Ward v. Intermountain Farmers Ass'n
907 P.2d 264, 1995 Utah LEXIS 76, 277 Utah Adv. Rep. 58 (1995)
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Rule of Law:
When interpreting a contract, a court may consider credible extrinsic evidence to determine whether the contract's language is ambiguous. If the court finds the language is reasonably susceptible to the interpretations contended for, the contract is ambiguous and the extrinsic evidence is admissible to clarify the parties' intent.
Facts:
- In March 1988, Earl Ward contracted with Intermountain Farmers Association (IFA) in Utah for the application of fertilizers and herbicide to his safflower field located in Idaho.
- On March 25, 1988, an IFA employee sprayed Ward's field using equipment that had not been properly cleaned and contained residue of Velpar L, a powerful herbicide.
- The Velpar L residue contaminated the solution sprayed on Ward's field, causing significant damage to his safflower crop.
- After negotiations, IFA representatives presented Ward with a release agreement, which he initially refused to sign due to concerns about the herbicide's lingering effects on future crops.
- IFA representatives assured Ward there would be no problem with future crops, stated that if a problem arose they would address it, and explained they had to 'settle one year at a time.'
- Relying on these assurances, Ward signed the release on November 28, 1988, which released IFA from 'any and all damages caused by the spraying of my approximate nineteen acres of safflower.'
- In the spring of 1989, beans planted by Ward in the same field also began to die from the herbicide.
- An IFA representative initially told Ward, 'this is not your problem; it is our problem,' but IFA later refused to compensate him for the damaged bean crop.
Procedural Posture:
- Earl Ward filed a breach of contract suit against Intermountain Farmers Association (IFA) in the district court.
- IFA moved for summary judgment, arguing the claim was barred by Idaho statutes of limitations and the signed release agreement.
- The district court granted IFA's motion for summary judgment.
- The district court held that Ward's action was a tort claim, not a contract claim, and was therefore time-barred under Idaho law.
- The district court also held, in the alternative, that the release agreement unambiguously released IFA from all claims for future damages.
- Ward, as the appellant, appealed the grant of summary judgment to the Utah Supreme Court.
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Issue:
May a court consider extrinsic evidence to determine whether a contract's language is ambiguous, even if the contract appears clear on its face?
Opinions:
Majority - Durham, Justice
Yes. A court may consider credible extrinsic evidence to determine if a contract is ambiguous. The court adopted the approach that rational interpretation requires a preliminary consideration of all credible evidence offered to prove the parties' intention, so the court can place itself in the same situation as the parties at the time of contracting. A judge should not rely solely on their own linguistic education. In this case, Ward's evidence of IFA's oral assurances that the settlement was for 'one year at a time' supports his interpretation that the release only covered the safflower crop. Because the contract language ('damages caused by the spraying of my... nineteen acres of safflower') is reasonably susceptible to this interpretation, it is ambiguous, and the extrinsic evidence is admissible to clarify its meaning.
Dissenting - Zimmerman, Chief Justice
No. A court may not consider extrinsic evidence in interpreting a contract without first finding, as a preliminary matter, that the contract is ambiguous on its face. The majority unjustifiably departs from long-standing Utah precedent which holds that ambiguity is a question of law determined from the 'four corners' of the document. The release is unambiguous; it releases IFA from 'any and all damages caused by the spraying,' and the phrase 'of safflower' merely identifies the field or the act of spraying, not the type of damages. The majority's new rule undermines the certainty of written contracts and ignores the doctrine of stare decisis.
Concurring - Russon, Justice
Yes, but only because the contract is ambiguous on its face. The majority's reasoning for allowing extrinsic evidence to find ambiguity is an 'imprudent and disruptive' departure from established law. The agreement is facially ambiguous because the phrase 'spraying of my approximate nineteen acres of safflower' could reasonably mean either releasing claims for damage to the field that happened to contain safflower, or only releasing claims for damage to the safflower crop itself. Because it is susceptible to two reasonable interpretations on its face, extrinsic evidence is admissible under existing precedent to determine the parties' intent. The majority’s new rule will invite parties to create ambiguity in clear contracts and will undermine the use of summary judgment.
Analysis:
This decision represents a significant shift in Utah contract law, moving away from a traditional, restrictive 'four-corners' approach to a more modern, contextual approach for interpreting contracts. By allowing courts to consider extrinsic evidence at the preliminary stage of determining ambiguity, the ruling lowers the threshold for a contract to be deemed ambiguous. This change impacts litigation by making it more difficult for parties to obtain summary judgment in contract disputes, as opposing parties can more easily introduce evidence of prior negotiations or oral statements to create a factual issue about the contract's meaning, thereby increasing the likelihood that such cases will proceed to trial.
