In Arizona, Contract Interpretation is a Question of Law Except When it Isn’t. It is common for attorneys and judges to write or say that “[t]he interpretation of a contract is a question of law.” Rand v. Porsche Fin. Servs., 216 Ariz. 424, 434, 167 P.3d 111, 121 (App. 2007). “The interpretation of a contract, including whether a contract is ambiguous, is a question of law . . .” Cantex, Inc. v. Princeton Excess & Surplus Lines Ins. Co., No. 1 CA-CV 15-0280, 2016 WL 3101793, at *2 (App. June 2, 2016). If this is true, it gives some comfort to a party who believes the contract is unambiguous and favors their position. “If the judge simply looks at our contract, the judge will rule in our favor,” is a statement commercial litigators often hear.
However, a better way of stating the rule is that it is only true when there is no reasonable factual dispute about what a contract means. If a contract contains ambiguous language, the meaning of such language is subject to “a factual determination concerning the intent of the parties.” Hartford v. Indus. Comm’n, 178 Ariz. 106, 111 (App. 1994).
Parties often look at the word “ambiguous” and then they say, “but our contract is not ambiguous. It means exactly what it says.” In Arizona, it is not that easy. Whether a contract is ambiguous is also a question of fact – and extrinsic evidence can be used to decide if the contract is ambiguous, or put another way, whether it is “reasonably susceptible” to the interpretation one party is promoting.
In Taylor v. State Farm, 175 Ariz. 148, 154 (1993) our court held that when a contract term is “reasonably susceptible” to more than one interpretation, “extrinsic evidence” is admissible to discern the parties’ intent. In Taylor, the court also held that judges have no special training that lets them determine whether a contract is ambiguous or susceptible to more than one interpretation.
“[T]he purpose [of contract interpretation] is to produce the contract result the parties intended, not that which the judge intends. Some words are clear beyond dispute. Some may mean one thing to the judge but could have meant something else to the parties. It is the latter meaning that is important. Taylor v. State Farm Mut. Auto. Ins. Co., 175 at 155, n.1, 854 P.2d at 1141, n.1. “The judge … must avoid the often irresistible temptation to automatically interpret contract language as he or she would understand the words. This natural tendency is sometimes disguised in the judge’s ruling that contract language is ‘unambiguous.’
Before deciding if one parties’ interpretation, however implausible on its face, is valid, the court will listen to the relevant evidence and if there is a reasonable “[T]he judge first considers the offered evidence and, if he or she finds that the contract language is “reasonably susceptible” to the interpretation asserted by its proponent, the evidence is admissible to determine the meaning intended by the parties. Taylor v. State Farm, 175 Ariz. at 154, 854 P.2d at 1140. If there is a question about what the parties intended, the question of what they intended is for the jury to decide. Taylor v. State Farm, 175 Ariz. at 159, 854 P.2d at 1145.
If you have questions about your Arizona or Phoenix, Maricopa County breach of contract dispute, contact the civil litigation attorneys at Udall Shumway PLC in Mesa, Arizona.
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding Contract Interpretation, or any other commercial litigation matters, please feel free to contact Joel E. Sannes at 480.461.5307, or log on to udallshumway.com, or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.