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Dealing With "Ambiguous" Language in a Business Contract

Breach of contractcases often turn on whether any part of the written agreement between the parties is ambiguous. An ambiguity exists whenever a term lends itself to more than one “reasonable” interpretation. New York courts look to the “plain meaning” of such terms to resolve any ambiguities, as well as the overall context of the contract.

Customer Sues Staples Over Extended Warranty

In one recent case, a federal appeals court, applying New York law, reversed a trial judge's decision to dismiss a breach of contract lawsuit after declaring the disputed contract was “unambiguous” on a key point. The appeals court said the contract was ambiguities, and therefore it was improper for the trial court to dismiss the case at this time.

The contract in question was actually an extended warranty purchased as part of a computer sold by the well-known office supplies retailer Staples. Like many retailers, Staples offers “protection plans” to supplement the manufacturer's more limited warranties. The plaintiff here purchased a computer with a one-year manufacturer's warranty. He simultaneously paid $99.99 for Staples “two-year carry-in protection plan.” Among other things, the plan's written terms promised to make a “one-time replacement or cash settlement” if the computer could not be repaired. This “replacement” provision was asterisked, pointing to fine print which further elaborated, “The plan term is inclusive of manufacturer's warranty and store return policy and does not replace the manufacturer's warranty.”

The plaintiff assumed his “two-year” plan covered the first two years following purchase. But when he attempted to return the computer during the first year, citing problems with connecting to the internet, Staples informed him the plan only “covers the second year when the warranty expires from the manufacturer.” The plaintiff responded by filing a federal class action against Staples, alleging breach of contract as well as violation of New York consumer protection laws.

With respect to the breach of contract issue, the trial court sided with Staples, holding the asterisked fine print language “unambiguously” meant “anything” covered by the manufacturer's warranty was excluded from the plan. In other words, the Staples plan only provided coverage once the manufacturer no longer did—i.e., after the first year. On this basis, the trial court dismissed the breach of contract claim.

The U.S. Second Circuit Court of Appeals held that was premature. In a September 16opinion, the appeals court said the language of the Staples plan was far from clear—its ambiguities were “numerous and complex.” For one thing, the Second Circuit it had “no idea” what the plan meant when it said, “The plan term … does not replace the manufacturer's warranty.” This could mean Staples provides coverage in addition to the manufacturer, as the plaintiff assumed. In any event, this language “does not unambiguously communicate that Staples's plan gives no protection while the manufacturer's warranty is in effect,” according to the Second Circuit.

Need Help Negotiating a Contract?

The best way to deal with ambiguities in a contract is to try and avoid them in the first place. If you are involved in any sort of contract negotiation, a New York business attorney can help ensure the terms of your agreement are precise and unambiguous. Contact the offices of Waldhauser & Nisar, LLP, today if you would like speak with an attorney about your situation.
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