Green River Valley Foundation, Inc. v. Foster

473 P.2d 844, 78 Wash. 2d 245, 1970 Wash. LEXIS 300

• Court: Washington Supreme Court
• Decided: August 20, 1970
• Docket: 39320
• Status: Published

Opinions

Neill, J.

Plaintiff, the purchaser under a real-estate earnest money receipt, appeals from a judgment denying specific performance of the contract. Defendants Foster are the vendors in that agreement who contend that they properly rescinded the contract by reason of plaintiff’s failure to timely pay the earnest money.

Plaintiff assigns error to the admission of oral testimony which allegedly varies the terms of the written agreement; to the trial court’s finding that a promissory note was not taken by the vendors as earnest money; and, on the basis of these asserted errors, to the holding that failure to pay the note within 60 days permitted the vendors to rescind the agreement.

We conclude that the admission of the oral testimony did not transgress the parol evidence rule as that testimony does not vary the written agreement of the parties, properly construed. We also hold that the assertion the note was taken as payment of earnest money is contradicted by other language in the agreement.

The Fosters reside in the Green River .Valley. They have previously bought and sold real estate, but Mr. Foster is a roofer and there is nothing in the record to indicate that they deal in real estate as a business. On September 25, 1965, they listed the property in question for sale through a Mr. Howk, with whom they had dealt when they purchased the property from its previous owner. Mr. Howk showed the property on several occasions. He also notified Mr. O’Brien, a real-estate broker, that the property was for sale.

Shortly thereafter, Mr. O’Brien informed Mr. Howk that he had an interested buyer. On the evening of October 5, 1965, Mr. Howk and Mr. O’Brien went to the Fosters’ home, where Mr. O’Brien presented the Fosters a signed earnest money agreement and promissory note on behalf of the plaintiff. From conflicting testimony, the trial court found as fact that at the time the papers were presented to the Fosters a representation was made by Mr. O’Brien that the earnest money would be paid to the Fosters within 60 days.

The earnest money agreement was prepared by filling blanks on a printed form bearing the number 31270. It begins:

Received from Green River Valley Foundation, Inc. (hereinafter called “Purchaser”) Five thousand and no/100 -Dollars ($5,000.00) in the form of . . . Note for $5,000.00, due sixty days, paid or delivered to agent as earnest money in part payment of the purchase price of [property described].

Total Purchase Price Is Forty six thousand and no/100 ($46,000.00) payable as follows: Thirteen thous- and, three hundred forty dollars cash including above receipted for Earnest money, as down payment. [Italicized matter was inserted on the printed form.]

The earnest money agreement contains the usual “time essence” provisions. The promissory note referred to in the earnest money agreement and delivered by plaintiff is also a printed form, but bears on its face the typewritten words “subject to Earnest money agreement #31270.”

Green River failed to pay the promissory note at maturity. After several requests for payment, the last of which occurred just prior to Christmas, 1965, the Fosters refused to perform further under the earnest money agreement and, on January 11, 1966, declared it rescinded. On January 17, 1966 (6 days after defendants rescinded), Green River paid to the escrow agent $13,340, which included $5,000 for the earnest money note. On the same day, it paid O’Brien Realty the accrued interest on the note.

When the Fosters persisted in their refusal to proceed with the sale, Green River commenced this action for specific performance. During the trial, and over plaintiff’s objection, Mr. and Mrs. Foster were each permitted to testify that they had been told at the October 5th meeting that they would receive the $5,000 earnest money within 60 days. The trial court ruled that the failure to pay the $5,000 to the defendants or their agent justified rescission of the contract.

It is plaintiff’s contention that the defendants’ testimony varied the terms' of the written agreement and thereby violated the parol evidence rule. The essence of this position is plaintiff’s claim that, by the contract terms, the promissory note was taken as payment of the earnest money rather than as evidence of an obligation to pay. We do not agree with that premise.

Plaintiff’s assertion that the promissory note was taken as payment is belied by a proper construction of the entire writing, without resort to extrinsic evidence. The testimony that the purchaser’s undertaking was a promise to pay the earnest money in 60 days does not give rise to considerations of the parol evidence rule because that testimony did not tend to alter or contradict the terms of the written agreement.

The agreement consists of two documents, the printed earnest money form and the promissory note, each of which has reference to the other. These should be read together. Levinson v. Linderman, 51 Wn.2d 855, 322 P.2d 863 (1958), and authorities cited. The earnest money form contains a printed recital that the note is received as earnest money. On the other hand, the promissory note has added thereto a typewritten provision that it is “subject to Earnest money agreement #31270.” To make a promissory note “subject to” the terms of another agreement is not merely to refer back to that agreement. Such a restriction here precludes the note from operating as an unconditional promise to pay, and is directly contrary to the agreement’s printed recital that the note is taken as payment. This contradiction is resolved by reference to familiar rules of contract construction.¹

In construing an agreement containing a conflict in terms, courts must give effect to the manifest intent of the parties. Starr v. Mutual Life Ins. Co., 41 Wash. 228, 83 P. 116 (1905). Courts should not find an ambiguity in order to construe the contract, and an ambiguity will not be read into a contract where it can reasonably be avoided by reading the contract as a whole. Grant County Const’rs v. E. V. Lane Corp., 77 Wn.2d 110, 459 P.2d 947 (1969). Where provisions of the same transaction are clear but conflicting, the operative provisions prevail over the recitals. First Nat'l Bank & Trust Co. v. United States Trust Co., 184 Wash. 212, 50 P.2d 904 (1935); Brackett v. Schafer, 41 Wn.2d 828, 252 P.2d 294 (1953). Moreover, written or typed provisions prevail over conflicting printed clauses. Creditors Ass’n v. Fry, 179 Wash. 339, 37 P.2d 688 (1934).

When this sale agreement is read in accordance with the foregoing principles, the question of whether the note was taken in payment or merely as evidence of an obligation is resolved without resort to extrinsic evidence. The typed restriction on the note conditions its efficacy on the terms of the earnest money agreement. The typed restriction controls over the printed recital that the note is taken as payment. The note, then, is merely evidence of the obligation expressed in the earnest money agreement. By the terms of that agreement, the purchaser is obliged to pay $5,000 earnest money within 60 days, and the vendors are entitled to forfeiture in the event of default by the purchaser.

The testimony to which plaintiff purchaser objects was that $5,000 was to be paid within 60 days. In that testimony there is no variance or contradiction of the written expressions of the parties. Under these circumstances, the parol evidence rule is irrelevant.

Even if we were to ignore established rules of construction, plaintiff’s premise would not succeed. Absent the foregoing rules of construction, the variance between the quoted provisions results in ambiguity as to the intent of the parties regarding payment of the earnest money. It is axiomatic that extrinsic evidence such as that provided by the defendants’ testimony, is admissible to clarify such matters. E.g., Ramsey v. Sedlar, 75 Wn.2d 901, 454 P.2d 416 (1969).

Plaintiff also argues that the inclusion of a provision in the note calling for 8 per cent interest after maturity is indication of the parties’ understanding that the note need not be paid within the stated 60 days, and that the vendor’s testimony would contradict that written understanding. The interest provision does not indicate a waiver of the 60 day requirement. On the contrary, such provision is logically included for reasons unrelated to the “time essence” or “payment” provisions of the agreement. The note expressly provides that it bears no interest prior to maturity; so the clause expresses the intent to create an 8 per cent rate after maturity, rather than the statutory 6 per cent. The right of the vendors to terminate the contract for default is a matter of election and, had defendants elected to proceed with the sale, they would have been entitled to 8 per cent interest on the delayed performance. This interest provision is not a waiver by the vendors of their right to forfeit upon the purchaser’s default. Antecedent waivers of remedies must be clearly expressed and agreed upon. See Pague v. Petroleum Prods., Inc., 77 Wn.2d 219, 224, 461 P.2d 317 (1969). The provision in question does not meet that requirement.

The Fosters had made several inquiries as to when they would be paid. The last of these was prior to Christmas 1965. Vendors’ letter of rescission of January 11, 1966, terminated contractual relations for failure to pay the note, which was then some 37 days overdue. They had allowed the purchaser a reasonable time for performance. The rescission of January 11, 1966, was clearly consistent with the trial court’s finding that plaintiff had failed to perform within the time provided or a reasonable time thereafter. An issue of waiver would arise only upon the interpretation that Fosters’ conduct was inconsistent with the enforcement of the condition (payment of the earnest money within 60 days), an interpretation which is precluded by the findings and the evidence.

One final matter requires consideration. The trial court in its judgment expunged from the auditor’s files a mortgage on the premises. This mortgage was given by plaintiff to C. W. Sederholm, who is not a party to this action. While the interest held by the mortgagee from a purchaser who is not entitled to specific performance is a cloud upon the vendor’s title, it does not appear from the record that the necessary jurisdictional steps to remove it were properly taken. Counsel for defendants so conceded on oral argument. Accordingly, the judgment is modified by reversing that portion expunging Sederholm’s mortgage without prejudice to any further action by defendants Foster to quiet their title.

The judgment as modified is affirmed.

Hunter, C. J., Rosellini, Hamilton, Hale, and McGovern, JJ., concur.

1 As our consideration of this appeal has already consumed an inordinate amount of time, we will not further delay resolution of this controversy by now writing a full response to Justice Finley’s concurrence. Suffice it to say, we adhere to our established approaches to contract construction, which provide ample means for the just resolution of this case, and which we regard as objective, realistic and sufficiently flexible. See e.g., Becker v Lagerquist Bros., Inc., 55 Wn.2d 425, 348 P.2d 423 (1960); Black v. Evergreen Land Developers, Inc., 75 Wn.2d 241, 450 P.2d 470 (1969). We do not, by this, mean to imply either acceptance or disapproval of the approaches suggested by Masterson v. Sine, 68 Cal. 2d 222, 436 P.2d 561, 65 Cal. Rptr. 545 (1968), and Pacific Gas & Elec. Co. v. G. W. Thomas Drayage & Rigging Co., 69 Cal. 2d 33, 442 P.2d 641, 69 Cal. Rptr. 561 (1968). See also, Corbin, The Interpretation of Words and the Parol Evidence Rule, 50 Cornell L.Q. 161 (1965). Such considerations await a more appropriate case.