Opinion ID: 2230374
Heading Depth: 1
Heading Rank: 11

Heading: consideration of extrinsic evidence

Text: I recognize that given the posture of this case when it went to trial, Buyer was in a precarious position with respect to extrinsic evidence of the meaning of the Non-Competition Agreement. Neither party was arguing that the Non-Competition Agreement was ambiguous, and the district court had endorsed that conclusion. Nonetheless, Buyer could have argued that even if the Non-Competition Agreement was ambiguous, extrinsic evidence existed to support an interpretation that was favorable to Buyer's position, and Buyer could have preserved that argument at trial by proffering such evidence. Instead, Buyer made the strategic choice, at trial and on appeal, to rely on the plain language of the contract, and the plain language of the contract simply does not support Buyer's position. Buyer chose not to make offers of proof containing evidence supporting its interpretation of the Non-Competition Agreement, and in my view, that choice has consequences on appeal. In many ways, this case illustrates the limitations placed on litigants and courts by Nebraska's adherence, albeit implicit, to the plain meaning or four corners rule for determining the ambiguity of a contract. The rule in Nebraska has been that extrinsic evidence is not permitted to explain the terms of a contract that is not ambiguous. Spanish Oaks v. Hy-Vee, 265 Neb. 133, 655 N.W.2d 390 (2003). A contract is ambiguous when a word, phrase, or provision in the contract has, or is susceptible of, at least two reasonable but conflicting interpretations or meanings. Id. Courts that subscribe to the `plain meaning rule' hold that the decision as to whether ambiguity exists must be made without reference to any source other than the contract itself. 5 Margaret N. Kniffin, Corbin on Contracts § 24.7 at 33 (Joseph M. Perillo rev. ed.1998). See, e.g., Sack Bros. v. Great Plains Co-op., 260 Neb. 292, 616 N.W.2d 796 (2000). However, as a noted commentator has explained, there is a growing trend toward admitting extrinsic evidence to explore whether ambiguity exists. See 5 Kniffin, Corbin on Contracts, supra, § 24.30 (citing cases). This court has not always been completely consistent in its adherence to the four corners doctrine, see, e.g., Plambeck v. Union Pacific RR. Co., 244 Neb. 780, 509 N.W.2d 17 (1993), but we have not expressly recognized the sensible principle that in many instances, it is impossible to ascertain the intended meaning of contract terms without reference to the evidence of surrounding circumstances. Although extrinsic evidence is not admissible to add to, detract from, or vary the terms of a written contract, these terms must first be determined before it can be decided whether or not extrinsic evidence is being offered for a prohibited purpose. The fact that the terms of an instrument appear clear to a judge does not preclude the possibility that the parties chose the language of the instrument to express different terms. That possibility is not limited to contracts whose terms have acquired a particular meaning by trade usage, but exists whenever the parties' understanding of the words used may have differed from the judge's understanding. Accordingly, rational interpretation requires at least a preliminary consideration of all credible evidence offered to prove the intention of the parties. Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co., 69 Cal.2d 33, 39-40, 69 Cal.Rptr. 561, 565, 442 P.2d 641, 645 (1968). Simply stated, [w]hen determining whether a contract is ambiguous, any relevant evidence must be considered. Otherwise, the determination of ambiguity is inherently one-sided, namely, it is based solely on the `extrinsic evidence of the judge's own linguistic education and experience.' (Citations omitted.) Ward v. Intermountain Farmers Ass'n, 907 P.2d 264, 268 (Utah 1995). Accord, e.g., Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 854 P.2d 1134 (1993) (en banc); C.R. Anthony Co. v. Loretto Mall Partners, 112 N.M. 504, 817 P.2d 238 (1991); Harrigan v. Mason & Winograd, Inc., 121 R.I. 209, 397 A.2d 514 (1979); Simpson v. State Mutual Life Assurance Co., 135 Vt. 554, 382 A.2d 198 (1977); Anderson v. Kammeier, 262 N.W.2d 366 (Minn.1977). See, also, 5 Kniffin, Corbin on Contracts, supra, § 24.30; 2 E. Allan Farnsworth, Farnsworth on Contracts § 7.12a (2d ed.1998). Consequently, in determining whether a term or expression to which the parties have agreed is unclear, a court may hear evidence of the circumstances surrounding the making of the contract and of any relevant usage of trade, course of dealing, and course of performance. C.R. Anthony Co., supra . In accord with this view, the Restatement (Second) of Contracts § 212(1) at 125 (1981) states that [t]he interpretation of an integrated agreement is directed to the meaning of the terms of the writing or writings in the light of the circumstances. . . . The Restatement, supra, comment b. at 126, further explains: It is sometimes said that extrinsic evidence cannot change the plain meaning of a writing, but meaning can almost never be plain except in a context. Accordingly, the rule stated in Subsection (1) is not limited to cases where it is determined that the language used is ambiguous. Any determination of meaning or ambiguity should only be made in the light of the relevant evidence of the situation and relations of the parties, the subject matter of the transaction, preliminary negotiations and statements made therein, usages of trade, and the course of dealing between the parties. . . . But after the transaction has been shown in all its length and breadth, the words of an integrated agreement remain the most important evidence of intention. In my opinion, this process for determining whether a contract is ambiguous is more sensible and practical than rigidly adhering to an obsolete fixation on the four corners of the document. Just as significantly, I believe this process accurately reflects what courts are actually doing when determining the meaning of contracts, even if not permitted to acknowledge it. In this case, for instance, the trial court and the parties would have been on much firmer ground had they known, from the outset, that the court could consider extrinsic evidence relevant to the ambiguity of the contract. They would not have been forced to choose between arguing that the contract was unambiguous or presenting evidence relevant to the intent of the parties. And, had the relevant extrinsic evidence been considered prior to trial, the court could have openly relied on that evidence to support its conclusion that the Non-Competition Agreement did not prohibit Seller from continuing to salvage antique parts in support of its antique business  a conclusion which I believe, as explained above, is apparent when the relevant evidence is considered. In short, the dubious procedural posture of this case demonstrates the impracticality of the four corners rule for determining whether a contract is ambiguous. But this case was tried under that rule, and it is pursuant to that rule that this appeal must be decided. However, this court should, in an appropriate case, consider expressly adopting the more sensible rule expressed in the Restatement, supra, advocated by respected commentators, and already embraced in several well-reasoned decisions from other jurisdictions.