Home
Legal Advice
Breach of Contract
What happens if contract terms are ambiguous?

What happens if contract terms are ambiguous?

03-Dec-2025

Breach of Contract

Answer By law4u team

When the terms of a contract are ambiguous, it can create significant issues in determining the intentions and obligations of the parties involved. Ambiguity in a contract arises when the language used in the agreement is unclear, vague, or open to multiple interpretations. This can lead to disputes, delays, and even legal battles, as each party may have a different understanding of what the contract means. Here's a detailed breakdown of what happens when contract terms are ambiguous and how such situations are typically handled: 1. Interpretation of Ambiguous Terms Role of Courts: If a dispute arises due to ambiguous terms, the court or tribunal will first attempt to interpret the contract. The goal of interpretation is to ascertain the intent of the parties at the time the contract was formed. Courts will generally try to give effect to the contract as a whole and in a way that reflects the reasonable expectations of the parties involved. Literal vs. Contextual Interpretation: Courts will often start by interpreting the contract literally—that is, giving the words their plain and ordinary meaning. However, if the literal interpretation leads to confusion or does not seem to reflect the parties' intentions, the court may look at the context of the contract, including surrounding circumstances, prior communications, and the conduct of the parties during the performance of the contract. Ambiguity in a Contract’s Specific Terms: When a specific term or provision is ambiguous, courts may look for clues within the contract itself, such as other provisions, to clarify the meaning. They may also consider industry norms or the previous dealings between the parties. 2. Principles Courts Follow in Resolving Ambiguity Contra Proferentem Rule: This is a legal doctrine that holds that any ambiguity in a contract will be construed against the party that drafted it. If the ambiguity arises due to one party’s unclear or imprecise drafting, the court may interpret the ambiguous term in a way that is less favorable to that party. Parol Evidence Rule: Under this rule, if a contract appears to be complete and final, courts are generally not allowed to look at external evidence (oral statements, prior drafts, etc.) to explain or modify the terms of the agreement. However, if the contract itself is ambiguous, parol evidence may be admissible to clarify the parties' intent. Course of Dealing or Trade: Courts may also rely on the course of dealing between the parties (i.e., how they have behaved in prior transactions) or the usage of trade in the relevant industry to interpret ambiguous terms. 3. What Happens When Ambiguity is Not Resolved? If the ambiguity in a contract is unresolvable, it can lead to a breach of contract or a legal dispute. In such cases, the court may: Declare the contract void or unenforceable if the ambiguity is fundamental and prevents the court from determining the essential terms of the contract. Modify the contract to reflect a reasonable interpretation of the parties' intentions, provided it is possible to do so without violating the principle of mutual consent. Order damages or compensation: If the ambiguity leads to a breach, the affected party may be entitled to compensation for the loss suffered due to the breach. 4. Practical Steps to Address Ambiguity in Contracts Clear Drafting: The most important step to avoid ambiguity in contracts is to draft the contract clearly, using precise language that leaves little room for interpretation. When in doubt, it's always better to over-explain terms than to leave them vague. Defining Key Terms: Contracts should clearly define key terms that are important to the agreement. Definitions of specific terms (e.g., "delivery," "completion," "performance," etc.) can help eliminate confusion. Consultation and Negotiation: Before entering into a contract, the parties should carefully review the terms and ensure they are in agreement. It’s important to negotiate ambiguous clauses before finalizing the contract. Seek Legal Assistance: Engaging a lawyer to draft or review the contract can help ensure that the terms are clear and legally enforceable. Legal professionals can also help spot potential ambiguities and suggest revisions. Use of Clauses to Prevent Ambiguity: Clauses like Dispute Resolution or Arbitration can provide mechanisms to resolve disputes when ambiguity leads to disagreements. These clauses often specify the procedure for addressing conflicts without going to court. 5. Examples of Ambiguous Contract Terms Here are a few examples of how ambiguity can manifest in contracts: Vague Terms: Terms such as "reasonable," "soon," or "as soon as possible" are subjective and open to different interpretations. For instance, a clause that says "Payment will be made soon after the work is completed" is vague and could be interpreted differently by each party. What is "soon"? One party may think it means within a few days, while the other party may think it means a few weeks. Ambiguous Performance Standards: Clauses that reference performance standards without specifying measurable criteria can lead to disputes. For example, "The contractor will complete the work to a high standard" is ambiguous. What constitutes a "high standard" can vary from one party to another. Terms Regarding Timing: Time-related terms such as "within a reasonable time" can lead to disputes if the contract doesn’t clarify what "reasonable" means. If the contract says, "Delivery will occur within a reasonable time frame," the parties may disagree on what that actually means. Non-Quantified Financial Terms: If a contract states that the payment will be "based on market conditions" or "in an amount determined by mutual agreement," it can lead to ambiguity about how much should be paid, when, and on what basis. 6. Conclusion Ambiguous contract terms can create serious problems for the parties involved. When terms are unclear, it opens up the possibility of differing interpretations, leading to disputes. In such cases, courts will typically aim to determine the parties' original intentions, often through the application of legal principles such as contra proferentem or parol evidence. However, it is always better to prevent ambiguity in contracts by drafting them clearly, defining key terms, and seeking legal advice. To mitigate the risks associated with ambiguity, it is essential to engage in careful drafting, clear communication, and thorough review of contract terms, with a focus on precision and clarity. When in doubt, it’s wise to define terms as clearly as possible to avoid misunderstandings that could lead to costly legal battles down the line.

Answer By Anik

Dear client, Contracts necessarily need to be drafted with precision and clarity since it is the terms of the contract that helps in determining the intention of the parties. However if the terms are ambiguous that is if they lack clarity or if they are open to more than one interpretation then this will consequently result in conflict of interest, disputes and even suits being instituted against the parties. If the contract is reasonably subject to more than one interpretation, the contract is considered ambiguous. It also means that it is unclear what the parties are aiming for in general. If a contract is ambiguous, it can sometimes be resolved by further negotiations by the parties. If not, the document may need to be reviewed in court to resolve the issues. The Interpretation of Ambiguous Contracts by the Courts 1. General use: This means that the Court would apply the commonly used meaning for the ambiguous term. That is the Court would go by the literal rule of interpretation in such a case. If the term though is known to have contradictory meanings but has a common meaning where the term is often used then the court will literally interpret the term and would not go beyond the dictionary meaning of the ambiguous term 2. Proof of parole : The Court in case of ambiguity can refer to the verbal agreements between the parties prior to signing the written contract. Such verbal agreements are made at the negotiation stage. However if the contract is complete then the courts are not allowed to consider the parole evidence. 3. Industry use: It refers to how the term is used in a particular industry. This is common in the language defined in technical contracts for which the other party does not know the definition of the term. 4. Previous Agreements: Any kind of previous agreements are useful and will be considered with regard to how the parties have used this term in the past. This is useful if the parties enter into a similar contract that used the same terms in the past. 5. Reasonableness: In case the literal interpretation will result in absurdity then the interpretation that gives effect to the intent of the parties will be given effect to. This means that a purposive interpretation that is reasonable and clarifies the ambiguity will be given effect to. 6. Principle of Contra Proferentem Rule : The contra proferentem rule interprets ambiguous contract clauses against the interests of the party that drafted them. This rule is commonly used in insurance disputes to ensure policyholders are not disadvantaged by vague contract language. Courts assess if the ambiguity in a contract was intentional before applying the contra proferentem rule. Clauses with terms like "reasonable efforts" and "as soon as possible" often trigger the application of this rule. Conclusion To conclude ambiguous contracts will result in serious issues between the parties and eventually approach the court for interpretation. Ambiguity in contract could be prevented by defining every consequential term explicitly, clear drafting, eliminating redundancy and cross-references etc. I hope this answer was helpful. For any further queries please do not hesitate to contact us

Answer By Ayantika Mondal

Dear client, When the contract terms are ambiguous, the law applies well established principles to determine the true intention of the parties. Ambiguity in contract terms arises when the language used is capable of more than one reasonable interpretation. In simple terms we can say when words have more than one meaning. If such situation arises then the following rules guilds the interpretation of such contract: 1. The primary focus is the intention of the parties. The Court first examines the contract as a whole to understand what the parties actually intended at the time of entering into the agreement. The ambiguous clauses are read in harmony with the overall purpose of the contract. 2. Even then if the wordings remain unclear, external evidence such as emails, negotiations, conduct before and after the contract, prior transactions between the parties to the contract, may be examined to clarify the ambiguity or the clear meanings of the specific clauses or words. 3. The rule of “contra proferentum” is where the ambiguity cannot be resolved through interpretation, the doubtful term is constructed against the party who drafted or introduced that specific clause in the contract. This rule discourages vague drafting and protects the non - drafting party. 4. Courts avoid interpretations that often lead to unreasonable, impractical, or commercial absurdity. Courts give preferences where the interpretations make the contract fair, workable and is aligned with business senses. 5. Even though the terms are ambiguous, the whole contract cannot be declared as invalid on this ground. Only the unclear words or clauses or provisions are interpreted or read down. The rest of the contract continues to operate unless the ambiguity goes to the very foundation of the contract. If the ambiguity is not resolved at all, then the following things happen, they are as follow: 1. When the unclear terms, or clauses, or provisions are not cleared out then it will go against the person who drafted it. This often weakens the party's case. 2. Only the unclear clause is invalid and unenforceable, but the rest of the contract will be in force. 3. Sometimes the Court simply gives a practical meaning so that the contract can be carried out. I hope this answer was helpful. For further queries, please do not hesitate to contact us. Thank you.