Contracts - Ambiguity

Ambiguity in the terms of a contract exists when the court cannot, after applying the rules or tools of interpretation, give a meaning to the language used in an agreement or document. The plain-meaning rule is often applied judicially to ascertain whether a contract is ambiguous. If the contract appears to the trial judge to be clear and unequivocal on its face, then there is no need for parol evidence. However, when a writing is ambiguous, parol evidence is admissable only to elucidate, not to vary, the instrument as written.

Courts have used other rules to resolve ambiguous terms. Where neither party knows, or has reason to know, of the ambiguity, or where both parties know or have reason to know of it, the ambiguous term is given the meaning that each party intended it to convey. As a practical matter, this means that if the parties give the equivocal expression the same meaning, then a contract is formed; but if they give it a different meaning, then there is no contract, at least if the ambiguity pertains to a material term, as there is no meeting of their minds. Where one party knows, or has reason to know, of the ambiguity, and the other does not, it conveys the meaning given to it by the latter—which means, in essence, that there is a contract predicated upon the meaning of the party who is without fault.