Opinion ID: 805939
Heading Depth: 4
Heading Rank: 2

Heading: Latent Ambiguity

Text: Eureka seeks to escape the Oklahoma rule against the use of extrinsic evidence to interpret an unambiguous contract by invoking an exception to the general rule—the exception for latent ambiguities. “A ‘latent ambiguity’ is one not evident from the face of the instrument alone but becomes apparent when applying the instrument to the facts as they exist.” Ryan v. Ryan, 78 P.3d 961, 964 (Okla. Civ. App. 2003). “It arises when language is clear and intelligible and suggests but a single meaning, but some extrinsic fact or some extraneous evidence creates a necessity for interpretation or a choice between two or more possible meanings.” Id. at 965; see id. (“Where a writing contains a reference to an object or thing, such as a pump” but extrinsic evidence shows “that there are two or more things or objects, such as pumps, to which it might properly apply, a latent ambiguity arises.” (internal quotation marks omitted)). The canonical examples of latent ambiguity are contracts (or wills) that describe a thing (or person) with a proper noun when two such things bear the same proper noun. -24- Many commentaries have been written on Raffles v. Wichelhaus, 2 H. & C. 906, 159 Eng. Rep. 375 (Ex. 1864), in which the contract concerned the purchase of a shipment of cotton to be delivered from Bombay on the ship “Peerless.” Unfortunately, two ships of that name had departed from Bombay two months apart. The Oklahoma Supreme Court’s decision in Druggists’ Mutual Fire Insurance Co. of Iowa v. Shaw, 41 P.2d 69 (Okla. 1935) (per curiam), illustrates the point. A business that occupied two adjacent buildings on lot 10, block 7—a two-story building and a one-story building—purchased an insurance policy covering property “contained in the two-story non-combustible roof brick building situated on lot 10, Block 7.” Id. at 69–70 (internal quotation marks omitted). A fire destroyed the property in the one-story building, and the insurer denied coverage. See id. at 70. The business argued that the policy had a latent ambiguity and that it could therefore introduce extrinsic evidence showing that the parties intended the contract to cover property in the one-story building. See id. The court held that the extrinsic evidence was inadmissible because there was no uncertainty in applying the terms of the contract to the facts as they existed; the policy covered a two-story building on a specified lot and there was in fact a single two-story building on that lot. See id. The court said that the situation would have been different had there been two two-story buildings, or no two- -25- story building. See id. But it refused to allow the parties, “under the guise of a latent ambiguity, [to] contradict the plain terms of the written instrument.” Id. Here, Eureka has failed to identify any latent ambiguity in the 1975 Agreement. Perhaps the latent-ambiguity doctrine might allow Eureka to prove that the parties understood the term purified water or drinking water in the 1975 Agreement to mean something broader than the purified water or drinking water described in that Agreement, although one could doubt whether such proof would be possible in light of the precise language of the Agreement defining purified water and drinking water. In any event, all that is referred to in Eureka’s brief on appeal to show a latent ambiguity is the following: (1) Trademark No. 836,026 suggests that Arrowhead believed that drinking water and spring water were functionally interchangeable; (2) Nestle aggressively sought to buy from Eureka a right which it now claims Eureka did not possess under the 1975 Bottling Agreement and that it could regain by merely terminating a supplemental agreement with reasonable notice; (3) for nearly two decades, Nestle extended special pricing and paid invasion fees to Eureka for sales made into its territory, all applicable to Ozarka spring water; and (4) for nearly thirty years, Nestle and its predecessors-in-interest were aware of and acquiesced to Eureka’s continued expansion of Ozarka products in Oklahoma. Aplee. Br. at 40. We have previously concluded, however, that the trademark application does not indicate that the term drinking water as defined in the 1975 Agreement encompasses spring water. And items 2, 3, and 4 do not show how the parties defined the terms purified water or drinking water (as extrinsic evidence might show which ship named “Peerless” the parties were referring to) but are -26- simply evidence of the parties’ general intent in entering into the Agreement. This evidence was used at trial to prove that the agreement was meant to include more than the purified water and drinking water specified in the Agreement, not that the term purified water or drinking water actually encompassed spring water. Such evidence of general intent, not tied to the specific usage of a particular word or term, does not establish a latent ambiguity. If it did, the latent-ambiguity exception would swallow the general rule barring extrinsic evidence. Thus, we hold that the 1975 Agreement applies only to purified water and drinking water. The declaratory judgment and the jury’s verdict to the contrary (including the damages award) must be reversed. We remand to the district court for entry of judgment in favor of Nestle on the contract claim.