Wednesday, April 28, 2010

ambiguity

If an artist-model agreement states, “The artist shall paint the model nude,” is it the artist or the model who should appear sans clothing? This is an example of ambiguity: when contract language can be reasonably interpreted in more than one way. Some ambiguities are semantic—a word has multiple meanings—but most are the result of misuse or improper placement of words, making the language confusing or inconsistent, or in some cases, producing an absurd result. For example, one employment contract we’ve seen states that the employee “must wear the uniform in the employee locker.” (Claustrophobic applicants need not apply.)

Consider a contract between a lawyer and a client that provides for payment of the attorney’s out-of-pocket expenses. The clause states that:

“These [out-of-pocket] expenses include court reporting services, expert witness fees, reasonable travel expenses, if any, fees paid to trial witnesses and the cost to create demonstrative trial exhibits.”

In this case[i], the client argued that the word “include” was a term of limitation that should be interpreted as “include only. Therefore, he shouldn’t have to pay for anything that wasn’t on the list, such as photocopies and online research. The lawyer argued that “include” was a term of expansion, used to preface a few common examples. In other words, the client had to pay for all reasonable out-of-pocket expenses, whether or not they were on the list.

The court agreed that both interpretations were reasonable but concluded that as a matter of public policy—and perhaps, poetic justice—ambiguities in attorney fee agreements should be construed against the attorney, who after all wrote the agreement. The client didn’t have to pay the extra fees.

How do courts interpret ambiguity? Some ambiguities may not be obvious to the ordinary observer but may arise because the contract language has an unusual meaning under the circumstances. For example, in one historic case, a contract for horsemeat provided a discount if the meat was less than 50% protein. This seems clear enough on its face, but the supplier successfully claimed that trade custom in the horsemeat business was that 49.5% protein meets a 50% standard.[ii] In other words, the term “50%” was ambiguous in this context, in that it could actually mean “49.5%.”

What evidence is considered? Courts differ as to what types of evidence they will consider when resolving ambiguities in a contract. For many years, courts looked only to the “four corners” of the document and to the “plain meaning” of its words. In a 1968 case, however, the California Supreme Court broke with the past and considered evidence outside of the contract in interpreting its meaning.

EXAMPLE: A contractor agreed to indemnify a public utility for any harm caused during the replacement of a turbine cover. (“Indemnify” means that the contractor would compensate the utility for damages.) When the contractor caused $25,000 in damage, the public utility sued to get the money back under the indemnity clause. The contractor argued that the indemnity clause was meant to insure only against harm to third parties, not to the utility itself. The words “third-party” didn’t appear in the contract, but other evidence of trade practices by the parties proved that the contractor’s interpretation was correct. The California Supreme ruled in favor of the contractor stating that evidence outside a contract (extrinsic evidence) should be admitted as long as it is offered to prove a meaning to which the language of the writing is “reasonably susceptible.”[iii]

In summary, although courts sometimes differ, external evidence—for example, previous contracts between the parties or previous courses of action between the parties—can generally be used to clarify or explain an ambiguity, as long as that evidence does not vary or contradict the terms of the contract.

Two other things to consider about ambiguity.

  • Vague language is not necessarily ambiguous. Common contract terms – for example, ‘reasonable,’ ‘satisfactory,’ and ‘immediately’ -- are vague but not necessarily ambiguous within the context of an agreement.
  • Plain language can avoid many ambiguities. Lawyers have a fondness for unusual word order (“as in this deed provided”) as well as obscure language (“therein referenced”). In addition there is a paranoia among lawyers that leads to over drafting—for example, saying “shall not now, or in the future” instead of just saying, “shall not.” The solution is unambiguous: Use plain language whenever possible.

Ambiguities clause. Sometimes—as in the fee agreement mentioned above—ambiguities are interpreted against the drafter of the contract. In other words, if terms could be reasonably interpreted in different ways, the could will likely rule in the way most beneficial to the person who didn’t write the contract. After all, the drafter was responsible for writing the ambiguous language in the first place, and shouldn’t get to benefit from his or her lack of clarity. Parties who don’t want this default rule to apply can include the following clause (sometimes referred to as an “ambiguities clause”) in their contract:

EXAMPLE: Ambiguities. Both parties and their attorneys have participated in the drafting of this Agreement and neither party shall be considered the “drafter” for the purpose of any statute, case, or rule of construction that might cause any provision to be construed against the drafter of the Agreement.



[i] Guerrant v. Roth, 334 Ill.App.3d 259, 777 N.E.2d 499, (Ill.App. 1 Dist.,2002).

[ii] Hurst v. W.J. Lake & Co., 16 P.2d 627 (1932)

[iii] Pacific Gas & Elec. Co. v. G. W. Thomas Drayage & Rigging Co. 69 Cal.2d 33, 69 Cal.Rptr. 561 (Cal.1968)

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