Home Federal Sav. and Loan Ass'n of Algona v. Campney

• Decision Date: 14 November 1984
• Docket Number: No. 83-1189,83-1189
• Citation: 357 N.W.2d 613
• Parties: HOME FEDERAL SAVINGS AND LOAN ASSOCIATION OF ALGONA, Iowa, Appellee, v. Jacqueline E. and Richard E. CAMPNEY, Appellants.
• Court: Iowa Supreme Court

Page 613

357 N.W.2d 613

HOME FEDERAL SAVINGS AND LOAN ASSOCIATION OF ALGONA, Iowa, Appellee, v. Jacqueline E. and Richard E. CAMPNEY, Appellants.

No. 83-1189.

Supreme Court of Iowa.

Nov. 14, 1984.

Mark S. Soldat, Algona, for appellants.

Joseph J. Straub, Algona, for appellee.

Considered by UHLENHOPP, P.J., and McGIVERIN, LARSON, CARTER, and WOLLE, JJ.

McGIVERIN, Justice.

Defendants Jacqueline E. and Roger E. Campney appeal from a judgment for plaintiff Home Federal Savings and Loan Association of Algona, Iowa, in a mortgage foreclosure action that involves a due-on-sale clause in the mortgage. We affirm and remand the case to permit the trial court to rule on a still pending motion.

The following issues are presented for our review: 1) whether the proper interpretation of the word "shall" in the due-on-sale clause requires judgment for defendants; 2) whether the due-on-sale clause is unconscionable; 3) whether application of the doctrine of reasonable expectations requires judgment for defendants; 4) whether plaintiff actually exercised the option to accelerate payment of the mortgage balance that the due-on-sale clause purports to give; 5) whether the forfeiture of a sale contract for the mortgaged property by the defendants' vendees operated retroactively to cancel the operation of the due-on-sale clause; 6) whether plaintiff waived its right to bring the foreclosure action, or should be estopped from doing so; 7) whether the trial court acted permissibly in making its award of attorney fees to plaintiff; and 8) whether one of defendants' witnesses should be deemed an expert witness within the meaning of Iowa Code section 622.72 (1983) and compensated accordingly.

This being an equity case, our review is de novo. Iowa R.App.P. 4. Upon consideration of the record, we find the facts to be as follows.

Prior to November 17, 1977, defendants, who are husband and wife, contacted plaintiff about financing the purchase of a house in Algona which Richard Campney's relatives had recently inherited. The house was in poor condition, and defendants contemplated a loan not only to purchase it, but also to make extensive repairs. Once repairs were completed, they planned to rent it out or possibly to move into it themselves if they lost their lease on the farm they were renting at that time.

Clay Mowers, then executive vice-president of plaintiff, discussed with defendants such matters as the amount of the loan they were seeking, the interest rate, and the monthly payments. Although it seems to have been obvious to defendants from the first that the loan would be secured by a mortgage on the property to be purchased, apparently it was not mentioned to them in the course of these discussions that the mortgage would contain a due-on-sale clause.

Defendants decided to purchase the property and applied for a loan in the amount of $21,650, of which $18,500 was for the purchase of the property and the remainder for remodeling and repairs. Plaintiff approved the application and requested defendants to designate an attorney to represent them in connection with the purchase of the property. Defendants retained Vern McClure, an Algona lawyer, as their attorney. He wrote a title opinion letter to defendants prior to the closing and issued an Attorney's Certificate of Title thereafter, but was not requested by defendants to be present at the closing.

The closing took place on November 17, 1977. Present were defendants, Sandra Wiener (a vice-president of plaintiff), and several of Mr. Campney's relatives. The closing took a little over an hour, and during that time defendants had the opportunity to read each instrument they signed, including the mortgage, prior to signing it. However, defendants admit that they did not read the mortgage before signing. Mrs. Weiner answered various questions that defendants asked her, but there was no mention or discussion of a due-on-sale clause in the mortgage.

The mortgage signed by defendants contained a due-on-sale clause as its paragraph 17, which reads: "This mortgage shall become due and payable forthwith at the option of the mortgagee if the mortgagor shall convey away said premises or if the title thereto shall become vested in any other person or persons in any manner whatsoever."

After taking possession of the house, defendants spent several months making renovations and repairs. When the work was completed, they tried without success to rent the property. In the fall of 1978, they listed it for sale. They received no satisfactory offers and reduced their price in the spring of 1979. Shortly thereafter, they entered into negotiations with Bruce and Laurie Moe, which culminated on June 27, 1979 with the signing of an agreement or contract to sell the house to them for $30,000 on a five-year balloon contract at 10 percent interest per year.

Roger Long, the realtor who handled the sale of the property to the Moes, told Richard Campney several weeks before the sale that, because of the due-on-sale clause in the mortgage, defendants should consult with the mortgagee (plaintiff) before selling the property. Long warned Campney that plaintiff might, after the sale, declare the entire mortgage balance due and payable, or might instead request a raising of the mortgage interest rate in exchange for not doing so. Campney expressed his view to Long that the due-on-sale clause was illegal and unenforceable, and that in the event of sale plaintiff could neither accelerate payment of the mortgage balance nor request an increase in the interest rate. Rod Ricklefs, a colleague of Long's who had recently attended a seminar on the legality of due-on-sale clauses, also discussed the enforceability of the clause with Campney.

Plaintiff learned of the sale to the Moes from Mrs. Jacqueline Campney the day after the sale contract was signed. Mrs. Weiner, who had presided at the closing in 1977, advised Mrs. Campney to talk to Mr. Mowers about the mortgage. Neither of defendants did so, and on July 9, 1979, Mowers wrote to them regarding the effect of the due-on-sale clause. In his letter he offered defendants the choice of either paying off the entire mortgage balance or consenting to raise the interest on it from the original 9 percent to 11 percent per year.

There followed a series of letters in which plaintiff reiterated its demand for either payment in full or an increase in the interest rate. Defendants refused to agree to either. On August 30, 1979, plaintiff filed its petition for foreclosure of the mortgage and its underlying note.

The petition alleged that defendants breached the terms of paragraph 17 of the mortgage by conveying or agreeing to convey the realty to the Moes, and that plaintiff under the terms of paragraph 17 elected to declare the entire mortgage debt to be due and payable.

Defendants answered and resisted foreclosure on several grounds.

After trial, judgment for plaintiff was entered. Defendants appeal.

I. The word "shall" in the due-on-sale clause. As noted before, paragraph 17 of defendants' mortgage reads, "This mortgage shall become due and payable forthwith at the option of the mortgagee [Home Federal] if the mortgagor [Campneys] shall convey away said premises or if the title thereto shall become vested in any other person or persons in any manner whatsoever." (emphasis added). Defendants' first contention is that the proper interpretation of the emphasized "shall" requires judgment for them in this action.

Defendants maintain that the word "shall," although sometimes used to express simple futurity, ordinarily expresses obligation when, as here, it is used in the third person. Thus, defendants contend that, according to ordinary usage, the second "shall" of paragraph 17 indicates that the mortgage could not have become due upon sale unless the defendants were under an obligation to sell the mortgaged property. Because no such obligation existed, defendants contend that the due-on-sale clause was never triggered by their sale to the Moes.

Defendants used the testimony of a grammarian to make an alternative argument in this vein. Mrs. Marguerite Kalar testified for defendants that the second "shall" was ambiguous because of its location in a protasis (conditional clause). She said that it was unclear whether the word should be read as indicating an obligation or as indicating simple futurity. Defendants maintain that this ambiguity should be resolved against plaintiff as the drafter of the language.

We decline to adopt either of defendants' arguments on this issue. The purpose of contract interpretation is to ascertain the intent of the contracting parties at the time the contract was made. See Freese v. Town of Alburnett, 255 Iowa 1264, 1267, 125 N.W.2d 790, 792 (1964). The record shows that plaintiff intended the word "shall" to express simple futurity. Defendants, by their own admission, did not read the mortgage before signing it, and so cannot be said to have had any actual intent regarding the word "shall" in paragraph 17. The proper interpretation of this word cannot involve giving it a meaning that none of the parties in fact gave it. Hamilton v. Wosepka, 261 Iowa 299, 307, 154 N.W.2d 164, 168 (1967) (quoting 3 A. Corbin, Corbin on Contracts, preface (1963)).

When interpreting a contract, we seek to give effect to the language of the entire contract in accordance with its commonly accepted and ordinary meaning. Gendler Stone Products Co. v. Laub, 179 N.W.2d 628, 630 (1970). Words of the contract are interpreted in the context in which they are used. Greenberg v. Alter Co., 255 Iowa 899, 904, 124 N.W.2d 438, 441 (1963).

In this case, although it might be maintained that the word "shall" has two commonly accepted and ordinary meanings (that of obligation and that of simple futurity), the consideration of its context is decisive. Defendants' interpretation of the word as expressing obligation would result in the triggering of the due-on-sale...