First Nat. Bank of Belfield v. Burich, 10783

• Decision Date: 17 April 1985
• Docket Number: No. 10783,10783
• Citation: 367 N.W.2d 148
• Parties: The FIRST NATIONAL BANK OF BELFIELD, Belfield, North Dakota, a banking corporation, Plaintiff and Appellant, v. Jeffrey E. BURICH, Defendant and Appellee. Civ.
• Court: North Dakota Supreme Court

Page 148

367 N.W.2d 148

The FIRST NATIONAL BANK OF BELFIELD, Belfield, North Dakota a banking corporation, Plaintiff and Appellant, v. Jeffrey E. BURICH, Defendant and Appellee.

Civ. No. 10783.

Supreme Court of North Dakota.

April 17, 1985.

Howe, Hardy, Galloway & Maus, Dickinson, for plaintiff and appellant; argued by Michael J. Maus, Dickinson.

John O. Holm, Dickinson, for defendant and appellee.

LEVINE, Justice.

The First National Bank of Belfield (Bank) appeals from a district court judgment which dismissed its action on a promissory note against Jeffrey E. Burich (Burich) and awarded Burich $1,518.94 in damages on his counterclaim. We affirm.

This appeal involves a dispute over the failure of Burich to repay a $2,000.00 loan made by the Bank. The underlying events arose in 1980 upon Burich's divorce from Ginger Swinney (Swinney). The divorce decree awarded each party one-half interest in the family home in Belfield. While Swinney was responsible for the monthly mortgage payments, both parties remained liable on the note and mortgage. Subsequently, both Swinney and Burich moved from Belfield, Swinney having failed to make the mortgage payments. Apparently attempting to avoid liability on the mortgage, Burich and Swinney separately quit-claimed each one's respective ownership interest in the home to the other. At no time following the divorce did Burich reside in the home.

In the summer of 1981 Burich returned to Belfield and was contacted by the Bank to refinance the mortgage on the vacant home. Burich and the Bank negotiated a refinancing agreement on September 1, 1981 when Burich executed a new note for $32,385.34, and mortgage. At this time Burich had no ownership interest in the home, having quitclaimed his interest to Swinney earlier that year.

After the new mortgage had been signed the Bank appraised the house and discovered its value was insufficient for Burich to qualify for a federally subsidized loan. The Bank contacted Burich, an experienced carpenter, and suggested that he renovate the home to increase its value in order to qualify for the federally subsidized loan. To finance the renovation the Bank loaned Burich $2,000, as evidenced by a 60-day promissory note signed by Burich on October 20, 1981.

Burich claimed the Bank promised to obtain title to the home from Swinney and that it was this promise which induced him to borrow the $2,000. Although this was disputed by the Bank's president, he was not present during the negotiations for the $2,000 loan. The Bank did not produce the person who was involved.

Burich used the $2,000 to purchase materials for the renovation of the home and additionally contributed $418.95 of his own money for materials and performed 110 hours of labor. In December, 1981 Burich ceased renovations because of the Bank's failure to obtain title to the home from Swinney.

The Bank sued to collect the $2,000 and Burich counter-claimed seeking compensation for the materials and labor he invested in renovating the home, alleging he was entitled to such damages under theories of unjust enrichment and breach of contract. ¹

The case was tried before the district court which found that the $2,000 note was "solicited by the [Bank] and executed by [Burich] upon the [Bank's] representation that [it] would secure a quitclaim deed in which one Ginger Swinney, former wife of [Burich], would deed her interest in the real property to [Burich]." The trial court then concluded as a matter of law that "the considerations for which [Burich] executed the $2,000 note failed entirely inasmuch as the Bank failed to timely secure the title to the real property in [Burich]." The trial court dismissed the Bank's suit and awarded Burich $1,518.95 on his counterclaim for unjust enrichment; the award equals the value of materials and labor Burich expended in renovating the house over and above the loan proceeds. The Bank then appealed.

The first issue on appeal is whether or not the trial court erred in admitting evidence of the Bank's alleged oral promise to obtain title to the home for Burich.

When requested to resolve contractual disputes by interpreting contracts, courts attempt to ascertain and give effect to the parties' intentions. Lambott v. United Tribes Educ. Tech Center, 361 N.W.2d 590 (N.D.1985); North Dakota Century Code Sec. 9-07-03. When a contract is reduced to writing the parties' intentions are to be ascertained from the writing alone if possible. NDCC Sec. 9-07-04. Therefore, parol evidence is generally not admissible to vary or contradict the terms of a written contract such as a promissory note. Farmers & Merchants Nat. Bank v. Ostlie, 336 N.W.2d 348 (N.D.1983); Bye v. Elvick, 336 N.W.2d 106 (N.D.1983); NDCC Sec. 9-06-07.

However, the trial court admitted Burich's testimony concerning the Bank's oral representations as evidence that the consideration for the note had failed. Parol evidence is admissible to prove failure of consideration. Verry v. Murphy, 163 N.W.2d 721 (N.D.1968); Hartford Accident and Indemnity Co. v. Anderson, 155 N.W.2d 728 (N.D.1968). The decision to admit parol evidence is a determination of law and thus fully reviewable on appeal. Schwarting v. Schwarting, 310 N.W.2d 738 (N.D.1981). We conclude the trial court did not err as a matter of law in allowing the parol evidence under the failure of consideration exception to the parol evidence rule. NDCC Sec. 9-06-07. A necessary if not sufficient cause of our agreement with the decision to admit parol evidence of the Bank's promise to obtain title is the Bank's active solicitation of Burich to improve the home and execute the note after its discovery of the home's insufficient value for federal financing.

Having resolved that parol evidence of the Bank's promise to obtain title was properly admitted we turn to the Bank's contention that the trial court erred in dismissing its complaint for failure of consideration.

Burich did not plead failure of consideration as an affirmative defense. North Dakota Rule of Civil Procedure 8(c) requires any matter constituting an affirmative defense, including failure of consideration, to be set forth in the defendant's responsive pleading. Failure to follow this rule generally results in a waiver of the defense. However, the purpose of Rule 8(c) is to prevent surprise from affirmative defenses raised for the first time at trial. See, 27 Fed.Proc.L.Ed. Sec. 62:61. Burich's defense of and counterclaim for breach of contract were so similar in substance to the affirmative defense of failure of consideration as to provide adequate notice of these issues and prevent any surprise at trial. Consequently, the failure to comply precisely with Rule 8(c) is not fatal. Allied Chemical Corp. v. Mackay, 695 F.2d 854 (5 Cir.1983).

The trial court made a conclusion of law that "the consideration for which [Burich] executed the $2,000 note failed entirely inasmuch as the Bank failed to timely secure the title to the real property in [Burich]." ² The evidentiary basis for this finding was Burich's uncontradicted testimony about the promise to obtain title. The Bank's failure to offer evidence refuting or otherwise explaining Burich's testimony warrants the inference that Burich's statements were true and correct. Verry v. Murphy, supra. The Bank employee who negotiated the $2,000 note, and who Burich testified made the oral promise to obtain title, did not testify.

Failure of consideration may be total or partial. ³ Schaff v. Kennelly, 61 N.W.2d 538 (N.D.1953). There is a total failure of consideration when a party has failed or refused to perform a substantial part of his bargain, Lawrence v. Lawrence, 217 N.W.2d 792 (N.D.1974), thereby defeating the very object of the contract. ⁴ Poppenga v. Cramer, 250 N.W.2d 278 (S.D.1977). A total failure of consideration excuses the nonbreaching party from its own duty to perform under the contract. See, Aberle v. North Dakota B & B Perm. & Tem. Per. Sys., 186 N.W.2d 446 (N.D.1971). On the other hand, there is a partial failure of consideration when the failure to perform is insubstantial, Schaff, supra, so that sufficient consideration remains to sustain the contract. Empire Gas Corp. v. Small's LP Gas Co., 637 S.W.2d 239 (Mo.App.1982). Consequently, with a partial failure of consideration the nonbreaching party is not excused from performance but rather is entitled to an award of damages. Ralston Purina Co. v. Jungers, 86 S.D. 583, 199 N.W.2d 600 (1972). The determination that consideration has failed is a question of fact, Sexton v. Southwestern Auto Racing Ass'n, Inc., 75 Ill.App.3d 338, 31 Ill.Dec. 133, 394 N.E.2d 49 (Ill.App.1979); see also, Farmers & Merch. Nat. Bank of Hatton v. Lee, 333 N.W.2d 792 (N.D.1983); and will not be disturbed on appeal unless clearly erroneous. NDRCivP 52(a).

The Bank argues that there was at most, a partial failure of consideration so that even if it totally failed to perform its obligation to obtain title, the consideration of the $2,000 existed separately from that promise. See, E.E.E., Inc. v. Hanson, 318 N.W.2d 101 (N.D.1982). Under the Bank's theory this independent consideration was sufficient to sustain the contract and Burich's liability on the note.

The trial court determined that the consideration for which Burich executed the $2,000 note is the Bank's promise to obtain the title, failed entirely because the Bank did not timely secure the title to the house in Burich. The trial court deduced it would be an unreasonable interpretation of the contract to conclude that Burich borrowed $2,000 to renovate a home in which he had no ownership interest without relying upon the Bank's promise to obtain title.

The $2,000 loan was meaningless to Burich unless he received title to the home. Essentially, the Bank was the recipient of the enhanced value of the home ⁵ as a consequence of Burich's investment of the $2,000, as well as his own labor and materials, in renovating the home. In effect,...