Kintner v. Wolfe

• Decision Date: 13 April 1967
• Docket Number: No. 8516--PR,8516--PR
• Citation: 426 P.2d 798,102 Ariz. 164
• Parties: Ralph KINTNER and Florence Kintner, Roy R. Brockbank and Dorothy M. Brockbank, his wife, Appellants, v. Paul WOLFE, Appellee.
• Court: Arizona Supreme Court

Page 798

426 P.2d 798

102 Ariz. 164

Ralph KINTNER and Florence Kintner, Roy R. Brockbank and Dorothy M. Brockbank, his wife, Appellants, v. Paul WOLFE, Appellee.

No. 8516--PR.

Supreme Court of Arizona, In Banc.

April 13, 1967.

Rehearing Denied May 16, 1967.

Richard L. Keefe, Tucson, for appellants.

Evans, Kitchel & Jenckes, by Stephen W. Pogson and Jos. S. Jenckes, Jr., Phoenix, for appellee.

McFARLAND, Vice Chief Justice:

This case is before us on a petition for review of the decision of the Court of Appeals, Division 2, reported in 4 Ariz.App. 212, 419 P.2d 116.

On July 9, 1957, plaintiff-appellee, Wolfe, hereinafter referred to as lessor, leased a liquor license to Kintner, hereinafter referred to as lessee. The rent was guaranteed by defendant-appellant Brockbank, hereinafter referred to as guarantor. The lease and guaranty were one written agreement. Lessee defaulted in his payments, and lessor sued him and the guarantor. The case was tried without a jury, upon an agreed statement of facts.

Guarantor appealed from a judgment for $30,000 rendered against him. The court of appeals reduced the amount to $8,500.

At the time the agreement was signed, the guarantor owned a building in Sierra Vista, Arizona, and the lessor owned a liquor license. Upon the execution of the agreement, the license was registered for use in guarantor's building, and Kintner became the lessee of both the building and the liquor license, and the operator of E1 Coronado Cocktail Lounge. Lessee's use of the license continued until April 1963 at which time he went into bankruptcy. No rent was paid on the liquor license after July 31, 1962. The negotiations leading up to the execution of the agreement were carried on between lessor and guarantor. Prior to the agreement, the liquor license was in use by the lessor at a bar in Sierra Vista known as 'Mac's Bent Elbow.'

The agreement between the parties is entitled 'LEASE AGREEMENT AND GUARANTY,' and although it is a single document, after reciting the date and naming the parties, it is divided into two parts. The first is entitled 'LEASE AGREEMENT,' and is signed by lessor and lessee; the second is entitled 'GUARANTY,' and is signed by the lessor and guarantor.

The lease agreement provided that:

The lease would run from August 1, 1957, to July 31, 1962, with an option in the tenant to renew for an additional five years.

The rent would be $500 per month.

Default in the payment of rent, continued for fifteen days, would give the lessor the option 'to declare the whole of the rent herein contracted for, due and payable, whether under original or renewed term.'

The guaranty provided that:

In the event lessee defaulted in payment of rent, guarantor might pay the rent on behalf of the lessee.

If lessee's right to operate under the license terminated for any reason prior to the end of ten years from the commencement of the lease, lessor would lease the license to the guarantor or his designee for the remainder of the ten-year term.

No rental payment would be excused for any period during which operations were not conducted by virtue of the leased license.

Guarantor guaranteed 'the payment to lessor, of rent totalling $60,000 . . . over a period of ten years from the date the initial term of said lease commences, without respect to future changes in conditions obtaining now or at any given time, and subject further to lessor's right to accelerate payments for non-compliance as in said lease agreement provided, and for all or any portion of the full amount herewith contracted to be paid lessor within ten years from said date of commencement'.

Guarantor would agree to the retransfer of the license to lessor in the event guarantor failed to provide another suitable lessee.

Lessor's complaint was filed October 4, 1962, and in it he declared 'the whole of the rent contracted for, due and payable.'

The rent for the first five-year term was paid in full. The option to renew for a second five-year term was never exercised. The $30,000 judgment represented the full rent for the full second five-year term. In 1961 the Arizona legislature made the leasing of liquor licenses illegal, except for existing commitments which were permitted to continue until December 31, 1963.

Two questions stand out clearly as determinative to this decision:

1. Was guarantor's obligation limited to paying such sums as lessee was obligated to pay? and

2. If not, was his obligation terminated by the passage of A.R.S. § 4--203?

The general rule is that the interpretation of a contract is a question for the court. Chandler Improvement Co. v. Andersen, 39 Ariz. 426, 7 P.2d 255.

Williston on Contracts states the rule governing the interpretation of contracts as follows:

'The cardinal rule of construction to be applied in the interpretation of contracts is to ascertain the intention of the parties. One of the principal phases of such consideration is to arrive at the meaning the parties themselves attached to the words and phrases used in the contract to express their intention. * * * 'Words generally bear their usual and common signification' * * *. The writing will be read as a whole, and every part will be interpreted with reference to the whole; * * * The circumstances under which a writing was made may always be shown. * * * all the surrounding circumstances at that time necessarily throw light upon the meaning of the contract.' Williston on Contracts, 3rd Ed., Vol. 4, Sect. 618.

When the various rules of interpretation fail to clarify the intention of the parties, an interpretation should be adopted 'which gives effect to the main purpose of the agreement.' Ibid, p. 733.

From the fact that guarantor owned a building but no liquor license, and the fact that he dealt directly with lessor in negotiating the use of the liquor license for Kintner, who became guarantor's tenant, we may infer that the main object of guarantor's signing the agreement was to get a profitable business going in his building. Practical people, with no ties of blood or affection do not guarantee rent for total strangers unless there is some possibility of pecuniary benefit. Likewise, from the fact that lessor's liquor license was registered in the name of a bar called Mac's Bent Elbow, we may infer that his main object was to get an assured income from a license which would command a good rental, while the profits from the operation of Mac's Bent Elbow might have been subject to large fluctuations, and might have required hard work and long hours on the part of the operator.

The following legal principles must be applied in determining the intent of the parties in making the agreement:

'The nature of an instrument is determined by the effect the law gives to its terms and not by the title by which the parties have designated the instrument.' Woolsey v. Lassen, 91 Ariz. 229, 238, 371 P.2d 587, 592; Employer's Liability Assurance Corporation Ltd. v. Lunt, 82 Ariz. 320, 326, 313 P.2d 393.

'This is more than a guaranty; it is an independent agreement to become the principal debtor under the circumstances set forth in the assignment. The mere fact that the assignment is denominated at the top 'Assignment with Guaranty of Payment' or that the word 'guaranty' is used therein does not of itself make it, as a matter of law, a simple contract of guaranty. The character of a legal instrument is determined by what is within the four corners thereof, and not by the name given to it.' Pacific Finance Corp. of California v. Burkhart, 56 Ariz. 383, 391, 108 P.2d 380, 383.

'Nor is the fact that a promise is called by the parties a guaranty, conclusive evidence that the promise is not original.' Williston on Contracts, 3rd Ed., Vol. 3, sect. 465.

The instant case is similar to Dykes v. Clem Lumber Co., 58 Ariz. 176, 118 P.2d 454, in which we said:

'We think the written agreement on which the suit was based was not a guaranty of an obligation of defendant to the bank, but was an original and primary obligation of plaintiff to it.' p. 181, 118 P.2d p. 456.

In view of the above facts and legal principles it is clear that the agreement between the parties was an unconditional promise by guarantor to pay $500 per month to lessor for ten years, 'without respect to future changes in conditions.'

Having construed the contract to be a primary obligation of the guarantor, we pass to the construction of the phrase 'without respect to future changes in conditions.'

'In interpreting a written contract the court should, as far as possible, place itself in the position of the parties at the time of its execution, and then, from a consideration of the instrument itself, its purposes, and the circumstances surrounding its execution, ascertain the intention of the parties.' 4 Williston on Contracts, sect. 618.

For years before the enactment of A.R.S. § 4--203, it was common knowledge that many people were of the opinion that the leasing of liquor licenses ought to be abolished. Lessor argues that it was this very possibility that caused the insertion of the 'changes-in-conditions' clause in the guaranty. We have no way of knowing what was in the minds of the parties at the time, and cannot ascertain whether knowledge of the impending change in the statute was common in Sierra Vista in 1957. The parties have offered no evidence to clarify this question. Guarantor contends that the clause was inserted to cover the possibility of deteriorating economic conditions, such as a recession, or the closing down of nearby Fort Huachuca. But such changes would not excuse performance, and their possibility did not require such a clause to protect lessor. Westesen v. Olathe State Bank, 75 Colo. 340, 225 P. 837.

This clause is the key to the interpretation of the contract. It cannot be ignored. 'An interpretation which gives * * * meaning to all manifestations of intention is preferred to an interpretation which leaves part of such manifestations * * * of no effect.'...