Sherman v. Woerner Magnolia Farms, Inc.

• Decision Date: 25 May 1990
• Citation: 565 So.2d 601
• Parties: Iris M. SHERMAN v. WOERNER MAGNOLIA FARMS, INC., et al. 88-977.
• Court: Alabama Supreme Court

Page 601

565 So.2d 601

Iris M. SHERMAN v. WOERNER MAGNOLIA FARMS, INC., et al.

88-977.

Supreme Court of Alabama.

May 25, 1990.

Allan R. Chason of Chason & Chason, Bay Minette, for appellant.

Julian B. Brackin of Brackin & Bear, Foley, for appellees.

MADDOX, Justice.

This appeal involves a dispute between the holders of a promissory note and the purchasers of real estate in Baldwin County who executed the note to pay part of the purchase price and secured the note by executing a mortgage on the property. One of the holders of the note died and there arose a disagreement regarding the manner in which installments had been applied on the note and the total amount then owing on the note.

This declaratory judgment action was filed by Woerner Magnolia Farms, Inc., and various members of the Woerner family; they asked the trial court to construe the various documents executed by the parties in connection with the sale by the Shermans to the Woerners, in 1976, of 1400 acres of land. At the time the suit was filed, Ernest Sherman was deceased and his interests were represented by his widow, Iris M. Sherman, and his daughter, Patricia Sherman, who had been appointed coexecutrices. The Shermans answered the complaint but admitted that a justiciable controversy existed between the parties.

The central issue presented by the proceeding concerned the amount of the indebtedness owed by Woerner to Sherman, and in order to determine that issue the court had to decide (1) the date that interest began to accrue on the debt; and (2) the appropriate application of the proceeds arising from the sale of certain timber from the property. A second issue involved the construction of a provision in the mortgage providing for a "moratorium," under the terms of which Woerner was permitted to defer payments of the annual installments due on the note. Specifically, the issue concerning the moratorium involved the repayment schedule of the installments that were deferred under the terms of the moratorium.

The trial court heard evidence on the issues, and all the parties agreed that the method of calculating the current amount due on the indebtedness was not at issue, but the parties disagreed on the date that interest was to begin to accrue.

The evidence heard by the trial court showed that in 1976 Ernest and Iris Sherman conveyed to Edward, Norman, George, and Larry Woerner ¹ a 1400-acre farm located in Baldwin County. The Shermans financed $950,000 of the purchase price, as evidenced by a promissory note and a mortgage on the farm securing that note. The terms of the note called for annual installments of $97,814.63, including interest "from date" at six percent per annum, with a final installment on January 1, 1992. The Shermans and the Woerners later executed a moratorium agreement, which amended the promissory note and the mortgage so as to permit the Woerners to defer payment of not more than five installments due under the note. The agreement provided that the deferments could not be taken in successive years and that $30,000 would be paid in lieu of a full payment. The $67,814.63 balance would be deferred and would bear an interest rate of eight percent per annum. The deferred balance was to be "due and payable on January 1, of the year following payment of all other installments due under the terms of the note hereinabove referred to." Ernest Sherman died in 1986, and in connection with the preparation of his estate tax return his accountant contacted the Woerners to determine the amount owed by the Woerners on the debt. The parties then found that they disagreed concerning the date at which interest began to accrue.

The Woerners contended that a mutual mistake was made in the drafting of the promissory note and that the interest should have begun to accrue on January 1, 1977. Mrs. Sherman contended that the plain language of the note indicated that interest was to accrue "from date" of the execution of the promissory note, that is, from August 6, 1976. The trial court found that there had been a mutual mistake in the drafting and reformed the note to provide that interest would begin to accrue on January 1, 1977. During trial the construction of the moratorium became an issue and both parties agreed that the trial judge should construe that document.

After the hearing, the trial court entered the following interlocutory order, which was adopted in the final judgment:

"INTERLOCUTORY DECREE:

"This matter coming on for a hearing, it was submitted upon the pleadings, testimony taken ore tenus on August 2, 1988, and argument of counsel. The plaintiffs filed a declaratory judgment action, also praying for general relief, wherein the plaintiffs sought a declaration of rights respecting the day the interest began to accrue under the terms of a promissory note and the application of monies arising out of timber sales. The plaintiffs contend that interest on the debt should have begun to accrue on January 1, 1977, and that timber sale proceeds should be applied first to principal obligation. The defendants maintain that interest began to accrue from the date of the creation of the debt, August 6, 1976, and that the timber proceeds should first be applied to accrued interest and then principal. Under consideration of the foregoing, the court is of the opinion that the following decree is due to be entered.

"FINDINGS OF FACT:

"A. The individual plaintiffs entered into a contract to purchase from Ernest Sherman and Iris Sherman approximately fourteen hundred (1,400) acres for ONE MILLION ($1,000,000.00) DOLLARS on July 5, 1976. (Plaintiffs' exhibit 1.) The purchase contract stated that FIVE THOUSAND ($5,000.00) DOLLARS would be paid down and the balance paid in fifteen (15) annual installments beginning January 1, 1978, at 6% per annum, with interest to begin January 1, 1977.

"B. The transaction was closed in the Shermans' home on August 6, 1976, with the execution of a promissory note (Plaintiffs' exhibit 4), an addendum agreement (Plaintiffs' exhibit 6), a real estate mortgage (Plaintiffs' exhibit 5), and a warranty deed (Plaintiffs' exhibit 2).

"C. Subsequent to the closing and during the course of several years, various written agreements were entered into by the sellers and the purchasers or their assigns (Plaintiffs' exhibits 9, 10 and defendants' exhibit 1).

"D. The amortization schedule given to the purchasers at the closing (Plaintiffs' exhibit 7) shows level payments over a fifteen (15) year period and does not disclose, in the first year's payment, the interest that would have accrued from August 6, 1976, to the date of the first payment. The schedule assumes interest began to accrue January 1, 1977.

"E. Neither Ernest Sherman, during his lifetime, nor Iris Sherman made any demand upon the purchasers or their assigns for the interest from August 6, 1976, to January 1, 1977, a period of one hundred forty-two (142) days [sic], until the CPA's preparing Mr. Sherman's estate tax return raised the question.

"F. The attorney who prepared the closing documents failed to insert a provision into the promissory note and mortgage signed by the individual defendants concerning the date that interest would begin to accrue so that the closing documents would conform to the contract for sale.

"G. At the closing, neither the sellers nor the purchasers discussed the issue of the beginning date for the accrual of interest on the unpaid balance of the purchase price.

"CONCLUSIONS OF LAW:

"I. The court finds that neither the promissory note nor the agreement concerning the timber cutting are ambiguous.

"II. The court finds that the omission of the beginning date for the accrual of interest on the unpaid balance of the purchase price was a scrivener's error and that the closing documents did not express the true intention of the parties as set forth in the contract of sale. Further, the court finds that the mistake was mutual and that the plaintiffs are entitled to relief under the general prayer for relief (see, McCaskill v. Toole, 218 Ala. 523, 119 So. 214 (1928); Ballentine v. Bradley, 238 Ala. 446, 191 So. 618 (1939)).

"III. The timber agreement dated March 27, 1981 (Defendants' exhibit 1), does not state that the timber proceeds would be applied first to principal and then to interest. The court also concludes that no estoppel was created when the Shermans signed the amortization schedule sent to them by one of the individual defendants (Plaintiffs' exhibit 16).

"IV. That said timber agreement provides that one half of the timber sales proceeds shall be paid to the purchasers 'in addition to all other amounts that may be due under the terms of said mortgage, except that the payment, when made, shall be credited to the last maturing...