Ambiguous Contracts: How MN Courts Interpret Vague Contract Language

Understanding a Contract

When people draft contracts, the contract provisions are sometimes confusing, ambiguous, and vague. These ambiguous contract clauses often become an issue in a lawsuit.

Have you ever wondered how Minnesota courts address ambiguous clauses (also called contract provisions) in a contract? Here is the answer from a recent Minnesota district court case:

The primary goal of contract interpretation is to determine and enforce the intent of the parties. Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 66 (Minn. 1979). Contract language “must be given its plain and ordinary meaning and will be enforced by the courts even if the results are harsh.” Bank Midwest, Minn., Iowa, N.A. v. Lipetzky, 674 N.W.2d 176, 179 (Minn. 2004) (quoting Denelsbeck v. Wells Fargo & Co., 666 N.W.2d 339, 346-47 (Minn. 2003) (quotation omitted)). The meaning of terms is determined within the context of the document as a whole and not in isolation. Republic Nat’l Life Ins. Co. v. Lorraine Realty Corp., 279 N.W.2d 349, 354 (Minn. 1979). Accordingly, courts are required to harmonize all provisions if possible and to avoid a construction that would render one or more provisions meaningless. Current Tech. Concepts, Inc. v. Irie Enters., Inc., 530 N.W.2d 539, 543 (Minn. 1995).

The construction and effect of a contract presents a question of law, unless an ambiguity exists. Brookfield Trade Ctr., Inc. v. County of Ramsey, 584 N.W.2d 390, 394 (Minn. 1998). A contract is ambiguous only if its language is reasonably susceptible to more than one interpretation. Id. Generally, courts may resort to extrinsic evidence of intent to construe a contract only if an ambiguity exists. Blattner v. Forster, 322 N.W.2d 319, 321 (Minn. 1982).

However, some contracts are governed by the Uniform Commercial Code (UCC).

In contracts governed by the UCC, a court may consider certain extrinsic evidence without first finding that a contract is ambiguous; under the UCC a final contract may be “explained or supplemented” by evidence regarding course of performance, course of dealing, or usage of trade. Minn. Stat. § 336.2-2025; Am. Mach. and Tool Co., Inc. v. Strite-Anderson Mfg. Co., 353 N.W.2d 592, 597 (Minn. Ct. App. 1984). Such evidence is admissible if it is relevant to prove a meaning to which the language of the contract is reasonably susceptible. Am. Machine and Tool Co., 353 N.W.2d at 597; Minn. Stat. § 336.1-303(d) (course of dealing, course or performance and usage of trade evidence “is relevant in ascertaining the meaning of the parties’ agreement, may give particular meaning to specific terms of the agreement, and may supplement or qualify the terms of the agreement”). Such evidence, however, may not contradict the terms of the agreement. Minn. Stat. § 336.2-202.

The Minnesota Supreme Court wrote this in one opinion:

Another well-established rule of construction is stated in 17 Am.Jur.2d Contracts, § 246:

‘In construing or interpreting contracts and ascertaining the intention of the parties thereto, the contracts are to be considered in the frame of reference of their subject matter, their nature, and their object or purpose. The spirit and purpose of a contract, as well as its letter, must be regarded in the construction and effectuation thereof, and there can be no doubt that the court may look beyond the form into which the parties have cast their agreement. In fact it is the substance of an agreement rather than its form–the spirit and purpose rather than the letter–which must control its construction. The subject matter and the purpose of the contract are material to the ascertainment of the intention of the parties and the meaning of the terms they used, and when these are ascertained, they must prevail over the dry words of the agreement. If the general purpose of a contract is ascertained, the language of its provisions must be construed with reference to that purpose and so as to subserve it. It is always of much importance in the construction of a contract upon which doubt arises to ascertain what was the attitude of the parties to the subject and to find out what was their main purpose and object in making it. If this can be done, the terms of the contract will be so construed as to promote the main purpose, if the language employed will fairly permit such construction. This statement necessarily implies that explicit and positive language importing a different purpose cannot be overruled, but must be given its obvious meaning.’

See Marso v. Mankato Clinic, Limited, 153 N.W.2d 281, 298 (Minn., 1967).

Further, ambiguous terms may be interpreted against the drafting party:

Since all instruments in question here were prepared by defendant, all doubts or ambiguities must be resolved against defendant. 4 Dunnell, Dig. (3 ed.) § 1832. In Weum v. Mutual Benefit Health & Acc. Assn., 237 Minn. 89, 104, 54 N.W.2d 20, 29, Mr. Justice Magney, speaking for this court, said:

‘Where one of the parties draws a contract and the other must accept or reject but cannot vary the terms, the burden is upon the party drawing the contract to make the meaning plain. Where meaning is thus uncertain, as it is in the contracts here involved, the ambiguities and doubts must be resolved against the party who prepared the contract.’

See Marso v. Mankato Clinic, Limited, 153 N.W.2d 281, 298 (Minn., 1967).

As you can see, a court will consider a number of issues and factors. Also, there is a lot of discretion given to a court when interpreting ambiguous contract provisions. Based on this, it can be difficult to predict how a court will interpret an ambiguous clause in an agreement.

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