Calomiris v. Woods

• Decision Date: 01 September 1998
• Docket Number: No. 70,70
• Citation: 727 A.2d 358,353 Md. 425
• Parties: Carol L. CALOMIRIS v. Caryn M. WOODS. ,
• Court: Maryland Court of Appeals

Page 425

353 Md. 425

727 A.2d 358

Carol L. CALOMIRIS v. Caryn M. WOODS.

No. 70, Sept. Term, 1998.

Court of Appeals of Maryland.

March 15, 1999.

Reconsideration Denied May 11, 1999.

Roger A. Hayden, II (Theresa M. Hall, Pasternak & Fidis, P.C., on brief), Bethesda, for Petitioner.

Richard C. Daniels (Lani L. Daniels, Daniels & Daniels, on brief), College Park, for Respondent.

Argued before BELL, C.J., and ELDRIDGE, RODOWSKY, CHASANOW, RAKER, WILNER and CATHELL, JJ.

CHASANOW, Judge.

This controversy raises important questions for the interpretation of contracts when a party alleges that a contract is ambiguous and seeks to admit extrinsic evidence to show the intent of the contracting parties. Factually, the case involves the interpretation of a release provision of a mortgage contract covering about six acres of land in Howard County. The trial court found the provision ambiguous and used extrinsic evidence to determine the amount that the Respondent must pay to obtain a release from the mortgage. Applying a de novo standard of review, we conclude that, viewed objectively, the release provision is unambiguous. We therefore reverse, holding that the trial court erroneously admitted extrinsic evidence and interpreted the contract in contradiction to its express terms.

I.

The dispute arises out of the 1992 purchase for $1.2 million of 38 acres of undeveloped land in Howard County. New Panorama Development Corporation (New Panorama) purchased the property from Robert F. Simpson, who secured $654,000 of the purchase price with a mortgage. The mortgage covered Lot 126, which contained a little more than six acres, and was dated December 31, 1992. In 1995, New Panorama subdivided Lot 126 into two lots, creating Lot 130, about which this dispute centers. New Panorama enlarged Lot 130 by 2,200 square feet from adjacent land unencumbered by the Simpson mortgage. Lot 130 was transferred in August, 1995, to Lovell Regency Homes (Lovell). After constructing a single family residence on the property, Lovell sold the property to Respondent Caryn Woods (Woods) on February 23, 1996.

Lovell did not record its deed from New Panorama until February 26, 1996, three days after it had sold the property to Woods. The deed to Woods was not recorded until the afternoon of March 13, 1996. By that time, the Simpson mortgage had matured and was in default. The trustees of the Simpson mortgage filed for foreclosure on the mortgage for the full amount, $654,000. ¹ A foreclosure sale took place in the morning of March 13, 1996, only a few hours before the Woods deed was recorded. Exceptions to the foreclosure were filed by numerous parties, including New Panorama, Lovell, and Woods. In July 1996, Woods filed a petition for reformation and partial release of the mortgage. Woods' petition argued that the transfer of Lot 130 to Lovell and then to her without obtaining a partial release was by inadvertence and mistake, and requested the trial court to set a partial release amount, which Woods' title insurer was willing to pay. The mortgagee filed a motion for summary judgment. The trial court granted the mortgagee's request for summary judgment as to the claim for reformation, but allowed the petition to set a figure for partial release to proceed.

The ruling on the petition for partial release is what is before us. Woods' request for a partial release of the mortgage is based on the following provision in the mortgage contract between New Panorama and Simpson:

"Upon request of the Mortgagor, Mortgagee shall release portions of the mortgaged premises as follows:

Subdivided lots shall be released by payment by Mortgagor to Mortgagee of an amount equal to $752,100.00 [ ²] divided by the total number of subdivided residential building lots in a recorded subdivision plat of the mortgaged premises, from time to time.

All releases shall be prepared at the expense of Mortgagor and shall be executed by the Mortgagee when requested by Mortgagor.

Mortgagee shall not unreasonably refuse to execute or join in the execution of plats of subdivision, record plats, deeds or other grants of rights of way and easements for the installation and maintenance of sanitary rights of way and easements for the installation and maintenance of sanitary sewers, storm drainage, water, electricity and other utilities for the benefit of the mortgaged premises; provided such execution or joinder does not subject the Mortgagee to any cost, liabilities or expenses in connection therewith." (Emphasis added).

While most of the mortgage contract consists of a standard form, with the specifics of the transaction typed into blank spaces, the entire release provision quoted above appears not to be a part of the standard form, but rather inserted by the contracting parties, as evidenced by the different and slightly larger typeface of the release provision. ³ The emphasized text from the excerpt quoted above, which describes how the partial release figure will be computed, is the contractual language that has been the main point of contention in this dispute. The trial court "specifically [found] that the release provision is sufficiently ambiguous that extrinsic evidence needs to be considered in determining the intention of the parties at the time the mortgage was executed." The court gave no explanation of its finding of ambiguity in its written order other than the statement just quoted. The trial court then considered evidence of negotiations taking place prior to the execution of the mortgage, admitting into evidence exhibits and testimony from four witnesses. Based on this evidence, the court concluded that "the parties never intended to create a situation where one lot ... would bear the entire burden of the mortgage." Referring to a letter written by an attorney representing the mortgagee on May 4, 1992, more than six months prior to the signing of the mortgage, the trial court found that "[e]vidence adduced at trial established the fact that pro rata release prices had been discussed by the parties." The trial court then concluded that a pro rata release, i.e., basing the partial release on the acreage of encumbered land in the Woods lot relative to the total land subject to the mortgage, was the "fair and equitable result." It rejected as leading to "an unfair and unreasonable result" the interpretation proposed by the mortgagee, that the denominator by which to divide the total amount of the mortgage was one, since the Woods lot was the only platted and recorded residential building lot on the mortgaged property. The court therefore arrived at a partial release figure of $21,058.80 by computing the percentage of encumbered land in Woods' lot (7,416 square feet) relative to the total land encumbered by the mortgage (267,101.21 square feet) and multiplying that percentage (2.8%) by the total release amount of $752,100.00.

In an unreported opinion, the Court of Special Appeals applied a clearly erroneous standard to affirm the trial court's finding of ambiguity. Under that standard, the court said it would had to have found "no reasonable suggestion of ambiguity- " in the contractual language in order to reverse the trial judge's finding of ambiguity. The intermediate appellate court pointed to the specific contract language "from time to time" as ambiguous. Judge Kenney dissented on the grounds that the release provision was clear in setting the release based on the total number of subdivided residential building lots then platted and recorded and that the trial court's method of determining the release price was not reflected in the language of the mortgage contract nor in the negotiations.

We granted certiorari in order to address the issues of contract interpretation raised in this case. Calomiris v. Woods, 350 Md. 279, 711 A.2d 871 (1998). ⁴

II.

As just described, the trial court in this case declared the partial release provision ambiguous and then sought to ascertain the intent of the parties through the use of evidence extrinsic to the contract itself. These actions implicate the role of the judiciary in contract interpretation and the use of extrinsic evidence for interpretative purposes. Maryland law generally requires giving legal effect to the clear terms of a contract and bars the admission of prior or contemporaneous agreements or negotiations to vary or contradict a written contractual term. Equitable Trust Co. v. Imbesi, 287 Md. 249, 271-72, 412 A.2d 96, 107 (1980). Under the parol evidence rule, a written agreement "discharges prior agreements," thereby rendering legally inoperative communications and negotiations leading up to the written contract. See RESTATEMENT (SECOND) OF CONTRACTS § 213 (1979). The requirement that courts give legal effect to the unambiguous provisions of a contract and the rule that prohibits the admission of parol evidence for ascertaining the parties' intent provide a necessary legal foundation for the certainty of contracting parties. As Professor Farnsworth has observed, there are often times in which contracting parties,

"after concluding their negotiations, want to simplify the administration of the resulting contract and to facilitate the resolution of possible disputes by excluding from the scope of their agreement those matters that were raised and dropped or even agreed upon and superseded during the negotiations. It is often useful to be able to replace the negotiations of yesterday with an authoritative agreement of today."

E. ALLAN FARNSWORTH, II FARNSWORTH ON CONTRACTS § 7.2, at 214-15 (1998).

As with many legal rules, however, there are situations that render the rule inoperable. All courts generally agree that parol evidence is admissible when the written words are sufficiently ambiguous. E. ALLAN FARNSWORTH, II FARNSWORTH ON CONTRACTS § 7.11, at 292 (1998). The remainder of this part of the opinion (1) explains the appropriate standard by which the appellate courts should address a trial court's...