Key Takeaways

  • Latent ambiguity arises when a contract term seems clear on its face but becomes uncertain when applied to external facts or circumstances.
  • Courts distinguish between latent and patent ambiguity: latent ambiguity requires extrinsic evidence to clarify intent, while patent ambiguity is obvious on the face of the document.
  • The parol evidence rule generally bars outside evidence, but latent ambiguity is a recognized exception that allows such evidence to explain, not contradict, the written terms.
  • Courts often look at the parties’ course of dealing, trade usage, and context to resolve latent ambiguity disputes.
  • Careful contract drafting, including defined terms and clear context, can significantly reduce the risk of latent ambiguity disputes.

Latent ambiguity is any type of uncertainty or doubtfulness in a legal agreement, contract, or document that isn't immediately clear.

Latent Ambiguity Law and Legal Definition

The word “ambiguity” refers to an uncertainty of signification or doubtfulness due to multiple meanings of a single word. In a legal sense, latent ambiguity is confusion resulting from a word or term with multiple meanings that isn't clear when reading a legal document. This ambiguity usually becomes clearer when a collateral matter provides knowledge and additional insight

When latent ambiguities are present, extrinsic evidence can be used to clear the confusion up, but this type of evidence can't be used for patent ambiguities . In a will, a latent ambiguity isn't immediately discoverable when reviewing the document but becomes clearer when considering the extrinsic circumstances.

This example is a case law that pertains to latent ambiguity. In Amigo Broad., LP v. Spanish Broad. Sys., 521 F.3d 472, the court examined the contract's subject matter and all surrounding circumstances to determine whether latent ambiguity was present. When the meaning of words or phrases within the contract are confusing or uncertain when applied to the contract's subject matter, latent ambiguity often exists. However, latent ambiguity cannot be caused by evidence of intent being admitted or submitted.

Latent ambiguity is somewhat unclear among legal authorities, but the distinction between latent and patent ambiguities in written documents is plain and broad. The evidence rule has one exception, which is the use of extrinsic evidence. This type of evidence can be used to figure out whether the parties attribute meaning to specific provisions or terms of the document.

How Latent Ambiguity Arises in Contracts

Latent ambiguity occurs when a contractual term seems unambiguous when read in isolation but becomes unclear when applied to real-world facts or circumstances. Unlike patent ambiguity, which is evident on the face of a document, latent ambiguity reveals itself only through context. This type of ambiguity frequently arises in legal documents such as contracts, wills, or trust instruments, particularly when a term can reasonably refer to more than one subject or outcome once external factors are considered.

For example, a will might leave property to "my cousin Sarah," but if the testator had two cousins named Sarah, the term is latently ambiguous. Similarly, a commercial contract that refers to "market price" without specifying a location or date might become ambiguous when applied to different markets or times.

To identify latent ambiguity, courts evaluate:

  • Contextual facts: How the contract terms relate to the specific circumstances.
  • Industry custom and usage: Whether trade practice clarifies meaning.
  • Course of dealing or performance: How the parties have acted under similar agreements.

Latent Ambiguity in Court

A court will often provide the common meaning or obvious meaning in the contract's context for the term. For example, the term might be used in a certain way in a specific trade. However, provisions and terms included in contracts can still be ambiguous. When this is the case, the ambiguities are split into patent and latent categories. External evidence may be brought in to eliminate the confusion around the ambiguity that comes up when reviewing the document. This type of ambiguity is referred to as a patent ambiguity.

In its broad sense, patent ambiguity is a confusing term or provision that appears on the surface of the legal document. The two types of ambiguities are similar, but you can better understand the differences by noting the two types of patent ambiguities. When you understand the two types, it becomes clearer how they differ from>

Judicial Approaches to Resolving Latent Ambiguity

When latent ambiguity arises, courts must interpret the contract to give effect to the parties’ intent without rewriting the agreement. This is a delicate balance, as the parol evidence rule typically bars the use of extrinsic evidence to alter written terms. However, latent ambiguity is a well-recognized exception to this rule, allowing judges to admit external evidence solely to explain the ambiguity, not to contradict the text.

Courts often follow a multi-step process:

  1. Determine if ambiguity exists: Courts first decide whether the term is reasonably susceptible to more than one interpretation.
  2. Admit extrinsic evidence: If ambiguity is found, they may consider outside evidence such as correspondence, drafts, trade practices, or testimony.
  3. Interpret intent: The goal is to infer the meaning the parties intended at the time of contracting.

For example, in a commercial lease dispute, a court might consider negotiation history or prior performance to clarify whether “net profits” refers to gross sales minus all expenses or a narrower calculation. Courts generally favor interpretations that render the contract enforceable and consistent with the parties’ overall objectives.

Extrinsic Evidence

Certain patent ambiguities allow for the presentation of extrinsic evidence, while others don't. Lord Francis Bacon, an English jurist and attorney general, wrote of the ambiguitas patens, which seems to include the patent ambiguities that don't rely on extrinsic evidence. In this sense, a patent ambiguity exists when it's clear that something additional needs to be included in the document before it's clear what was meant by the provision or phrase. After this is added, no additional evidence can be supplied or admitted.

According to Lord Bacon, admitting such evidence would create the action without a deed, but the law requires that a contract or legal document must pass by deed. The main principle on this subject would be ignored by allowing oral evidence to change what may be meant by the words in a document.

In the Colpoys v. Colpo ps, Jacob 451, one involved party pointed out the confusion of that idea, stating that patent ambiguity requires no extrinsic evidence or explanation. In a written document, a patent ambiguity requiring something to be added for clarity can't be explained by extrinisic evidence or the document becomes void.

When an expression can have more than one meaning, ambiguity exists on the face of the document. As a result, the involved parties may be able to use extrinsic evidence because the law is reasonable and allows the reader to use the same method as the writer for clarifying the meaning behind a phrase or provision. In many cases, the evidence provided to explain patent ambiguity changes the meaning of the document and creates a latent ambiguity that didn't previously exist.

Drafting Tips to Avoid Latent Ambiguity

Because latent ambiguity can lead to costly litigation, careful drafting is crucial. Attorneys often recommend proactive strategies to reduce the risk of disputes:

  • Define key terms clearly: Avoid generic terms like “reasonable time” or “market price” unless accompanied by definitions.
  • Use objective standards: Where possible, specify measurable criteria such as dates, locations, or formulas.
  • Anticipate contextual issues: Consider how terms will apply in various scenarios, and include clarifying language.
  • Review for multiple interpretations: Conduct a “what if” analysis during drafting to identify potential ambiguities.

Courts frequently note that most latent ambiguity disputes stem from inadequate drafting rather than deliberate vagueness. Proactive drafting not only minimizes legal risk but also strengthens the enforceability of contractual terms.

Frequently Asked Questions

  1. What is the main difference between latent and patent ambiguity?
    Latent ambiguity appears only when applying a seemingly clear term to real-world facts, while patent ambiguity is obvious on the face of the document.
  2. Can extrinsic evidence always be used to resolve latent ambiguity?
    Generally, yes — courts allow external evidence to clarify latent ambiguity, but not to contradict the written terms.
  3. How can businesses avoid latent ambiguity in contracts?
    By defining terms precisely, using objective criteria, and anticipating potential contextual variations during drafting.
  4. What types of evidence are used to interpret latent ambiguity?
    Courts often consider negotiation history, trade usage, prior dealings, and the parties’ course of performance.
  5. Does latent ambiguity make a contract invalid?
    Not usually. Courts aim to resolve ambiguities in a way that upholds the contract and reflects the parties’ original intent.

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