JAMES APPLEYARD & Another v. DANA R. ROGERS & Another. ( 2023 )

NOTICE: Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule
23.0, as appearing in 97 Mass. App. Ct. 1017 (2020) (formerly known as rule 1:28,
as amended by 73 Mass. App. Ct. 1001 [2009]), are primarily directed to the parties
and, therefore, may not fully address the facts of the case or the panel's
decisional rationale. Moreover, such decisions are not circulated to the entire
court and, therefore, represent only the views of the panel that decided the case.
A summary decision pursuant to rule 23.0 or rule 1:28 issued after February 25,
2008, may be cited for its persuasive value but, because of the limitations noted
above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260
n.4 (2008).
COMMONWEALTH OF MASSACHUSETTS
APPEALS COURT
22-P-566
JAMES APPLEYARD & another1
vs.
DANA R. ROGERS & another.2
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
Defendants Dana R. Rogers and Pre Owned Auto Sales, Inc.
(Rogers), operated a used car dealership funded through credit
extended by the plaintiffs, James and Maureen Appleyard
(Appleyards). The Appleyards filed a complaint in the Superior
Court and obtained a default against Rogers for money owed under
a promissory note. A damages assessment hearing followed, and
Rogers appeared in opposition to the amount claimed. During the
hearing, the judge examined the promissory note as well as the
parties' course of performance under the credit arrangement. A
default judgment, as amended, entered in favor of the Appleyards
1 Maureen Appleyard.
2 Pre Owned Auto Sales, Inc. The first amended complaint also
named John R. Adams as a defendant, but the claims against him
were resolved through summary judgment in the trial court and he
is not part of this appeal.
for $93,214. Rogers challenges the damages amount on appeal.
We vacate the amended default judgment and remand for
recalculation of damages.
Background. On July 12, 2013, Rogers signed a promissory
note promising to pay the Appleyards $200,000, "or so much
thereof as may be advanced, with interest payable in arrears on
the unpaid principal balance" at an annual interest rate of
twelve percent. Unspecified payments of "interest only" would
commence immediately with the principal sum of $200,000 due in
three months. In the event of a default under the promissory
note, the Appleyards would be entitled to an interest rate of
twenty-four percent as well as reasonable attorney's fees and
costs.
The maturity date for the promissory note passed
uneventfully, but the parties continued their credit
relationship over the next five years. Through that
arrangement, the Appleyards deposited $200,000 into a TD Bank
account, in their names, with the intended purpose that the
funds would be available for use by Rogers to purchase
automobiles for resale. The Appleyards authorized disbursements
from the account to enable Rogers to purchase vehicles.
Following each purchase, the Appleyards held the title while the
vehicle remained in Rogers's inventory. On the sale of a
vehicle from the inventory, Rogers notified the Appleyards,
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obtained the title, and replenished the TD Bank account with the
principal amount originally allocated to fund the purchase. In
addition to paying off the principal through the sale of each
vehicle, Rogers paid monthly interest on the total amount that
the Appleyards deposited into the TD Bank account. Under this
arrangement, the Appleyards gradually increased the funds
deposited from $200,000 to amounts that eventually reached
$356,580. Through an e-mail dated August 1, 2018, the
Appleyards notified Rogers of their intent to end the credit
relationship and thereby terminate access to the TD Bank account
by December 31, 2018.
After his access to the TD Bank account ended on December
31, Rogers continued making payments to the Appleyards as
vehicles were sold from the accumulated inventory. Between
January 2019 and September 2020, Rogers paid off the outstanding
principal balance "to within a few hundred dollars." Despite
the payments in 2019 and 2020 and the ultimate repayment of
nearly the entire principal, the Appleyards sent a notice of
"default" to Rogers on April 23, 2019. The Appleyards claimed
that for the months of February, March, and April 2019, Rogers
failed to make separate monthly interest payments as had been
done for the previous five years in connection with the TD Bank
account. These alleged missed payments amounted to $21,374.55
after the Appleyards invoked a twenty-four percent default rate
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of interest and used the maximum amount that had previously been
available in the TD Bank account ($356,580) as the initial basis
for the interest calculation.
On October 22, 2020, the Appleyards filed a complaint in
the Superior Court. They alleged that Rogers signed a
promissory note promising to pay the Appleyards $200,000, and
Rogers failed to make payments as required. Rogers did not file
an answer, and the Superior Court entered a default under Mass.
R. Civ. P. 55 (a), 365 Mass. 822 (1974). Rogers unsuccessfully
sought to vacate the default, and the Superior Court scheduled a
damages assessment hearing. At that hearing, the judge reviewed
the language of the promissory note, spreadsheets on payments,
e-mail correspondence, affidavits, and testimony. Rogers
claimed that he owed at most $3,843.28, asserted the Appleyards
were "using the wrong number to apply the interest," and denied
the loan was ever in default. The judge accepted the
Appleyards' calculations and awarded damages of $93,214 (amount
including interest, costs, and attorney's fees). On appeal,
Rogers disputes the assessed damages and claims the judge erred
in calculating interest, permitting a usurious rate of interest,
and increasing the award of attorney's fees.
Discussion. "The measure of damages is a question of law
reviewed de novo on appeal." Twin Fires Inv., LLC v. Morgan
Stanley Dean Witter & Co., 445 Mass. 411, 424 (2005). "The
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usual rule for damages in a breach of contract case is that the
injured party should be put in the position [she] would have
been in had the contract been performed." Situation Mgt. Sys.,
Inc. v. Malouf, Inc., 430 Mass. 875, 880 (2000). It is
incumbent on the plaintiff "to establish the amount of its
damages." National Grange Mut. Ins. Co. v. Walsh, 27 Mass. App.
Ct. 155, 158 (1989). "[W]hen a judge awards damages after entry
of default, the judge has an obligation fairly to determine that
the amount of damages has a reasonable basis in fact." Jones v.
Boykan, 464 Mass. 285, 294 (2013).
In the present case, the judge determined that the language
of the promissory note was ambiguous as to the method of
calculating interest and thus looked to parol evidence to
ascertain the parties' intent. The parol evidence rule "bars
the introduction of prior or contemporaneous written or oral
agreements that contradict, vary, or broaden an integrated
writing." Kobayashi v. Orion Ventures, Inc., 42 Mass. App. Ct.
492, 496 (1997). Before the parol evidence rule comes into
operation, "the court must be sure that it has before it a
written contract intended by the parties as a statement of their
complete agreement." New England Factors, Inc. v. Genstil, 322
Mass. 36, 40 (1947), quoting Kesslen Shoe Co. v. Philadelphia
Fire & Marine Ins. Co., 295 Mass. 123, 129 (1936). For the
purpose of this preliminary determination, "the parties may
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present proof beyond the writing itself." Ryder v. Williams, 29
Mass. App. Ct. 146, 149 (1990). Also, the parol evidence rule
does not apply to a "subsequent agreement implied by the conduct
of the parties." Genstil, supra.We agree with the judge that the promissory note, with an
overdue maturity date and silence as to payment terms, clearly
did not represent the entire agreement of the parties. The
promissory note was the origin, but not the totality, of the
parties' contract rights and obligations. While "[p]romissory
notes are contracts and are analyzed as such," JPMorgan Chase &
Co. v. Casarano, 81 Mass. App. Ct. 353, 356 (2012), when "an
agreement involves repeated occasions for performance by either
party with knowledge of the nature of the performance and
opportunity for objection to it by the other, any course of
performance accepted or acquiesced in without objection is given
great weight in the interpretation of the agreement."
Restatement (Second) of Contracts § 202(4) (1981). Because the
parties clearly intended a credit relationship that would last
well beyond the October 2013 maturity date of the promissory
note, the judge concluded "that there was a common and mutual
understanding between the parties that interest was to be paid
on the total amount of the funds that were available to [Rogers]
in the [TD Bank] loan account." That conclusion is supported by
the evidence up until December 31, 2018, when the mutual
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understanding came to an end through the Appleyards' unilateral
decision to terminate.
The judge erred, however, by failing to consider the legal
significance of the Appleyards' termination of the credit
agreement on that date. By sending an e-mail to Rogers "seeking
to conclude the practice of lending on automobile titles"
effective on December 31, the Appleyards terminated an open-
ended credit agreement that had been functioning for five years.
Where, as here, an agreement lacks any specified duration,
"[t]he agreement between the parties must be construed as one
that was terminable at will by either party upon reasonable
notice." Phoenix Spring Beverage Co. v. Harvard Brewing Co.,
312 Mass. 501, 506 (1942). This termination by the Appleyards
had legal consequences that should have been considered by the
judge as part of his "obligation fairly to determine that the
amount of damages has a reasonable basis in fact." Jones, 464
Mass. at 294.
As of the termination date of December 31, 2018, the
previous course of performance that shaped the contours of the
credit arrangement for more than five years no longer controlled
the obligations of the parties. From that date forward, Rogers
no longer had access to the TD Bank account funds and should
only have been paying interest on the unpaid principal balance
that remained. "The reason for this approach is manifest.
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Interest is compensation for the deprivation of the use of
principal. . . . Once the use of part of the principal is
returned to the lender, there is no longer any deprivation which
calls for recompense." Plasko v. Orser, 373 Mass. 40, 43
(1977). "[I]t would be unjust to permit the lender to receive
further interest on the amount that has been paid" by Rogers.
Id. On remand, monthly interest must be calculated at the
agreed on annual rate of twelve percent based on the unpaid
principal balance as of December 31, 2018, as reduced by
payments made from that date forward.
We agree with Rogers that the evidence before the judge did
not support the twenty-four percent default rate of interest.
As the promissory note in the instant case provides, the rate of
twenty-four percent is only available when there is a "default
in payment" or performance. "The ordinary meaning of the word
'default,' when used with respect to an obligation created by
contract, is failure of performance. When used with reference
to an indebtedness it means simply nonpayment." Massachusetts
Mun. Wholesale Elec. Co. v. Danvers, 411 Mass. 39, 58 (1991),
quoting Bradbury v. Thomas, 135 Cal. App. 435, 443 (Cal. Dist.
Ct. App. 1933). The undisputed record here shows that Rogers
made payments to the Appleyards through September of 2020 and
paid off the outstanding principal balance "to within a few
hundred dollars." In the absence of evidence that Rogers
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defaulted, the judge must apply the twelve percent interest rate
that "is consistent with the reasonable expectation of the
parties." Downer & Co., LLC v. STI Holding, Inc., 76 Mass. App.
Ct. 786, 797 (2010).
The Appleyards advanced a curious theory of "default" that
is unsupported by any evidence. At the hearing on damages,
Maureen Appleyard testified, "[T]he loan is in default for two
reasons; one, because we haven't received the interest, and two,
because we requested that it be paid off by December 31st of
2018, and it wasn't." Contrary to this assertion, the
Appleyards received substantial payments after December 31,
2018, that could have been applied to interest, but the
Appleyards chose to apply the payments to principal. For
example, during the first several months of 2019, the Appleyards
received substantial payments from Rogers, unilaterally
apportioned payments to principal, and concluded that interest
had not been paid. In the meantime, the alleged "unpaid"
interest (on the inaccessible TD Bank account) ballooned from
month to month, supposedly triggered the default rate of twenty-
four percent interest, and ultimately formed the basis for the
current litigation.
The Appleyards' method of allocating payments after
December 31, 2018, is inconsistent with Massachusetts law and
cannot justify a default rate of interest. "It has long been
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the rule in this Commonwealth that, absent any express agreement
to the contrary, partial payments on an interest bearing debt
are applied first to the interest due, with any excess payment
to be applied to reduce the principal debt." Plasko, 373 Mass.
at 42. There is no evidence that by December 31, 2018, the
parties had an express agreement to the contrary. Had the
Appleyards followed the long-standing rule in Plasko and
allocated payments "first to the interest due," interest would
have been paid, and there would not have been any basis for a
default rate of interest. Id. at 43.
Also, the record does not support Maureen Appleyard's
contention that there was a demand for immediate payment of the
entire outstanding principal. One would think that if such a
demand had been made it would have been in the e-mail
terminating the credit arrangement, but there is no such demand
in that e-mail or any that followed. Nor is there any evidence
that Rogers agreed to pay the outstanding principal balance by
December 31, 2018; without such an agreement, lack of full
payment on the outstanding principal does not constitute a
default. Thus, a close examination of the record shows that the
alleged "default" under the promissory note (as of April of
2019) was contrived by the Appleyards' allocation of payments to
principal and not by a failure of Rogers to pay during this
period.
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To the extent that Rogers is seeking to be credited for
interest payments he made prior to December 31, 2018, we reject
that claim. He argues that the plain language of the promissory
note shows that interest should always have been limited to the
amount drawn from the TD Bank account. While there is merit to
Rogers's current view of the language in the promissory note, we
are not at liberty to ignore the parties' course of performance
over five years. The undisputed evidence before the judge
showed that up until December 31, 2018, Rogers paid interest
every month for five years on the maximum amount on deposit in
the TD Bank account –- whether or not the Appleyards disbursed
those funds to Rogers. The wisdom or rationale for that
business arrangement is beyond the scope of our review because
"it is not the function of the judiciary to change the
obligations of a contract which the parties have seen fit to
make." 11 R.A. Lord, Williston on Contracts § 31:5 (4th ed.
2012). "It is not the role of the court to alter the parties'
agreement." Rogaris v. Albert, 431 Mass. 833, 835 (2000).
On appeal, the Appleyards protest that it is "frivolous"
for Rogers to dispute the default in payment and the interest
charges because Rogers's liability was already established by
the default under Mass. R. Civ. P. 55 (a). The Appleyards argue
that this appeal is nothing more than an "end run" around the
judge's denial of the motion to vacate the procedural default.
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We disagree. When damages are awarded following a procedural
default, "the judge has an obligation fairly to determine that
the amount of damages has a reasonable basis in fact." Jones,
464 Mass. at 294. Rogers's failure to answer the claim and the
entry of the default under Mass. R. Civ. P. 55 (a), did not
relieve the judge of this obligation, which is designed "to
protect the integrity of the litigation process and to advance
the goal of fair treatment to all parties." Jones, supra.Rogers's claim is neither "frivolous" nor an "end run" and
merits a remand for a fair determination of damages.
Other arguments. Rogers also claims that the judge erred
by amending the judgment on a motion of the Appleyards and by
declining to address a usury argument raised by Rogers. We
disagree. As the docket entries indicate, the judge allowed the
Appleyards' motion "for the reasons stated on the record."
Rogers's claim fails because he has not provided the record
referenced by the judge. See Mass. R. A. P. 18 (a), as
appearing in 481 Mass. 1637 (2019) (appellant has obligation to
provide record appendix containing parts of record relevant to
issues on appeal). As to the usury argument, we need not reach
the merits of that claim because the twelve percent rate of
interest shall apply on remand. Also, we find no error in the
judge's conclusion that Rogers waived his belated usury claim
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because the "Appleyards were deprived of a fair opportunity to
adduce evidence at the hearing on this point."
Conclusion. The entry of default is affirmed, the May 17,
2022 amended default judgment is vacated, and the matter is
remanded to the Superior Court for recalculation of damages
consistent with this memorandum and order.3
So ordered.
By the Court (Sullivan,
Shin & Hodgens, JJ.4),
Clerk
Entered: May 16, 2023.
3 The Appleyards' request for appellate attorney's fees is
denied.
4 The panelists are listed in order of seniority.
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