Court Opinion

ID: 9742247
Source: CourtListenerOpinion
Date Created: 2023-08-26 21:09:08.492356+00
Date Added: 2024-06-11T07:24:29.263115
License: Public Domain

Gerrard, J.,
dissenting.
I respectfully dissent. In my opinion, the record does not support the majority’s characterization of the district court’s determinations regarding the ambiguity of the Non-Competition Agreement. Rather, I believe the court determined that the Non-competition Agreement was not ambiguous but that the plain language of the Non-Competition Agreement contemplated Seller’s salvage of parts from 1961 and prior. I agree with the majority’s conclusion that the plain language of the Non-Competition Agreement does not, standing alone, support this interpretation and is ambiguous in that regard.
However, this is an appeal from a judgment entered pursuant to jury verdict; thus, the question is whether the court erred in instructing the jury that the Non-Competition Agreement was intended to permit Seller to continue salvaging pre-1961 parts. While the Non-Competition Agreement was ambiguous, and the meaning of an ambiguous contract is generally a determination to be made by the trier of fact, the evidence presented at trial established as a matter of law that Seller’s continued salvage of parts from 1961 and before was contemplated. Therefore, I conclude that the court did not err in instructing the jury to that effect.
Ambiguity of Agreement
The majority premises its disposition of this appeal on its conclusion that “it is apparent that the district court, through its July 14, 2003, order and instruction No. 9, effectively concluded that the Non-Competition Agreement was ambiguous and supplied *308terms to the Non-Competition Agreement which the parties had not included.” The majority then concludes that the district court did not err in determining that the Non-Competition Agreement was ambiguous, but that the court erred in not submitting the meaning of the Non-Competition Agreement to the jury.
However, I see no support in the record for the assertion that the district court, even implicitly, found that the Non-Competition Agreement was ambiguous. At the pretrial hearing held on July 14, 2003, the court engaged in the following colloquy with Seller’s counsel, memorializing for the record a discussion held in chambers prior to jury selection:
THE COURT: Let’s see. I think I said something else, didn’t I. . . ?
[Seller’s counsel]: Yes, Your Honor.
THE COURT: Go ahead.
[Seller’s counsel]: I think you reacted to your — the Court’s responsibility to interpret the contract. You noted that there had been no allegations that the contract was ambiguous on behalf of either [side]. That being the case, I think, Nebraska law is quite clear in terms of if contracts are clear ... the Court may not resort to the rules of construction simply to interpret the contract as a matter of law.
With regard to the issue of antiques, you look particularly at page 3 of the covenant not to compete,
THE COURT: I think it was 5A.
[Seller’s counsel]: I think it’s with regard to page 2 of the covenant not to compete that says specifically — and I wanted to quote that language for you, Judge. Here it is, page 2 of the noncompete clause, particularly paragraph no. 5 that “Notwithstanding any other provision to the contrary, this Non-Competition Agreement shall not restrict the following actions of seller and/or Phillips: a. The purchase and sale of antique (1961 and prior year) vehicle or machinery parts.”
I think you determined that you are going to find as a matter of law that because of the language “notwithstanding any other provision to the contrary,” that, in fact, that provision also contemplated that [Gary] Phillips and Gary’s *309Implement could salvage antique parts as long as they were 1961 or prior.
THE COURT: That is the finding of the Court.
At the conclusion of the hearing, the court accepted two exhibits into evidence: the Agreement and the Non-Competition Agreement. Significantly, other exhibits were received solely for the purposes of Buyer’s offer of proof, but apparently were not considered by the court.
These events are reflected in the court’s pretrial order, rendered on July 14, 2003. The court’s order specifically noted that “there were no allegations that the contract was ambiguous.” The court found that “the language” of the Non-Competition Agreement quoted above “contemplated that [Seller] could salvage parts as long as they were 1961 or prior.” The court received the Agreement and Non-Competition Agreement into evidence for purposes of this order, but only “received the remaining exhibits for the purpose of the Offer of Proof.”
My reading of the foregoing portions of the record is that contrary to the majority’s assertion, the district court expressly did not conclude that the Non-Competition Agreement was ambiguous. The court noted the absence of any argument that the contract was ambiguous and determined the meaning of the contract “as a matter of law,” basing its determination solely on the language of the Agreement and Non-Competition Agreement— the only evidence the court received for purposes of making that determination.
I recognize the quandary faced by the majority, because the district court’s reasoning in making its determination is not crystal clear. The plain language of the Non-Competition Agreement, even when considered in conjunction with the Agreement, does not indicate as a matter of law that the parties contemplated Seller could continue to salvage parts from 1961 and before. However, I believe it is a fairer reading of the record to conclude that the court simply erred in its reading of the contract, rather than to assume that the court overlooked the basic proposition that the meaning of an ambiguous contract is a matter for the trier of fact. See, e.g., Kropp v. Grand Island Pub. Sch. Dist. No. 2, 246 Neb. 138, 517 N.W.2d 113 (1994).
*310No matter how the majority gets to the question, however, I agree with the majority’s conclusion that the Non-Competition Agreement is ambiguous. While each of the parties contends that the contract is unambiguous and supports their respective positions, we are not bound by their arguments. See Younker Brothers, Inc. v. Westroads, Inc., 196 Neb. 168, 241 N.W.2d 679 (1976). Whether a document is ambiguous is a question of law, and an appellate court considering such a question is obligated to reach a conclusion independent of the trial court’s decision. Union Ins. Co. v. Land and Sky, Inc., 247 Neb. 696, 529 N.W.2d 773 (1995). Therefore, this court’s decision about the ambiguity of the contract does not depend on its characterization of the district court’s determination.
Considering the Agreement and the Non-Competition Agreement together, see Norwest Corp. v. State, 253 Neb. 574, 571 N.W.2d 628 (1997), it is apparent that the parties intended for Buyer to purchase some aspects of Seller’s business enterprises, but reserve other aspects for Seller. Buyer was to acquire Seller’s salvage business, but the parties also contemplated that Seller’s trade in antique tractor parts would be reserved. What is unclear, from these agreements, is whether Seller was to be precluded from the act of salvaging parts, to the extent that activity was being performed in support of Seller’s purchase and sale of antique parts. This represents, at the very least, a latent ambiguity in the Non-Competition Agreement. See Plambeck v. Union Pacific RR. Co., 244 Neb. 780, 509 N.W.2d 17 (1993). Stated another way, the agreements, considered together, are ambiguous on whether the salvage of antique tractor parts was part of the salvage business, acquired by Buyer, or the antique business, retained by Seller. I agree with the majority’s ultimate conclusion that the Non-Competition Agreement is ambiguous.
Evidence of Meaning of Non-Competition Agreement
The majority states that “once the district court determined that the Non-Competition Agreement was ambiguous, the meaning of the ambiguous contract became a question for the fact finder.” The meaning of an ambiguous contract is generally a question of fact. Kropp, supra.
However, while instructions withdrawing consideration of material issues of fact presented by the pleadings and evidence *311are erroneous, the trial court must eliminate all matters not in dispute and submit only the controverted questions of fact on which the verdict must depend. Palmtag v. Gartner Constr. Co., 245 Neb. 405, 513 N.W.2d 495 (1994). Under the former code pleading system, which was applicable in this case, jury instructions were to be confined to issues presented by the pleadings and supported by the evidence. See Maxwell v. Montey, 262 Neb. 160, 631 N.W.2d 455 (2001). A trial court did not need to instruct the jury on an issue where the facts did not justify such an instruction. Farmers Mut. Ins. Co. v. Kment, 265 Neb. 655, 658 N.W.2d 662 (2003).
Here, the majority assumes, without discussion, that because the meaning of an ambiguous contract is a question of fact, the meaning of the contract at issue in this case should have been decided by the trier of fact. However, if the evidence at trial would not support differing conclusions on the meaning of the ambiguous contract, then the district court did not err in taking that issue away from the jury. See, e.g., Selig v. Wunderlich Contracting Co., 160 Neb. 215, 69 N.W.2d 861 (1955) (holding trial court erred in instructing jury on possible interpretation of agreement that was unsupported by evidence presented at trial). As explained by Justice Breyer, then on the U.S. Court of Appeals for the First Circuit:
The words of a contract may be so clear themselves that reasonable people could not differ over their meaning. Then, the judge must decide the issue himself, just as he decides any factual issue in respect to which reasonable people cannot differ. . . . Courts, noting that the judge, not the jury, decides such a threshold matter, have sometimes referred to this initial question of language ambiguity as a question of “law,” which we see as another way of saying that there is no “genuine” factual issue left for a jury to decide.... Even if there is ambiguity in the language, however, the evidence presented about the parties’ intended meaning may be so one-sided that no reasonable person could decide the contrary. In such a circumstance, the judge also would take the matter from the jury, deciding the factual question of meaning himself as (in the same sense) one of “law.”
*312(Citations omitted.) Boston Five Cents Sav. Bank v. Dept. of Housing, 768 F.2d 5, 8 (1st Cir. 1985). See, also, Don J. McMurray Co. v. Wiesman, 199 Neb. 494, 260 N.W.2d 196 (1977) (when terms of contract and facts and circumstances that aid in ascertaining intent of parties are insufficient to raise issue of fact, interpretation of contract is matter of law).
In the instant case, the record does not contain substantial evidence to suggest that the Non-Competition Agreement was intended to preclude Seller from engaging in the salvage of parts from 1961 and prior in support of its antique business. David Dyke testified at trial that he was upset, generally, by Seller’s salvage operations because he thought “that was the goodwill I bought.” Dyke explained:
A significant portion of it was increased in the price I paid for the company because [Gary Phillips] convinced me that he knew everybody and everything that had anything to do with the farm machinery company in this entire region. [Gary Phillips] could introduce me to people to buy salvage, he could introduce me to the dealers that traded him salvage, he could keep in contact with all of the customers, big and small, he could identify what type of the machinery, where to locate it.
However, this testimony, and Buyer’s other evidence, did not specifically address salvage in the context of Seller’s antique business.
In contrast, Seller’s evidence addressed that subject directly. Joan Phillips explained the operation of the antique business as a discrete operation from both the salvage business that was sold to the Buyer and the whole goods business that was also retained by Seller. The antique business, although operated separately from the salvage business, also involved “salvage” in the sense of taking a part off a piece of equipment to sell or use to restore another piece of equipment. The Phillipses each testified that the business purchased by Buyer was the used parts business and the salvage inventory that supported that business, but that the whole goods business and antique business continued to operate as before.
In short, the evidence adduced at trial established that the “salvage business” sold to Buyer was distinct from the “whole goods business” or “sales business,” and the “antique business,” both of *313which were to be retained by Seller. The antique business, as it was operated before and after the Agreement, was supported by the salvaging of antique parts. However, the record is clear that the Non-Competition Agreement was not meant to prevent Seller from operating its whole goods and antique businesses and, thus, was not intended to preclude Seller from salvaging antique parts to support the antique business. Regardless of how it determined that the Non-Competition Agreement allowed Seller to salvage antique parts, the district court did not err, based on the evidence presented at trial, in instructing the jury to that effect.
Consideration of Extrinsic Evidence
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 comers” mle for determining the ambiguity of a contract. The mle 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 *314rule’ ” 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. *315148, 854 P.2d 1134 (1993) (enbanc); 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 *316the 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 comers” 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 mle expressed in the Restatement, supra, advocated by respected commentators, and already embraced in several well-reasoned decisions from other jurisdictions.
Conclusion
The evidence presented at trial in this case established, as a matter of law, that Seller was entitled, under the Non-Competition Agreement, to continue salvaging antique tractor parts. Thus, the court did not err in instructing the jury to that effect. I respectfully dissent.