Haggar v. Olfert, s. 14513

• Decision Date: 09 April 1985
• Docket Number: 14717 and 14916,Nos. 14513,s. 14513
• Citation: 387 N.W.2d 45
• Parties: Donald A. HAGGAR, Owner/Trustee of Haggar's Action Realty Trust Account, Plaintiff and Appellant, v. John OLFERT, John Broek, Forrest Hubers and Milton Proctor, Defendants and Appellees. . Considered on Briefs
• Court: South Dakota Supreme Court

Page 45

387 N.W.2d 45

Donald A. HAGGAR, Owner/Trustee of Haggar's Action Realty Trust Account, Plaintiff and Appellant, v. John OLFERT, John Broek, Forrest Hubers and Milton Proctor Defendants and Appellees.

Nos. 14513, 14717 and 14916.

Supreme Court of South Dakota.

Considered on Briefs April 9, 1985.

Decided May 7, 1986.

Charles Rick Johnson of Johnson, Eklund & Davis, Gregory, for plaintiff and appellant.

T.F. Martin and Richard Helsper of McCann, Martin & Mickelson, Brookings, for defendants and appellees.

MORGAN, Justice.

This action was commenced by Donald A. Haggar, a realtor doing business as Haggar's Action Realty (Haggar) to recover for his trust account on a promissory note executed by the defendants individually and given by them to Haggar on behalf of Magnum Enterprises Inc. (Magnum), a corporation of which they were the sole stockholders, and which promissory note in the amount of $500,000 represented the down payment on a real estate transaction. Haggar sought recovery of the $450,000 balance on the note together with interest and the defendants counterclaimed for $50,000 paid on said note and the jury found against Haggar on both issues in favor of the defendants. Haggar appeals and we affirm.

The underlying transaction involved the sale of the Diamond Ring Ranch situated in Haakon County, South Dakota, by the Armstrong family through Haggar, as their realtor.

John Olfert, John Broek, Forrest Hubers and Milton Proctor incorporated Magnum for investment purposes. On July 21, 1981, Magnum executed an offer and agreement to purchase the Diamond Ring Ranch for $10,800,000. The offer included a provision for a $500,000 earnest money deposit by a promissory note which was to be payable as follows: $50,000 on August 3, 1981, and the balance of $450,000 due on August 14, 1981. The offer also contained a provision for liquidated damages in the amount of $500,000. The Armstrongs insisted on a personal promissory note and the stockholders agreed and on July 22, 1981, signed the promissory note payable to Haggar's Trust Account, which document is the subject of this action. The initial $50,000 payment was made by Hubers on August 10, 1981, and when the group failed to make the payment of the balance on August 14, 1981, an addendum was drawn on August 28, 1981, changing the payment schedule for the balance on the note as follows: $250,000 due August 31, 1981, and $200,000 due on September 11, 1981, with the closing date on the sale transaction set for November 2, 1981.

At the time that the transaction was entered into by Magnum, they were in the process of putting together sufficient real estate to trade for certain gems then owned by Berja, a Montana investment group. Haggar was apparently aware of this background information. On August 31, Haggar was contacted and advised by Broek that Magnum had agreed to let Berja step in and buy the ranch directly. Broek went to Pierre, South Dakota, and met with Haggar regarding Berja's buying the property. At that point, Haggar drafted a document identified as Exhibit 8, which is the point of controversy in this transaction. Pursuant to telephonic directions from one of Haggar's agents, Hubers also prepared and executed a document identical to Exhibit 8. Within forty-eight hours, Berja had executed an offer and agreement to purchase the ranch at the same price. Berja, however, failed to close on the sale on the date scheduled and a new sales contract was negotiated and agreed upon wherein the sale price was reduced to $8,594,000 and Berja agreed to assume certain indebtedness. The sellers also allowed Berja to mortgage the property for $3,500,000, from which Berja made a down payment of $1,500,000. When one of the partners in Berja filed a Chapter 11 bankruptcy, it became apparent that the Berja transaction would not go through and the sellers regained possession of their property through the Bankruptcy Court with the mortgage indebtedness against the property substantially increased.

We realign the issues raised by Haggar in appeal # 14513 as follows: (1) Did the trial court err in admitting parol evidence with regard to the document Exhibit 8; (2) did the trial court err in failing to direct a verdict for Haggar at the close of defendant's evidence or to grant judgment n.o.v. after the verdict; and (3) whether the trial court's instruction number 10 is an erroneous statement of the law. The document in issue, Exhibit 8, is set out as follows:

It is mutually agreed between the parties that the 20 day notice of default in the Offer and Agreement to Purchase entered into by Eugene Armstrong, Vern Armstrong, Margaret Armstrong and Diamond Ring Ranch, Inc. as Seller and Magnum Enterprises, Inc. dba Magnum Farms as Purchaser is hereby waived. Seller is authorized to negotiate with others for sale of the property to reduce or eliminate the liquated (sic) damages.

We first examine the issue of whether the trial court erred by allowing the defendant to introduce parol evidence to suggest that there was an accord and satisfaction, novation, release, or cancellation of the obligation. This issue requires a two-part analysis: (1) Is the instrument, Exhibit 8, ambiguous? (2) If so, is the particular evidence admissible?

In Jensen v. Pure Plant Food Intern., Ltd., 274 N.W.2d 261 (S.D.1979), we discussed this analysis at length. As to the first question, we came up with the following rules: " 'The primary rule in the construction of contracts is that the court must, if possible, ascertain and give effect to the mutual intention of the parties....' " 274 N.W.2d at 263 quoting Huffman v. Shevlin, 76 S.D. 84, 89, 72 N.W.2d 852, 855 (1955).

When the writing is uncertain or ambiguous, however, [parol or extrinsic] evidence is admissible to explain the instrument.... 'A contract is ambiguous when, after application of pertinent rules of interpretation to the face of the instrument, a genuine uncertainty exists as to which of two or more meanings is the proper one.' ... Whether the language of a contract is ambiguous is ordinarily a question of law for the court.

Jensen, 274 N.W.2d at 264 (citations omitted). To the foregoing, we might add our long-standing rule that on appeal we are not required to apply the clearly erroneous rule to the trial court's findings on ambiguity, inasmuch as we can read the instrument ourselves. Geo. A. Clark & Son, Inc. v. Nold, 85 S.D. 468, 185 N.W.2d 677 cert. denied 404 U.S. 833, 92 S.Ct. 82, 30 L.Ed.2d 63 (1971); Ayres v. Junek, 247 N.W.2d 488 (S.D.1976).

If and when the instrument is found by the court to be ambiguous, then the admission of parol or extrinsic evidence shall be governed by these rules:

If the intention of the parties is not clear from the writing, then it is necessary and proper for the court to consider all the circumstances surrounding the execution of the writing and the subsequent acts of the parties.... Parol or extrinsic evidence may not be admitted to vary the terms of a written instrument or to add to or detract from the writing.... '... [e]vidence is resorted to where the ambiguity may be dispelled to show what they meant by what they said, but not to show that the parties meant something other than what they said.'

Jensen, 274 N.W.2d at 263-64 (citations omitted). To these we again add our long-standing rule that ambiguities are decided against the draftsman. City of Sioux Falls v. Henry Carlson Co., 258 N.W.2d 676 (S.D.1977).

We therefore look first to the instrument itself which in essence states:

It is mutually agreed between the parties that the 20 day notice of default in the Offer and Agreement ... is hereby waived. Seller is authorized to negotiate with others for sale of the property to reduce or eliminate the liquadated (sic) damages.

From our reading of the instrument, the first sentence is a clear and unequivocal waiver of the notice of default. The second sentence, however, raises more questions than it answers. The most important one to this discussion being: What, if anything, eliminates the liquidated damages? We find that the instrument is ambiguous and we therefore affirm the trial court's determination that the instrument was ambiguous and that parol and extrinsic evidence was admissible to determine the intention of the parties in drafting, executing, and accepting the instrument. We will examine the evidence that was admitted as to its propriety under the second prong of the test in our discussion of the next issue. Before proceeding directly to the second issue, we pause to note that by their pleadings in this action Magnum admitted the execution of the promissory note but denied that it was enforceable and interposed three affirmative defenses based upon Exhibit 8: (1) accord and satisfaction; (2) novation; and (3) release. The trial court properly instructed the jury that: "[T]he party who asserts the affirmative of an issue must prove that issue by a preponderance of the evidence ... The plaintiff has the burden of proving that the obligations represented by the promissory note ... was extinguished." See Clancy v. Callan, 90 S.D. 115, 238 N.W.2d 295 (1976); Lang v. Burns, 77 S.D. 626, 97 N.W.2d 863 (1959).

Haggar argues that Magnum failed to adduce any legally competent evidence to sustain these affirmative defenses and that in the absence of such evidence his motion for directed verdict or his motion for judgment n.o.v. should have been sustained as a matter of law. Resolution of this issue requires a determination of whether, under the legally competent evidence presented at trial, the document can reasonably be characterized as an accord and satisfaction, a novation, or a release. If the evidence was insufficient, these defenses should not have been submitted to the jury.

In reviewing the denial of a motion for directed verdict, this court must examine the evidence in the light most favorable to the nonmoving party and give that party the benefit of all reasonable...