Entity also proposed CBCA plans of arrangement for two Canadian subsidiaries and obtained the support of the trade creditors of one subsidiary, but not the trade creditors of the other subsidiary. The support of the creditors was obtained through a settlement agreement, which divided the various unsecured creditors into three classes and specified which creditors voted in favour of the proposed plans. The dissenting class did not receive cash payment pursuant to the plans. While there were a number of problems identified with the settlement agreement, the focus in Taylor-Newport was on the specific wording of the settlement agreement. As a result of the wording utilized in the settlement agreement that resulted in a dissenting class, the Court determined that CBCA section 192(4) was not available to bind the dissenting creditor class in respect of either plan. In consequence, the plans were deemed by the Court to be invalid and did not have to the effect of being enforceable in a liquidation scenario.
While it is true that the Court was required to rely upon CBCA section 192(4), which has been interpreted strictly, the Taylor-Newport case illustrates that even settlement agreements are required to meet the strictures of the underlying statutory provisions of the CBCA.
Taylor-Newport is not the first time that settlement agreements have faced court scrutiny under the CBCA. For example, in Re Amalgamated Trust Rec. Servs. GmBH and TNB Trust Company, 2018 ONSC 3130 (Amalgamated) the Court held that the compromise/arrangement was binding on one class of creditors despite the critical fact that the restructuring did not pass muster with a second dissenting class of creditors. In Amalgamated, the parties to the proposed restructuring had suggested to the Court that it was critical to the successful structuring that the dissenting unsecured creditors agree to a compromise/arrangement which modified the priority of interests under the existing security on assets. However, the Court was not prepared to allow such a compromise/arrangement to restructure the shareholder’s equity stake, as it determines that a binding compromise/arrangement could not occur given its failure to comply with section 192(4).
In addition to the issues demonstrated in the Taylor-Newport and Amalgamated decisions with respect to the lack of proper wording, the insurance coverage provisions of the settlement agreement also produced litigation concerning the ability of insurers to deny coverage under the policy coverage for persons sued in their capacity as directors and officers. Amongst the decisions issued, in those where the coverage occurred, the decision of Columbia Insurance Company v. Elbex Video Ltd., 2018 ONSC 798 demonstrates the impact of the incorrect wording and the failure to properly attach the coverage.
As can be seen from the above decisions, it is imperative to properly word the settlement and/or compromise agreement in order to gain the desired legal effect.
Creating Effective Acknowledgement and Agreement Clauses
For effective acknowledgements and agreements, specificity is often the key.
As a general matter, writing a specific attempt to make something clear is going to serve the drafter better than a vague statement that any number of different ways can be interpreted. This is no less true with contract provisions than with anything else. As this state appellate court observed in an opinion by Judge Costello, "[i]n the law of contracts, language should be given its plain and ordinary meaning. This means just that — plan and ordinary meaning …."
The appellate court in that particular case also observed that "[w]here reasonable minds can disagree over the meaning of contractual terms, an ambiguity exists. . . . Where ambiguity exists, the agreement is deemed to be unclear or uncertain. The meaning of the contract becomes a question of fact." Thus, "[t]he interpretation of an ambiguous contract provision is a question of fact for the jury."
In other words, an ambiguous contract is one "containing indefiniteness of expression or which cannot be understood because of an uncertainty of meaning," as that state court quoted itself quoting Black’s Law Dictionary for authority.
In fact, whereas Black’s Law Dictionary defines an ambiguous agreement as one that is "capable of being understood in more than one sense" and therefore needing to be clarified or determined by extrinsic evidence, a subsequent edition of the reference work has a slightly different definition — one that is probably even more useful to understand for those seeking to resolve or avoid ambiguities. "Ambiguous," the second current definition goes, is "[h]aving two or more possible meanings or interpretations; having double meaning; unclear; uncertain."
Thus , although in the first such definition ambiguity is only one way, an agreement can have more than one, and so be rendered thereby ambiguous, per the second current definition even if it is not unclear or uncertain, or if it is otherwise just plain unclear or uncertain. If it is unclear, is it also ambiguous? One could argue that the latter terms are not considered synonyms in the same way that, for example, "Orange" would not also mean "Apples."
While whichever definition seems more useful depends on the purpose for which it is being used, what is clear is that ambiguous and otherwise unclear agreements, generally, are the enemy of both sides to a contract. That is because when a contract is held ambiguous or unclear, the parties are generally stuck with the burden of presenting extrinsic evidence for the purpose of trying to clarify the ambiguity or otherwise determine the intent of the parties with regard to its interpretation.
Further, that burden is usually on the party seeking to "enforce" the contract against the other and so must be prepared to prove up the scope of the ambiguity and the actual intent of the parties based on whatever extrinsic evidence may be properly admissible and relevant in the case.
As a result, when drafting a written agreement, parties should attempt to eliminate any ambiguities that may exist by being as precise as possible, to minimize the chance that what would have otherwise been a negotiated agreement between them becomes a matter of dispute, interpretation, and likely even litigation afterwards where the dispute arises and then becomes a matter for courts as apparently happened in the case that the state appellate court was interpreting.