Opinion ID: 701799
Heading Depth: 3
Heading Rank: 1

Heading: Ambiguity of Paragraph 11

Text: 16 Pneumo argues that the district court erred in denying its motion for summary judgment, determining that paragraph 11 of both the NWL and the CPC agreements was ambiguous. We review the district court's grant of summary judgment de novo. Our task is to determine whether the evidence, viewed in the light most favorable to the nonmoving party, establishes that there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. Commercial Union Ins. Co. v. McKinnon, 10 F.3d 1352, 1354 (8th Cir.1993). 17 Paragraph 11 in the CPC agreement is identical to paragraph 11 in the NWL agreement. Both provide: 18 In the event of termination, commissions on orders accepted prior to effective date of termination notice will be earned by [Aerotronics], and upon receipt of payment from customers will be paid by [NWL or CPC]. 19 Appellant's App. at A87; A104. Pneumo argues that the district court should have found that this language is unambiguous, and that it establishes that Aerotronics is not entitled to commission on any requests to supply goods received after it was terminated as sales representative for NWL and CPC. Aerotronics asserts that orders accepted means acceptance of initial development contracts for aircraft programs, not acceptance of orders for individual parts made pursuant to initial development programs. The district court found that the word order was ambiguous. The district court noted that the agreements referred to order, purchase order and business booked, but failed to define any of these terms. The court reasoned that orders do not necessarily continue upon acceptance of the initial aircraft program, nor do they necessarily stop upon acceptance of the initial aircraft program. We first review its finding with respect to the CPC agreement, and then address the NWL agreement. 20
21 Ohio law governs the construction of the CPC agreement. In Ohio, the court must determine from the four corners of the contract whether any terms in the contract are ambiguous. Shifrin, 597 N.E.2d at 501. Ohio has established the following test to determine whether a contract term is ambiguous: Common words appearing in a written instrument will be given their ordinary meaning unless manifest absurdity results, or unless some other meaning is clearly evidenced from the face or overall contents of the instrument. Id. (internal quotation and citation omitted). In other words, a contract term is ambiguous if its meaning cannot be discerned from the four corners of the contract, or the term is susceptible of two or more reasonable interpretations. Potti, 938 F.2d at 647. Ohio does not allow the introduction of parol evidence to prove a contract term is ambiguous if that ambiguity is not apparent on the face of the contract. Shifrin, 597 N.E.2d at 501. 22 We agree with the district court's conclusion that the term orders accepted prior to [Aerotronics'] termination in paragraph 11 is ambiguous. Although the CPC agreement defines many of the terms utilized in the agreement, it does not define order, purchase order or business booked. Order, purchase order and business booked may be used interchangeably throughout the agreement or they may have meanings that are distinct from one another; however, the CPC agreement offers no instruction as to this point. Upon viewing the agreement as a whole, we believe that the term order set forth in paragraph 11 is reasonably susceptible of two differing interpretations: (1) it may refer to a request to supply goods as Pneumo argues, or (2) it may refer to the acceptance of an initial development program as Aerotronics argues. See Yoder v. Columbus & S. Ohio Elec. Co., 39 Ohio App.2d 113, 316 N.E.2d 477, 480 (1974) (contract term is ambiguous if it is susceptible of two different meanings). For example, paragraph 7B provides that Aerotronics will receive 50% of its regular commission when an order originates within its territory and is subsequently transferred outside of its territory, for so long as the product remains on a purchase order with the Company that was obtained by [Aerotronics]. In the context of paragraph 7B, it appears that order refers to acceptance of an initial development program, whereas purchase order appears to refer to a request to supply goods, the definition that Pneumo argues is the plain meaning of the term order. 23 Thus, it is not plain that the term order, as used in paragraph 11, means a request to supply goods. Accordingly, paragraph 11 is ambiguous and the district court did not err in admitting parol evidence to determine the intent of the parties. 24
25 Michigan law governs the construction of the NWL agreement. Michigan allows the admission of parol evidence to indicate the parties' intent when a contract is ambiguous. American Anodco, Inc., 743 F.2d at 422. Furthermore, Michigan, unlike Ohio, also allows parol evidence to be used to prove that the contract is ambiguous. Id. In Goodwin, Inc. v. Coe, the Michigan Supreme Court allowed the admission of parol evidence to show that the term property owned by Seller was ambiguous. 392 Mich. 195, 220 N.W.2d 664, 675 (1974). The court noted that [i]f ambiguous terms are used, the preliminary negotiations may be considered, not to vary or contradict the plain terms of the instrument, but to aid the court in determining the intent with which such words were used. Id. 220 N.W.2d at 671 (internal quotation and citation omitted). In Petovello v. Murray, an agreement provided for the payment of commission for the original term of the lease. 139 Mich.App. 639, 362 N.W.2d 857, 858 (1984). The court admitted parol evidence, finding the term original term of the lease was ambiguous because there was no reference to original term within the lease. Id. 362 N.W.2d at 859. 26 If anything, Michigan is more likely to find a contract term ambiguous and admit parol evidence than is Ohio. Consequently, paragraph 11 of the NWL agreement is ambiguous for the same reasons that paragraph 11 of the CPC agreement is ambiguous, which we need not reiterate. We now turn to Pneumo's argument that even if paragraph 11 is ambiguous, the admission of certain testimony violated the parol evidence rule. 27 When a contract term is ambiguous, Ohio admits parol evidence to explain the understanding of the parties at the time of the execution of the agreement. Yoder, 316 N.E.2d at 480. Ohio also allows the admission of evidence to show the sense in which the words were used by the parties to the agreement, to show the meaning ordinarily given the ambiguous term by persons in that trade or business, and of the actions of the parties which manifest their understanding of the agreement. Construction Advancement Program of N. Cent. & E. Cent. Ohio v. A. Bentley & Sons Co., 45 Ohio App.2d 13, 340 N.E.2d 849, 853 (1975). Michigan allows introduction of extrinsic evidence to show what was in the minds of the parties at the time of making the contract or executing the instrument, and to determine the object for or on which it was designed to operate. Glenwood Shopping Ctr. Ltd. v. K Mart Corp., 136 Mich.App. 90, 356 N.W.2d 281, 286 (1984). Michigan also admits subsequent acts or declarations of the parties that show the practical construction placed upon the terms in order to ascertain the parties' intentions. Id. Furthermore, Michigan will hold a party to its interpretation of an ambiguous contract term. City of Mt. Pleasant v. Michigan Consol. Gas Co., 325 Mich. 501, 39 N.W.2d 49, 52 (1949). 28 Pneumo objects to the testimony of Ronald Tuchschmidt, 4 Jerome Tuchschmidt, 5 Philip Greco 6 and James A. Wood, Sr., 7 as violating the parol evidence rule. Wood, Sr., testified that he negotiated the NWL agreement with Aerotronics. Appellant's App. at A159. Accordingly, Wood, Sr.'s testimony as to his understanding of the meaning of paragraph 11 is admissible because it is probative of Pneumo's intended meaning of paragraph 11. Greco's and the Tuchschmidts' testimony concerning their understandings of paragraph 11 is also admissible because it shows the practical construction of the contract term by the parties; this testimony is also admissible to show the sense in which the words in paragraph 11 were used. 29 Therefore, the district court did not err in finding that paragraph 11 of the NWL and the CPC agreements was ambiguous and in admitting parol evidence to determine the intent of the parties with respect to paragraph 11.