ICC Leasing Corp. v. Midwestern Machinery Co.
| Decision Date | 05 August 1977 |
| Docket Number | No. 46945,46945 |
| Citation | 257 N.W.2d 551 |
| Parties | ICC LEASING CORPORATION, Respondent, v. MIDWESTERN MACHINERY COMPANY, Appellant, Thomas L. MacKrell, Defendant. |
| Court | Minnesota Supreme Court |
Syllabus by the Court
1. The trial court correctly determined that the phrase "principal balance due at any time of default" used in a guarantee agreement given by defendant Midwestern Machinery Company to plaintiff ICC Leasing Corporation was ambiguous.
2. The trial court properly allowed evidence of the parties' conversations and conduct during their negotiations to aid in the construction of the agreement. The trial court's interpretation of the agreement is not clearly erroneous.
3. ICC Leasing Corporation is entitled to prejudgment interest under the facts of this case. However, in the absence of a written agreement providing for a higher rate of interest, the prejudgment interest should be computed at the legal rate of 6 percent.
Lindquist & Vennum and William C. Mortensen and Kurtis A. Greenley, Minneapolis, for appellant.
Maun, Hazel, Green, Hayes, Simon & Aretz and Richard D. Donohoo, St. Paul, for respondent.
Heard before ROGOSHESKE, PETERSON, and MacLAUGHLIN, JJ., and considered and decided by the court en banc.
Plaintiff, ICC Leasing Corporation (ICC), brought this action against defendant Midwestern Machinery Company (Midwestern) pursuant to Midwestern's written agreements to purchase certain equipment leased by ICC to Northland Automatic Products, Inc. (Northland) upon Northland's default. ICC also brought suit against defendant Thomas L. MacKrell, Northland's president, upon his personal guarantees of the leases, but prior to trial ICC settled with MacKrell for $7,500. The case was tried without a jury and the trial court awarded judgment to ICC for $43,160.79. We affirm in part and reverse in part.
ICC, a Minnesota corporation engaged in financing and leasing personal property and equipment, planned to execute two lease agreements with Northland. Under the terms of these agreements, Northland was to lease various pieces of equipment from ICC for a term of 5 years, with 60 equal monthly payments to be made by Northland. Uncertain of Northland's financial condition, ICC sought guarantees of the leases from Northland's president, MacKrell, and from Midwestern, a Minnesota corporation in the business of selling new and used machine tools and equipment and with which ICC had had business dealings in the past.
On January 5, 1970, before executing the lease agreements with Northland, John R. Myhr, a sales representative of ICC, went to the office of Clarence J. O'Heron, secretary of Midwestern, to discuss Midwestern's purchase of the equipment in the event of Northland's default on its lease payments. Although O'Heron testified at trial that he had not intended to guarantee the lessee's rental agreements but only ICC's net investment (purchase price) in the equipment, it was undisputed that O'Heron dictated and signed two letter agreements which stated:
"With reference to your Lease * * * a copy of which is attached hereto to Northland Automatic Products, Inc., Lessee, in consideration of the right to purchase said equipment at the end of the lease for not to exceed 10% of its original value, we agree to purchase this equipment for the principal balance due at any time of default during the term of this lease."
After obtaining Midwestern's letter agreements ICC proceeded to lease the equipment to Northland, but by July of that year Northland was in default on both leases. ICC notified Northland of the default by letter of July 7, 1970, declaring the entire unpaid balance of $330,847.28 due and payable. On the same date, ICC notified Midwestern of Northland's default and demanded payment of the "unpaid principal balances" on the leases, pursuant to the letter agreements. The amount ICC demanded from Midwestern was stated to be $228,781.97, a sum arrived at by applying the Rule of 78's 1 to the entire unpaid balance of the Northland leases, thereby reducing Midwestern's obligation by the amount of the unearned lease service charges which would have become payable after Northland's default.
On July 21, 1970, ICC authorized Midwestern to take immediate possession of the equipment and to purchase it in accordance with the letter agreements. Midwestern took possession of the equipment and proceeded to sell it to various purchasers over the next 8 months. Midwestern subsequently remitted the net proceeds of those sales to ICC and, in addition, made several monthly rental payments.
After June 1973, Midwestern refused to make further payments and ICC brought suit against Midwestern and against MacKrell. After the claim against MacKrell was settled, the action against Midwestern was tried by the court. The trial court ordered judgment for ICC in the amount of $43,160.79, including prejudgment interest at the rate of 8 percent, and Midwestern appealed from the judgment and from the denial of its motion for a new trial.
Midwestern raises three issues on appeal: (1) Whether the trial court properly found that Midwestern's letter agreements contained an ambiguous term; (2) whether the meaning of the phrase "principal balance due at any time of default" was properly construed by the trial court; and (3) whether the trial court properly awarded ICC prejudgment interest computed at 8 percent.
1. The central issue for consideration by the trial court was the proper interpretation of the following phrase which was part of the letter agreements, dictated and signed by O'Heron:
" * * * (I)n consideration of the right to purchase said equipment at the end of the lease for not to exceed 10% of its original value, we agree to purchase this equipment for the principal balance due at any time of default during the term of this lease." (Emphasis supplied.)
Midwestern acknowledged that it had signed the agreements, but argued that it had agreed to guarantee only ICC's net investment in the equipment leased to Northland. Midwestern contended that the word "principal" referred to only the purchase price paid by ICC for the equipment and that the sum total of all payments made by Northland before the default and all payments made by Midwestern and MacKrell after the default should have been credited against ICC's net investment in the leased equipment.
However, ICC contended that Midwestern had agreed to guarantee Northland's entire obligation under the leases. ICC argued that the lease payments made by Northland before default could not have been attributed solely to ICC's net investment in the equipment since Northland's monthly rental payments had included amounts for sales taxes, interest charges, and expenses of administration. Further, ICC stated that a portion of Midwestern's payments to ICC after Northland's default was attributable to interest accruing on Midwestern's unpaid obligation.
The trial court determined that the threshold question was whether the phrase in controversy was ambiguous. Whether or not a contract is ambiguous and thus open to construction presents, in the first instance, a question for legal determination by the trial court. On appeal, we must decide whether the trial court was correct in finding ambiguity and, if so, whether proper interpretation was given to the language used by the parties. Employers Liability Assurance Corp. v. Morse, 261 Minn. 259, 111 N.W.2d 620 (1961).
A writing is ambiguous if, judged by its language alone and without resort to parol evidence, it is reasonably susceptible of more than one meaning. Metro Office Parks Co. v. Control Data Corp., 295 Minn. 348, 205 N.W.2d 121 (1973). In the instant case it seems clear, and we agree with the trial court, that the phrase used in the letter agreements was open to contrary interpretations and is, therefore, ambiguous.
2. The trial court's determination that the phrase was ambiguous required resort to extrinsic evidence offered in aid of its interpretation. Although preliminary negotiations cannot be allowed to contradict or vary the plain terms of a written contract, where such contractual terms or words are ambiguous or reasonably susceptible of more than one meaning, precontract negotiations may be considered in order to determine the meaning and intent of the parties. Paul W. Abbott, Inc. v. Axel Newman H. & P. Co. Inc., 282 Minn. 493, 166 N.W.2d 323...
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