Rule and exception. The title of this paragraph – avoid vague terms – Is a best practice rule with important exceptions. As a general principle, vagueness should be avoided, but many vague terms serve a useful purpose. As a general principle, a contract should be clear about the obligations of each party. However, clear obligations are not always agreeable. In such case, the principals may well work on the basis of a gentlemen’s agreement reflected by some vague wording of intention, materiality or reasonableness. Remember, however, that if an obligation is not clear, the strongest contracting party will have the benefit of the doubt as to whether it did perform duly.
Although contracts should be clear, many obligations are incapable of being defined in an all-embracing manner. For example, precise criteria may depend on extraneous uncertainties or the parties may be willing to assume clear (and even stricter) criteria only after a minimum level of mutual trust has been established. In such cases, it would be inevitable to use a vague term. It makes sense to elaborate on such vague terms by agreeing on conditions or milestones to achieve certainty at a later time and place.
Examples of vague or unspecified contract terms are the concepts of reasonable, undue delay, material, substantially and properly. It is probable that the concept of good faith is also such a vague term. Essentially, it introduces a standard of conduct which has yet to be defined, and reflects a call for ‘good-housekeeping-behaviour-but-not-too-much’. I disagree with this. Good faith is a subjective state of mind requiring due and sincere consideration.
Cultural difference. Generally, lawyers from jurisdictions with systematic codifications of the laws of obligations feel much more comfortable with vagueness than those from a common law jurisdiction. This may be explained by the fact that, by definition, codifications are built on vague terms that acquire their purpose in real life. Statutory references to materiality and reasonableness impose a balance of interests as well as a duty to explain. Similarly, in common law jurisdictions the individual freedom (and accordingly, the freedom of contract) may well prevail over vague (limiting) concepts such as good faith and fair dealing.
Several ‘vague terms’ are used in various typical contexts, but not always accurately. In this paragraph we will discuss a few aspects of the use of the terms reasonable, material, substantially and without undue delay.
