Opinion
No. 42800.
Filed October 3, 1980.
1. Contracts: Interest Rates. A written instrument which provides for payment of interest on an unpaid balance, but without specifying the rate, carries interest at the legal rate prescribed by law. 2. Parol Evidence Rule. A written instrument is open to explanation by parol evidence when its terms are susceptible to two constructions, or where the language employed is vague or ambiguous. 3. ___. A provision of the contract is ambiguous when, considered with other pertinent provisions as a whole, it is capable of being understood in more senses than one. 4. Equity: Appeal and Error. Actions in equity, on appeal to this court, are triable de novo subject, however, to the condition that when the evidence on material questions of fact is in irreconcilable conflict, this court will, in determining the weight of the evidence, consider the fact that the trial court observed the witnesses and their manner of testifying and must have accepted one version of the facts rather than the opposite. 5. Contracts: Intent of Parties. The interpretation given a contract by the parties themselves, while engaged in their performance of it, is one of the best indications of their true intent.
Appeal from the District Court for Merrick County: JOHN C. WHITEHEAD, Judge. Reversed and remanded with directions.
R. Steven Geshell of Robak and Geshell for appellant.
Steven M. Curry of Sampson, Curry Hummel for appellees.
Heard before BOSLAUGH, BRODKEY, and HASTINGS, JJ., and BUCKLEY and WINDRUM, District Judges.
This action arises from a 1966 contract for the sale of certain real estate in Merrick County, Nebraska, by Irene Lovelace and her husband, Clifford Lovelace, to Irene's nephew, Raymond T. Stern. The written contract provided for a total purchase price of $48,000 payable by annual payments of $4,000 until paid.
Stern made 12 annual $4,000 payments and contended that he had paid the purchase price in full. He refused to make further payments. The Lovelaces contended that interest accrued on the unpaid balance of the purchase price and that, therefore, the purchase price was not fully paid, and proceeded to bring this action to regain possession and title to the property or, in the alternative, for a judgment for the unpaid balance of the purchase price. Defendant Stern counter-claimed for title to be quieted in his name.
The sole question presented is whether the written contract required interest to be paid on the unpaid balance of the purchase price. The trial court found for the plaintiffs, entered judgment for the amount of the unpaid purchase price, namely, $27,833.71, and dismissed defendant's counterclaim.
The agreement in question was executed on January 4, 1966. However, the same parties only months before, namely on September 14, 1965, had executed an agreement for the sale of the same property, utilizing a preprinted form entitled "Agreement for Warranty Deed." This agreement did not specify a total purchase price but provided that "The second parties [Stern] shall pay to the first parties [Lovelace], the sum of $4,000.00 per year during the life of Irene Johnson Lovelace. Second parties will pay the sum of $2,000.00 January 1, 1966 and $2,000.00 July 1, 1966 and $4,000.00 on January 1, 1967 and each January 1st thereafter during the lifetime of the said Irene Johnson Lovelace."
The new agreement, the one in question, utilized the same preprinted form as the earlier one. After the usual recitation as to the parties and a typed-in description of the premises being sold, the agreement then recited (typing indicated by italics): "And the said party of the second part covenants and agrees to pay to said party of the first part, the sum of Forty Eight Thousand Dollars ($48,000.00) DOLLARS in the manner following: Two Thousand Dollars (2,000.00 Dollars, cash in hand paid, the receipt whereof is hereby acknowledged, and the balance $2,000.00 July 1, 1966, $4,000.00, January 1, 1967 and each January 1st thereafter until paid." Then, continuing in the large blank space provided for payment provisions, there is typed: "First parties agree to pay the first half of the 1965 real estate taxes and second party shall pay the second half and all future real estate taxes."
Following this provision, and considerably below it, the preprinted form resumed as follows: "with interest at the rate of _______________ percent per annum, payable _______________ annually on the whole sum remaining from time to time unpaid, and to pay all taxes, assessments or impositions that may be legally levied or imposed upon said land, subsequent to the year _______________."
The agreement provided that, when the purchase price was paid, the plaintiffs would convey the property by warranty deed to the defendant. However, for reasons unknown, such a warranty deed was executed, delivered, and recorded on January 4, 1966, simultaneously with the execution of the agreement to sell. The deed did not mention the agreement to sell and recited a consideration of $48,000, "in hand paid."
The interest clause in the contract did not provide for any specific rate of interest to be paid. It is true, as plaintiffs contend, that as a general rule, a written instrument which provides for payment of interest on an unpaid balance, but without specifying the rate, carries interest at the legal rate prescribed by law. See, Hornstein v. Cifuno, 86 Neb. 103, 125 N.W. 136 (1910); Praest v. Quesner, 113 Neb. 485, 203 N.W. 549 (1925); Bank v. Roberts, 168 N.C. 473, 84 S.E. 706 (1915). In each of these cases, it was clear from the terms of the instrument that interest was to be paid but the specific rate of interest was omitted. However, where the terms of the agreement do not clearly indicate that interest is to be paid, then parol evidence may be considered to first determine, as a finding of fact, whether the parties intended that interest be paid, before the general rule would apply.
A written instrument is open to explanation by parol evidence when its terms are susceptible to two constructions, or where the language employed is vague or ambiguous. Olds v. Jamison, 195 Neb. 388, 238 N.W.2d 459 (1976). A provision of a contract is ambiguous when, considered with other pertinent provisions as a whole it is capable of being understood in more senses than one. Frank McGill, Inc. v. Nucor Corp., 195 Neb. 448 238 N.W.2d 894 (1976).
Examining the agreement in question, we see that the preprinted form that was used obviously was designed to provide a blank space for the insertion of the payment provisions for the balance of the total purchase price, to be followed immediately thereafter with a designated rate of interest. The blank space was not designed to include the provisions for the payment of taxes inserted by the parties inasmuch as there is already a preprinted provision for the payment of taxes by the purchaser. The inserted tax provision is in conflict with the preprinted tax provision, and its position in the agreement, namely, between the payment provisions and the preprinted interest clause, makes it unclear whether the interest clause would pertain to the unpaid balance of the purchase price, or any unpaid taxes, or both. We, therefore, conclude that the provisions involved and their relative positions in the agreement are vague, and as such, are capable of being understood in more senses than one and are susceptible to more than one construction. The contract is ambiguous and parol evidence was properly admitted by the trial court and should be considered by this court.
This action was instituted as an equity action and prayed for equitable relief, as did also the counterclaim. "Actions in equity, on appeal to this court, are triable de novo in conformity with section 25-1925, R. S. 1943, subject, however, to the condition that when the evidence on material questions of fact is in irreconcilable conflict this court will, in determining the weight of the evidence, consider the fact that the trial court observed the witnesses and their manner of testifying and must have accepted one version of the facts rather than the opposite." Sopcich v. Tangeman, 153 Neb. 506, 510-11, 45 N.W.2d 478, 481-82 (1951). See, also, Tilden v. Beckmann, 203 Neb. 293, 278 N.W.2d 581 (1979). Giving such deference to the trial court, nonetheless, after considering all the evidence, we are convinced that the parties did not intend that any interest be paid on the unpaid balance of the purchase price, and, accordingly, we must reverse.
The attorney handling the two agreements had no independent recollection of anything whatsoever. Clifford Lovelace testified that no discussion was had regarding interest when the agreement in question was executed. Irene Lovelace could recall nothing regarding interest. The defendant testified that when the agreement in question was signed, Irene stated that no interest was to be charged on the sale.
The earlier agreement between the parties becomes very significant. There the agreement simply provided that the defendant would pay to Irene, his aunt, $4,000 per year during her life. The same preprinted form was utilized and the same payment of tax provision was inserted, followed again by the preprinted interest clause with no interest inserted. It is obvious that such a payment provision would not draw interest inasmuch as there could be no unpaid balance upon which interest could accrue (unless the required payments became delinquent, a matter the parties would be presumed not to contemplate).
The second agreement is identical to the first, except that the total purchase price became fixed at $48,000. The parties and their lawyer could not recall why the second agreement was substituted for the first except that there is evidence that it was done for tax purposes. The determination of $48,000 as the fixed amount is not difficult to understand when one considers that at the time of the first agreement, Irene Lovelace had a mortality table life expectancy of 12 years, making the total annual payments based on such expectancy $48,000. There was no evidence whatsoever that would suggest that, between the execution of the first and second agreements, the parties decided to impose interest on the unpaid balance.
The defendant's testimony that his aunt stated that no interest was to be paid is indirectly corroborated by her testimony. At the time of trial, she was 77 years old and her testimony clearly shows that she not only had no understanding of why the second agreement was substituted for the first, but had little understanding of why the litigation and trial ensued. She was very fond of her nephew, even at time of trial, wanted him to have the land, and only understood that she was to be paid $4,000 per year so she would have something to live on.
The court may also look on the interpretation placed on the contract during the period of performance. Knight Bros., Inc. v. State, 189 Neb. 64, 199 N.W.2d 720 (1972). Defendant made the required annual payments promptly. There is no evidence that, at any time following the execution of the agreement in question, the matter of interest was ever discussed between the parties or otherwise. Defendant made his 12th and last payment on January 2, 1977. The following year, in January 1978, Irene's husband inquired about the missing payment and was advised by defendant that he had completed his required payments on the contract. No claim that there was any balance due because of interest accrued was made at that time, but shortly thereafter defendant received a letter from an attorney plaintiffs had contacted, stating that the contract required interest at 6 percent per annum on the unpaid balance and enclosing a payment schedule which he prepared showing the amount allocated to principal and interest on the payments made and showing a balance due of $26,000. This was the first indication of any claimed payment schedule or any indication of a declining unpaid balance for allocation of principal and interest on the $4,000 annual payments. It is a reasonable conclusion that the plaintiff and her husband were always under the misunderstanding that plaintiff would receive, in effect, a lifetime annuity of $4,000 per year, whether she died a year after the execution of the agreement or 30 years later.
The warranty deed delivered at the time of the agreement to sell, rather than after the total purchase price was paid, acknowledged a total consideration of $48,000, "in hand paid." While that was not the fact then, it suggests the total sum plaintiffs were to receive.
In addition, the fact that in this case the preprinted interest clause is totally out of any grammatical context with the payment provisions, with the space for insertion of the rate of interest left blank, is evidence that the interest clause was not intended to be operative, any more than the preprinted payment of taxes clause immediately thereafter was intended to be operative.
We, therefore, conclude that the parties intended that the defendant pay his aunt a total of $48,000 in 12 annual $4,000 payments, the equivalent of the lifetime annuity provided for in the first agreement, and that, therefore, no interest was to accrue on any unpaid balance. The judgment is reversed with directions to dismiss plaintiffs' petition and to enter judgment for the defendant on his counterclaim.
REVERSED AND REMANDED WITH DIRECTIONS.