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Michigan Contract Disputes – Rebirth of the Latent Ambiguity Doctrine

Michigan Contract Disputes – Rebirth of the Latent Ambiguity Doctrine

This week, the Michigan Supreme Court released its opinion in Shay v Aldrich, (# 138908 released August 23, 2010) and held that sometimes, “all” does not mean “all.” The facts in Shay were straight-forward – a plaintiff settled with two parties in a litigation and entered into a release that released “all other persons.” Despite this language, there was highly persuasive and unequivocal evidence that the parties did not intend to release the other defendants. These other defendants then sought to use the release language as an amended affirmative defense but were denied by the trial court. Upon appeal, the Court of Appeals turned a deaf ear to the facts and held firm that the contractual language must be enforced and that “all” means “all” no matter what the intentions of the parties may be. The court of appeals holding was based on the 1999 Court of Appeals opinion by Justice Markman in Romska v Opper, 234 Mich App 512; 594 NW2d 853 (1999).

The Supreme Court reversed. After first finding that the other defendants could be third-party beneficiaries of the release, it held that normal rules of contract interpretation must be applied to the attempt to obtain the benefit from the release. Citing back to cases from as early as 1849, the Court found:

A latent ambiguity exists when the language in a contract appears to be clear and intelligible and suggests a single meaning, but other facts create the “‘necessity for interpretation or a choice among two or more possible meanings.’” To verify the existence of a latent ambiguity, a court must examine the extrinsic evidence presented and determine if in fact that evidence supports an argument that the contract language at issue, under the circumstances of its formation, is susceptible to more than one interpretation. Then, if a latent ambiguity is found to exist, a court must examine the extrinsic evidence again to ascertain the meaning of the contract language at issue.

Thus, when allowed to consider the clear and overwhelming evidence of intent, Supreme Court found that the trial court properly denied the other Defendants’ attempt to use the release for their benefit.

While not addressed, this case also raises interesting questions about the application of a merger clause. While the case appears not to change the rule from UAW-GM Human Resource Center v. KSL Recreation Corp., 228 Mich.App. 486, 579 N.W.2d 411 (1998) (ie- that a merger clause prevents consideration of evidence outside of a contract to establish a latent ambiguity), I think it does establish that a stranger to the contract is not barred from presenting extrinsic evidence to show ambiguity even if there is a merger clause.

Midland Michigan business, real estate, construction and  commercial lawyer W. Jay Brown provides experienced representation of businesses and individuals throughout Mid- Michigan

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