Opinion ID: 1447807
Heading Depth: 3
Heading Rank: 3

Heading: Arizona view

Text: Writing for a unanimous court in Smith v. Melson, Inc., 135 Ariz. 119, 121-22, 659 P.2d 1264, 1266-67 (1983), Chief Justice Holohan expressly committed Arizona to the Corbin view of contract interpretation. Burkons v. Ticor Title Ins. Co. of Cal., 168 Ariz. 345, 350-51, 813 P.2d 710, 715-16 (1991); see also Darner, 140 Ariz. at 393, 682 P.2d at 398; cf. Gottsfield, supra, at 389-90 & n. 83 (citing numerous cases decided before Melson ). We have not, however, fully explored Melson 's application. See Gottsfield, supra, at 378. We have held that a court may consider surrounding circumstances, including negotiation, prior understandings, and subsequent conduct, but have not elaborated much further. Darner, 140 Ariz. at 393, 682 P.2d at 398; see also Burkons, 168 Ariz. at 351, 813 P.2d at 716; Melson, 135 Ariz. at 122, 659 P.2d at 1267. According to Corbin, the proper analysis has two steps. First, the court considers the evidence that is alleged to determine the extent of integration, illuminate the meaning of the contract language, or demonstrate the parties' intent. See 3 CORBIN § 542, at 100-01 (1992 Supp.). The court's function at this stage is to eliminate the evidence that has no probative value in determining the parties' intent. Id. The second step involves finalizing the court's understanding of the contract. Id. at 100. Here, the parol evidence rule applies and precludes admission of the extrinsic evidence that would vary or contradict the meaning of the written words. Id. Even during the first step, the judge may properly decide not to consider certain offered evidence because it does not aid in interpretation but, instead, varies or contradicts the written words. See id. at 101. This might occur when the court decides that the asserted meaning of the contract language is so unreasonable or extraordinary that it is improbable that the parties actually subscribed to the interpretation asserted by the proponent of the extrinsic evidence. See id. The more bizarre and unusual an asserted interpretation is, the more convincing must be the testimony that supports it. 3 CORBIN § 579, at 420. At what point a judge stops listening to testimony that white is black and that a dollar is fifty cents is a matter for sound judicial discretion and common sense. Id. When interpreting a contract, nevertheless, it is fundamental that a court attempt to ascertain and give effect to the intention of the parties at the time the contract was made if at all possible. Polk, 111 Ariz. at 495, 533 P.2d at 662; see also Darner, 140 Ariz. at 393, 682 P.2d at 398; Sam Levitz Furniture Co., 105 Ariz. at 330-31, 464 P.2d at 613-14. If, for example, parties use language that is mutually intended to have a special meaning, and that meaning is proved by credible evidence, a court is obligated to enforce the agreement according to the parties' intent, even if the language ordinarily might mean something different. See Restatement § 212 cmt. b, illus. 3 & 4. The judge, therefore, must avoid the often irresistible temptation to automatically interpret contract language as he or she would understand the words. This natural tendency is sometimes disguised in the judge's ruling that contract language is unambiguous. See 3 CORBIN § 543A, at 159 (1992 Supp.). Words, however, are seldom so clear that they apply themselves to the subject matter. Restatement § 214 cmt. b. On occasion, exposition of the evidence regarding the intention of the parties will illuminate plausible interpretations other than the one that is facially obvious to the judge. See id. Thus, ambiguity determined by the judge's view of clear meaning is a troublesome concept that often obstructs the court's proper and primary function in this area  to enforce the meaning intended by the contracting parties. See 3 CORBIN § 542, at 122-24; Gottsfield, supra, at 385. Recognizing these problems, we are hesitant to endorse, without explanation, the often repeated and usually oversimplified construct that ambiguity must exist before parol evidence is admissible. We have previously criticized the ambiguity prerequisite in the context of non-negotiated agreements. See State Farm Mut. Auto. Ins. Co. v. Wilson, 162 Ariz. 251, 257, 782 P.2d 727, 733 (1989) (recognizing the lack of logic in requiring ambiguity, which may be fortuitous, to prove the true terms of an agreement); Darner, 140 Ariz. at 389, 682 P.2d at 394 (same). Moreover, a contract may be susceptible to multiple interpretations and therefore truly ambiguous yet, given the context in which it was negotiated, not susceptible to a clearly contradicting and wholly unpersuasive interpretation asserted by the proponent of extrinsic evidence. In such a case, it seems clear that a court should exclude that evidence as violating the parol evidence rule despite the presence of some contract ambiguity. Finally, and most important, the ambiguity determination distracts the court from its primary objective  to enforce the contract as intended by the parties. Consequently, although relevant, contract ambiguity is not the only linchpin of a court's decision to admit parol evidence. The better rule is that the judge first considers the offered evidence and, if he or she finds that the contract language is reasonably susceptible to the interpretation asserted by its proponent, the evidence is admissible to determine the meaning intended by the parties. See Restatement § 215 cmt. b; see also Pacific Gas & Elec. Co. v. G.W. Thomas Dray. & Rigging Co., 69 Cal.2d 33, 69 Cal. Rptr. 561, 564, 566, 567-68, 442 P.2d 641, 644, 645-46 (1968); [2] cf. Melson, 135 Ariz. at 121, 659 P.2d at 1266 (A contract should be read in light of the parties' intentions as reflected by their language and in view of all the circumstances.). The meaning that appears plain and unambiguous on the first reading of a document may not appear nearly so plain once the judge considers the evidence. In such a case, the parol evidence rule is not violated because the evidence is not being offered to contradict or vary the meaning of the agreement. To the contrary, it is being offered to explain what the parties truly may have intended. We believe that this rule embodies the concepts endorsed by Corbin and adopted by this court ten years ago in Melson. Other courts more recently have expressed approval of the position taken by Corbin and the Restatement (Second) of Contracts. See, e.g., C.R. Anthony Co. v. Loretto Mall Partners, 817 P.2d 238, 241-44 & n. 3 (N.M. 1991); Isbrandtsen v. North Branch Corp., 150 Vt. 575, 556 A.2d 81, 83-85 (1988); Berg v. Hudesman, 115 Wash.2d 657, 801 P.2d 222, 227-30 (1990); see also 3 CORBIN § 542, at 105-112 (Supp. 1992) (citing cases). A judge may not always be in a position to rule on a parol evidence objection at first blush, having not yet heard enough relevant evidence on the issue. If this occurs, the judge might, for example, admit the extrinsic evidence conditionally, reserve ruling on the issue until enough relevant evidence is presented, or, if the case is being tried to a jury, consider the evidence outside the jury's presence. See, e.g., Ariz.R.Evid. 103(c), 104(b), 104(c), 105. Because the judge is in the best position to decide how to proceed, we leave this decision to his or her sound discretion. As noted also, the judge need not waste much time if the asserted interpretation is unreasonable or the offered evidence is not persuasive. A proffered interpretation that is highly improbable would necessarily require very convincing evidence. In such a case, the judge might quickly decide that the contract language is not reasonably susceptible to the asserted meaning, stop listening to evidence supporting it, and rule that its admission would violate the parol evidence rule. See 3 CORBIN § 542, at 112; § 579, at 420. We now apply these principles to the facts of this case.