Court Opinion

ID: 9788959
Source: CourtListenerOpinion
Date Created: 2023-08-31 01:23:18.421943+00
Date Added: 2024-06-11T07:37:18.001842
License: Public Domain

Justice HOBBS,
dissenting:
I respectfully dissent. The hearing officer, in my view, incorrectly determined that no ambiguity existed in regard to the disputed language of section 5.07 of the contract and ruled as inadmissible the concessionaires' evidence to the contrary. The language states: "Such statement shall be prepared and certified to be true and correct by an independent certified public accountant." The hearing officer's ruling is contrary to Colorado law that admits evidence demonstrating the ambiguity of a seemingly unambiguous contract provision.
The hearing officer refused to consider the evidence of the contested provision's ambiguity; the hearing officer's error in this regard led to his second error, his ruling that the disputed provision is unambiguous. These are errors that the majority does not correct. See maj. op. at 377-78. Because the record does not support the hearing officer's findings and conclusions, and because the hearing officer did not employ the appropriate legal standards, I would reverse the decision of the court of appeals with instructions. I would require the agency to reopen the administrative proceeding, take additional evidence, and make a new determination applying the appropriate legal standards in order to ascertain the parties' intent regarding the disputed provision at the time of contract formation.
L.
A. The Hearing Officer's Ruling in Light of the Evidence
The hearing officer refused to consider evidence demonstrating the contract provision's ambiguity, and ruled evidence going to the intent of the parties at the time of contract formation to be inadmissible. The record demonstrates that (1) a similar provision to the Denver International Airport (DIA) contracts was in use in the Stapleton contracts and had achieved a recognized construction that bore on the parties' intent at the time of DIA contract formation; and (2) Denver unilaterally changed this construction following execution of the DIA contracts. The undetermined issue in this case, which should be the subject of this court's remand order, is what the parties intended in regard to the phrase "such statement shall be prepared and certified to be true and correct by an independent certified. public accountant."
This provision appears in a six-paragraph portion of the contract dealing with financial record-keeping by concessionaires. This contract portion is captioned "Books of Account and Auditing." It addresses the concessionaire's responsibility to keep within the City and County of Denver "true and complete records and accounts of all Gross Revenues and business transacted, including bank deposits." Not later than February 28 of each year the concessionaire is to furnish Denver with a true and accurate statement of the total of all revenues and business transacted during the preceding calendar year. The concessionaire agrees to establish and maintain a system of bookkeeping satisfactory to the City Auditor. Denver's Manager of Aviation has access during normal business *379hours to the concessionaire's books and ree-ords. The concessionaire is also required to keep and preserve for at least three years all sales slips, cash register tapes, sales books, bankbooks or duplicate deposit slips, and all other evidence of gross revenues and business transacted for such period. The City Auditor and the Manager of Aviation, or their authorized representatives, "shall have the right at any time to audit all of the books of account, bank statements, documents, ree-ords, returns, papers and files" of the concessionaire. Denver has the right to require the concessionaire to install point-of-sale cash register equipment. If, after an audit, Denver determines that the gross revenues and business transacted were understated more than three percent for the year, the concessionaire must then pay for the audit, as well as the amount of the deficiency, plus interest on the deficiency amount at eighteen percent per annum from the date due. Denver's right to perform an audit expires three years after the concessionaire's statement for that year is delivered to Denver. The concessionaire agrees that the City Auditor and the Manager of Revenue may inspect any sales tax return or report, and accompanying schedules and data, filed with Denver. The concessionaire waives any claim of confidentiality in connection therewith.
The language in question, "Such statement shall be prepared and certified as true and correct by an independent certified public accountant," refers to the annual "true and accurate statement of the total of all revenues and business transacted during the preceding calendar year." The word "audit" appears only in the provisions which allow the City Auditor and the Manager of Aviation to conduct an audit of the financial records the concessionaire is required to keep, and charge the costs of the audit to the concessionaire if the statement for the year is understated by more than three percent.
The parties do not dispute that the Staple-ton contracts had similar language concerning certified public accountant (CPA) certification and that principles and standards of CPAs do not allow them to certify a client's statement as being true and correct. Accordingly, the City allowed company officers to certify that the annual statements were true and correct.
DIA's concessionaires executed contracts, with Denver, containing the Stapleton-type language in 1998, as they prepared for the opening of DIA. On April 5, 1996, the Manager of Aviation issued a memorandum to concessionaires entitled: "Clarification of Contract Language Annual Statement of Revenue and Business Transacted." This memorandum stated:
Questions have arisen regarding the interpretation of this language. The phrase "certified to be true and correct by an independent certified public account(ant)" means, or will be satisfied by, a report from an independent CPA after the CPA has audited the statement of revenues and business transacted. /
(Emphasis added.)
Recognizing that no CPA would issue the certification specified in the Stapleton and DIA contracts, Denver thus chose to substitute, after the DIA contracts were executed, a yearly CPA audit requirement for its prior acceptance of company officer certification. Ms. Debra Lynn DeMuth, Denver's Manager of Finance at DIA, testified before the hearing officer that the language of the disputed provision did not mean what it says:
Q: And you are aware of the fact that it is not in compliance with generally accepted accounting principles and generally accepted auditing standards for an independent certified public accountant to certify a statement of gross revenues as being true and correct.
A: That language, per se, cannot be used.
She also testified that the concessionaires at Stapleton were not required to submit annual statements certified in any manner by CPAs and that certain businesses at DIA would not be required to have the new annual CPA audits required of other concessionaires.
Mr. D.C. Kiyemba, Audit Supervisor at DIA, also testified that annual audit statements from CPAs were not required for the Stapleton concessionaires despite similar contract language that required CPA certification:
*380Q: And from the independent concesgion-aires, or from all the concessionaires at Stapleton Airport, you never required annual statements from CPAs, did you?
A: I personally?
Q. Yes.
A. No.
Q. If you had received a statement of gross revenues for a concessionaire at Stapleton Airport that was merely signed off on by an officer of the company, that was acceptable to you, was it not?
A. Yes.
The record demonstrates that the expectation of DIA concessionaires at the time of contract formation did not include the later-'imposed annual CPA audit requirement. Nevertheless, the hearing officer adopted Denver's reinterpretation of the contract language as being within the plain meaning of the contract. The evidence does not support this conclusion, as Denver was aware before the DIA contracts were executed that the CPA certification language could not mean what it said in light of principles and standards of the public accounting profession.
Accordingly, the evidence demonstrates that the disputed provision is ambiguous, not on its face, but because of a latent ambiguity. The hearing officer overlooked the doctrine of latent ambiguity, as does the majority.
B. Latent Ambiguity
1 conclude that a latent ambiguity exists in the disputed provision of section 5.07 of the contract. The hearing officer should have considered extrinsic evidence to determine the intent of the parties as to the disputed provision at the time of the contract's formation. As the majority states, the primary goal of contract interpretation is to determine and give effect to the intent of the parties. See USI Properties East, Inc. v. Simpson, 938 P.2d 168, 173 (Colo.1997). We must implement the clear terms of the agreement if the language of the contract is plain and unambiguous. See id. Thus, the threshold inquiry under this rule is whether the contract is ambiguous.
There are two different types of ambiguities. A patent ambiguity appears on the face of a document and arises from the language itself. See In re Estate of Gross, 646 P.2d 396, 397 (Colo.App.1981); Black's Law Dictionary 80 (7th ed.1999). A latent ambiguity exists where the language of the document, although clear on its face, is susceptible to more than one meaning. See Environmental Defense Fund, Inc. v. Colorado Dep't of Health, 781 P.2d 773, 776 (Colo.App.1986); Gross, 646 P.2d at 397. The doctrine of latent ambiguity comes into play only if someone who read the contract without knowledge of its real-world context of application would think it clear. See Rossetto v. Pabst Brewing Co., 217 F.3d 539, 548 (7th Cir.2000).
In deciding whether a contract is ambiguous, "a steadily increasing number of courts have disavowed the plain meaning rule and have recognized the necessity of viewing extrinsic evidence." 5 Margaret N. Kniffin, Corbin on Contracts § 24.7, at 34 (rev. ed.1998). In Colorado, we have adopted this more flexible approach. We may consider extrinsic evidence bearing on the meaning of the written terms such as evidence of local usage and of the circumstances surrounding the making of the contract. See Lazy Dog Ranch v. Tellwray Ranch Corp., 965 P.2d 1229, 1235 (Colo.1998) (holding that extrinsic evidence may be introduced to determine whether a deed is ambiguous); Fire Ins. Exch. v. Rael, 895 P.2d 1139, 1143 (Colo.App.1995) (holding that extrinsic evidence may be introduced to determine whether the term in an insurance policy is ambiguous). However, we may not consider the parties' own extrinsic expressions of intent. See Fire Ins. Exch., 895 P.2d at 1148. In addition, if we ultimately determine that the document is unambiguous, the conditionally admitted evidence must be stricken. See Lazy Dog Ranch, 965 P.2d at 1235.
On its face, the disputed provision appears to be unambiguous-the revenue statements are required to be prepared and certified as true and correct by an independent CPA. In interpreting the contract, however, it is clear that this provision is indeed ambiguous. The evidence presented clearly shows that CPAs *381are not permitted to use the words "certify" or "true and correct." The provision is unenforceable as written and thus the plain language can not be the meaning intended by the parties.
In addition to the fact that the contract cannot be enforced as written, the circumstances surrounding the making of the contract provide ample support for the conclusion that an ambiguity exists. The hearing officer and the majority fail to consider this extrinsic evidence in determining that no ambiguity exists. The Stapleton contracts, which contained the same exact language as the contracts in dispute here, were interpreted very differently from the interpretation suggested by the plain language of the provision. Denver had not required the Stapleton concessionaires to provide Denver with revenue statements prepared by an independent CPA. Instead, Denver had historically accepted statements certified to be true and correct by the concessionaires' officers and owners, often without input or review by a CPA. Such cireumstances clearly demonstrate that an ambiguity exists with regard to section 5.07s provisions. '
Onee an ambiguity is found, it should be resolved by giving effect to the intent of the parties. See Fire Ins. Exch., 895 P.2d at 1143; Duncan v. Eagle Rock Gold Mining & Reduction Co., 48 Colo. 569, 582, 111 P. 588, 598 (1910). Interpretation of the intent of the parties in an ambiguous contract becomes an issue of fact for the trial court to decide in the same manner as other disputed factual issues. See Fire Ins. Exch., 895 P.2d at 1143; Union Rural Elec. Ass'n v. Public Utils. Comm'n, 661 P.2d 247, 251 n. 5 (Colo.1983). After a contract is deemed ambiguous the trial court may use extrinsic evidence to assist it in ascertaining the intent of the parties. See Cheyenne Mountain Sch. Dist. # 12 v. Thompson, 861 P.2d 711, 715 (Colo.1993). Facts existing at the time the contract was formed, and prior thereto, may be proved by parol evidence. See Duncan, 48 Colo. at 582, 111 P. at 593.
Here, the hearing officer should have examined the extrinsic evidence available to determine what the parties intended by including the disputed provision in section 5.07 of their contract. In determining the parties' intent, the hearing officer should also have considered "two well established principles governing the interpretation of contracts." Christmas v. Cooley, 158 Colo. 297, 302, 406 P.2d 333, 336 (1965). First, in case of doubt, a contract is construed most strongly against the party that drafted it. See id. Second, where doubt exists as to the proper construction of a given clause, it should be construed in favor of the party for whose protection it was obviously inserted. See id.
Factual development of the case in regard to the parties' intent at the time of contracting should determine which of these seemingly contradictory principles of contract construction is applicable to this case. As a matter of law, the majority chooses an interpretation that favors Denver. It reaches this conclusion based on the assumption that the most important aspect of the disputed provision is the involvement of a CPA. See maj. op. at 876-78. On the other hand, another credible assumption based on Denver's past acceptance of officer certification of the annual revenue statement is that Denver considered the certification of truth and accuracy to be more important than CPA involvement. Because Denver can protect itself through the audit provision that is available for use by the Manager of Aviation and the City Auditor, the principle that the contract should be construed against the city as drafter may prevail.
We ought not to conclude that a provision is unambiguous when the actions of Denver, the drafter, demonstrate that it is ambiguous. Denver's 1996 memorandum requiring a CPA audit to be completed, instead of the officer certification previously acceptable, would not have been necessary if the disputed provision were unambiguous.
IL.
Accordingly, I respectfully dissent and would remand this case to the hearing officer for further fact finding and determination on the issue of the parties' intent in regard to the disputed provision at the time of contracting.