Your contracts matter (Part 2)

Simon Roth
Simon Roth

In the previous part of the series, we looked at the different languages of contract. Now we dive a bit deeper into the details and examine how your agreement's wording can be ambiguous. Ambiguity in contracts is the source of many disputes because both parties claim their understanding of the text. Don't let a judge or arbitrator pick what meaning is right by avoiding these common ambiguities.

Have several readers read your drafts. As a matter of good practice, you should not review your contract drafts alone. Because of your background knowledge on the deal, which might be personal to you alone, you might believe that certain things are clear and immune from misunderstandings when, in fact, they are not. Also, it's typical for the principal author of a document to overlook issues because the author has spent much time on drafting and becomes accustomed to the draft.

Avoid profrom ambiguity. A proform is a word that refers to another word (called the antecedent) used before in the sentence. Ambiguity arises if the proform can reasonably be understood to refer to more than one antecedent. Consider the following term: «Each Party may require the other Party to disclose Confidential Information to the extent that such Party is under a legal obligation to do so.» The proform "such Party" can refer to the antecedent "other Party" or "Each Party." The clause is ambiguous regarding which Party must be under a legal obligation to disclose so that the term is applicable. You could rephrase the provision as follows: «Each Party may require the other Party to disclose Confidential Information to the extent that such other Party is under a legal obligation to do so.»

Avoid undue generality. An overly general term in a contract lacks detail. As a result, more falls into the scope of the provision as is intended by the drafter. For example, the term «Alice shall buy the ferry from Bob» is overly general if Bob happens to own more than one ferry. Fixing this ambiguity is pretty straight-forward, however. Just make the term more specific, in the example by stating which ferry is sold.

Avoid plural noun ambiguity. This problem arises when a noun in the sentence is in the plural. The plural form obscures whether you refer to each person or thing individually or instead to them as a group. For example, in «The Shareholders may terminate this Agreement... », it is unclear whether the shareholders can terminate the agreement separately or only by acting jointly. Similarly, in «Bob may provide the Club Members with a copy of the Club's most recent financial statements», the question arises whether Bob has the discretion to provide the statements to just one member. You can fix plural noun ambiguity by clarifying whether you refer to the group or each individual. In the examples, you could say «Each Shareholder may terminate this Agreement...» and «Bob may provide the Clubs Members with a copy of the Club's most recent financial statements, but if Bob elects to provide such copy to one or more Club Members, Bob shall provide such copy to all Club Members individually.»

Avoid "and" ambiguity. This ambiguity is related to plural noun ambiguity. Again, using "and" can obscure whether you refer to each element individually or the group's elements. For example, the sentence «Alice and Bob shall deliver to Charles and Dora a Kiwi Smoothie.» could mean (among other interpretations): 

  • Alice (acting for herself and on behalf of Bob) has to deliver one Kiwi Smoothie to Charles (receiving it for himself and on behalf of Dora).
  • Alice and Bob each have to deliver one Kiwi Smoothie to Dora (receiving it for herself and on behalf of Charles). 
  • Alice and Bob each have to deliver one Kiwi Smoothie to each of Charles and Dora. 

Depending on the meaning, you need to deliver not one, not two, but four Kiwi Smoothies to comply with the term! Assuming that you are committing to four Kiwi Smoothies, you could say something like this: «Each of Alice and Bob shall individually deliver one Kiwi Smoothie to each of Charles and Dora individually

Avoid "or" ambiguity. This ambiguity is a textbook example. As you might know from logic or programming, "or" can have an inclusive or exclusive meaning. In «The Buyer shall dissolve Sub-Company A or Sub-Company B», is the buyer allowed to dissolve both A and B? You need to clarify the term: «The Buyer shall dissolve Sub-Company A or Sub-Company B (and the Buyer may elect to dissolve both) Or, if you want to say the opposite: «The Buyer shall dissolve Sub-Company A or Sub-Company B (but the Buyer shall not dissolve both)

Avoid modifier ambiguity. A modifier is a word that qualifies the meaning of another word or phrase. Just consider «William shall not sell on the Premises any children's apparel, footwear, and accessories.», in which "children's" is the modifier. Does the prohibition relate to the listed items for children generally or only to children's apparel? You can fix this issue by making an enumeration like this: «Wiliam shall not sell on the Premises any children's (a) apparel, (b) footwear, and (c) accessories.»

There are tons of other ambiguities, which is proof to the fact that language is not an exact science. However, in contracts, it is essential to avoid as many ambiguities as possible. Apart from following the recommendations above, whenever you review a contract, ask yourself: Is there another reasonable way to read the term in question? If the answer is yes, improve the language.

 

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