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Eagle Industries11/25/1997
not be used to interpret the intent of the parties, to vary the terms of the contract or to create an ambiguity. But when there is uncertainty in the meaning and application of contract language, the reviewing court must consider the evidence offered in order to arrive at a proper interpretation of contractual terms. This task may be accomplished by the summary judgment procedure in certain cases where the moving party's record is not prima facie rebutted so as to create issues of material fact. If there are issues of material fact, the trial court must resolve those issues as the trier of fact.
In construing an ambiguous contractual provision, a court may consider evidence of prior agreements and communications of the parties as well as trade usage or course of dealing. In the instant case, Eagle presented the affidavit of Bruce Strohm to the effect that the parties had contracted for an occurrence date trigger to the indemnification provision in a manner consistent with its position. This affidavit, along with its attached exhibits containing correspondence between the parties, drafts of the Agreement and drafting session notes, provide insight into the type of risk allocation that the parties intended the Agreement to reflect. The Strohm affidavit relates to the circumstances that existed at the time the parties drafted the agreement and sets forth evidence that may show that the indemnification clause was designed to conform to Eagle's existing coverage as well as to the future coverage that Buyer expected to obtain. Understandably, Eagle's willingness to indemnify Buyer was constrained by its own insurance liability coverage.
Because of the view of the Court of Chancery that the language in question was unambiguous, this evidence was not properly analyzed and the proceeding was truncated, we believe erroneously. On remand, the Court of Chancery should consider any admissible extrinsic evidence that may shed light on the expectations of the parties at the time they entered into the Agreement.
Conclusion
In a perfect world, integrated contracts would always reflect plainly and accurately the compromises and allocation of risk that the parties intend. The reality is that the contractual language defining rights and obligations of the parties is sometimes ambiguous. It is a court's duty to preserve to the extent feasible the expectations that form the basis of a contractual relationship.
When, as in the instant case, the meaning and application of contract terms are uncertain, a court fulfills this duty by considering extrinsic evidence.
Accordingly, we reverse the decision of the Court of Chancery and remand for proceedings consistent with this opinion.
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