Interpreting Ambiguous Terms

Question 1

Analytic framework for identifying interpretation issues

Answer 1

1. Identify Interpretation Issue

• Requires (1) dispute over meaning and (2) an ambiguity must exist.

2. Apply Primary Rules

• Determine intent of the parties considering:
  
  • (1) Express language
  • (2) Course of performance
  • (3) Course of dealing
  • (4) Trade usage

3. Apply Secondary Rules (only if needed)

Question 2

Rule for determining whether an ambiguity exists

Answer 2

An ambiguity exists if:

• (1) the meaning of a term is uncertain or
• (2) the term is reasonably susceptible to more than one interpretation.

If contract language is clear and unambiguous, then courts must enforce the terms as written.

Question 3

Patent v. latent ambiguities

Answer 3

Just like the parol evidence rule, courts are split as to how to determine whether an ambiguity exists.

• (a) Classic jurisdictions only consider the plain meaning of a term to resolve whether a term is ambiguous. A patent ambiguity consists of language where the plain meaning of the language is either uncertain or reasonably susceptible to more than one meaning.
• (b) Modern jurisdictions allow for the interpretation of both patent and latent ambiguities. The modern jurisdiction uses all of the facts and circumstances in order to determine whether there is an ambiguity.

Question 4

Primary rules of interpretation

Answer 4

(1) Express terms (usually resolved when identifying the interpretation issue)

• (a) Ordinary meaning (dictionary definition)
• (b) Technical meaning (business/profession)
• (c) According to surrounding circumstances (circumstances of this agreement)

(2) Course of performance (this agreement)
(3) Course of dealing (same parties, previous agreements)
(4) Usage of trade, custom (industry as a whole)

Question 5

Secondary rules of interpretation

Answer 5

If the primary rules of interpretation do not resolve an ambiguity, then courts use the secondary rules to establish the meaning:

• (1) Courts should attempt to interpret the terms so that the contract is lawful, enforceable, and capable of being carried out according to the intent of the parties.
• (2) If one of two conflicting clauses in a contract seems dominant, that clause should be enforced.
• (3) Ejusdem Generis: The meaning of a word in a series of words is determined by the company that it keeps.
• (4) If all else fails, interpret the terms against the drafter.