DISCERNING THE AGREEMENT Ambiguous or Vague Terms

Question 1

DISCERNING THE AGREEMENT

Ambiguous or Vague Terms

General Rule

Answer 1

Court must try to determine the what parties intended by the terms of the contractà what reasonable person would think terms mean (objective standard)

• BUT sometimes, both parties have assigned a reasonable objective meaning to the terms that differ –> at that point, court is allowed to consider subjective intent of parties

Question 2

DISCERNING THE AGREEMENT

Ambiguous or Vague Terms

Whose meaning prevails?

R2d § 201

Answer 2

• Where parties agree to the meaning of the term, it is interpreted according to that meaning, even if reasonable person would not give term that meaning
• Where one party knows/has reason to know that other party has attached a different meaning to the term and the innocent party is unaware of the difference in meaning
  
  • Meaning attached to the term by the innocent party applies
  • Unless objective meaning of the term is relatively clear

Question 3

DISCERNING THE AGREEMENT

Ambiguous or Vague Terms

Where both parties assign reasonable meaning to terms of contract and neither party is aware of the difference in meaning, _______________.

Answer 3

Rule: Where both parties assign reasonable meaning to terms of contract and neither party is aware of the difference in meaning, the contract is unenforceable.

• “There is no sensible way to choose”
• But sometimes, objective measures can pick a winner…

Question 4

DISCERNING THE AGREEMENT

Ambiguous or Vague Terms

Answer 4

Objective Measures for Interpretation of Term

Analyze from Specific to General (6)

1. Contract Terms
2. Course of Dealing (Prior relationship)
3. Course of Performance (This contract)
4. Trade/Industry Practice
5. Government Regulations
6. Dictionary

​Exception: If one party is new to the industry, court won’t automatically use industry definition against them…may only be used if:

1. Party was aware of the industry standard, OR
2. Standard was so generally known that party should have been aware of the definition