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That’s Ambiguous – No It’s Not

Ambiguity in real estate contracts

As hard as real estate agents, title companies, attorneys, and anybody else who drafts contracts, may strive for perfection in their drafting, it is not unusual for the finished product to include a provision that is ambiguous. Such ambiguity can result from a poor choice of words, or from an "honest mistake" made during the drafting process.

According to Black's Law Dictionary (11th ed. 2019), "A contract or a provision in a contract is ambiguous if it is reasonably susceptible to more than one interpretation or construction." When disputes arise about the meaning of a contract or contractual provision, it is not unusual for the parties to disagree not only about what the meaning is, but to also disagree about whether an ambiguity exists in the first place. The reason for this is because a court, which is tasked with the responsibility of interpreting a contract, needs to initially determine whether the contractual language at issue can be construed in more than one way. Only if the court answers that question affirmatively, can it then move on to the next step of deciding how it should be construed.

Ambiguity in a contract or contractual provision may or may not be readily apparent on the face of the contract. What if, for example, a borrower intended to provide security in a deed of trust on Parcel A, but mistakenly uses the legal description of the adjoining Parcel B that is also owned by the same borrower? In that situation, there is no ambiguity that can be discerned by merely reading the deed of trust; however, a mistake has been made that should be corrected. In this situation, the courts have expanded the definition of ambiguity to include when there is an "extrinsic fact" – here the mistake made by the borrower – that creates a "latent ambiguity in otherwise clear and intelligible language."

Once a court determines that an ambiguity does exist, it then moves on to deciding how to interpret the ambiguous contract or provision. To do so, the court will look to the "intent" of the parties when they created the contract. Such intention can be evidenced in a number of ways, including the actions of the parties and the communications between parties that eventually resulted in the execution of the contract at issue. While in most circumstances, the unexpressed "subjective" intent of contracting parties is not important, it is very much a consideration when attempting to discern what it was that was truly intended by the parties when they entered into the contract.

Of course, the best way to avoid leaving the interpretation of a contract in the hands of a judge is to create a contract that fits the adage of "saying what you mean, and meaning what you say." If you fail to do so, you are running the risk that your contract will not be interpreted to mean what you had intended when you signed it.


About the Author: David Allen, a partner in the Phoenix law firm of Jaburg Wilk, has been representing clients in both transactional and litigation real estate and business related matters for over thirty years. He is licensed as an attorney in both Arizona and California, and is also a licensed Arizona real estate broker.