Business, Legal & Accounting Glossary
n. when language has more than one meaning. If the ambiguity is obvious it is called “patent,” and if there is a hidden ambiguity it is called “latent.” If there is an ambiguity, and the original writer cannot effectively explain it, then the ambiguity will be decided in the light most favorable to the other party.
Uncertainty or doubtfulness of the meaning of language.
When language is capable of being understood in more than one way by a reasonable person, ambiguity exists. It is not the use of peculiar words or of common words used in a peculiar sense. Words are ambiguous when their significance is unclear to persons with competent knowledge and skill to understand them.
There are two categories of ambiguity: latent and patent. Latent ambiguity exists when the language used is clear and intelligible so that it suggests one meaning but some extrinsic fact or evidence creates a need for interpretation or a choice among two or more possible meanings. In a classic case, Raffles v. Wichelhaus, 159 Eng. Rep. 375 (Ex. 1864), a contract was made to sell 125 bales of cotton that were to arrive on a ship called Peerless that sailed from Bombay, India. Unknown to the parties to the contract, two ships of the same name were to arrive from the same port during different months of the same year. This extraneous fact necessitated the interpretation of an otherwise clear and definite term of the contract. In such cases, extrinsic or parol evidence may be admitted to explain what was meant or to identify the property referred to in the writing.
A patent ambiguity is one that appears on the face of a document or writing because uncertain or obscure language has been used.
In the law of contracts, ambiguity means more than that the language has more than one meaning upon which reasonable persons could differ. It means that after a court has applied rules of interpretation, such as the plain meaning, course of dealing, course of performance, or trade usage rules to the unclear terms, the court still cannot say with certainty what meaning was intended by the parties to the contract. When this occurs, the court will admit as evidence extraneous proof of prior or contemporaneous agreements to determine the meaning of the ambiguous language. Parol evidence may be used to explain the meaning of a writing as long as its use does not vary the terms of the writing. If there is no such evidence, the court may hear evidence of the subjective intention or understanding of the parties to clarify the ambiguity.
Sometimes, courts decide the meaning of ambiguous language on the basis of who was responsible or at fault for the ambiguity. When only one party knew or should have known of the ambiguity, the unsuspecting party’s subjective knowledge of the meaning will control. If both parties knew or should have known of the uncertainty, the court will look to the subjective understanding of both. The ambiguity no longer exists if the parties agree upon its meaning. If the parties disagree and the ambiguous provisions are material, no contract is formed because of lack of mutual assent.
Courts frequently interpret an ambiguous contract term against the interests of the party who prepared the contract and created the ambiguity. This is common in cases of adhesion contracts and insurance contracts. A drafter of a document should not benefit at the expense of an innocent party because the drafter was careless in drafting the agreement.
In Constitutional Law, statutes that contain ambiguous language are void for vagueness. The language of such laws is considered so obscure and uncertain that a reasonable person cannot determine from a reading what the law purports to command or prohibit. This statutory ambiguity deprives a person of the notice requirement of due process of law, and, therefore, renders the statute unconstitutional.
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This glossary post was last updated: 8th October, 2021 | 2 Views.