Knox v. Cook

• Decision Date: 22 September 1989
• Docket Number: No. 87-868,87-868
• Citation: 446 N.W.2d 1,233 Neb. 387
• Parties: Kenneth B. KNOX and Marilyn M. Knox, Appellants, v. William W. COOK, Jr., et al., Appellees.
• Court: Nebraska Supreme Court

Page 1

446 N.W.2d 1

233 Neb. 387

Kenneth B. KNOX and Marilyn M. Knox, Appellants, v. William W. COOK, Jr., et al., Appellees.

No. 87-868.

Supreme Court of Nebraska.

Sept. 22, 1989.

Syllabus by the Court

1. Contracts. Whether a document is ambiguous is a question of law initially determined by a trial court.

2. Judgments: Appeal and Error. Regarding a question of law, an appellate court has an obligation to reach a conclusion independent from a trial court's conclusion in a judgment under review.

3. Contracts: Words and Phrases. Ambiguity exists in an instrument when a word, phrase, or provision in the instrument has, or is susceptible of, at least two reasonable but conflicting interpretations or meanings.

4. Contracts. The fact that parties to a document have or suggest opposing interpretations of the document does not necessarily, or by itself, compel the conclusion that the document is ambiguous.

5. Contracts: Intent. If the contents of a document are unambiguous, the document is not subject to interpretation and construction, and the intention of the parties to the document must be determined from the contents of the document.

6. Contracts: Guaranty. A guaranty, as any other contract, must be interpreted by reference to the entire document with meaning and effect given to every part of the guaranty whenever possible.

John S. Pierce, of Rembolt Ludtke Parker & Berger, Lincoln, for appellants.

James G. Sharp, of Everson, Wullschleger, Sutter, Sharp, Korslund & Willet, Beatrice, for appellees.

HASTINGS, C.J., and BOSLAUGH, WHITE, CAPORALE, SHANAHAN, GRANT, and FAHRNBRUCH, JJ.

SHANAHAN, Justice.

Kenneth B. and Marilyn M. Knox brought an action in the district court for Gage County to recover on a personal guaranty signed by the defendants, David O. Carlson, William W. Cook, Jr., and Walter G. Nickel. The district court, after finding that the provisions of the guaranty were ambiguous, received extrinsic evidence regarding the parties' intent for the guaranty and subsequently determined that the defendants were not liable to Knoxes on the guaranty.

Knoxes appeal and contend that (1) the district court erred in its conclusion that the guaranty was ambiguous, (2) the district court erred in quashing a subpoena served on Carlson and Cook, and (3) the judgment that the defendants were not liable under their guaranty is unsupported by the evidence.

In April 1981, Knoxes entered a written lease with N Double C, Inc. Carlson, Cook, and Nickel were the sole shareholders of N Double C. Pursuant to the lease, Knoxes were required to construct on their real estate a restaurant which N Double C would then lease for a 15-year term. Knoxes wanted Carlson, Cook, and Nickel to give their personal guaranty for the payments required by the lease to N Double C. The lease called for a monthly payment of $5,437.50 as rent due on the first day of each month during the lease and, among its several provisions, contained the following:

16. In case of default by lessee [N Double C], David O. Carlson, Walter Nickel, and William W. Cook, Jr., the sole shareholders of N Double C, Inc., will guarantee the monthly payments as heretofore set out until the property herein described is re-leased or up to a term of thirty-six (36) months, whichever is sooner.

Notwithstanding the lease provision for a guaranty, the defendants signed a "Personal Guarantee," which was appended to the Knox-N Double C lease and provides:

David O. Carlson, Walter Nickel and William W. Cook, Jr. represent that they are the sole owners of all the issued and outstanding stock of the lessee corporation, and that they personally, jointly, and severally guarantee the faithful and full performance by the lessee of its obligations under this lease, to the following extent.

In the event that the corporation should default under this lease agreement at any time during its term, the guarantors will guarantee the monthly payments set out in the original lease until the property is re-leased or up to a term of thirty-six (36) months, whichever is sooner.

/s/David O. Carlson

David O. Carlson

/s/Walter Nickel

Walter Nickel

/s/William W. Cook, Jr.

William W. Cook, Jr.

Knoxes constructed the restaurant, which N Double C occupied in November 1981. N Double C paid its monthly installments of rent through November of 1985 but failed to pay the rent installment due on December 1, 1985. On January 24, 1986, Knoxes' lawyer sent a letter to the defendants' lawyer, requesting that the defendants pay the then delinquent rent (December 1985 and January 1986). On January 29, 1986, defendants' lawyer responded to Knoxes' demand: "I feel that a fair construction of the guaranty portion of the lease agreement is that it is only in effect for the first thirty-six (36) months from the signing of the lease agreement. That time has expired." N Double C vacated the premises and removed all its equipment sometime between January and May of 1986.

Knoxes attempted to relet the property by listing it with a real estate agency and initially asked $35,000 annual rent, which was reduced to rent of $24,000 per year in June 1986, and again reduced, this time to $22,000 per year in December 1986.

In response to Knoxes' action based on N Double C's default regarding the lease and the defendants' guaranty, Carlson and Cook stated in their answer: "The term of the guarantee under said lease expired three years from the inception of said lease and, therefore, no liability is due from these Defendants to Plaintiffs." Additionally, Carlson and Cook alleged: "Plaintiffs have not made good faith efforts to mitigate the damages of the Defendants and to make reasonable efforts to lease the property for a commercially reasonable amount and, therefore, are barred from any recovery under the terms of said lease." In his separate pleading, Nickel not only denied liability in a verbatim restatement of the defensive allegations made by Carlson and Cook, but also cross-claimed against Carlson and Cook on account of an alleged indemnity agreement among the defendants to the effect that Carlson and Cook indemnified Nickel "against any claims and demands arising as a result of the" guaranty for the Knox-N Double C lease.

Knoxes obtained service of a subpoena duces tecum on Carlson and Cook, who moved to quash the subpoena. The court sustained the motion by Carlson and Cook and quashed a portion of the subpoena.

Kenneth Knox testified that N Double C had defaulted in the payment of all rent due for the period from December 1, 1985, to April 14, 1987, the date of trial. The defendants offered no evidence to contradict Kenneth Knox's testimony concerning N Double C's default in the payment of rent.

At the conclusion of evidence, the district court found: "Said premises have not been re-leased since [N Double C's] default notwithstanding plaintiffs' efforts so to do; plaintiffs' efforts in such regard have been reasonable and proper in the circumstances." Further, the district court concluded that the guaranty's language "or up to a term of thirty-six (36) months" was ambiguous. In view of such ambiguity, the court allowed the defendants to testify concerning their intention for the guaranty. In substance, the defendants testified that the phrase "or up to a term of thirty-six (36) months" meant that the defendants' guaranty existed only for the first 36 months of the Knox-N Double C lease. Thus, according to the defendants, their guaranty expired in 1984, that is, 3 years after the lease was signed by Knoxes and N Double C. In view of the defendants' testimony, the district court concluded that the guaranty's language "up to a term of thirty-six months" was a reference to the duration of the guaranty's existence for 36 months from commencement of the Knox-N Double C lease and was not a reference to the period or temporal extent of the defendants' liability after N Double C's default on the lease. Consequently, in the judgment entered, the district court stated that "more than three years having elapsed from the beginning of the lease period before default occurred thereon, defendants are not now obligated to pay plaintiffs any sums under their guarantees." The court then dismissed Knoxes' action.

In their appeal, Knoxes contend that the defendants' guaranty is not ambiguous and request that the district court's judgment be reversed with direction to enter judgment for Knoxes, that is, judgment for $92,437.50 (delinquent rent from December 1985 to and including April 1987, or 17 months) with prejudgment interest. The defendants maintain that their guaranty is ambiguous, and, therefore, the district court's judgment, determining the intent for the guaranty, is correct. The defendants have not cross-appealed to challenge the district court's finding that the Knoxes have exerted reasonable efforts to relet the leased premises previously occupied by N Double C.

Whether a document is ambiguous is a question of law initially determined by a trial court. Luschen Bldg. Assn. v. Fleming Cos., 226 Neb. 840, 415 N.W.2d 453 (1987). "Regarding a question of law, an appellate court has an obligation to reach a conclusion independent from a trial court's conclusion in a judgment under review." Huffman v. Huffman, 232 Neb. 742, 748, 441 N.W.2d 899, 904 (1989). See, also, Boisen v. Petersen Flying Serv., 222 Neb. 239, 383 N.W.2d 29 (1986).

Ambiguity exists in an instrument when a word, phrase, or provision in the instrument has, or is susceptible of, at least two reasonable but conflicting interpretations or meanings. In re Estate of Walker, 224 Neb. 812, 402 N.W.2d 251 (1987). See, also, National Farmers Union Serv. Corp. v. Edwards, 220 Neb. 231, 369 N.W.2d 76 (1985) (a document is ambiguous if, after application of the pertinent rules for construction, there is uncertainty concerning which of two or more reasonable meanings represents the intention of the parties). The fact that parties to a document...