Court Opinion

ID: 848800
Source: CourtListenerOpinion
Date Created: 2013-03-01 23:52:40.108804+00
Date Added: 2024-06-11T15:08:27.327799
License: Public Domain

Michigan Supreme Court
                                                                       Lansing, Michigan 48909
____________________________________________________________________________________________
                                                                C h i e f J u s ti c e            J u s t ic e s
                                                                Maura D. Corrigan                 Michael F. Cavanagh

Opinion
                                                                                                  Elizabeth A. Weaver
                                                                                                  Marilyn Kelly
                                                                                                  Clifford W. Taylor
                                                                                                  Robert P. Young, Jr.
                                                                                                  Stephen J. Markman
____________________________________________________________________________________________________________________________

                                                                                          FILED JUNE 18, 2003

                CRAIG A. KLAPP,

                        Plaintiff-Appellant,

                v                                                                        Nos. 119175, 119176

                UNITED INSURANCE GROUP AGENCY, INC,

                        Defendant-Appellee.

                BEFORE THE ENTIRE BENCH

                MARKMAN, J.

                        We granted leave to appeal in this case to consider

                whether defendant breached the parties’ written contract by

                refusing to pay plaintiff retirement renewal commissions on

                insurance policies that plaintiff sold on behalf of defendant

                while plaintiff was working for defendant.                                   The trial court

                denied      defendant’s          motion       for             summary      disposition.            It

                concluded that the contract was ambiguous and, thus, that its

interpretation raised a question of fact that must be decided

by the jury, which could consider relevant extrinsic evidence.

The jury found in favor of plaintiff.           The Court of Appeals

reversed, concluding that the contract unambiguously stated

that an agent must be at least sixty-five years old and have

worked at least ten years for defendant in order to qualify

for retirement renewal commissions and, therefore, that the

trial court erred in not granting defendant’s motion for

summary disposition.   Because we agree with the trial court

that the language of this contract is ambiguous and, thus,

that its interpretation raises a question of fact for the jury

to determine in light of relevant extrinsic evidence, we

reverse the judgment of the Court of Appeals and remand this

case to the Court of Appeals for consideration of defendant’s

other appellate issue and plaintiff’s cross-appeal.1

                 I. FACTS   AND   PROCEDURAL HISTORY

     When plaintiff began working as an insurance agent for

defendant in 1990, they entered into a contract, titled the

“Agent’s Agreement.”   Plaintiff permanently stopped working

     1
       Specifically, on remand, the Court of Appeals shall

consider defendant’s alternative argument that the damages

award was based on improper speculation about policy renewals,

and plaintiff’s cross-appeal, which challenged the trial

court’s dismissal of his claim for double damages and actual

attorney fees under the sales representative commissions act.

MCL 600.2961.

                                   2

for   defendant   in    1997.2   Plaintiff   brought    this   action,

alleging that defendant failed to pay renewal commissions to

which plaintiff was entitled pursuant to the vesting schedule

in their contract that provided that an agent with seven years

of service is entitled to the vesting of one hundred percent

of his renewals.3      After discovery, defendant brought a motion

for   summary     disposition    pursuant    to   MCR   2.116(C)(10),

contending that, in order for renewal commissions to be vested

on the basis of retirement, one must be at least sixty-five

years old and have worked for defendant for at least ten

years.4   The trial court denied defendant’s motion for summary

disposition,5 finding the contract to be ambiguous,6           and the

      2
       In 1994, plaintiff stopped working for defendant for

about six months.     When plaintiff returned to work for

defendant, he was given credit for his prior work for

defendant pursuant to the vesting schedule in their contract.

     Plaintiff permanently stopped working for defendant in

April of 1997. However, defendant did not become aware of

this until August of 1997.    Apparently, plaintiff did not

inform defendant that he was not going to work for defendant

any longer. Once defendant noticed that plaintiff was not

generating any new business, it sent plaintiff a letter

declaring their contract terminated and stopped paying

plaintiff renewal commissions. 

      3
      That defendant had accrued seven years of service as an

agent with defendant is undisputed.

      4
       That defendant was in his mid-forties when he stopped

working for defendant is undisputed.

      5
      However, the trial court did grant defendant’s motion

for summary disposition with regard to plaintiff’s second

                                             (continued...)

                                  3

jury subsequently found in favor of plaintiff.7                   The Court of

Appeals       then        reversed,     concluding       that   the    contract

unambiguously requires that an agent must be at least sixty­

five       years    old    and   have   worked    at    least   ten   years   for

defendant          in   order    to     qualify   for    retirement     renewal

commissions.8 We granted plaintiff’s application for leave to

appeal.9

       5
      (...continued)

count seeking double damages and attorney fees under the sales

representative commissions act, MCL 600.2961, concluding that

the SRCA does not apply to insurance sales agents. 

       6
       Although the trial court stated, in a written opinion,

“it is an issue for the trier of fact to determine whether or

not the language of the contract and actions by the parties

render an ambiguous or unambiguous contract,” the court’s

final instructions to the jurors told them to consider both

the contract and the relevant extrinsic evidence, and then

decide what the contract meant. The court did not instruct

the jurors to determine whether the contract was ambiguous.

       7
        The jury awarded plaintiff $45,882 in renewal

commissions for the period from August 1997 through the

January 1999 trial, and one hundred percent of all future

renewal commissions as they accrue.

       8
       Unpublished opinion per curiam, issued February 9, 2001

(Docket Nos. 219299, 219330). The Court of Appeals did not

address defendant’s alternative argument that the damages

award was based on improper speculation about policy renewals

or plaintiff’s cross-appeal, which challenged the trial

court’s dismissal of his SRCA claim for double damages and

attorney fees. 

       9
       We directed the parties to include among the issues to

be briefed: “Where, as in the present case, a contract is

drafted entirely by one party, without any bilateral

negotiations, is extrinsic evidence admissible to clarify

                                               (continued...)

                                          4

                              II.    STANDARD   OF   REVIEW

       We review de novo a trial court’s ruling on a motion for

summary disposition.            Stanton v Battle Creek, 466 Mich 611,

614;       647   NW2d   508    (2002).          Similarly,     whether   contract

language is ambiguous is a question of law that we review de

novo.      Farm Bureau Mut Ins Co v Nikkel, 460 Mich 558, 563; 596

NW2d 915 (1999).              Finally, the proper interpretation of a

contract is also a question of law that we review de novo.

Henderson v State Farm Fire & Cas Co, 460 Mich 348, 353; 596

NW2d 190 (1999).

                                    III.   ANALYSIS

        The Agent’s Agreement at issue here provides in relevant

part:

             5. Vested Commissions. Commissions shall be

        vested in the following manner:

             (A) Death, disability, or retirement during

        term hereof.     Upon the death, disability, or

        retirement (as those terms shall be then defined in

        the Agent’s Manual) of Agent at any time prior to

        the termination of this Agreement, Agent (or

        Agent’s designated death beneficiary who shall be

        designated by Agent in writing; or in the absence

        of such written designation, Agent’s estate) shall

        thereafter be entitled to receive one hundred

        percent (100%) of such renewal commissions then

        payable from premiums on Agent’s policies in place,

        in such amounts as would otherwise have been

        payable to Agent, until the aggregate renewals

       9
      (...continued)

ambiguity in the contract or is any ambiguity in the contract

simply to be construed against the drafter (without

considering any extrinsic evidence)?” 467 Mich 867 (2002).

                                           5

       payable to Agent thereon shall equal less than

       Forty-One Dollars and Sixty-Seven Cents ($41.67)

       per month. If upon the date of death, disability,

       or retirement, Agent shall have aggregated eight

       (8) or more years of service under this Agreement,

       his then vesting shall be determined in accordance

       with the normal vesting schedule.

            (B) Vesting Schedule.     In the event of a

       termination of this Agreement for reasons of death,

       disability and retirement (as defined in the

       Agent’s Manual), Agent as set forth below on the

       date of execution hereof shall be entitled to

       receive a percentage of renewal commissions then

       payable from premiums on Agent’s policies in place,

       applicable to such amounts as would otherwise have

       been payable to Agent in accordance with the

       following vesting schedule:

       Agent’s Years                           % of 

       of Service                         Renewals Vested

       Less than 2 years                          0%

       2 years                                   10%

       3 years                                   30%

       4 years                                   50%

       5 years                                   70%

       6 years                                   90%

       7 years                                  100%

       8 years                                  110%

       9 years                                  120%

       10 years                                 130%

       11 years                                 140%

       12 years                                 150%

With regard to retirement, the Agent’s Manual provides:

            Retirement is understood to be disengagement

       from the insurance industry.        Vestment for

       retirement is age 65 or 10 years of service

       whichever is later.

       When defendant moved for summary disposition, it argued

that   plaintiff   was   not   entitled    to    renewal   commissions

because, although plaintiff had disengaged from the insurance

                                  6

industry, he was not at least sixty-five years old and had not

worked for defendant for at least ten years, whereas the

contract unambiguously required an agent to satisfy all three

of these requirements in order to be eligible for retirement

renewal commissions.      Defendant further argued that, because

the contract was unambiguous, extrinsic evidence may not be

considered in interpreting the contract. 

      Plaintiff, on the other hand, argued that the contract

was ambiguous because the vesting schedule in § 5(B) of the

Agent’s Agreement conflicts with the sixty-five years of age

and ten years of service requirements in the Agent’s Manual.

That is, under the vesting schedule, a percentage of renewal

commissions were vested after two years of service, while,

under the Agent’s Manual’s definition of retirement, which the

Agent’s Agreement incorporated, renewal commissions were not

vested at all until an agent reached sixty-five years of age

and had served as an agent with defendant for ten years.

Plaintiff further argued that, because this contract was

ambiguous, its interpretation was a question of fact that must

be   decided   by   the   jury   in    light   of   relevant   extrinsic

evidence.      As already noted, the trial court agreed with

plaintiff that the contract was ambiguous and, thus, must be

interpreted    by   the   jury   in    light   of   relevant   extrinsic

                                      7

evidence.10

     On appeal to the Court of Appeals, plaintiff argued that

the early years of the vesting schedule (years two through

nine) directly conflicted with the sixty-five years of age and

ten years of service requirements, creating an ambiguity that

the jury properly resolved against defendant.   Defendant, on

the other hand, argued that years two through nine of the

vesting schedule should be ignored.    The Court of Appeals,

correctly recognizing that years two through nine of the

vesting schedule had to be given some meaning, but disagreeing

with plaintiff that they applied to agents who had retired,

concluded that these years of the vesting schedule only

applied to agents who died or had become disabled.   Plaintiff

filed a motion for rehearing, arguing that the Court of

Appeals had overlooked § 5(A) of the Agent’s Agreement, which

provided that, regardless of age or years of service, an agent

who died or became disabled while still employed was entitled

     10
        As also noted above, n 6, the trial court did not

clearly express this conclusion.     In fact, when the trial

court denied defendant’s motion for summary disposition, the

trial court actually stated that it was up to the jury to

determine whether the contract was ambiguous. However, when

it came time to instruct the jury, the trial court told the

jury to consider the contract and the relevant extrinsic

evidence and to decide what the contract meant.          These

instructions make reasonably clear that the trial court itself

must have determined that the contract was ambiguous and,

thus, that it was up to the jury to determine the meaning of

the contract, with the use of relevant extrinsic evidence

being permissible. 

                              8

to receive one hundred percent of his renewal commissions.

Therefore, plaintiff argued, the Court of Appeals erred in

concluding that years two through nine of the vesting schedule

applied to agents who died or became disabled.                        The Court of

Appeals    denied      plaintiff’s     motion        for    rehearing     without

explanation.     

                     A. THE CONTRACT LANGUAGE   IS   AMBIGUOUS

       “An insurance contract is ambiguous when its provisions

are capable of conflicting interpretations.” Nikkel, supra at

566.    Accordingly, if two provisions of the same contract

irreconcilably conflict with each other, the language of the

contract is ambiguous.          Further, courts cannot simply ignore

portions   of    a    contract    in   order    to     avoid      a    finding   of

ambiguity or in order to declare an ambiguity.                            Instead,

contracts must be “‘construed so as to give effect to every

word or phrase as far as practicable.’”                        Hunter v Pearl

Assurance Co, Ltd, 292 Mich 543, 545; 291 NW 58 (1940),

quoting Mondou v Lincoln Mut Cas Co, 283 Mich 353, 358-359;

278 NW 94 (1938). 

       In our judgment, the vesting schedule found in § 5(B) of

the    Agent’s   Agreement       irreconcilably            conflicts     with    the

Agent’s Manual’s definition of retirement, which the Agent’s

Agreement incorporates.          Under the vesting schedule, an agent

who has served two or more years with defendant is entitled to

                                       9

a percentage of renewal commissions; while, under the Agent’s

Manual’s definition of retirement, an agent is only entitled

to a percentage of renewal commissions if that agent is at

least sixty-five years old and has served ten or more years

with defendant.   Accordingly, while plaintiff is entitled to

renewal commissions under the vesting schedule, he is not

entitled to renewal commissions under the Agent’s Manual’s

definition of retirement.    Therefore, the language of the

contract is ambiguous. 

     The Court of Appeals attempted to avoid a finding of

ambiguity by concluding that, if an agent has less than ten

years of service with defendant, he cannot be considered

retired and, thus, years two through nine of the vesting

schedule would not apply to him; however, these years would

apply to an agent who died or became disabled without reaching

the age of sixty-five and without having ten years of service

with defendant.   Although the Court of Appeals is correct in

recognizing that it must give some meaning to years two

through nine of the vesting schedule, in its attempt to give

these years some meaning, it has ignored another portion of

the contract, that is, § 5(A) of the Agent’s Agreement.   Just

as “[c]ourts must give effect to every word, phrase, and

clause in a statute and avoid an interpretation that would

render any part of the statute surplusage or nugatory,” State

                              10

Farm & Cas Co v Old Republic Ins Co, 466 Mich 142, 146; 644

NW2d 715 (2002), courts must also give effect to every word,

phrase, and clause in a contract and avoid an interpretation

that would render any part of the contract surplusage or

nugatory. 

       Section 5(A) of the Agent’s Agreement provides that an

agent who dies or becomes disabled is automatically one

hundred percent vested. Therefore, contrary to the contention

of the Court of Appeals, years two through nine of the vesting

schedule, which provide for less than one hundred percent

vesting, would have no application to an agent who dies or

becomes disabled.       If the contract is read, as the Court of

Appeals read it, to require an agent to be at least sixty-five

years old and to have served as an agent for defendant for at

least ten years to be considered retired, years two through

nine   of   the   vesting   scheduled        are   rendered      meaningless.

Because there is no way to read the provisions of this

contract in reasonable harmony, the language of the contract

is ambiguous. 

                  B. INTERPRETATION   OF   AMBIGUOUS CONTRACT

       It is well settled that the meaning of an ambiguous

contract is a question of fact that must be decided by the

jury. Hewett Grocery Co v Biddle Purchasing Co, 289 Mich 225,

236; 286 NW 221 (1939).       “‘Where a contract is to be construed

                                      11

by its terms alone, it is the duty of the court to interpret

it; but where its meaning is obscure and its construction

depends upon other and extrinsic facts in connection with what

is written, the question of interpretation should be submitted

to the jury, under proper instructions.’”             O’Connor v March

Automatic    Irrigation   Co,    242   Mich    204,   210;    242   NW   784

(1928)(citation omitted).

          Where a written contract is ambiguous, a

     factual question is presented as to the meaning of

     its provisions, requiring a factual determination

     as to the intent of the parties in entering the

     contract. Thus, the fact finder must interpret the

     contract’s terms, in light of the apparent purpose

     of the contract as a whole, the rules of contract

     construction, and extrinsic evidence of intent and

     meaning.   [11 Williston, Contracts (4th ed), §

     30:7, pp 87-91.] 

     In     resolving   such    a   question    of    fact,    i.e.,     the

interpretation of a contract whose language is ambiguous, the

jury is to consider relevant extrinsic evidence.                    As this

Court explained in Penzien v Dielectric Products Engineering

Co, Inc, 374 Mich 444, 449; 132 NW2d 130 (1965): 

          “If the contract in question were ambiguous or

     ‘doubtful,’   extrinsic    evidence,   particularly

     evidence which would indicate the contemporaneous

     understanding of the parties, would be admissible

     as an aid in construction of the disputed terms.”

          “The law is clear that where the language of

     the contract is ambiguous, the court can look to

     such extrinsic evidence as the parties’ conduct,

     the statements of its representatives, and past

     practice to aid in interpretation.”    [Citations

     omitted.]

                                    12

     Looking at relevant extrinsic evidence to aid in the

interpretation of a contract whose language is ambiguous does

not violate the parol evidence rule.

          “The parol evidence rule does not preclude the

     admission of parol or extrinsic evidence for the

     purpose of aiding in the interpretation or

     construction of a written instrument, where the

     language of the instrument itself taken alone is

     such that it does not clearly express the intention

     of the parties or the subject of the agreement.

     Such evidence is admitted not to add to or detract

     from the writing, but merely to ascertain what the

     meaning of the parties is.         Thus a written

     instrument is open to explanation by parol or

     extrinsic evidence when it is expressed in short

     and incomplete terms, or is fairly susceptible of

     two constructions, or where the language employed

     is vague, uncertain, obscure, or ambiguous, and

     where the words of the contract must be applied to

     facts ascertainable only by extrinsic evidence, a

     resort to such evidence is necessarily permitted.”

     [Edoff v Hecht, 270 Mich 689, 695-696; 260 NW 93

     (1935)(citation omitted).]

     In interpreting a contract whose language is ambiguous,

the jury should also consider that ambiguities are to be

construed against the drafter of the contract.11   Herweyer v

     11
        In this case, the trial court instructed the jury that

it should consider relevant extrinsic evidence and that any

ambiguities should be construed against the drafter of the

contract. Specifically, the trial court instructed the jury

to

     consider the words of the contract as well as the

     parties’ actions. 

          In determining whether renewal commissions are

     due to Mr. Klapp, you should consider the

     interpretation that the parties themselves had

     given to the Agent’s Agreement used by United

                                               (continued...)

                             13

Clark Hwy Services, Inc, 455 Mich 14, 22; 564 NW2d 857

(1997).12   This is known as the rule of contra proferentem.

However, this rule is only to be applied if all conventional

means of contract interpretation, including the consideration

of relevant extrinsic evidence, have left the jury unable to

determine what the parties intended their contract to mean.13

Accordingly, if the extrinsic evidence indicates that the

parties intended their contract to have a particular meaning,

this is the meaning that should be given to the contract,

regardless of whether this meaning is in accord with the

drafter’s or the nondrafter’s view of the contract.   In other

words, if a contract is ambiguous regarding whether a term

     11
      (...continued)

     Insurance for Mr. Klapp and other agents. 

                            * * *

          Provisions in the Agent’s Agreement or Agent

     Manual which are ambiguous or unclear should be

     interpreted against the party that drafted the

     document, in this case, United Insurance.    This

     means that you should resolve any doubt or

     ambiguity in the document itself against United

     Insurance and in favor of Mr. Klapp.

     12
       “This rule is frequently described under the Latin term

of contra proferentem, literally, against the offeror, he who

puts forth, or proffers or offers the language.” Williston,

supra, § 32:12, pp 472-475. 

     13
       Although extrinsic evidence cannot resolve an ambiguity

in the sense that it can transform ambiguous contract language

into unambiguous contract language, extrinsic evidence may

help the jury determine what the parties to a contract

intended the ambiguous contract language to mean. 

                             14

means “a” or “b,” but relevant extrinsic evidence leads the

jury to conclude that the parties intended the term to mean

“b,” then the term should be interpreted to mean “b,” even

though construing the document in the nondrafter’s favor

pursuant to an application of the rule of contra proferentem

would produce an interpretation of the term as “a.”

     However, if the language of a contract is ambiguous, and

the jury remains unable to determine what the parties intended

after considering all relevant extrinsic evidence, the jury

should only then find in favor of the nondrafter of the

contract pursuant to the rule of contra proferentem. In other

words,   the   rule   of   contra    proferentem   should   be   viewed

essentially as a “tie-breaker,” to be utilized only after all

conventional means of contract interpretation, including the

consideration    of   relevant      extrinsic   evidence,   have   been

applied and found wanting. 

     This view of the rule of construing against the drafter

of the contract is in accordance with the 2 Restatement

Contracts, 2d, § 206, p 105, which provides:

          In choosing among the reasonable meanings of a

     promise or agreement or a term thereof, that

     meaning is generally preferred which operates

     against the party who supplies the words or from

     whom a writing otherwise proceeds.

The comments following this rule state that “[i]n cases of

doubt, therefore, so long as other factors are not decisive,

                                    15

there is substantial reason for preferring the meaning of the

other party. . . .”     Id.    “[T]he rule is ‘the last one to be

resorted to, and never to be applied except when other rules

of interpretation fail.’”          Id., Reporter’s Note, p 106,

citation omitted.     Treatises also indicate that this is a so­

called   “rule   of   last    resort.”   For   example,   5   Corbin,

Contracts (Rev ed, 1998), § 24.27, pp 297-300, provides:

          The “contra proferentem” rule has been

     described as being applicable only as a last

     resort, when other techniques of interpretation and

     construction have not resolved the question of

     which of two or more possible reasonable meanings

     the court should choose. One court wrote that it

     is “a tie breaker when there is no other sound

     basis for choosing one contract interpretation over

     another.” . . . Another federal court expressed a

     similar reservation concerning use of the rule:

     “[T]his rule of construction should not be enlarged

     to [clarify] perfunctorily . . . an ambiguous

     meaning; the trier of fact should still consider

     the drafting party’s evidence.”        The “contra

     proferentem” rule thus yields to other techniques

     of interpretation, including the attempt to give a

     valid, legal, and reasonable meaning to as many of

     the contract terms as possible.          [Citations

     omitted.]

In addition, Williston, supra, § 32:12, pp 480-482, provides:

          The rule of contra proferentem is generally

     said to be a rule of last resort and is applied

     only where other secondary rules of interpretation

     have failed to elucidate the contract’s meaning. .

     . . Finally, the rule does not justify a court in

     adopting an interpretation contrary to that

     asserted by the drafter, simply because of his or

     her status as the drafter. Rather, it is only when

     consistent    with    the   rules   of    contract

     interpretation, the meaning proposed by the

     nondrafter (or an altogether different meaning

     determined by the court) is reasonable—when there

                                  16

     is a true ambiguity and the court must choose

     between two or more reasonable meanings—that the

     rule of contra proferentem is properly invoked. 

     The rule of contra proferentem is a rule of last resort

because,   “The   primary   goal    in    the   construction   or

interpretation of any contract is to honor the intent of the

parties,” Rasheed v Chrysler Corp, 445 Mich 109, 127 n 28; 517

NW2d 19 (1994), and the rule of contra proferentem does not

aid in determining the parties’ intent. Instead, the comments

after the restatement refer to the rule of contra proferentem,

not as a rule of interpretation, but as “a rule of legal

effect.”   2 Restatement, supra at 105.    It is a rule of legal

effect, rather than a rule of legal interpretation, because

its purpose is not to render more accurate or more perfect a

jury’s understanding of the meaning of the contract, but is

merely to ascertain the winner and the loser in connection

with a contract whose meaning has eluded the jury despite all

efforts to apply conventional rules of interpretation.         As

stated in Corbin, supra, p 306:

          The   rule    is   not    actually    one   of

     interpretation, because its application does not

     assist in determining the meaning that the two

     parties gave to the words, or even the meaning that

     a reasonable person would have assigned to the

     language used.   It is chiefly a rule of policy,

     generally favoring the underdog.    It directs the

     court to choose between two or more possible

     reasonable meanings on the basis of their legal

     operation, i.e., whether they favor the drafter or

     the other party. 

                              17

In sum, the jury can consider relevant extrinsic evidence as

an aid in interpreting a contract whose language is ambiguous.

However, if, after the jury has applied all other conventional

means of contract interpretation and considered the relevant

extrinsic evidence, the jury is still unable to determine what

the parties intended, the jury should then construe the

ambiguity against the drafter.            That is, the rule of contra

proferentem is only to be applied if the intent of the parties

cannot be discerned through the use of all conventional rules

of   interpretation,       including     an   examination       of    relevant

extrinsic evidence.

      The concurring opinion asserts that, “when a contract is

drafted    entirely    by    one    party,     without     any       bilateral

negotiations,” the rule of contra proferentem “should be

applied as the primary rule of construction, not as a last

resort . . . .”    Post at 1-2.         That is, when a contract whose

language    is    ambiguous        is    drafted    without          bilateral

negotiations, a jury should not be allowed to look at relevant

extrinsic evidence in order to discern the parties’ intent.

Instead, the ambiguous language is simply to be construed

against the drafter.

      We respectfully disagree with the concurring opinion’s

reference to the rule of contra proferentem as a “rule of

construction.”        In    our    judgment,     the     rule    of    contra

                                    18

proferentem       is    not   a   rule    of      construction,      rather,   as

explained above, it is a rule of legal effect.                  See pp 17-18.

While rules of construction are designed to help determine the

parties’ intent, the rule of contra proferentem is designed to

resolve     a    dispute      where   the      parties’   intent      cannot   be

determined.

       Further, as the concurring opinion correctly states,

“[t]he      ultimate     objective       in    interpreting     an    ambiguous

contract is to ascertain the intent of the parties . . . .”

Post at 3.       Therefore, in our judgment, it is only obvious

that a method of construing a contract that helps ascertain

the intent of the parties should be preferred over one that

does    not.14     We    agree    with      the    concurring     opinion   that

extrinsic evidence “‘provides an incomplete guide with which

to interpret contractual language.’” Post at 4.                        That is,

       14
       Although the concurring opinion recognizes that “[t]he

ultimate objective in interpreting an ambiguous contract is to

ascertain the intent of the parties,” post at 3, it ultimately

concludes that the “public-policy” interests in “provid[ing]

a strong incentive for a party drafting a contract to use

clear and unambiguous language” and to avoid “more involved

litigation,” somehow overrides this “ultimate objective.”

Post at 4-5. That is, the concurring opinion concludes that

the rule of contra proferentem should be applied as “the

primary rule of construction,” post at 2, because it allegedly

furthers these latter two interests, although to apply it, as

we do, as a rule of last resort is more in accord with the

“ultimate objective in interpreting an ambiguous contract”

because, as explained above, while the rule of contra

proferentem does not help determine the parties’ intent,

actual rules of construction, such as looking at relevant

extrinsic evidence, do.

                                         19

extrinsic evidence is not the best way to determine what the

parties intended.         Rather, the language of the parties’

contract    is    the   best   way   to    determine   what   the   parties

intended.    However, where, as in cases such as this one, it is

not   possible     to   determine    the    parties’   intent   from    the

language of their contract, the next best way to determine the

parties’ intent is to use relevant extrinsic evidence.                 Such

evidence at least affords a way by which to ascertain the

parties’ intent, unlike the rule of contra proferentem, which

focuses solely on the status of the parties to a contract.15

      Finally,     we   disagree     with    the   concurring   opinion’s

contention that “this Court has consistently applied the rule

of construing against the drafter as the primary tool of

construction . . . .”          Id. at 6.     Not one of the cases cited

in the concurring opinion, in fact, concludes that relevant

extrinsic evidence is inadmissible to help a jury determine

the parties’ intent where the language of a contract is

ambiguous.       In other words, not a single one of these cases

concludes that the rule of contra proferentem is somehow a

“primary rule of construction.”              Instead, in each of these

      15
       Regardless of whether a contract is drafted with or

without bilateral negotiations, looking at relevant extrinsic

evidence to help determine the parties’ intent where their

contractual language is ambiguous better comports with the

ultimate goal of “honor[ing] the intent of the parties,”

Rasheed, supra at 127 n 28, than does the rule of contra

proferentem.

                                     20

cases, the rule of contra proferentem was, in all likelihood,

applied because there was no way to determine the parties’

intent.   That is, the language of the contract was ambiguous,

but there was no relevant extrinsic evidence available.16

Therefore, the concurring opinion’s reliance on these cases is

misplaced.17

     In this case, plaintiff introduced as extrinsic evidence

an older version of the Agent’s Agreement and deposition

testimony from defendant’s executives showing that defendant’s

past practice had been to pay former agents the renewal

     16
       As the concurring opinion points out, these cases do

not address whether a jury should be allowed to examine

relevant extrinsic evidence when interpreting an ambiguous

contract or whether the rule of contra proferentem should be

applied as the “only [] tool of construction in resolving

ambiguous contracts.” Post at 7 n 3. Presumably, this issue

was not addressed because it was not in question. That is,

the parties in those cases did not attempt to introduce

relevant extrinsic evidence. However, because these cases did

apply the rule of contra proferentem, the concurring opinion

assumes that the Court in those cases applied this rule as the

“primary rule of construction.” In our judgment, a far more

likely explanation is that the Court viewed the rule of contra

proferentem, not as the only tool of construction in resolving

all ambiguous contracts, but as the only tool available to

resolve these ambiguous contracts.

     17
       In fact, in one of the cases cited in the concurring

opinion, this Court specifically stated that “[i]f the

language of a contract is ambiguous, the court’s duty is to

look beyond the bare language of the agreement to determine

its meaning.” Stine v Continental Casualty Co, 419 Mich 89,

112; 349 NW2d 127 (1984). In this case, this Court further

stated that “[c]ommon sense suggests that extrinsic evidence,

including parol evidence, should be admissible to clarify the

meaning of any ambiguous contract . . . .” Id. at 112 n 7.

                              21

commissions specified by § 5(B) of the vesting schedule,

regardless of whether those agents had ten years of service

with defendant or had reached age sixty-five. 

     Plaintiff argues that the definition of retirement under

the contract is simply “disengagement from the insurance

industry” and that the second sentence under the section

defining retirement in the Agent’s Manual was unintentionally

left over from a time before defendant’s Agent’s Agreement

contained a vesting schedule. Not only does this construction

of the contract accord meaning to the entire vesting schedule,

but it is also the construction that defendant itself has

applied for the past eight years, that is, since it adopted

the new Agent’s Agreement containing the vesting schedule.18

In other words, defendant had been paying the specified

percentages of renewal commissions to agents, who were not

sixty-five years of age and had not worked for defendant for

at least ten years, as long as they had disengaged from the

insurance industry.19

     Defendant argues that the jury should not have considered

     18
        The new Agent’s Agreement containing the vesting

schedule was adopted in 1989, and defendant applied the

vesting schedule to agents who were not at least sixty-five

years old and who had not served as agents for defendant for

at least ten years until 1997.

     19
       Defendant argues that its payment of such commissions

had been a mistake on its part.

                             22

this extrinsic evidence.           However, as discussed above, the

jury    is    to   consider   relevant    extrinsic   evidence   when

interpreting a contract whose language is ambiguous.          How the

drafting party has interpreted ambiguous contractual language

in the past is certainly relevant in determining what the

parties intended such language to mean.            The meaning of a

provision in a contract whose language is ambiguous “must be

ascertained in the light of all of the relevant circumstances,

. . . including, . . . the meanings accepted by the parties.”

Davis v Kramer Bros Freight Lines, Inc, 361 Mich 371, 375; 105

NW2d 29 (1960). “There is no doubt that evidence of practical

interpretation by the parties is admissible as an aid in the

determination of the meaning to be given legal effect.”           Id.

at 375-376.

            Where parties by such a uniform course of

       conduct for a long time have given a contract a

       particular construction, that construction will be

       adopted by the courts.

            “The     practical  interpretation   given   to

       contracts by the parties to them, while engaged in

       their performance and before any controversy has

       arisen concerning them, is one of the best

       indication of their true intent.”         [People v

       Michigan Central R Co, 145 Mich 140, 166; 108 NW

       772 (1906) (citation omitted) (portion of dissent

       by GRANT , J., assented to by the majority at 150).]

Because the language of the contract here is ambiguous, and

because defendant had, in the past, construed this contract to

require      the   payment    of   retirement   renewal   commissions

                                    23

according to the vesting schedule, even if the agent was not

at least sixty-five years old and had not served as an agent

with defendant for at least ten years, the trial court did not

err in instructing the jury to consider this evidence.

      Although the trial court correctly instructed the jury

that it could consider relevant extrinsic evidence and that

any   ambiguities   should   be   construed    against    the   drafter

pursuant to the rule of contra proferentem, the trial court

failed to inform the jury that it could only apply the rule of

contra proferentem if it was unable to discern the parties’

intent from the extrinsic evidence.           However, in this case,

this error was harmless.     The jury did one of two things here.

The jury either construed the language of the contract in

favor of plaintiff pursuant to the rule of contra proferentem,

or it construed the language of the contract in favor of

plaintiff   because    the   extrinsic    evidence    pointed     to   a

construction   of     the    contract    in    plaintiff’s      favor.20

Accordingly, regardless of which approach the jury used, it

reached the (same) right result and, thus, failure to reverse

is not inconsistent with substantial justice.            MCR 2.613(A);

Cox v Flint Bd of Hospital Managers, 467 Mich 1, 8; 651 NW2d

      20
       All the extrinsic evidence presented at trial favors

plaintiff’s construction of the contract. Defendant did not

present any extrinsic evidence at trial that favors its

construction.

                                  24

356 (2002).21

                               IV. CONCLUSION

      If two provisions of the same contract irreconcilably

conflict with each other, the language of the contract is

ambiguous.       In    this    case,   the    contract’s     definition     of

retirement     irreconcilably         conflicts     with   the    contract’s

vesting     schedule.         Under    the   contract’s      definition     of

retirement, plaintiff is not entitled to renewal commissions;

while, under the vesting schedule, plaintiff is entitled to

renewal commissions.          Accordingly, the contract language at

issue here is ambiguous. 

      The   interpretation       of    a   contract   whose      language   is

ambiguous is a question of fact for the jury to decide.                   When

interpreting a contract whose language is ambiguous, the jury

is to consider relevant extrinsic evidence. That the drafting

party interpreted the ambiguous contractual language in a

certain way for many years is relevant extrinsic evidence. 

      In interpreting a contract whose language is ambiguous

and   in    which     the   parties’       intent   cannot    otherwise     be

determined through resort to relevant extrinsic evidence, the

jury should construe any ambiguities against the drafter of

      21
       “Instructional error warrants reversal if the error

‘resulted in such unfair prejudice to the complaining party

that the failure to vacate the jury verdict would be

“inconsistent with substantial justice.”’” Cox, supra at 8

(citations omitted).

                                       25

the contract.   That is, if, after the jury has considered all

conventional means of contract interpretation and all relevant

extrinsic evidence,   it is still unable to determine what the

parties intended, the jury should then construe the ambiguity

against the drafter.

     Therefore, we conclude that the trial court here did not

err in instructing the jury that it should consider relevant

extrinsic evidence in order to discern the parties’ intent,

and that it should also construe any ambiguities against the

drafter.    Although the trial court did err in failing to

inform the jury that it should only construe ambiguities

against the drafter if it cannot discern the parties’ intent

from the relevant extrinsic evidence, this error was harmless.

Accordingly, we reverse the judgment of the Court of Appeals

and remand this case to the Court of Appeals for consideration

of defendant’s other appellate issue and plaintiff’s cross­

appeal. 

                               Stephen J. Markman

                               Maura D. Corrigan

                               Clifford W. Taylor

                               Robert P. Young, Jr.

CAVANAGH, J.

     I concur in the result only.

                               Michael F. Cavanagh

                              26

                S T A T E       O F        M I C H I G A N

                            SUPREME COURT

CRAIG A. KLAPP,

        Plaintiff-Appellant,

v                                                   Nos. 119175, 119176

UNITED INSURANCE GROUP AGENCY,

INC.,

     Defendant-Appellee.

________________________________

WEAVER, J. (concurring).

        I concur in the decision to reverse the judgment of the

Court of Appeals and remand the case to that Court for

consideration of issues raised, but not addressed, below.                I

write    separately   because    I    disagree     with   the   majority’s

holding that “the rule of contra proferentem is only to be

applied if the intent of the parties cannot be discerned

through the use of all conventional rules of interpretation,

including an examination of relevant extrinsic evidence.”

Ante at 18.    Although I agree that this is the general rule,

I would hold that when a contract is drafted entirely by one

party, without any bilateral negotiations, the rule that a

contract is to be strictly construed against its drafter

                                      1

should be applied as the primary rule of construction, not as

a last resort, and extrinsic evidence is not admissible to

clarify ambiguity in the contract. 

     The    doctrine    of    contra       proferentem,    under   which   a

contract that is ambiguous will be construed against the party

preparing    it,   is   a    well-established      rule.        See,   e.g.,

Universal Underwriters Ins Co v Kneeland, 464 Mich 491, 498;

628 NW2d 491 (2001) (discussing the “rule requiring that

contractual ambiguities be construed against the drafter”);

Herweyer v Clark Hwy Services, Inc, 455 Mich 14, 22; 564 NW2d

857 (1997)(“As the contract period under consideration is

ambiguous, it must be construed against the drafter.”).                    In

general, it is a rule of last resort, to be applied only if

the intent of the parties cannot be discerned by the use of

other rules of interpretation.              See 2 Farnsworth, Contracts

(2nd ed), ch 7 §7.11,       and 5 Corbin, Contracts (rev ed, 1998),

§ 24.27, pp 297-300. 

     The    questions   we    asked    the    parties     to   address1   are

     1
      In granting leave to appeal, this Court directed the

parties to include among the issues to be briefed:

          Where, as in the present case, a contract is

     drafted entirely by one party, without any

     bilateral negotiations, is extrinsic evidence

     admissible to clarify ambiguity in the contract or

     is any ambiguity in the contract simply to be

     construed against the drafter (without considering

     any extrinsic evidence)? [467 Mich 687 (2002).]

                                      2

whether extrinsic evidence should be precluded and whether the

rule of construing against the drafter should be applied

initially, instead of as a rule of last resort, when the

contract is drafted entirely by one party without bilateral

negotiation.      I conclude that in such a case, the rule of

contra proferentem should be applied as the primary rule of

construction,      not    as    a   last       resort,    and    that    extrinsic

evidence is not admissible to clarify the ambiguity.

       The    ultimate    objective        in    interpreting       an   ambiguous

contract is to ascertain the intent of the parties so the

agreement can be carried out according to that intent.                         Loyal

Order of Moose, Adrian 1034 v Faulhaber, 327 Mich 244, 250; 41

NW2d 535 (1950); Stine v Continental Casualty Co, 419 Mich 89,

112;    349    NW2d     127    (1984).           When    there    are    bilateral

negotiations between the parties, a court can assume that

there is a relation between the contract terms that were

agreed upon and the parties’ expectations as revealed by

extrinsic evidence.           However, “unless extrinsic evidence can

speak to the intent of all parties to a contract, it provides

an   incomplete       guide    with      which    to    interpret      contractual

language.”      SI Mgt LP v Wininger, 707 A2d 37, 43 (Del, 1998)

(emphasis in original). 

       The    Supreme    Court      of    Delaware       has    held    that   where

ambiguity arises in a contract drafted solely by one side and

                                          3

offered to others on a take-it-or-leave-it basis, the rule of

construing against the drafter is determinative.               SI Mgt,

supra; followed by Intel Corp v Via Technologies, Inc, 174 F

Supp 2d 1038 (ND Cal, 2001).           In SI Mgt the Delaware court

analyzed its approach to interpreting insurance contracts.

The Delaware courts had said that if an insurance contract is

ambiguous, “‘the principle of contra proferentem dictates that

the contract must be construed against the drafter.’”               SI

Management, supra at 42 (citation omitted).         The court found

that the policy behind that principle of construing against

the drafter is that the insurer was in complete control of

creating and drafting the policy, while the insured had little

say about those terms except to take them or leave them or to

select from limited terms offered by the insurer.         Because of

that, the Delaware courts had consistently held that the

insurer had an obligation to make the terms clear and should

suffer the consequences of convoluted or confusing terms.           In

SI Mgt the Delaware Supreme Court expanded this principle to

other contracts where there was not a bilaterally negotiated

agreement, and one party had signed onto an agreement that it

had no hand in drafting.

     There are sound public-policy reasons behind a black

letter   rule   that   when   contractual    provision   are   drafted

entirely by one party, any ambiguity in the contract is to be

                                  4

construed against the drafter.     First, the rule of contra

proferentem provides a strong incentive for a party drafting

a contract to use clear and unambiguous language. Second, the

use of extrinsic evidence in circumstances involving ambiguity

could be destabilizing to contractual relations and require

more involved litigation by allowing parties to use assertions

of oral understandings and examples of past behavior rather

than relying on a written contract with the understanding that

any ambiguity should be construed against its drafter. 

     This Court has not previously addressed whether the rule

of construing against the drafter should be used as a primary

rule of construction in ambiguous contracts or only used after

considering any extrinsic evidence available.2    However, in

interpreting ambiguous contracts, this Court has consistently

applied the rule of construing against the drafter as its

primary, indeed sole, aid to construction.     See Herweyer v

Clark Hwy Services, 455 Mich 14, 22; 564 NW2d 857 (1997) (“As

the contract period under consideration is ambiguous, it must

     2
      The majority asserts that none of the cases I cite

“concludes that the rule of contra proferentem is somehow a

‘primary rule of construction.’” Ante at 20. It is noteworthy

that similarly none of the Michigan cases cited by the

majority state that the rule of contra proferentem is a rule

of last resort. It is precisely because this Court had not

previously addressed the question whether the rule of contra

proferentem should be applied without first examining any

relevant extrinsic evidence that our order granting leave to

appeal in this case asked the parties to discuss it in their

briefs. 

                              5

be   construed     against    the        drafter,    the     defendant.”),

Lichnovsky v Ziebart Int’l Corp, 414 Mich 228, 239; 324 NW2d

732 (1982) (“Any ambiguity in the expression must be construed

against Ziebart, as its predecessor drafted the agreement.”),

Ladd v Teichman, 359 Mich 587, 592; 103 NW2d 338 (1960) (“We

agree    with   appellees    that   appellant       having    drafted   the

contract, any ambiguity contained in it must be construed

against him.”), and Veenstra v Associated Broadcasting Corp,

321 Mich 679, 691; 33 NW2d 115 (1948) (“Defendants caused the

drafting of the two contracts and any doubt or ambiguity

concerning the nature of the contracts must be resolved

against the defendants.”). 

        Similarly, this Court has consistently applied the rule

of construing against the drafter as the primary tool of

construction in insurance contracts.             In insurance contracts,

one party decides the terms of the contract, drafts the

contract, and presents it to the other party in a take-it-or­

leave-it fashion, all with no bilateral negotiation. Michigan

Millers Mut Ins Co v Bronson Plating Co, 445 Mich 558, 567;

519 NW2d 864 (1994) (in interpreting insurance cases, a well­

established principle of construction is, “Where ambiguity is

found, the court must construe the term in the manner most

favorable    to   the   insured.”).        See    also   State   Farm   Mut

Automobile Ins Co v Enterprise Leasing Co, 452 Mich 25, 38;

                                    6

549 NW2d 345 (1996) (“[b]ecause State Farm prepared the form

insurance contracts, any ambiguity must be strictly construed

against it.”),     Raska v Farm Bureau Mut Ins Co of Michigan,

412 Mich 355, 362; 314 NW2d 440(1982) (“If a fair reading of

the entire contract of insurance leads one to understand that

there is coverage under particular circumstances and another

fair reading of it leads one to understand that there is no

coverage   under   the   same   circumstances     the   contract   is

ambiguous and should be construed against its drafter and in

favor of coverage.”), and       Bonney v Citizens’ Mut Automobile

Ins Co, 333 Mich 435, 438; 53 NW2d 321 (1952) (“An ambiguous

contract must be construed against the party who prepared

it.”).3

     I would hold that this principle should be extended

beyond insurance contracts and applied to other contracts in

which there is a similar disparity of control in the creation

of the terms of the contract.          Here defendant was the entity

     3
      The majority says that in all the cases cited above “the

rule of contra proferentem was, in all likelihood, applied

because there was no way to determine the parties’ intent.

That is, the language of the contract was ambiguous, but there

was no relevant extrinic evidence available.” Ante at 21. The

majority’s assertion is not supported by the opinions

themselves. None of the opinions cited states that relevant

extrinsic evidence was not available, nor that there was no

other way by which to determine the parties’ intent. Instead,

the opinions consistently apply the well-established rule of

construing against the drafter as the first—indeed the

only—tool of construction in resolving ambiguous contracts. 

                                  7

in sole control of the process of creating and setting forth

the terms of the contract.        The parties did not engage in

bilateral negotiation; the plaintiff’s only choice in the

terms of the contract was to take them or leave them.      In such

a situation, any ambiguity in the contract should have been

construed   against   the   drafter,   without   considering   the

extrinsic evidence. 

     In this case, the trial judge allowed the plaintiff to

introduce   a   variety     of   extrinsic   evidence,   including

references to the older version of the Agent's Agreement4 and

deposition testimony by the defendant's executives.5       I would

hold that the trial court erred in admitting the extrinsic

evidence to resolve the contract’s ambiguity.       However, that

error was harmless, because the same result was achieved as

would have been if the contract had been construed against its

drafter, defendant.

     4
      The plaintiff was attempting to show that the language

“[v]estment [sic] for retirement is age 65 or 10 years of

service whichever is later” in the Agent’s Manual was

unintentionally left in the Agent’s Manual, and was no longer

relevant given the new Agent’s Agreement. 

     5
      This testimony showed that the defendant's past practice

had been to pay former agents the renewal commissions

specified by the § 5(B) vesting schedule, even when those

agents did not have ten years of service with the defendant or

had not reached age sixty-five. 

                                  8

    Accordingly, I concur with the decision to reverse the

judgment of the Court of Appeals and remand the case to that

Court for consideration of those issues raised, but not

addressed below. 

                              Elizabeth A. Weaver

                              Marilyn Kelly

                             9