C. & A. Const. Co., Inc. v. Benning Const. Co.

• Decision Date: 20 May 1974
• Docket Number: No. 73-296,73-296
• Citation: 509 S.W.2d 302,256 Ark. 621
• Court: Arkansas Supreme Court
• Parties: C. & A. CONSTRUCTION COMPANY, INC., Appellant, v. BENNING CONSTRUCTION COMPANY, Appellee.

Page 302

509 S.W.2d 302

256 Ark. 621

C. & A. CONSTRUCTION COMPANY, INC., Appellant, v. BENNING CONSTRUCTION COMPANY, Appellee.

No. 73-296.

Supreme Court of Arkansas.

May 20, 1974.

Rose, Nash, Williamson, Carroll & Clay, W. Dane Clay and Webster L. Hubbell, Little Rock, for appellant.

Coleman, Gantt, Ramsay & Cox, Pine Bluff, for appellee.

HOLT, Justice.

The appellant and appellee are subcontractors who entered into an agreement involving the installation of sewer lines. Paragraph 7 of the agreement between these parties provided:

It is further agreed that the 2nd subcontractor will receive $20,000 for supervision which will be added to the actual cost figure. It is further agreed that the difference between actual cost and bid price will be divided as follows: 33 1/3% to 2nd subcontractor; 66 2/3% to 1st subcontractor.

Appellee was paid $517,451.11 and appellee brought suit for an alleged payment deficit of $55,243.20 on the contract. The trial court, sitting as a jury, after hearing parol evidence, awarded appellee judgment for $40,349.11. Appellant questions only that part of the judgment which awarded $18,600 (in addition to $20,000 for supervision) for the salary and living expenses of appellee's president and sole stockholder during the time he was personally engaged in the supervision of the construction. Appellant contends that the extra award of $18,600 is double recovery in that it is contrary to the terms of the contract which designates a specific sum of $20,000 for supervision.

When contracting parties express their intention in a written instrument in clear and unambiguous language, it is our duty to construe the written agreement according to the plain meaning of the language employed. Miller v. Dyer, 243 Ark. 981, 423 S.W.2d 275 (1968). However, where the meaning of a written contract is ambiguous, parol evidence is admissible to explain the writing. Brown and Hackney v. Daubs, 139 Ark. 53, 213 S.W. 4 (1919). Ambiguities are both patent and latent. When, on its face, the reader can tell that something must be added to the written contract to determine the parties' intent, the ambiguity is patent; a latent ambiguity arises from undisclosed facts or uncertainties of the written instrument. Dorr v. School District No. 26 &c, 40 Ark. 237 (1882); Johnson v. Mo. Pac. R. R. Co., 139 Ark. 507, 214 S.W. 17 (1919); and Taylor v. Union Sawmill Co., 105 Ark. 518, 152 S.W. 150 (1912). However, the initial determination of the existence of an ambiguity rests with the court and if ambiguity exists, then parol evidence is admissible and the meaning of the term becomes a question for the factfinder. Fort Smith Appliance and Service Co. v. Smith, 218 Ark. 411, 236 S.W.2d 583 (1951); Brown and Hackney v. Daubs, supra; and Easton v. Washington County Insurance Co., 391 Pa. 28, 137 A.2d 332 (1957), cited in 4 Williston on Contracts, § 627 (3d Ed. 1961). For example, in Taylor v. Union Sawmill Co., supra, our court made an initial determination of the ambiguous nature of the term 'white oak' before justifying the introduction of testimony of custom and usage in order to determine the sense in which the term was employed. In the case at bar, we cannot strain the plain, obvious, and unambiguous language of the contract. Appellee agreed to a definite amount for supervision. Had appellee's president and sole owner of the corporation desired that the sum of $20,000 represent a guaranteed profit, as he and his witnesses so understood from their verbal agreement during negotiations, the wording of the contract should have so indicated. Had appellee's president and owner intended, as he now contends was their verbal understanding, that his salary should be in addition to the $20,000 for supervision, the written contract could easily have so reflected. The lower court's award for salary ($15,500) is contrary to the plain and unambiguous terms of their written agreement and the judgment should be adjusted accordingly.

In Hoffman v. Late, 222 Ark. 395, 260 S.W.2d 446 (1953), we said:

It is the accepted present-day view that the parol evidence rule is not really a rule of evidence but is instead a rule of substantive law. Wigmore on Evidence (3d Ed.), § 2400; Williston on Contracts (Rev.Ed.), § 631; Rest., Contracts, § 239; 4 Ark.L.Rev. 168. As Wigmore puts it, supra: 'What the rule does is to declare that certain kinds of facts are legally ineffective in the substantive law; and this of course (like any other ruling of substantive law) results in forbidding the fact to be proved at all.' The practical justification for the rule lies in the stability that it gives to written contracts; for otherwise either party might avoid his obligation by testifying that a contemporaneous oral agreement released him from the duties that he had simultaneously assumed in writing.

Hence in the case at bar it makes no difference whether Late's version of the oral negotiations is true or false. . . .

Likewise, in the case at bar, even though the verbal evidence and tentative drafts attending the negotiations be true, it cannot alter the terms of the clearly unambiguous written agreement as to his compensation for supervisory services. The contracting parties were knowledgeable and certainly capable of reducing their negotiations to unambiguous written terms. In such situations, we cannot interfere.

The court found that appellee was entitled to $3,100 for its owner's expenses during the time he actually was 'on the job.' The contract clearly provides for recovery of actual costs. In the circumstances, the court was justified in this award.

We deem it unnecessary to discuss appellant's other contentions.

The judgment is modified to exclude the salary allowance.

Affirmed as modified.

FOGLEMAN and BROWN, JJ., dissent.

FOGLEMAN, Justice.

The majority opinion is apparently based upon the premise that the existence of ambiguity must be determined by the court upon the basis of an examination of the contract. This is the case in determining whether there is a patent ambiguity. It is not in the case of a latent ambiguity. By definition, a latent ambiguity is one which does not appear upon the face of the instrument and cannot be detected by examination of the document. It arises from facts not disclosed in the instrument. Dorr v. School District No. 26, 40 Ark. 237. Latent ambiguity is defined at 3A. C.J.S. p. 409, Ambiguity, as follows:

The term has been said to imply either, on the one hand, a concealment of the real meaning or intention of the writer which does not appear on the face of the words used, until these words are brought in contact with collateral facts or until the facts are shown, or, on the other hand, a clear expression of the party's intention, and the existence of a doubt not as to the intention, but as to the object to which the intention applies.

The term 'latent ambiguity' is defined to mean an ambiguity which arises not upon the words of the instrument, as looked at in themselves, but upon those words when applied to the object or subject which they describe. It is one which does not appear on the face of the language used or the instrument being considered, or when the words apply equally to two or more different subjects or things, as where the language employed is clear and intelligible and suggests but a single meaning, but some extrinsic fact or evidence aliunde, creates a necessity for interpretation or a choice among two or more possible meanings.

It has been said that a latent ambiguity occurs where a writing appears on its face clear and unambiguous, but which, in fact, is shown by extrinsic evidence to be uncertain in meaning, or where a description, apparently plain and unambiguous, is shown to fit different pieces of property.

In order for the court to determine whether a latent ambiguity exists, it is obviously necessary that it consider evidence of extraneous and collateral facts as to extrinsic circumstances. Logan v. Wiley, 357 Pa. 547, 55 A.2d 366 (1947). It is a well settled rule that extrinsic evidence is admissible to show that a latent ambiguity exists. Hall v. Equitable Life Assurance Society, 295 Mich. 404, 295 N.W. 204; McCarty v. Mercury Metalcraft Company, 372 Mich. 567, 127 N.W.2d 340, 129 N.W.2d 854 (1964); Widney v. Hess, 242 Iowa 342, 45 N.W.2d 233 (1951). See Ellege v. Henderson, 142 Ark. 421, 218 S.W. 831; Easton v. Washington County Insurance Co., 391 Pa. 28, 137 A.2d 332. In treating the matter as it relates to the parol evidence rule, the author of Jones on Evidence (Vol. 3, p. 134, § 16:23) says:

In a preceeding section it has been pointed out that where a written instrument appears to be complete on its face, a presumption will be indulged that the parties have included all of the terms of their agreement in the instrument.

While for all practical purposes, if such a presumption is indulged, it will have a conclusive effect to prevent bringing in additional terms, it does not have the effect of barring disclosure of hidden uncertainties, and to this extent the presumption is rebuttable and parol evidence admissible not only to bring out the latent ambiguity but to explain the true intent of the parties and to resolve the uncertainty, if it can be resolved, in order to save the contract.

To discover a latent ambiguity, it is proper to go outside the instrument to ascertain whether the words used aptly fit the facts existing when the instrument was executed and the words used. Widney v. Hess, supra; Queens Insurance Company of America v. Meyer Milling Co., 43 F.2d 885 (8th Cir. 1930).

It is generally held that the question whether an ambiguity exists is one of law for the court. Steele v. McCargo, 260 F.2d 753 (8th Cir. 1958); Easton v. Washington County Insurance Co., supra. In determining whether an ambiguity exists, a contract must be read in the light of what the parties intended as gathered from the language thereof in view of all surrounding circumstances....