May 31, 2013, Utah Supreme Court Case Summaries

Utah Supreme Court Case Summaries

May 31, 2013

Watkins v. Ford, 2013 UT 31, No. 20100802 (May 31, 2013)

Issue: Abandonment of a Contract

On certiorari, we are asked to decide whether Henry Day Ford (Henry Day) and Tom Watkins abandoned Motor Vehicle Sales Contracts (Vehicle Contracts or Contracts) for the sale of two Ford GT40s; whether the Contracts contained a latent ambiguity regarding the identity of the vehicles to be sold; and, in the event that Henry Day breached the Contracts, whether Mr. Watkins adequately mitigated his damages. The district court granted summary judgment in favor of Henry Day, concluding that the Contracts were not even applicable because they referred to different vehicles than the ones in dispute and, alternatively, that both parties abandoned the Contracts when they acted inconsistently with their continued existence. It also held that Mr. Watkins had failed to mitigate his damages.

The court of appeals reversed. While it held that there was a latent ambiguity in the Contracts regarding the identity of the vehicles to be sold, it concluded that the ambiguity was of no moment because both parties intended that the Contracts cover the vehicle that is now known as the Ford GT. It reversed the district court on the abandonment issue, holding as a matter of law that Mr. Watkins did not intend to abandon the Vehicle Contracts. Finally, because the court of appeals determined that the district court had made insufficient factual findings to support the conclusion that Mr. Watkins had failed to mitigate his damages, it remanded the case for a hearing on damages. We accepted Henry Day’s Petition for Writ of Certiorari.

We first hold that although the Vehicle Contracts contain a latent ambiguity, the latent ambiguity does not excuse either party’s performance under the Contracts because the parties’ intent aligned with respect to the vehicles to be bought and sold. We next hold that Henry Day abandoned the Vehicle Contracts by refunding Mr. Watkins’s deposit and by conveying its belief that the dealership would not get an allotment of the vehicles. However, because Henry Day’s representations regarding the possibility of receiving the vehicles were ambiguous, the issue of whether Mr. Watkins abandoned his rights under the Vehicle Contracts requires a remand for additional factual findings. If the district court concludes that Mr. Watkins did not abandon the Contracts, it must then consider whether Mr. Watkins adequately mitigated his damages.

We accordingly affirm the court of appeals’ determination that the latent ambiguity in the Vehicle Contracts did not absolve the parties of their respective obligations and remand for a determination as to whether Mr. Watkins abandoned his rights under the Contracts and, if necessary, for a determination as to whether Mr. Watkins mitigated his damages.

At ¶¶ 1-4.

The Court described the background of the case.  Most importantly the court describes (1) the contract between the parties to buy two “GT40” cars with a condition precedent that Henry Day receives the cars from the manufacturer, (2) Henry Day’s letter to Watkins stating that it would not receive any GT40’s and refund of a deposit check, (3) Watkins deposit of the refund, and (4) Watkins demand that Henry Day sell him two “GT” cars that Henry Day later received from the manufacturer.  A “GT40” and a later renamed “GT” is the same car.

At ¶¶ 5-17.

Latent Ambiguities

Because both parties understood that the Vehicle Contracts referred to the production version of Ford’s concept car, the “GT40” (sold to the public as the Ford “GT”), we hold that the latent ambiguity in the Contracts regarding the identity of the vehicles to be sold did not absolve the parties of their contractual obligations. We next hold that Henry Day abandoned the Vehicle Contracts when it represented to Mr. Watkins that the dealership would not be getting any of the contracted-for vehicles and refunded his deposits. But there are insufficient factual findings to determine whether Mr. Watkins abandoned his rights under the Contracts and, in the event that he did not, whether he properly mitigated his damages. We therefore remand this matter for further factual findings on these issues.

At ¶ 23.

While we agree that the Contracts contain integration clauses, the integration clauses do not necessarily bar the introduction of extrinsic evidence. Tangren Family Trust v. Tangren, 2008 UT 20, ¶ 11, 182 P.3d 326. Despite a finding that an “agreement is integrated, . . . parol evidence may be admitted . . . if . . . the language of the agreement is ambiguous.” Id. (internal quotation marks omitted).

At ¶ 25.

“When determining whether a contract is ambiguous, any relevant evidence must be considered” and “the better-reasoned approach is to consider the writing in light of the surrounding circumstances.” Ward v. Intermountain Farmers Ass’n, 907 P.2d 264,

268 (Utah 1995). We allow the introduction of relevant evidence regarding the existence of a potential ambiguity to prevent an “inherently one-sided [analysis] . . . based solely on the extrinsic evidence of the judge’s own linguistic education and experience.” Id. (internal quotation marks omitted). In this way, we can interpret a contract and any potential ambiguity in light of the parties’ intentions. See WebBank v. Am. Gen. Annuity Serv. Corp., 2002 UT 88, ¶ 17, 54 P.3d 1139 (“The underlying purpose in construing or interpreting a contract is to ascertain the intentions of the parties to the contract.”).

At ¶ 26.

We first evaluate the contract for facial ambiguity. Facial ambiguity exists “if [a contractual term or provision] is capable of more than one reasonable interpretation because of uncertain meanings of terms, missing terms, or other facial deficiencies.” Id. ¶ 20 (internal quotation marks omitted). The court of appeals held that there was no facial ambiguity in the Vehicle Contracts because “[w]hen the parties chose the term GT40, it was unambiguous and meant just that—the parties were contracting for the sale of what was then known as the GT40.” Watkins v. Ford, 2010 UT App 243, ¶ 14, 239 P.3d 526. We agree.

At ¶ 27.

But this does not end our inquiry. “Utah’s rules of contract interpretation allow courts to consider any relevant evidence to determine whether a latent ambiguity exists in contract terms that otherwise appear to be [facially] unambiguous.“ Gillmor v. Macey, 2005 UT App 351, ¶ 35, 121 P.3d 57; see also 32A C.J.S. Evidence § 1514 (2013) (“Thus, a contract apparently unambiguous on its face may still contain a latent ambiguity that can only be exposed by extrinsic evidence.”). While a “[facial] ambiguity arises solely from the terms of the instrument, . . . a latent ambiguity is one not appearing upon the face of the instrument, but is developed by extrinsic evidence.” Conlam v. Doull, 9 P. 568, 569 (Utah Terr. 1886). A latent ambiguity “arises from a collateral matter when the document’s terms are applied or executed.” BLACK’S LAW DICTIONARY 93 (9th ed. 2009). By its very nature, a latent ambiguity is one that cannot be found within the four corners of the document but is only discoverable through the introduction of extrinsic evidence

At ¶ 28.

. . . Because there is no dispute as to the identity of the vehicles for which the parties contracted, the latent ambiguity created by Ford’s subsequent name change does not excuse either party’s obligations under the Vehicle Contracts.

At ¶ 30.

Abandonment

We set forth the rule governing abandonment of a contract in Wallace v. Build, Inc., 402 P.2d 699 (Utah 1965). In Wallace, we held that a contract is abandoned when one party “show[s] by unequivocal acts that he regard[s] the agreement as abandoned,” and the other party acquiesces. Id. at 701. Similarly, we have held that a contract may be abandoned by the parties’ express assent or through “acts or conduct of the parties inconsistent with the continued existence of the contract.” Parduhn v. Bennett, 2002 UT 93, ¶ 11, 61 P.3d 982 (internal quotation marks omitted); see also Harris v. IES Assocs., Inc., 2003 UT App 112, ¶ 37, 69 P.3d 297. In the latter circumstance, assent to abandon a contract need not be express. See Parduhn, 2002 UT 93, ¶ 11. Rather, “mutual assent to abandon . . . a contract may be inferred from the attendant circumstances and conduct of the parties.” Id. (internal quotation marks omitted). In all cases, abandonment must be “ascertained from all the facts and circumstances surrounding the transaction,” and the “proof of abandonment must be made by clear, unequivocal, and decisive evidence.”5 17B C.J.S. Contracts § 586 (2013).

At ¶ 33.

Mr. Watkins’s actions in response to the letter can only be evaluated based on his understanding of what the letter meant in light of the information that he had at the time. But the district court did not make any factual findings in this regard. We therefore remand for a determination of Mr. Watkins’s understanding of Henry Day’s December 31st letter. If Mr. Watkins acquiesced in Henry Day’s abandonment understanding that Henry Day could never receive any vehicles, Mr. Watkins’s actions do not constitute the intentional abandonment of his rights under the Contracts. See McIrvin v. W. Side Unlimited Corp., No. 08-CV-127-LRR, 2010 WL 605651, at *13 (N.D. Iowa Feb. 18, 2010) (“Knowledge is an element of acquiescence: Acquiescence is where a person knows or ought to know that he is entitled to enforce his right or to impeach a transaction, and neglects to do so.” (emphasis added) (internal quotation marks omitted)). If, however, Mr. Watkins acted with the knowledge that there remained a possibility that Henry Day could still potentially receive a vehicle through a future allocation award or, if he understood the letter merely as a statement of Henry Day’s belief at the time, his deposit of the check and renewed search for another dealer would constitute acts or conduct inconsistent with the continued existence of the Vehicle Contracts. See Parduhn, 2002 UT 93, ¶ 11.

At ¶ 39.

In the event that the court on remand finds that Mr. Watkins did not abandon the Vehicle Contracts, it must then assess the issue of damages. “[U]nder the doctrine of avoidable consequences the nonbreaching party has an active duty to mitigate his damages, and he may not, either by action or inaction, aggravate the injury occasioned by the breach.” Mahmood v. Ross (In re Estate of Ross), 1999 UT 104, ¶ 31, 990 P.2d 933 (internal quotation marks omitted).

The court of appeals determined that the district court had made insufficient factual findings to conclude that Mr. Watkins failed to mitigate his damages. We agree. The district court made only a passing and conclusory reference to the issue of mitigation in its findings of fact. We are therefore unable to determine whether Mr. Watkins appropriately mitigated his damages.

At ¶¶ 42-43.

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