National Bank of Alaska v. J. B. L. & K. of Alaska, Inc.
| Decision Date | 28 January 1976 |
| Docket Number | No. 2289,2289 |
| Citation | 546 P.2d 579 |
| Parties | NATIONAL BANK OF ALASKA, a National Banking Association, Appellant, v. J. B. L. & K. OF ALASKA, INC., a corporation, et al., Appellees. |
| Court | Alaska Supreme Court |
Robert J. Dickson, of Atkinson, conway, Young, Bell & Gagnon, Anchorage, for appellant.
W. C. Arnold, Anchorage, for appellees.
Before RATINOWITZ, C. J., and CONNOR, ERWIN and BURKE, JJ.
This action arises from a contract entered into by predecessors in interest of the present parties. 1 It was treated by the court below as a suit for an accounting, but the nature of the case is in dispute on this appeal.
Effective January 1, 1962, Kodiak Insurance and Building Corporation, an entity which was owned by the National Bank of Alaska as successor to the Bank of Kodiak, sold its insurance agency business to Arthur Brooks. Under the contract of sale, Brooks was required to pay:
. . . an amount equal to 15% of the net retained commissions earned by the Buyer in the conduct of the insurance agency business during the ten-year period commencing on January 1, 1962, and ending on December 31, 1971. Such amounts shall be payable on or before the 15th day of each month based upon the net retained commissions earned during the immediately preceding month.
Brooks, the buyer, had managed the insurance agency business carried by the Bank of Kodiak, through the entity of Kodiak Insurance and Building Corporation. Brooks and Bernard Guhrke had formed Kodiak Insurance, Inc., to pursue the former insurance agency business of Kodiak Insurance and Building Corporation, and the new entity regularly made payments under Brooks' contract with Kodiak Insurance and Building Corporation.
In 1966 Kodiak Insurance and Building Corporation was dissolved and plaintiff NBA, as its corporate parent, acquired its interests, including the right to payments under the contract with Brooks. In 1967 defendant Jewett, Barton, Levy & Kern, a partnership, acquired the stock of Kodiak Insurance, Inc. (which had already undergone several previous transfers). It assumed the obligations of the previous purchase agreement, including payment of 15% of the net retained commissions earned by the agency.
Appellees' claim arises from the fact that NBA, from the time of its merger with the Bank of Kodiak, had been writing credit life insurance through its Kodiak Branch under an experience rating agreement with Olympic National Life Insurance Company of Settle. The Bank received commissions on these sales. The original agreement selling the insurance business to Brooks had contained a covenant not to compete as follows:
The Seller covenants with the Buyer that until December 31, 1971 the Seller will not engage in the insurance agency business on the Island of Kodiak, either directly or indirectly. The Seller further covenants that he will not during this period, directly, or indirectly, induce any of the former business clients to patronize any insurance agency other than the buyer.
Appellee Kodiak Insurance, Inc. succeeded to the benefit of this covenant.
The trial court granted plaintiff-appellant's prayer for money due and owing under the contract but offset it by 85% of the amount received by the Bank in commissions for credit life insurance, deeming the Bank to have violated the non-competition covenant.
Conflicting testimony was received regarding the technical meaning of the term 'net retained commissions,' but the court apparently did not consider extrinsic evidence relating to the parties' intentions under the covenant not to compete. The court described the action as one for an accounting and struck a balance between the contract payments due appellant and the breach in favor of appellee.
Appellant asserts that error was committed in the trial court's decision not to consider the circumstances and usage surrounding the formation of the contract. It contends that the covenant not to compete was ambiguous, and therefore parol evidence relating to the parties' intent should be used in the interpretation of the contract.
This Court has repeatedly stated that, where a term in a written contract is ambiguous, extrinsic evidence of surrounding circumstances and usage may be admitted to aid in determining the intent of the parties and resolve the ambiguity. 2 All courts and commentators seem agreed upon this proposition. The converse proposition-that where a term is clear and unambiguous, the intent of the parties is to be ascertained solely from the written instrument-has been recited by this Court 3 but appears to be in controversy both among commentators and in this Court's prior opinions.
Commentators deal with two aspects of the question: first, under the general standards of contract interpretation; and secondly, as a function of the parol evidence rule. As to the former, both Williston and Corbin identify several standards, most of which parallel the four standards enumerated by Wigmore. Wigmore stated these as follows:
3. The mutual standard (to include particular meanings understood by the parties to contract), and
4. The individual standard (reflecting the sense attributed to words by a single party). 4
Williston adopts these standards, adding a fifth:
5. A standard of reasonable expectation, or the sense in which the party using the words should reasonably have apprehended that they would be understood by the other party. 5
Although he attempts to distinguish this latter concept, Williston concedes that it will provide generally the same result as the mutual standard, and finds it the most applicable to bilateral transactions. 6
Because the agreement in question represents an integration, 7 the parol evidence rule provides some assistance in determining the applicable standard. Where there is an integration, the parol evidence rule, although a rule of law rather than interpretation, bars the introduction of extrinsic evidence to add to or vary the terms of the written agreement. 8 It thus fixes the integrated document itself as the subject matter for interpretation. 9 The question then becomes: to what extent may extrinsic evidence be used as an aid to interpretation?
This Court has provided apparently divergent responses to this question. It was stated in Pepsi Cola Bottling Co. of Anchorage v. New Hampshire Ins. Co. 10 that
'(W)e are in agreement with those authorities which hold that where the terms of a policy of insurance are clear and unambiguous, the intent of the parties must be ascertained from the instrument itself, and that where there is uncertainty or ambiguity, intent may be asscertained from the language and conduct of the parties, the objects sought to be accomplished and the surrounding circumstances at the time he contract was negotiated. (footnote omitted) 11
This rule was made applicable as well to non-insurance cases in Part Valdez v. City of Valdez, 12 where the above language was quoted in upholding a conveyancing agreement. 13
However, in Alaska Placer Company v. Lee, 14 in an opinion by Justice Dimond, the Court appeared to adopt the view of Professor Corbin that all disputed language in a contract must be treated as ambiguous. The court stated:
(S)eldom in a litigated case do the words of a contract convey one identical meaning to the two contracting parties or to third persons. Therefore, it is invariably necessary, before a court can give any meaning to the words of a contract and can select one meaning rather than other possible ones as the basis for the determination of rights and other legal effects, that extrinsic evidence shall be heard to make the court aware of the 'surrounding circumstances,' including the persons, objects, and events to which the words can be applied and which caused the words to be used. (Emphasis added). 15
This reference has generated confusion over the permissible use of extrinsic evidence in contract interpretation in Aslaska. 16 This Court declined an opportunity to clarify the resultant confusion in Day v. A & G Construction Co., Inc. 17 where it found ambiguity to exist without resort to parol, then used evidence of the circumstances at the time of making to resolve the ambiguity. 18
Appellant seeks to create order out of the confusion through an attempt to reconcile the holdings of the cases. Appellant suggests that evidence of the surrounding circumstances first be consulted to determine whether or not an ambiguity exists. If, in light of all the circumstances, the language of the contract appears to be capable of only a single meaning, the Court need not go beyond the instrument in a search for other possible constructions which either of the parties may have placed upon their agreement. If, however, in the light of its language and the circumstances surrounding the formation of the contract, any term appears capable of more than one meaning, those circumstances may be further consulted to ascertain which meaning lies within the intent of the parties.
This approach is not inconsistent with the views of secondary authorities. The Restatement proposes the following standard:
The standard of interpretation of an integration, except where it produces an ambiguous result, or is excluded by a rule of law establishing a definite meaning, is the meaning that would be attached to the integration by a reasonably intelligent person acquainted with all operative usages and knowing all the circumstances prior to and contemporaneous with the making of the integration, other than oral statements by the parties of what they intended it to mean. (Emphasis added). 19
Williston, who, like the Restatement, espouses the 'objective' standard, is in accord on this point.
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