Unpublished Disposition, 865 F.2d 263 (9th Cir. 1985)

MEMORANDUM^** 

Boysen contends that the district court erred in granting Great Western Bank's (GWB) motion for summary judgment. The district court dismissed Boysen's complaint for conversion based on its interpretation of the settlement agreement as severable, and hence effective despite the failure of the Navajo Education and Scholarship Foundation (NESF), to sign the agreement as required by Section IX(B). The district court also found that Boysen had ratified the unauthorized signature on the check by its acceptance of the $10,000 payment called for in the settlement agreement.

Because federal jurisdiction is based on diversity of citizenship, this court applies Arizona's law of contracts. See Interform Co. v. Mitchell, 575 F.2d 1270, 1274 (9th Cir. 1978). We review the district court's grant of summary judgment de novo, viewing the evidence in the light most favorable to the nonmoving party to determine whether there are any genuine issues of material fact and whether the district court correctly applied the substantive law. EEOC v. County of Orange, 837 F.2d 420, 421 (9th Cir. 1988).

* The district court concluded that the contract was severable with two sections, one section releasing GWB from liability for conversion, and another amending the construction contract. The court found that Section V(A) (5) released GWB from liability for conversion, even though NESF failed to sign the contract, because the failure to sign invalidated only the portion of the agreement that amended the construction contract. Boysen argues that the contract was not severable, and that NESF's failure to execute it rendered the entire agreement null and void as provided by Section IX(B).

"Whether a contract is entire or severable is a question of intention to be determined by language the parties have used and the subject matter of their agreement." Stika v. Albion, 150 Ariz. 521, 724 P.2d 607, 609 (Ariz.Ct.App.1986). GWB claims that two different motives prompted the agreement: first, the motive to settle the dispute about the check, and second, the motive to amend the construction contract. Boysen argues that the single motive was to settle the conversion dispute, and that the amendment of the construction contract was in exchange for release of GWB from conversion liability.

An examination of the contract language and the subject matter supports Boysen's interpretation. First, the release clause relied on by GWB is in section V, entitled "Contingent Release of Parties" (emphasis added), and contains a "full performance" clause stating that Boysen would release GWB from liability " [s]ubject to complete and full performance of the terms of this agreement." " [T]he full performance clause cannot be disregarded in construing the contract," Goodman v. Newzona Inv. Co., 101 Ariz. 470, 421 P.2d 318, 321 (1966), and demonstrates that the parties intended that the contract be indivisible. GWB's release was specifically dependent on full performance of the agreement. See id. There was no full performance because NESF failed to sign the agreement. Section IX(B) states that NESF's failure to sign will void the contract. That section "cannot be considered as severable without rendering nugatory the meaning of another part of the agreement," id., that is, the full performance clause in Section V(A) (5).

Second, it is more likely that the intent of the contract was, as Boysen argues, to require GWB to pay it $10,000 and assume obligations under the construction contract in return for a release from liability for conversion. The $10,000 paid to Boysen was not GWB's money, but was money that was frozen in AIBA's account after Boysen notified GWB of the allegedly forged check. It is unlikely that Boysen would have released GWB from liability based solely on a payment of money that Boysen already had the right to obtain. Section IV(A) of the settlement agreement required GWB to undertake a substantial obligation under the construction contract by assuming responsibility for disbursement of the funds. It seems unlikely that GWB would assume those responsibilities simply to "know whom to pay in the future." Most of the first draw ($104,465), was dissipated before Boysen discovered the alleged forgery. GWB, if found liable for the conversion, would be liable for all resulting damages. It is extremely unlikely that Boysen would have released GWB solely for the payment of $10,000 of joint venture funds.

Finally, the text of the contract itself shows no sign of an intent to sever the settlement of the check conversion from the amendment of the construction contract. There is no severability clause. GWB refers to the "first section" as the provisions releasing it from liability for check conversion, and the "second section" as the provisions relating to the assumption of duties under the construction contract. In the agreement, the provisions relating to those two "sections" are intermingled. Our reading of the contract leads to the conclusion that the intent was to form an inseparable agreement: a settlement of the conversion dispute through the withdrawal of Boysen from the construction project, the payment of certain sums by GWB, and the assumption by GWB of Boysen's disbursement duties subject to the approval of NESF.

"Where the intent of the parties is expressed in clear and unambiguous language, there is no need or room for construction or interpretation and a court may not resort thereto." Goodman, 421 P.2d at 320 (citing Neale v. Hinchcliffe, 21 Ariz. 452, 189 P. 1116 (1920)). Because the parties' intention is clear from the language of the contract and the subject matter, we conclude as a matter of law that the contract is not severable.

II

The district court also found that Boysen had ratified the unauthorized signature by accepting the $10,000 payment called for in the settlement agreement. The district court based its ratification decision on its view that the settlement agreement was effective. Because we find the settlement agreement was null and void because of NESF's failure to execute it, we reverse the district court's decision on ratification to the extent it was based on the effectiveness of the November 1985 agreement.

Moreover, the agreement was to take effect on November 20, 1985. If NESF did not sign the agreement by December 3, 1985, however, the agreement was to become null and void, but any actions taken between November 20 and December 3, 1985, would remain valid. The $10,000 was paid between these dates. Boysen's acceptance of that sum does not prevent the portion of the agreement contingently releasing GWB from becoming null and void when NESF failed to sign.

III

GWB cross-appeals the district court's denial of its motion for attorney's fees claimed under section 12-341.01 of the Arizona Revised Statutes. Ariz.Rev.Stat.Ann. Sec. 12-341.01 (1982). Because we reverse the judgment in its favor, GWB is not entitled to attorney's fees as the successful party. Consequently, we need not reach the question whether the district court abused its discretion under the Arizona statute by refusing GWB's motion for attorney's fees.

CONCLUSION

The parties extensively briefed many other issues which are best addressed by the district court on remand. We reverse the district court order granting summary judgment to GWB, and hold as a matter of law the contract was not severable. We remand this case for further proceedings not inconsistent with this decision.

REVERSED AND REMANDED.