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AMI 2412 Contract Interpretation—General Rule—Ambiguity in Language

Arkansas Supreme Court Committee On Jury Instructions-Civil

Ark. Model Jury Instr., Civil AMI 2412
Arkansas Model Jury Instructions-Civil
November 2021 Update
Arkansas Supreme Court Committee On Jury Instructions-Civil
Chapter 24. Contracts
Contract Interpretation
AMI 2412 Contract Interpretation—General Rule—Ambiguity in Language
The parties dispute the meaning of the following language in their contract:
[Insert ambiguous language]
It is your duty to interpret the contract to give effect to what the parties intended when they made their agreement. In determining the meaning of the language, you must take into consideration the language of the contract, the circumstances surrounding the making of the contract, the subject of the contract, the purpose of the contract, the situation and relation of the parties at the time the contract was made, the parties' subsequent course of performance, [the parties' prior course of dealing,] [(and) custom in the trade].
NOTE ON USE
This instruction should be given only if the court has determined that the contract contains ambiguous language and that the meaning of the ambiguous language depends upon disputed extrinsic evidence.
Insert the bracketed language when warranted by the evidence. Insert the “and” at the appropriate point in the final clause.
If the ambiguity involves a single word or short phrase, the first sentence may be modified to state, “The parties dispute the meaning of the term ‘ ’ in their contract.”
COMMENT
The submission of this instruction was approved in Bull Motor Co. v. Murphy, 101 Ark. App. 33, 42, 270 S.W.3d 350, 357 (2007) (dispute involving a contract for sale of a “new” vehicle where the vehicle sold had been previously stolen from the dealer's lot and recovered by police after being driven forty miles).
A jury should not be called upon to interpret a contract unless it contains an ambiguity. A provision in a contract is ambiguous when it is susceptible to two or more reasonable interpretations. Phelps v. U.S. Life Credit Life Ins. Co., 336 Ark. 257, 261–62, 984 S.W.2d 425, 427–28 (1999). If a provision of a contract is unambiguous, its construction is an issue of law for the trial court. However, if an ambiguity exists in the contract, the meaning of the ambiguous provision becomes an issue for the fact-finder. “The initial determination of the existence of an ambiguity in a contract rests with the trial court, and if an ambiguity exists, the meaning becomes a question of fact for the fact finder.” Keller v. Safeco Ins. Co. of Am., 317 Ark. 308, 312, 877 S.W.2d 90, 93 (1994) (citing Minerva Enters., Inc. v. Bituminous Cas. Corp., 312 Ark. 128, 851 S.W.2d 403 (1993)). See also Kanning v. Allstate Ins. Cos., 67 Ark. App. 135, 138–39, 992 S.W.2d 831, 833 (1999); Fryer v. Boyett, 64 Ark. App. 7, 11, 978 S.W.2d 304, 306 (1998). “[W]hether the language of the policy is ambiguous is a question of law to be resolved by the court.” W. World Ins. Co. v. Branch, 332 Ark. 427, 430, 965 S.W.2d 760, 761 (1998). Thus, this and the following contract interpretation instructions, with the exception of AMI 2423, should be given only when the court has made the initial determination of the existence of an ambiguity.
The first sentence of the second paragraph is based upon the widely recognized “first rule” of contract interpretation that the finder of fact must give the language employed the meaning that the parties intended. See First Nat'l Bank of Crossett v. Griffin, 310 Ark. 164, 169, 832 S.W.2d 816, 819 (1992) (dispute involved guaranty agreement); Sutton v. Sutton, 28 Ark. App. 165, 167, 771 S.W.2d 791, 792 (1989) (dispute involved property settlement agreement in a divorce to which the court applied general rules of construction).
The factors in the second sentence of the second paragraph that the jury should take into consideration in determining the meaning of the ambiguous term(s) come from several cases. See Dugal Logging, Inc. v. Ark. Pulpwood Co., 66 Ark. App. 22, 30, 988 S.W.2d 25, 30 (1999) (whether a contract for sale of timber terminated on a date certain); Sutton, 28 Ark. App. at 167, 771 S.W.2d at 792; First Nat'l Bank of Crossett, 310 Ark. at 168, 832 S.W.2d at 819; Schnitt v. McKellar, 244 Ark. 377, 385–86, 427 S.W.2d 202, 207–08 (1968) (whether an instrument was a deed of conveyance of mineral interests or a contract).
An ambiguity is present where there is uncertainty of meaning in a written instrument and the language is fairly susceptible to more than one equally reasonable interpretation. Alexander v. McEwen, 367 Ark. 241, 246, 239 S.W.3d 519, 523 (2006) (beneficiary designation in IRA account); Magic Touch Corp. v. Hicks, 99 Ark. App. 334, 339, 260 S.W.3d 322, 326 (2007) (employee handbook).
In Smith v. Prudential Prop. and Cas. Ins. Co., the Arkansas Supreme Court made it clear that even when a contract is ambiguous, if the meaning of the ambiguity does not depend on disputed extrinsic evidence, the construction and legal effect of the contract remain questions of law. 340 Ark. 335, 341, 10 S.W.3d 846, 850 (2000).
This instruction should not be given in cases involving the interpretation of ambiguous provisions of insurance contracts in which the insured had no opportunity to negotiate or change the terms of the contract, and the meaning of the ambiguity does not depend on disputed extrinsic evidence. In such cases, all ambiguities will be resolved in favor of the insured as a matter of law. See Smith, 340 Ark. at 340, 10 S.W.3d at 850. See also Phelps, 336 Ark. at 261–262, 984 S.W.2d at 428; Unigard Sec. Ins. Co. v. Murphy Oil USA, Inc., 331 Ark. 211, 221, 962 S.W.2d 735, 740 (1998); Noland v. Farmers Ins. Co., 319 Ark. 449, 452, 892 S.W.2d 271, 272 (1995).
Where ambiguity does depend on disputed extrinsic evidence, this instruction may be appropriate even pertaining to a contract of insurance. See Williams v. First Unum Life Ins. Co., 358 Ark. 224, 229–30, 188 S.W.3d 908, 911–12 (2004).
In Farm Bureau Mut. Ins. Co. of Ark., Inc. v. Sells, 2010 Ark. App. 728, at 3–4, the court stated:
Ordinarily, the question of whether the language of an insurance policy is ambiguous is one of law to be resolved by the court. McGrew v. Farm Bureau Mut. Ins. Co. of Arkansas, Inc., 371 Ark. 567, 268 S.W.3d 890 (2007). Where, however, parol evidence has been admitted to explain the meaning of the language, the determination becomes one of fact for a factfinder to determine. Id. Where there is a dispute as to the meaning of an insurance contract term or provision, the circuit court must act as a gatekeeper, determining first whether the dispute may be resolved by looking solely to the contract or whether the parties rely on disputed extrinsic evidence to support their proposed interpretation. Id. Thus, where the issue of ambiguity may be resolved by reviewing the language of the contract itself, it is the circuit court's duty to make such determination as a matter of law. Id. However, when the parties go beyond the contract and submit disputed extrinsic evidence to support their proffered definitions of the term, this is a question of fact for the factfinder. Id.
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