Metropolitan Life Ins. Co. v. Strnad
| Decision Date | 03 June 1994 |
| Docket Number | No. 70379,70379 |
| Parties | METROPOLITAN LIFE INSURANCE COMPANY, Appellee, v. Paul W. STRNAD, Cynthia Kay Strnad, and JSB Farms, Inc. (formerly known as Strnad Farm & Ranch, Inc.), Appellants. |
| Court | Kansas Supreme Court |
Syllabus by the Court
1. The maxim expressio unius est exclusio alterius is used in the interpretation and construction of a contract when the intention of the parties is not clear. It is merely an auxiliary rule of construction which is not conclusive; it should be applied only as a means of discovering intent not otherwise manifest and should never be permitted to defeat the plainly indicated purpose of the parties. The extent to which the doctrine should be applied depends, in any event, on how clearly the drafter's intent is otherwise expressed.
2. The common-law rule regarding prepayment of a note and mortgage is that absent a specific provision in the written instruments providing for prepayment, there is no right for the debtor to prepay the note and mortgage.
3. Parties to a contract are presumed to include in the contract all existing and applicable statutes and case law unless a contrary intent is demonstrated.
4. Restraints on alienation are not favored by the law. Any restriction or prohibition against transfer acts as a restraint on alienation and should be strictly construed against the party urging the restriction.
5. A due on sale clause is not a restraint on alienation because it permits the owner to transfer the property, subject to the acceleration of the debt by the creditor. Although this may impede the transfer, other impediments to transfer, e.g., zoning or building restrictions, are also not considered to be either restraints on alienation or contrary to public policy.
6. The cardinal rule of contract construction requires courts to determine the parties' intent from the four corners of the instrument by construing all provisions together and in harmony with each other rather than by critical analysis of a single or isolated provision. This rule must be applied prior to the introduction of any extrinsic evidence regarding the intent of the parties.
7. Promissory notes and mortgages are contracts between the parties, and the rules of construction applicable to contracts apply to them. A mortgage and a note secured by it are to be deemed parts of one transaction and construed together as such; the provisions of both should be given effect.
8. Where the language of the contract is clear and can be carried out as written, there is no room for construction or modification of the terms.
Kyle L. Larson, Goodland, argued the cause and was on the brief, for appellants.
Martin W. Bauer, of Martin, Pringle, Oliver, Wallace & Swartz, Wichita, argued the cause, and Angela L. Rud, of the same firm, and Michael Curoe, of Metropolitan Life Ins. Co., were with him on the brief, for appellee.
This involves a dispute as to the debtors' right to prepay the principal and interest of a promissory note and mortgage. The district court found that the debtors' right of prepayment was governed by the contract and granted summary judgment to plaintiff, the creditor. The debtors appealed, claiming that they had the right of prepayment of the note and mortgage at any time even though two dates for prepayment were specifically provided in the documents. The creditor's motion to transfer the case to this court pursuant to K.S.A. 20-3017 was granted.
In 1986, the Strnads, as individuals, and Strnad Farm & Ranch, Inc., (the Strnads) executed a promissory note to Metropolitan Life Insurance Company (Metropolitan). The terms of the note were $700,000 at a fixed rate of 11.75% per annum, with semiannual payments of principal and interest over a period ending in March 2001. The interest rate was subject to adjustment by Metropolitan on March 1, 1991, and March 1, 1996. The note contained the following provision:
"Privilege is reserved to pay the loan in part or in full on interest adjustment date [sic] of March 1, 1991 and March 1, 1996."
In conjunction with the note, the Strnads executed a mortgage of real estate to secure the debt. The purpose of the loan was for business or agricultural purposes. On March 1, 1991, Metropolitan adjusted the interest rate to 9.25%. The Strnads did not at that time prepay any part of the principal balance.
In April 1993, the Strnads attempted to pay off the balance of the note and accrued interest. Metropolitan refused to accept the prepayment. Metropolitan then filed a declaratory judgment action to determine whether it could be compelled to accept prepayment of the note and interest due on a date other than the dates specified in the note. The parties filed cross-motions for summary judgment.
The district court found that the only issue was whether the Strnads had a right to prepay the note and mortgage at any time other than the two dates specified in the contract. The district judge noted that this was an issue of first impression in Kansas. The judge observed that the majority rule was that in the absence of a specific contractual provision or legislative authority, there is no right to prepay a mortgage. In particular, the judge noted the Missouri Court of Appeals had recently examined the history of the common-law rule of perfect tender in time in regard to the prepayment of mortgages. See Skyles v. Burge, 789 S.W.2d 116 (Mo.App.1990).
The district judge also opined that the Strnads' right to prepay on the two specific dates was a quid pro quo for Metropolitan's option to adjust the interest rate on those same dates. The judge noted that other than those two dates, the contract was silent on a right to prepay the debt. The judge observed that the parties could have contracted to provide for unlimited prepayment or agreed to place in the contract an absolute prohibition against prepayment. He found the contract was unambiguous under Quenzer v. Quenzer, 225 Kan. 83, 86, 587 P.2d 880 (1978) () and rejected the Strnads' attempt to strictly construe the contract against the drafter of the instruments, Metropolitan.
The district judge also rejected the Strnads' claim that failure to allow prepayment of the note and mortgage was an unreasonable restraint on alienation. The judge found there had been no specific showing Metropolitan was unreasonably preventing the Strnads from selling or otherwise transferring the property.
The judge noted that the Kansas Legislature had provided for prepayment in certain instances: K.S.A. 16a-2-509, which allows a consumer to prepay in full the unpaid balance of a consumer credit transaction at any time without penalty; K.S.A. 16-207(c), which prohibits prepayment penalties on home loans after six months from the execution of the note; and K.S.A. 58-2309a, which applies to entry of satisfaction of mortgages and duties and liabilities of a mortgagee or assignee of a mortgage. The judge observed that the legislature had specifically not provided for prepayment privileges in commercial or agricultural loans. He opined that, absent legislative changes, it would appear the debtors had no right of prepayment except as specifically provided in the contract.
The judge also pointed out that from a reading within the four corners of the contract, prepayment was provided on only two dates. The judge concluded that it was not the function of the courts to create legislation by judicial action. He posited that the question of providing the right to a debtor of prepayment in an agricultural or commercial loan setting should be determined by the legislature.
The judge concluded that absent statutory authority, the courts have no choice but to agree with the rule of law which has been adopted by the majority of jurisdictions in the United States. He observed that no statutory authority overrode the majority rule that restricts the right of the debtor to prepay a note and mortgage and granted Metropolitan's motion for summary judgment. The Strnads appealed, claiming that they had a contractual and a legal right to prepay the note.
This court's review of the district court's decision is de novo because it involves stipulated facts as well as a question of law, the construction of a written contract. See Federal Land Bank of Wichita v. Krug, 253 Kan. 307, Syl. p 1, 856 P.2d 111 (1993); Hudgens v. CNA/Continental Cas. Co., 252 Kan. 478, Syl. p 1, 845 P.2d 694 (1993). Carpenter v. Riley, 234 Kan. 758, Syl. p 3, 675 P.2d 900 (1984). This court's analysis must begin within the four corners of the instrument itself. See Safelite Glass Corp. v. Fuller, 15 Kan.App.2d 351, 362, 807 P.2d 677, rev. denied 249 Kan. 776 (1991).
Metropolitan notes that one of the Strnads' arguments is that because the note does not expressly prohibit prepayment, it then permits it. The district judge found that argument failed by concluding that the fact something is not specifically provided for in a contract does not, by itself, make the contract ambiguous. See Quenzer, 225 Kan. at 86, 587 P.2d 880. If contracts are not ambiguous, courts must give effect to the intent of the parties as expressed within the four corners of the instrument. Metropolitan asserts the inclusion of specific dates for prepayment establishes the parties' intent was not to allow prepayment on any other date and that this court should apply the maxim "expressio unius est exclusio alterius," i.e., the mention of one thing indicates an exclusion of other things not mentioned. It also asserts that by discerning the parties' intent from the...
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