Lewis v. Murphy

No. 81-568
IN THE SUPREME COURT OF THE STATE OF MONTANA
1982
J. R. LEWIS,
Plaintiff and Appellant,
G. K. MURPHY, MARGARET K. MURPHY and
LITTLE HORN STATE BANK,
Defendants and Respondents.
Appeal from: District Court of the Fourteenth Judicial District,
In and for the County of Musselshell, The Honorable
Nat Allen, Judge presiding.
Counsel of Record:
For Appellant;
Thomas J. Lynaugh; Lynaugh, Fitzgerald and
Skaggs, Billings, Montana
For Respondents;
Crowley, Haughey, Hanson, Toole & Dietrich;
George Dalthorp, Billings, Montana
Douglas Y. Freeman, Hardin, Montana
Submitted on Briefs: April 29, 1982
Filed: AUG 11 1982
Mr. Justice Frank B. Morrison, Jr., delivered the Opinion
of the Court.
This is an appeal from a declaratory judgment entered
by the Fourteenth Judicial District Court interpreting a
land exchange agreement between the parties.
Respondents are the owners of a ranch located in Mussel-
shell County, Montana. In the spring of 1979, appellant
began negotiating with respondents for the purchase of their
ranch. Three agreements were subsequently executed by the
parties.
Signed on May 25, 1979, an "Offer and Agreement to
Purchase" established the total price for the ranch at
$600,000.00, of which $15,000.00 was payable as earnest
money, $135,000.00 was due on closing, $24,000.00 was due by
January 1, 1980, and the $426,000.00 balance was to be
amortized over a 25 year period, the first payment thereof
due one year from closing.
The second agreement, executed by the parties on June
1, 1979, altered the nature of the parties' transaction from
a sales agreement to a tax-free land exchange. By terms of
this preliminary agreement, an exchange agreement was to be
drafted giving appellant approximately three and one-half
years to acquire like-kind property that could be exchanged
for respondent's ranch. Appellant was to purchase the
property to be exchanged with monies he deposited in an
escrow account. The preliminary agreement changed the
payment arrangements in the following manner: (1) the
balance of $426,000.00 that would remain as of January 15,
1980, would be subject to a two-stage balloon payment, one-
half of which was due on or before September 15, 1982, the
remainder of which was due by January 15, 1983; and (2) all
unpaid balances would be subject to an interest rate, commencing
at 10.625 percent per annum, that would he adjusted annually
to reflect the then-current interest rate on Aetna Insurance
Company agricultural loans.
The actual exchange agreement was executed June 22,
1979. The following paragraph sets out appellant's particular
payment obligations.
"2. LEWIS DEPOSITS:
"Lewis agrees to deposit with the escrow agent,
the amount of Ten Thousand and No/100 ($10,000.00)
Dollars on the date of this agreement, One Hundred
Forty Thousand and No/100 ($140,000.00) Dollars
on or before June 29, 1979, the amount of Fourteen
Thousand and No/100 ($14,000.00) Dollars on January
15, 1980 and the balance of Four Hundred Twenty
Six Thousand and No/100 ($426,000.00) Dollars
computed on a 25 year amortization, with a two stage
balloon deposit of one-half of the then remaining
principal balance deposited on or before September
15, 1982, and the full remainder deposited on
January 15, 1983. Lewis shall have the right
to predeposit any amounts without penalty. In
addition to all amounts to be deposited by Lewis
to the escrow agent, Lewis shall make additional
payments of amounts as hereinafter computed deem-
ed to be payment for and a compatible factor for
rent of said premises until the various deeds are
released to Lewis as hereinafter provided. The
rent factor is 10.625 per annum on all undeposit-
ed balances. On each annual anniversary date
from the date of this Agreement, a new rent fac-
tor shall be determined and be in effect for the
year following. The rent factor shall be equal
to the then current Aetna Insurance Co. interest
rate on agricultural loans, but in no event shall
said rent exceed 12% or be less than 7%. All
monies deposited may be to an interest bearing
account and such interest may be used for payment
of acquisition expenses of the like kind property.
All monies paid to the escrow agent shall be used
to acquire like kind of property as called for
in this exchange agreement, and in event of a
default by Lewis, any equity in the like kind
of property so acquired by Lewis and any remain-
ing monies then deposited with the escrow agent
will be forfeited and shall be assigned and paid
in full to Murphy. The escrow agent shall be
authorized to release to Lewis from time to time
all or part of the monies escrowed, or any part
thereof, to be applied upon the purchase price
of like kind property."
The parties now disagree as to what this paragraph
requires in terms of the nature and timing of appellant's
payments.
Respondents interpret this provision to require two
types of payment from appellant. The first, loosely referred
to as "deposits" in the agreement, is the equivalent of
principal payments on the purchase price of the ranch.
According to respondent's understanding, annual deposits are
required in addition to the deposits specifically scheduled
under the second section of the exchange agreement, and only
deposits are to be accumulated in the escrow account toward
the purchase of like-kind property. The second kind of
payment expected by respondents is a rental payment for
appellant's immediate possession of respondent's ranch.
Computed by applying the appropriate rent factor to the
current undeposited balance of the purchase price, rental
payments are made semi-annually and directly disbursed to
respondents.
Appellant's interpretation is contrary to respondent's
in two major respects. First, appellant reads the agreement
to require payment on the principal only in the amounts and
at the times specifically set forth in the agreement; he
does not believe that a requirement of annual payments on
the principal was to be implied from language regarding a 25
year amortization. Appellant also understands the agreement
to provide that all of his payments, whether deposits or
rentals, are to be deposited with escrow agent and used
solely for the acquisition of like-kind property. ~dditionally,
appellant believes that rental payments are due at the same
time as the two balloon payments.
Respondents communicated their understanding of the
exchange agreement to appellant in a series of letters
during the summer of 1981. The last of these letters, dated
July 31, 1981, fully detailed respondent's interpretation of
the agreement and appellant's current defaults under the
agreement and gave appellant notice of their intent to
default him if he did not presently cure the described
defaults.
Meanwhile, acting on his understanding of the exchange
agreement, appellant revoked the power of attorney he had
given the Hardin lawyer who drafted the preliminary and
exchange agreements. The Hardin lawyer had previously
authorized the escrow agent to release rental payments to
respondents. Appellant believed such action violated the
terms of the agreement. The July, 1981 rental payment, per
appellant's direction, was not released to respondents.
Appellant then initiated a declaratory judgment action
seeking interpretation of the contract. Respondents answered
and filed a counterclaim requesting damages for retention of
rental payments. The court restrained respondents from
declaring appellant in default under the agreement pending
its declaration of the parties' rights. Appellant specifically
asked the District Court to determine: (1) whether the
agreement required annual amortized payments to the escrow
account; (2) when the rental payments were due; and (3) whether
the escrow agent may distribute rental payments to respondents.
After a hearing on the merits, the District Court essentially
adopted respondents' interpretation of the contract.
The District Court declared that under the agreement
annual amortization payments were required on the anniversary
of the agreement. Finding that no such payments had been
made in 1980 and 1981 the court ordered appellant to deposit
$8,301.93 with the escrow agent in order to cure his default.
The court further determined that the contract required bi-
annual rental payments on or before January 15th and June
22nd of each year and prompt disbursement of such payments
to respondents. Finding that the sum paid toward rent in
July, 1981, was improperly withheld from respondents, the
escrow agent was ordered to immediately disburse such monies
to respondents and appellant was compelled to pay as damages
interest that had accrued on such monies from the date of
deposit until the date paid.
Appellant appeals from the entirety of the District
Court's declaratory judgment. Appellant contends that the
court's interpretation is unreasonable, in derogation of the
parties' intentions, and the product of misapplied rules of
contract construction.
We find no error in the District Court's interpretation
of the exchange agreement and affirm.
Appellant argues that because the land exchange agreement
was adopted to provide respondents with favorable tax consequences
upon the disposition of their ranch, any ambiguity in the
contract should be construed against respondents. Appellant's
argument is not well taken. This is not a case where one
party authored the agreement at issue. Cf. Shanahan v.
Universal Tavern Corp. (1978), Mont . 585 P.2d
1314. Here, the parties made a tentative decision to accomplish
the land transfer by means of an exchange and then contacted
the Hardin attorney to do their bidding. The attorney did
not represent one party's interests to the exclusion of the
other's. The attorney simply drafted an agreement to reflect
the parties' concerted intentions. Section 28-3-206, MCA,
does not apply if the ambiguities created are the joint
product of both parties. Rumph v. Dale-Edwards, Inc. (1979),
Mont. , 600 P.2d 163, 36 St.Rep. 1022.
Appellant next submits that it is unreasonable to
require annual amortization payments when the amortization
language in the contract is inconsistent with the general
nature of the agreement. While it is true that particular
clauses of a contract must be subordinated to its general
intent, section 28-3-307, MCA, a court must also give effect
to every part of a contract if reasonably practicable.
Section 28-3-202, MCA. The District Court's order gives
regard to the common and ordinary meaning of the phrase "a
25 year amortization" without in any way impairing the
purpose of the exchange agreement. Appellant's argument
here is not persuasive.
Appellant also argues that the specification of bi-
annual rental payment dates was unreasonable. The argument
is without merit. The lower court made specific findings
that rental payments had been made on January 14, 1980, June
13, 1980, February 6, 1981, and July 8, 1981; that principal
payments were expressly required under the agreement on
January 15, 1980 and January 15, 1983; and that the anniversary
date of the agreement was June 22nd of each year. Appellant's
own testimony was that, upon advice of his attorney, he had
been making bi-annual payments within weeks of these dates
and that he always understood that rental payments were due
concurrent with principal payments. If the uncertainty
regarding rental payment dates was to be removed, it was
eminently reasonable for the court to specify particular
dates upon which appellant must perform. The specified
dates appear to be consonant with the parties' understanding
of the agreement as evidenced by their past performance.
Finally, the District Court's disparate treatment of
principal and rental payments is reflective of the parties'
mutual intentions under the agreement.
Appellant agreed to deposit the sum of $600,000.00 with
escrow agent over a period of three and one-half years. -
"In
addition - - amounts - - deposited by [appellant] -
to all to be to
the escrow agent" appellant agreed to make payments "for
rent of said premises."
Relying heavily upon the fact that the preliminary
agreement never mentions the word "rent" but instead refers
only to "interest" appellant attempts to convince this Court
that rental payments are actually interest and that the
exchange agreement specifically provides that interest may
be used for the acquisition of like-kind properties, thus
foreclosing disbursement of rental payments to respondents.
While it is true that the District Court could properly look
to the original sales agreement and the preliminary agreement
in hopes of clarifying the parties' intention under the
exchange agreement, we are not persuaded by appellant's
contention that, in not accepting his analysis, the District
Court necessarily erred. In addition to noting that within
the four corners of the exchange agreement the parties did
not clearly require that rental payments be made to the
escrow agent, the trial judge cited three factors which
supported his findings that rental payments could be released
to respondents under terms of the agreement. The District
Court's rationale is sound and supported by substantial
credible evidence.
The court's judgment allowed respondents' damages based
upon the difference in the 5.5% interest which they would
have received on the rent payment held at the escrow bank and
the 18.5% interest that they had to pay on money borrowed to
cover finances in the interval. The damages awarded thereby
are approximately $900 and are supported by the evidence.
W e affirm.
W e Concur:
Chief J u s t i c e