Patent and Latent Ambiguities in a Contract - Explained
Inconsistencies that are Obvious and Non-Obvious
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What is a patent ambiguity and latent ambiguity?
One important exception to the parol evidence rule is the use of extrinsic evidence to determine the meaning the parties attribute to certain terms or provisions. Generally, a court will give a term its common meaning or the meaning common in the context of the contract (such as a particular trade usage). Nonetheless, often a term or provision of the contract will be ambiguous. In such a case, ambiguities are broken into latent and patent ambiguities.
Generally, outside evidence may be introduced to clear up an ambiguity that is obvious on the face of the document. This is known as a patent ambiguity. If a party claims that the contract contains an ambiguous term, but it is not obvious on the face of the contract, the party is claiming that a latent ambiguity exists. In such a case the party may be able to introduce outside evidence to show that an ambiguity exists.
If the court determines that an ambiguity exists, it may consider extrinsic evidence to resolve the ambiguity. Many courts do not distinguish between patent and latent ambiguities. If an ambiguity exists, extrinsic evidence is allowed to the extent necessary to clear up the ambiguity. The parol evidence rules prohibition on the use of evidence to change or add to the contract remains intact.
- Example: You and I enter into a contract. When a dispute arises, we ask the court to resolve the dispute. When interpreting the terms of the contract the court will use established rules for interpreting the meaning of words and clauses. If the court determines that a word or clause is ambiguous when reading it (a patent ambiguity), it may allow outside information to explain the term. If the court does not read a term as ambiguous, it may allow me to introduce outside evidence to demonstrate that it is ambiguous. If I am successful in demonstrating an ambiguity, the court will then consider outside information to explain the ambiguous term.
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Why do you think the court treats patent and latent ambiguities differently? Should the court consider all evidence and prior communications when determining the meaning or intent of the parties? Why or why not?
Alice enters into a contract with Hannah. They end up in court pursuant to an argument over the terms of the agreement. The contract contains an integration clause, so the court will not consider prior communications that contradict or add to the written agreement. Alice are arguing over the type of goods described under the contract. Hannah argues that the description of the goods is ambiguous. Under what conditions will the court review prior communications between Alice and Hannah?
- There are two instances in which a court will review prior communications to explain an fully-integrated contract. The first scenario is when there is a patent ambiguity. This means that the court, after reading the contract, determines that a words meaning is an obvious ambiguity in the contract and that additional information is necessary to uncover the meaning of the parties. The next instance is when an ambiguity is not obvious, but one party can demonstrate that an ambiguity exists. The court may allow the party to demonstrate an ambiguity. If the showing is successful, the court may be open to considering additional prior communications to explain the identified ambiguity.
- What is a Unilateral Contract vs a Bilateral Contract?
- What is an Express Contract vs an Implied Contract?
- What are the requirements to form a Contract (Offer, Acceptance, Consideration)?
- What is an Enforceable Contract vs. a Valid Contract?
- What is a Void Contract vs a Voidable Contract?
- Adhesion Contract
- What is Mental Capacity to contract?
- What is the requirement of a Lawful Purpose?
- What are common types of Voidable Contract?
- When does an offer to contact terminate?
- Counterparty Definition
- Mirror Image Rule?
- Rule for Sale of Goods
- Silence is Not Acceptance?
- Mailbox Rule
- Shrink-wrap Agreement Definition
- Click-Wrap Agreement Definition
- What is Consideration?
- What is Promissory Estoppel?
- When is a contract required to be in writing Statute of Frauds?
- What type of writing satisfies the statute of frauds?
- Exceptions to the Statute of Fraud
- Documents Under Seal
- Who Can Sign Contracts on Behalf of a Company?
- E-Sign Act
- Privity of Contract
- Who are third-party beneficiaries to a contract?
- What is assignment and delegation of a contract?
- What is Performance, Substantial Performance, and Breach of a contract?
- What is performance of a Divisible Contract?
- When is a party's duty of performance discharged?
- What is tender performance of a contract?
- What are Impossibility and Impracticability
- What is a Frustration of Purpose?
- Acceleration Clause (Contracts) Definition
- What is Efficient Breach?
- Organization of a Contract
- Contract Representations & Warranties
- Contract Covenants
- What rules does a court follow in interpreting a contract?
- What is the Parol Evidence Rule?
- What is a complete integration vs a partial integration?
- Exceptions to the Parol Evidence Rule
- Patent and Latent Ambiguity in a Contract
- Service Level Agreement Definition
- Offtake Agreement