Management Services Corp. v. Development Associates

• Decision Date: 11 September 1980
• Docket Number: No. 16341,16341
• Citation: 617 P.2d 406
• Parties: MANAGEMENT SERVICES CORP., a Utah Corporation, Plaintiff and Respondent, v. DEVELOPMENT ASSOCIATES, a Utah Corporation and John and Jane Does One through Eight, Defendants and Appellants.
• Court: Utah Supreme Court

Page 406

617 P.2d 406

MANAGEMENT SERVICES CORP., a Utah Corporation, Plaintiff and Respondent, v. DEVELOPMENT ASSOCIATES, a Utah Corporation and John and Jane Does One through Eight, Defendants and Appellants.

No. 16341.

Supreme Court of Utah.

Sept. 11, 1980.

Steven H. Stewart of Stewart, Young, Paxton & Russell, Salt Lake City, for defendants and appellants.

Kent B. Scott, Salt Lake City, for plaintiff and respondent.

WILKINS, Justice:

Plaintiff brought action to quiet title to real property, and alternatively, for damages caused by breach of contract. On December 7, 1976, plaintiff, as buyer, and Defendant Development Associates (defendant), as seller, entered into a written contract for the purchase and sale of eight designated lots in a subdivision located in Salt Lake County. The District Court of Salt Lake County, sitting without a jury, dismissed plaintiff's quiet title action, but entered judgment in favor of plaintiff for damages in the total amount of $12,747.05, which included attorney's fees and costs. Defendant appeals.

By the contract, plaintiff agreed to purchase, and defendant agreed to sell, lots 309 through 316 of a recorded subdivision in Salt Lake County, at a purchase price of $80,000, of which $800, as earnest money, was paid at the time of the execution of the contract; plaintiff was entitled to immediate possession of the real property; and the remaining $79,200 was to be paid under paragraph 3 of the agreement:

Beginning March 1, 1977, buyer to complete payment on two (2) lots ($19,800.00) and thereafter to close two (2) lots on the first of each month. Total amount to be paid on or before June 15, 1977.

Paragraph 16 of the agreement contains a provision concerning the seller's elections of remedies in the event of default by the buyer, which included the election defendant sought here.

Plaintiff did not make the payment which was due on March 1, 1977. On March 19, 1977, defendant sent plaintiff notice of its election to exercise its option under paragraph 16 A of the agreement, which was to repossess the property and to retain earnest money as liquidated damages unless the delinquent installment was paid within five days. Under date of March 23, 1977, plaintiff responded with a letter in which it demanded that $6,000 of the purchase money for each lot be escrowed to assure construction of improvements on the lots which had not been done.

Defendant did not reply to plaintiff's letter, but beginning March 25, 1977, began to sell the lots to third parties. By April 26, 1977, all eight lots had been sold by defendant at varying prices, which in the aggregate, exceeded the $80,000, agreed upon between these parties.

The District Court found that the contract was severable; that plaintiff had defaulted all of its interest in two lots to be conveyed on March 1, 1977, but that defendant had breached the agreement by wrongfully terminating the contract as to the remaining six lots, and entered judgment on that basis.

The sole issue raised by defendant is the Court's determination that the agreement was severable.

A contract is severable or entire depending on the intent of the parties at the time they entered into the contract.

This intent should be ascertained first from the four corners of the instrument itself, second from other contemporaneous writings concerning the same subject matter, and third from the extrinsic parol evidence of the intentions. (Continental Bank and Trust Company v. Bybee, 6 Utah 2d 98, 101, 306 P.2d 773 (1957). See also, Thomas J. Peck & Sons, Inc. v. Lee Rock Products, Inc., 30 Utah 2d 187, 515 P.2d 446 (1973)).

One factor in determining the parties' intent with regard to severability is the manner in which the consideration is expressed in the contract. Where consideration is a single amount for the whole property, the contract is usually entire, while an apportionment of the consideration to each lot would indicate an intent that the contract be severable. This factor is not conclusive, however. The basic test is whether the purpose of the parties was to buy and sell the whole tract as a unit so that the parties would not have agreed on less than the whole, in which case the contract is entire; otherwise it is severable. ¹

Here, the consideration, in the first part of paragraph 3, is expressed as $80,000 for the total tract (of which $800 was paid as earnest money), the language of the subsequent part of this paragraph, noted ante, infuses ambiguity into the parties' intent. Plaintiff urges that a reading of this latter part shows that the total purchase price was apportioned by the parties at $10,000 per lot (and the earnest money at $100 per lot).

The District Court determined that the language of the contract was ambiguous on this issue, and admitted parol evidence of the circumstances at the time of signing the contract.

The testimony at trial showed that plaintiff is a corporation organized for the purpose of buying and selling property, and that its president, Edward A. White, is a real estate broker. Plaintiff was purchasing the lots for resale, and as a part of this agreement, though it is not expressed in the written contract, Edward A. White was to be paid 60 percent of the usual 6 percent real estate commission for selling the lots to third parties. Plaintiff was to choose which two of the eight lots would be closed each month.

This evidence, which is not disputed by either party, demonstrates that the parties considered these lots as "fungible," and that their bargain was not that the entire tract, or none of it, should be taken. The District Court therefore had rational basis for concluding that this contract was intended to be severable, and not entire.

Plaintiff requests additional attorney's fees for successfully defending this appeal. The written contract provides for payment of reasonable attorney's fees by the defaulting party incurred in enforcing the agreement or in "pursuing any remedy provided hereunder or by the statutes of the State of Utah whether such remedy is pursued by filing a suit or otherwise."

We have previously held that attorney's fees on appeal will be granted in the discretion of the Court, ² and then only where permitted by statute or rule of Court. ³ While arguing that this Court should exercise its discretionary power in this case, the defendant further urges this Court to modify this rule of law to allow attorney's fees incurred by the prevailing party on appeal where there is a contractual obligation therefore, as a matter of course.

The majority of jurisdictions have recognized that the contractual obligation to pay attorney's fees incurred in enforcing a contract should include those incurred on appeal. ⁴ The Colorado Appellate Court, in Zambruk v. Perlmutter Third General Builders, Inc., 510 P.2d 472 (Colo.App.1973) stated the most cogent reason for the allowance of such fees on appeal:

The purpose of a provision for attorney's fees is to indemnify the creditor or the prevailing party against the necessity of paying an attorney's fee and to enable him to recover the full amount of the obligation.

The parties here agreed to pay reasonable attorney's fees if it became necessary to enforce the contract. If plaintiff is required to defend its position on appeal at its own expense plaintiff's rights under the contract are thereby diminished. We therefore adopt the rule of law that a provision for payment of attorney's fees in a contract includes attorney's fees incurred by the prevailing party on appeal as well as at trial, if the action is brought to enforce the contract, and overrule Swain and Downey State Bank on this point insofar as they may be to the contrary.

The judgment appealed from is affirmed, and this case is remanded to the District Court of Salt Lake County for its determination of reasonable attorney's fees to be granted to plaintiff for the appeal of this case. Costs to plaintiff.

CROCKETT, C. J., and MAUGHAN, J., concur.

HALL, Justice (concurring and dissenting).

I am of the opinion that the contract in the instant case is not uncertain. Its meaning may be construed from its own terms and it was error for the trial court to admit parol evidence on the issue of severability.

It is a basic principle of contract law that:

... the meaning and effect to be given a contract depends upon the intent of the parties, and that this is to be ascertained by looking at the entire contract, and all of its parts in their relationship to each other; and this principle applies to whether they intended separate aspects of their contract to be severable, and that if this results in uncertainty, (then) he may and should look to extraneous evidence concerning the background and surrounding circumstances in order to make that determination. ¹ (Emphasis added.)

Pertinent provisions of the contract here concerned read as follows:

2. WITNESSETH: That the Seller, for the consideration herein mentioned agrees to sell and convey to the buyer, and the buyer for the consideration herein mentioned agrees to purchase the following described real property, situate in the county of Salt Lake, State of Utah, ... (m)ore particularly described as follows:

Lots # 309, # 310, # 311, # 312, # 313, # 314, # 315, # 316 Daybreak Phase III Subdivision as recorded in the Salt Lake County Records Office.

3. Said Buyer hereby agrees...