I have heard that there is a legal principle where any ambiguity in the contract is interpreted to the benefit of the side that did not draw up or suggest the contract text. This was presented to me somewhat anecdotally, but sounded reasonable - so I'm not sure what to make of it. Is there any such or similar thing, formalized to any degree? I'd prefer an answer in the context of both Common and Continental law.
However, it's a principle that is rarely applied in practice since it's at the end of a long line of judicial reasoning that gets applied first.
Ambiguity in contract provisions are usually resolved by the golden rule:
- Determine the ordinary and natural meaning of the words used
- Consider the context of the contract including its purpose, any "recitals" or "background" clauses and other relevant provisions
- If the ordinary and natural meaning is inconsistent with the context or gives rise to absurdities, modify the meaning as appropriate.
In the vast majority of case, this approach will give a meaning the court adopts without needing to invoke the contra proferentem rule.
However, in the minority of cases where the rule is applied it works like this. The ambiguity should be interpreted against:
- the party who prepared the contract (particularly for standard form contracts offered on a "take it or leave it" basis)
- the party seeking to rely on the ambiguous position (e.g. the beneficiary of a guarantee, indemnity, limitation or exclusion provision).
Finally, contra proferentem may not apply because:
- it can be specifically excluded in the contract (which most drafters do)
- where the provision has been the subject of back-and-forth amendments by the parties it can be impossible to say that only one of the parties drafted it.
Is this a real legal principle?
Yes. It is known as the doctrine of contra proferentem. The Restatement (Second) of Contracts at § 206 calls it "interpretation against the draftsman". This doctrine is present in both common law and civil law.
The presumption is that the party who drafts the terms of the contract has greater bargaining power than the counterparty[-ies]. The doctrine of contra proferentem is intended for compensating—at least in part—that draftman's advantage.
The interpretation posited by the counterparty still needs to be reasonable, consistent with the parties' intent that is palpable from the rest of the contract.
The other answers are right. But for authority, I'm citing this English contract law textbook. Burrows is a current UKSC Justice. Beatson was a Lord Justice of Appeal. Let me know if you want me to quote other contract law textbooks.
(b) THE ‘CONTRA PROFERENTEM’ RULE
The principle whereby the words of written documents are interpreted more forcibly against the party putting forward the document has been considered above.54 In the case of exemption clauses this is the party seeking to impose the exemption. This rule of construction is only applied where there is doubt or ambiguity in the phrases used, and provides that such doubt or ambiguity must be resolved against the party proffering the written document and in favour of the other party. In John Lee & Son (Grantham) Ltd v Railway Executive:55
The lease of a railway warehouse contained a clause exempting the lessors from liability for ‘loss damage costs and expenses however caused . . . (whether by act or neglect of the company or their servants or agents or not) which but for the tenancy hereby created . . . would not have arisen’. Goods in the warehouse were damaged by fire owing to the alleged negligence of the lessors in allowing a spark to escape from their railway engines. The lessors claimed that the clause exempted them from liability.
The Court of Appeal held that, applying the contra proferentem rule, the operation of the clause was confined by the words ‘but for the tenancy hereby created’ to liabilities which arose only by reason of the relationship of landlord and tenant created by the lease. Construing the clause against the lessors, they were not protected.
54 Above, p 184.
55  2 All ER 581. See also Adams v Richardson & Starling Ltd  1 WLR 1645, 1653 (construction of so- called ‘guarantee’); Tor Line AB v Alltrans Group of Canada Ltd  1 WLR 48, 56.
Jack Beatson FBA, Andrew Burrows FBA, QC (Hon), and John Cartwright. Anson's Law of Contract 31st edition, 2020, p 195.
In the past the courts applied extremely restrictive rules to the interpretation of exclusion and limitation clauses. In essence what the courts did was to apply the contra proferentem principle with particular venom to exclusion clauses. Contra proferentem is a principle of general application in contract law. It is not confined to exclusion clauses (see Tan Wing Chuen v. Bank of Credit and Commerce Hong Kong Ltd  2 BCLC 69, 77) and it provides that, in the event of there being an ambiguity in a contract term, the ambiguity is to be resolved against the party relying upon the term. Thus, according to the traditional rule, an ambiguously drafted exclusion clause is ineffective to exclude liability, at least in the case where it is not clear whether the clause covers the loss that has been suffered. This does not seem to be an unreasonable result. But the principle was at one time applied by the courts in an unreasonable way in an attempt to create an ambiguity in order to apply the rule (see, for example, Wallis, Son and Wells v. Pratt and Haynes  AC 394 and Andrews Bros (Bournemouth) Ltd v. Singer and Co Ltd  1 KB 17). Today a very different approach is taken by the courts and the contra proferentem rule has ‘a very limited role’ in commercial contracts negotiated between parties of equal bargaining power (see Persimmon Homes
Ltd v. Ove Arup & Partners Ltd  EWCA Civ 373,  BLR 417,  and Transocean Drilling UK Ltd v. Providence Resources plc  EWCA Civ 372,  2 Lloyd’s Rep 51, ). To the extent that it still has any application, it will only be applied where there is a genuine ambiguity in the clause.
Ewan McKendrick. Contract Law Text, Cases, and Materials 9th Edition, 2020, p 400.