Colonial Leasing Co. of New England, Inc. v. Larsen Bros. Constr. Co
In Colonial Leasing Co. of New England, Inc. v. Larsen Bros. Constr. Co., 731 P.2d 483, 487 (Utah 1986), the plaintiff transferred possession of a piece of construction equipment to the defendant pursuant to a document called a "lease." Id. at 484.
The defendant defaulted on the payments required under the agreement, and the plaintiff sued for damages.
The defendant argued that the terms of the agreement indicated that the contract was meant not as a true lease, but instead as a security agreement for the sale of the construction equipment. Id. at 487. The plaintiff argued that the agreement was plainly a lease on its face and according to its terms.
Faced with this situation, the Court held:
"In some cases, such a judgment as to whether the parties intended an agreement to constitute a lease or security agreement may be apparent from the face of the document, but in other cases, the basic nature of the agreement, judging solely from its contents, may be ambiguous. It is the general rule that if an agreement is ambiguous because of a lack of clarity in the meaning of particular terms, it is subject to parol evidence as to what the parties intended with respect to those terms. We hold that that rule also applies where the character of the written agreement itself is ambiguous even though its specific terms are not ambiguous." Id.
The court reversed the trial court's grant of summary judgment and remanded so that parol evidence as to the parties' intentions regarding the nature and character of the transaction could be presented. Id. at 487-88.
Colonial Leasing, involved the issue of the interpretation of an agreement and whether the agreement, depending on its proper characterization, was a security agreement governed by Article 9 of the UCC. The holding in Colonial Leasing is consistent with the general rules for interpreting security agreements in that, by allowing extrinsic evidence to determine the parties' intent as to whether the agreement was a security agreement, we ensured on remand that the trial court would properly focus the inquiry on the intent of the parties, on the substance, not on the mere form, of the transaction, and on the entire surrounding context of the transaction.See id. at 487.