Caven v. American Federal Sav. and Loan Ass'n of Colorado

• Citation: 837 F.2d 427
• Decision Date: 25 January 1988
• Docket Number: 85-1551,Nos. 85-1517,s. 85-1517
• Parties: Jerry L. CAVEN and Thomas O'Donnell d/b/a States Investment, a partnership, Plaintiffs/Appellees, and Timothy Wayne d/b/a Timothy Wayne and Associates, Intervenor Plaintiff/Appellee/Cross Appellant, v. AMERICAN FEDERAL SAVINGS AND LOAN ASSOCIATION OF COLORADO, Defendant/Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 427

837 F.2d 427

Jerry L. CAVEN and Thomas O'Donnell d/b/a States Investment a partnership, Plaintiffs/Appellees and Timothy Wayne d/b/a Timothy Wayne and Associates, Intervenor Plaintiff/Appellee/Cross Appellant, v. AMERICAN FEDERAL SAVINGS AND LOAN ASSOCIATION OF COLORADO Defendant/Appellant.

Nos. 85-1517, 85-1551.

United States Court of Appeals Tenth Circuit.

Jan. 25, 1988.

Rehearing Denied Oct. 5, 1988.

F. James Donnelly (Charles A. Miller, with him on briefs), of Stutz, Dyer, Miller and Delap, Denver, Colo., for plaintiffs/appellees.

Howard L. Slavin, Denver, Colo., for intervenor plaintiff/appellee/cross appellant.

Gregory B. Kanan of Rothgerber, Appel, Powers & Johnson, Denver, Colo. (Thomas M. Domme and Elizabeth T. Wald of Rothgerber, Appel, Powers & Johnson, Denver, Colo., and John J. Keilbach of Preston, Altman, Parlapiano, Keilbach & Lytle, Pueblo, Colo., with him on briefs), for defendant/appellant.

Before HOLLOWAY, Chief Judge, ANDERSON, Circuit Judge, and BRIMMER, District Judge ^*.

STEPHEN H. ANDERSON, Circuit Judge.

In this diversity action, American Federal Savings appeals from an award of damages to Jerry Caven for breach of contract. We reverse. Timothy Wayne & Associates appeals from a directed verdict in favor of American Federal Savings in the same action. We affirm.

I.

In 1972, American Federal Savings and Loan Association of Colorado ("American Federal") agreed to finance the purchase of real estate and the construction of apartments in Pueblo, Colorado. The borrower executed a loan agreement with American Federal, subject to a contemporaneous Deed of Trust that included the following provision regarding transfer of ownership of the property:

"In the event the property securing this loan or any portion thereof is proposed to be sold or conveyed or becomes the subject of any agreement to sell prior to the maturity hereof, the proposed transferee shall be subject to the prior approval of the holder. In such event, the holder shall be provided with documentation to include, but not limited to, copies of: purchase or transfer agreement; management agreement, if any; financial and income statements of the proposed transferee, and a report on the credit standing of the proposed transferee from an approved professional credit reporting agency. The holder shall review the documentation to ascertain transferee's management skills (or skills of a professional manager to be retained by transferee), credit worthiness and ability to repay this Deed of Trust in accordance with the terms and provisions contained herein. Holder shall have the right to approve any such proposed transferee; however, approval shall not be unreasonably withheld. If, however, such approval is withheld, but not unreasonably, and the transfer, sale or conveyance is nevertheless consummated, the entire indebtedness shall immediately become due and payable at the option of the holder. In any event, no such transfer shall be permitted until construction is completed and a certificate of occupancy issued."

R.Vol. I at 11 (emphasis added).

In July, 1977, Jerry Caven purchased the apartments and assumed the American Federal loan, subject to the original Deed of Trust. At the time of the purchase the Deed of Trust was supplemented by a modification agreement between Caven and American Federal. ¹ The modification agreement altered the interest rates on the underlying promissory note, provided for a late payment charge and included the following provision under the heading "Transfer of Ownership:"

"If there shall be any change in the ownership of said premises without the written consent of the Association being first obtained, the entire indebtedness secured hereby shall become due and payable at the option of the Association. If the Association consents to such change of ownership, then the current transfer fee shall be due and payable to the association."

R.Vol. I at 14 (emphasis added). The modification agreement also included the following provision, as the final paragraph:

"This agreement is supplementary to said Note and Deed of Trust. All of the provisions of the Note and Deed of Trust, including the right to declare the principal and accrued interest due for any cause specified therein, shall remain in full force and effect except as specifically herein modified. ..."

R.Vol. I at 14 (emphasis added).

In 1982, Caven sought to sell the apartments. He retained Timothy Wayne & Associates ("Wayne"), the intervenor plaintiff below, as brokers. On August 18, 1982, Caven entered into a contract with Donald Macy and Donald Egan to sell the apartments for a purchase price of $3,160,000.00. Caven forwarded the contract and financial information concerning the potential purchasers to American Federal. American Federal responded by (1) requesting more detailed financial information, and (2) demanding a substantial increase in the interest rates. Caven countered by arguing that American Federal had no right to increase the interest rate. American Federal disputed that argument and stated that it would not consent to any assumption of the loan and required that the loan be liquidated when the property was sold. As a result, Macy and Egan withdrew from the contract. Caven subsequently sold the apartments on a cash basis to another purchaser for $2,800,000.00 and instituted this diversity action against American Federal for breach of contract. Wayne intervened as a plaintiff alleging breach of contract and tortious interference with contract, claiming as damages his lost commission on the aborted sale to Macy and Egan.

Prior to trial, Caven and American Federal both moved for summary judgment based on their interpretations of the language in the Deed of Trust and modification agreement. Caven argued that the modification agreement did not "specifically modify" the language of the Deed of Trust, and that American Federal had no power to condition an assumption of the loan on an increase in interest rates. American Federal argued that the provision in the modification agreement was an "absolute due on sale clause" that replaced the earlier provision and gave American Federal the power to disapprove an assumption of the loan for any reason.

The district court below granted partial summary judgment to Caven, holding that the language in the modification agreement did not specifically modify "either the procedural aspects of how the information shall be presented to [American Federal], nor the fact that approval shall not be [un]reasonably withheld. It specifically does not affect those provisions." R.Vol. IV at 6.

Trial proceeded to a jury to determine whether American Federal had complied with the provisions of the Deed of Trust. Caven's breach of contract claim went to the jury and the jury returned a verdict in Caven's favor for $300,000.00. The trial court granted American Federal's motion for a directed verdict against Wayne, holding that, under Colorado law, he could not succeed on the interference with contract claim. American Federal appeals from the trial court's partial summary judgment for Caven, from the judgment entered for Caven, and from the denial of its motion for judgment notwithstanding the verdict. Wayne appeals from the directed verdict against him.

II.

We turn first to the partial summary judgment granted to Caven. "When reviewing a grant of summary judgment, this court must examine the record to determine whether any genuine issue of material fact pertinent to the ruling remains and, if not, whether the substantive law was correctly applied." Franks v. Nimmo, 796 F.2d 1230, 1235 (10th Cir.1986) (citations omitted). The parties do not dispute the material facts, thus we are left to determine if the district court correctly applied the substantive law. "In reviewing the trial court's construction of the contract, it should be noted that ordinarily the construction of a contract is a question of law for the court." Resort Car Rental Sys., Inc. v. Chuck Ruwart Chevrolet, Inc., 519 F.2d 317, 320 (10th Cir.1975). See also Union Rural Elec. Ass'n, Inc. v. Public Util. Comm., 661 P.2d 247, 251 (Colo.1983) ("Interpretation of contract language is generally a question of law."); Stroh-Mc Investments v. Bowens, 725 P.2d 33, 34 (Colo.Ct.App.1986) ("Interpretation of the language of a contract is a question of law for the court."). In reviewing a question of law, we are not bound by the district court's conclusions. See Energy Oils, Inc. v. Montana Power Co., 626 F.2d 731, 734 (9th Cir.1980); C. Wright and A. Miller, Federal Practice and Procedure, Civil Sec. 2588, at 750 (1971) ("the interpretation and the construction of written contracts are matters of law and freely reviewable as such"). See also Reynolds v. Farber, 40 Colo.App. 467, 577 P.2d 318, 320 (1978) ("Since the construction of a written instrument is a question of law, this court is not bound by the trial court's interpretation.").

In this diversity action, we look initially to Colorado law for guidance in interpreting this contract. The parties cite a variety of rules and principles of contract construction used in Colorado. No decision by the Colorado courts directs us to only one permissible conclusion in the interpretation of the specific language of this contract. However, we find certain principles helpful. First, where "the language used is plain, clear, and no absurdity is involved, we must declare and enforce the instrument as written." Fuller & Co. v. Mountain States Investment Builders, 37 Colo.App. 201, 546 P.2d 977, 980 (1975). Second, "[w]e must adopt a construction of the agreement that will give effect to all of its provisions." Union Rural, 661 P.2d at 252. See also Oriental Refining Co. v. Hallenbeck, 125 Colo. 77, 240 P.2d 913, 916 (1952) ("each and every part and portion of a contract is to be given effect, if possible"). Finally, the parties have not cited, nor have we found, any clear statement of the Colorado...