Some business agreements contain vague language. The vagueness may be obvious (patent ambiguity). For instance, when two clauses contradict each other. Or it may be hidden and only become noticeable when applied in real-life situations (latent ambiguity). For instance, when a contract states payment in “dollars” but it involves international parties.
Ambiguity in a business contract can lead to disputes. Here is how this can happen:
Conflicting interpretations
Vagueness can make parties in an agreement form conflicting, yet reasonable, interpretations of their rights and duties. And in most cases, people will form interpretations that favor them. When this happens, expectations differ.
For example, if a supplier agreement says delivery should be made within 30 days of receiving a purchase order, but another clause states 35 days, a business owner may expect delivery to be made within 30 days, whereas a vendor chooses the 35-day deadline. A supplier agreement that states “industry-standard” without specifying what is acceptable can result in the delivery of products that are not of the quality a business owner expected.
If an employment agreement informs an employee to submit reports “as soon as possible,” they may do so within weeks when the employer meant within days. Further, a partnership agreement that states Partner A shall be responsible for day-to-day operations without specifying duties increases the chances of some tasks going undone.
Such mismatched expectations can negatively impact a business, resulting in disputes. A supplier delivering goods five days later than a business owner expected can disrupt operations, resulting in project delays, financial losses and, in some cases, reputational damage. Consequently, the business owner may get into a conflict with the supplier, and so forth.
Disputes stemming from ambiguity in business contracts can be costly. It’s vital to draft clear agreements to protect your business and relationships.