Opinion
No. 75-881.
Submitted on briefs February 8, 1978. —
Decided March 7, 1978.
APPEAL from a judgment of the circuit court for Milwaukee county: LOUIS J. CECI, Circuit Judge. Modified and affirmed.
For the appellant the cause was submitted on the briefs of Robert K. Steuer and Weiss, Steuer, Berzowski Kriger of Milwaukee.
For the respondent the cause was submitted on the brief of E. H. Snyder of Milwaukee.
This is an action upon a promissory note.
On November 25, 1969, the plaintiff, Jack Kohlenberg, entered into a contract to sell all of the outstanding shares of the defendant corporation, American Plumbing Supply Co., and all of his interest in two other business enterprises to Joseph Siegel, Clarence Gruell and the defendant corporation. Under the terms of this contract, American executed a five year promissory note, dated December 1, 1969, in the amount of $207,020, bearing interest at a rate of four per cent per annum. The note was payable in the amount of $25,000 per year in 50 weekly installments of $500. At the end of this five year term, the unpaid balance was payable subject to an option granted American to renew the note for an additional five years, payable under similar conditions, with interest thereon at the amount of the then prevailing prime interest rate plus one per cent. All payments were duly made on this original note through December 1, 1974.
As of March, 1975, American had neither paid the remaining balance in full nor executed a renewal note. Therefore, Michael M. Berzowski, Kohlenberg's attorney, sent a letter dated March 6, 1975, to E. H. Snyder, American's attorney, requesting American to execute a new note in the principal amount of $82,020 and bearing an interest rate of 11-1/2%, one per cent over the prime rate as of December, 1974. Mr. Berzowski also submitted a proposed security agreement and financing statement covering American's inventory with his letter.
During March, 1975, the plaintiff had a conversation with Gruell, president of American, during which Gruell asked the plaintiff what the interest rate was going to be on the renewal note. The plaintiff replied that the rate would be 11-1/2%. Gruell then claimed that he could get a lower rate from a bank, to which the plaintiff responded, "Well, go ahead and get it. That's your privilege." Although Gruell could not recall any more of that conversation, the plaintiff testified that he added: "For the last five years you've had a big sum of money that you paid no interest on and you held me to it. . . . Now there's a new note and the agreement that — that the interest would be as the note said, that since I had held to my — my promise, well, you should hold to yours."
On April 23, 1975, Snyder wrote to Berzowski and enclosed the security agreement, financing statement, new installment promissory note, and a copy of American's financial statement of November 30, 1974. The note bore a principal amount of $55,197 to correspond with the financial statement. Further correspondence between the parties' respective attorneys relating to the principal amount of the renewal note was ultimately resolved in favor of the lower figure when, by letter dated May 15, 1975, Snyder stated that unless there were other questions regarding the notes, he would assume that the matter was closed. This renewal note was pre-dated November 26, 1974 and was payable in the following manner: "[W]eekly payments of $500 per week for the first 50 weeks of each year hereafter until the entire amount is paid. The weekly payments of $500 shall include interest and principal and shall be applied first against interest and then principal."
The plaintiff received the payments called for by this note until late July when Mr. Berzowski received a letter from Mr. Snyder tendering a check from American to the plaintiff in the amount of $43,025.84. The check bore a restrictive endorsement which provided that it was in "full payment and satisfaction of any and all claims whatever against American Plumbing Supply Company, Clarence Gruell and Joseph Siegel, jointly and severally." Mr. Berzowski responded by letter the next day indicating that the plaintiff could not immediately decide whether to accept the tender, and that because the plaintiff would be out of town, his position would not be readily known. Nevertheless, Mr. Berzowski reminded Mr. Snyder that the underlying agreement did not permit prepayment. The plaintiff returned the check on August 18, 1975, rejecting the tender on the grounds that payment before maturity could be made only with the consent of the holder. The plaintiff also demanded that the payments under the note be made when due. Mr. Snyder responded by indicating that the tender would continue until the matter was resolved judicially.
This action was commenced on January 14, 1976 to recover the balance due on the note, $43,238.62, together with interest thereon at 11-1/2%, from July 26, 1975. A motion for preliminary relief was also brought which, after the hearing, was denied by the trial court. Nevertheless, the trial court ordered the defendant to pay the plaintiff $43,025.84 without prejudice. American then answered, and asserted a counterclaim and affirmative defense alleging that the plaintiff had consented to prepayment, that the renewal note contained no prohibition against prepayment, and that consequently American had tendered payment in full which remained in effect until the check was accepted without prejudice by the court order on January 27, 1976.
As of the date of trial, the plaintiff claimed a sum representing the difference between the amount of principal and interest due on the renewal note as of the time of the court ordered payment and the amount paid pursuant to that order.
The amount claimed at trial was computed as follows:
After a trial to the court, the court concluded that the parties entered into an installment promissory note on November 26, 1974; that the plaintiff agreed to change the method of payment to permit prepayment in the amount of $43,025.84; and that at the time of tender there was then due and owing $43,333.98. The court thereupon ordered judgment in favor of the plaintiff for the difference, $308.14, together with interest on this amount at the contract rate from July 26, 1975 (apparently the day after the last weekly installment payment had been made) to the date of judgment. The plaintiff appealed.
Additional facts will be set forth in the opinion.
1. Principal (7/26/75 — Ex. 24) ........................... $43,238.62 2. Interest 7/26/75 — 1/27/76 (185 days at 11-1/2%) ....... 2,520.30 ---------- TOTAL AS OF 1/27/76 ......................................... $45,758.92 Payment received 1/27/76 .................................. $43,025.84 ---------- Principal balance 1/27/76 ................................. 2,733.08 Interest to 4/1/76 ........................................ 55.97 ---------- TOTAL PRINCIPAL PLUS INTEREST $ 2,789.05The following issues are raised on appeal:
1. Whether the trial court erred in concluding that the plaintiff's oral statements modified the renewal note so as to permit the defendant to prepay the amount due?
2. Whether the tender of an amount less than that due on the note, at the time of tender, was sufficient to discharge the defendant's liability for interest due on the amount tendered and for attorney's fees?
3. Whether the plaintiff was entitled to reasonable attorney's fees?
Oral Modification of Terms of Payment
At the end of the trial, the court made the following findings and conclusions:
"THE COURT: No. 1, I find and determine that the parties hereto entered into an installment promissory note on November 26, 1974, although the actual agreement was signed at a date later than that.
"I also find and determine by the credible evidence submitted to this Court that Mr. Kohlenberg, Jack Kohlenberg, did tell the officers of the defendant, American Plumbing Supply, that they could get the money elsewhere.
". . . .
"MR. STEUER: [Plaintiff's counsel] Has your Honor concluded as a matter of law that the statement as made constituted an amendment or a material modification of the original note?
"THE COURT: It was a modification of the original note by the individual concerned which was acquiesced into by the other parties to the note, the other party being the corporation but through its corporate officers." (Emphasis supplied.)
The original note, in language which mimicked that of the underlying sales contract, provided as follows:
"AMERICAN PLUMBING SUPPLY CO., a Wisconsin corporation, (hereinafter referred to as `American'), promises to pay to JACK KOHLENBERG, (hereinafter referred to as `Kohlenberg'), the sum of Two Hundred Seven Thousand Twenty ($207,020.00) Dollars, with interest at the rate of four (4%) per cent per annum.
"1. Payment: American shall pay Kohlenberg the sum of Twenty-five Thousand ($25,000.00) Dollars per year, said sum to include principal and interest, at the rate of Five Hundred ($500.00) Dollars per week commencing December 1, 1969, for the first fifty (50) weeks of each year, and the unpaid balance remaining as of December 1, 1974, shall then be due and payable unless renewed in accordance with the terms hereof.
"2. Option to Renew: American shall have the option to renew this note in the amount of the unpaid balance due as of December 1, 1974, for an additional period of five (5) years from said date with interest on said balance due in the amount of the then prevailing prime rate plus one (1%) per cent per annum. Said balance due shall be paid in the amount of Twenty-five Thousand ($25,000.00) Dollars per year, including principal and interest, at the rate of Five Hundred ($500.00) Dollars per week commencing December 1, 1974, for the first fifty (50) weeks of each year, and the unpaid balance remaining as of December 1, 1979, shall then be due and payable."
Thus, the parties agreed that at the end of the term of this note, American had the option of doing one of two things. First, it could pay off the remaining balance of this note, thus fulfilling its obligations under the original note and underlying contract at that time. Second, it could renew the note for the amount of the unpaid balance and defer completion of its payment up to another five years. American, however, had chosen neither course of action by the following March, when the plaintiff's attorney submitted to the defendant's attorney a proposed renewal note. Immediately thereafter, and before the renewal note was executed and delivered, the conversation on which the trial court so heavily depended took place. During this conversation, the plaintiff and Mr. Gruell discussed the terms of the proposed renewal note, and on being informed that the rate of interest would be 11-1/2%, Gruell indicated that he thought he could get the funds at a lower rate from a bank. To this, the plaintiff responded: "Well, go ahead and get it. That's your privilege." Subsequently, the defendant executed and delivered the renewal note proposed by the plaintiff modified only with respect to the amount thereof.
Generally, the parties to a note may modify by subsequent oral agreement the terms of a promissory note.
"Like any other contract a bill or note, whether negotiable or not, is subject to subsequent modification upon sufficient consideration, and an expression of the subsequent agreement by a marginal writing or an indorsement will modify the contract as expressed in the body of the instrument. A written contract may be modified, rescinded, or discharged by subsequent oral agreement and, as between immediate parties, this principle is applicable to negotiable instruments." 11 Am. Jur.2d, Bills and Notes § 297 (1963); accord, 10 C.J.S., Bills and Notes § 264 (1938); secs. 403.118, 403.119, Stats.
Nevertheless, it is generally held that the existence of an agreement which is in substitution or modification of a previous contract must be established in the same way as any other contract. "No one will be held to have surrendered or modified any of his contract rights unless he is shown to have assented thereto in a manner that satisfies the requirements of a valid contract." A. Corbin, Corbin on Contracts § 1293 at 1063 (1 vol. ed., 1952).
The determination that the parties to a written contract have entered into a subsequent oral agreement to rescind or modify the previous contract is a factual determination which will not be reversed on appeal unless it is against the great weight and clear preponderance of the evidence. See ABC Outdoor Advertising, Inc. v. Dolhun's Marine, Inc., 38 Wis.2d 457, 460-62, 157 N.W.2d 680 (1968). In the instant case, the trial court determined that the parties agreed to modify the payment terms of the original note, and apparently the underlying sales contract, so as to permit the defendant to prepay the loan even after a renewal note was executed.
However, we think that this determination was against the great weight and clear preponderance of the evidence. At the time of the conversation here in question, American had taken no formal action regarding its obligations at the expiration of the original note. Although the record does not clearly indicate whether American continued to make the $500 weekly payments after the due date of the original note, the record does indicate that the plaintiff, if only by acquiescence, extended the time during which American could choose the method of satisfying its obligation under this note until March, 1975. At that time, the plaintiff submitted to American a proposed renewal note. Within this context, therefore, the plaintiff's statement that American could get the money to pay off the outstanding balance elsewhere did not modify the original note or underlying sales contract in any respect. Rather, it merely affirmed the terms of those writings: that American could either pay off the outstanding balance or execute and deliver a renewal promissory installment note. The record also indicates that the plaintiff neither anticipated nor desired American's payment in full, but this evidence undermines, rather than supports, a determination that the plaintiff intended to permit the defendant to execute a renewal note and, shortly thereafter, pay the balance outstanding.
therefore, insofar as the trial court concluded that the plaintiff agreed to a modification of the payment terms of the original note, its determination was against the great weight and clear preponderance of the evidence.
With respect to the renewal note, the efficacy of the plaintiff's statements to modify its terms of payment must also be questioned. This note was executed and delivered after the plaintiff's statements and, like its predecessor, provided for weekly installment payments of $500 and was silent with respect to the defendant's right to make prepayment.
The plaintiff contends that his oral statement could not be considered as modifying the payment terms of the renewal note by reason of the parol evidence rule.
This court recently stated the parol evidence rule in Production Credit Association v. Rosner, 78 Wis.2d 543, 547, 255 N.W.2d 79 (1977), as follows:
"`When the parties to a contract embody their agreement in writing and intend the writing to be the final expression of their agreement, the terms of the writing may not be varied or contradicted by evidence of any prior written or oral agreement in the absence of fraud, duress or mutual mistake.'"
The rule comes into operation generally when there is a single and final memorandum of the understanding of the parties:
"The rule as applied to contracts is simply that as a matter of substantive law, a certain act, the act of embodying the complete terms of an agreement in writing (the `integration'), becomes the contract of the parties . . . Extrinsic evidence is excluded because it cannot serve to prove what the agreement was, this being determined as a matter of law to be the writing itself." 4 S. Williston, The Law of Contracts § 631 at 959-60 (3rd ed. 1961).
Thus, whenever a party invokes the parol evidence rule, the initial question "is whether the parties intended the written agreement to be final and complete or `integrated' or whether they intended any prior agreements to be part of their total agreement." Federal Deposit Insurance Corp. v. First Mortgage Investors, 76 Wis.2d 151, 157, 250 N.W.2d 362 (1976).
Here, the trial court made no finding on the factual issue of integration. Although in First Mortgage Investors, supra, we remanded the case for further factual findings relating to the parties' intent to integrate their agreement, under the facts of this case further findings are not necessary. The terms of the renewal note which the defendant contends were modified by the plaintiff's oral statements are substantially identical to those found in the underlying contract and original note. In addition, the plaintiff testified that during his conversation with Mr. Gruell, he stated, "For the last five years you've had a big sum of money that you paid no interest on and you held me to it . . . Now there's a new note and the agreement that — that the interest would be as the note said, that since I had held to my promise, well, you should hold to yours." This part of the conversation between plaintiff and Gruell was not denied by Gruell. Under these circumstances, the evidence adduced at trial was clearly insufficient to support a finding that the parties had agreed to payment terms other than those appearing in the renewal note even if that note was not an integrated document.
Finally, the defendant attempts to support the trial court's conclusions on the theory of estoppel. From the record we conclude that the defendant's reliance on the doctrine of estoppel is without merit. The defense of equitable estoppel consists of action or non-action which, on the part of one against whom estoppel is asserted, induces reliance thereon by the other, either in action or non-action, which is to his detriment. Chicago Northwestern Transportation Co. v. Thoreson Food Products, Inc., 71 Wis.2d 143, 153, 238 N.W.2d 69 (1976). It is elementary, however, that the reliance on the words or conduct of the other must be reasonable ( Chicago Northwestern Transportation Co. v. Thoreson Food Products, Inc., supra at 154) and justifiable ( Matter of Alexander's Estate, 75 Wis.2d 168, 183-84, 248 N.W.2d 475 (1977)).
Here, the defendant's reliance was neither reasonable nor justifiable. As noted above, the plaintiff's statement, considered in context, was merely a recitation of the defendant's options under the original note and contract. Moreover, the defendant did not rely on the plaintiff's statements by applying for the loan until late July, 1975, two months after the renewal note was executed and delivered.
We conclude that the trial court's determination that the parties agreed to modify the terms of payment was error. However, under the facts of this case a remand for fact-finding is not necessary.
Tender of Payment
The trial court also concluded that the defendant, by tendering a check to the plaintiff in the amount of $43,025.84, stopped the running of interest on that amount due on the date of tender.
The circumstances under which a tender of payment will arrest the accrual of interest are set forth in sec. 403.604, Stats.:
"403.604 Tender of payment. (1) Any party making tender of full payment to a holder when or after it is due is discharged to the extent of all subsequent liability for interest, costs and attorney's fees.
"(2) The holder's refusal of such tender wholly discharges any party who has a right of recourse against the party making the tender.
"(3) Where the maker or acceptor of an instrument payable otherwise than on demand is able and ready to pay at every place of payment specified in the instrument when it is due, it is equivalent to tender." (Emphasis supplied.)
Under the facts of this case, there are two reasons why the defendant's tender was not sufficient to arrest the accrual of interest on the tendered amount. First, as required by sec. 403.604, Stats., the tender was not made "when or after" it was due. Because in the absence of an agreement to the contrary a maker of an installment promissory note does not have the right to prepay the amount owed, a tender of prepayment should not arrest the accrual of interest. Hart and Willier, Commercial Paper Under the Uniform Commercial Code, § 5.02 (1976). Second, even if the plaintiff had agreed to permit a prepayment of the amount due, the amount tendered by the defendant in this case was not a "full payment." The evidence adduced at the trial disclosed that at the time of this tender, $43,333.98 was outstanding; $43,238.62 in principal and $95.36 in interest. The amount tendered was $308.14 less than that owed. Also, the check which was tendered the plaintiff has the following restrictive endorsement: "In full payment in satisfaction of any and all claims whatever against American Plumbing Supply Company, Clarence Gruell and Joseph Siegel, jointly and severally." Because the amount tendered did not represent the "full payment . . . of . . . all claims whatever against American," the tender failed to call into effect the provisions of sec. 403.604 to halt the accrual of interest.
This result is consistent with the analogous situation present in Security Savings Loan Association v. Wauwatosa Colony, Inc., 71 Wis.2d 174, 237 N.W.2d 729 (1975). There, the debtor proffered his mortgage lender a check in the amount of $40,605.55, which bore the notation, "mortgage principal balance in full." This represented the outstanding balance due two weeks earlier. In the interim, however, the lender had advanced an additional sum to pay real estate taxes. The initial tender was rejected. Later, the debtor reimbursed the lender for the tax advance, and again tendered the check. The lender again refused the tender because it did not include the amount of interest which had accrued between the first and second tender. As a result, neither tender operated to halt the accrual of interest on the amount:
"The presentation of this check . . . , still containing the statement on it that it was payment of `mortgage principal balance in full,' in fact at no time represented payment of the amount due. Haddow v. J. L. Owens Co. (1920), 172 Wis. 391, 179 N.W. 508. The accrual of interest was not halted." Security Savings Loan Association v. Wauwatosa Colony, supra at 185.
As in Wauwatosa Colony, the amount tendered here did not represent the full payment of all of the claims the plaintiff had against the defendant. Thus, the trial court erred in holding that the contract interest on the amount offered was halted at the time of tender.
Attorney's Fees
The trial court granted the plaintiff statutory attorney's fees and costs based upon the $308.14 found then to be due the plaintiff under the note.
The plaintiff commenced this action to enforce his rights under the renewal installment promissory note. This note was silent regarding attorney's fees and cost of collection. In his complaint, however, the plaintiff alleged the existence of a security agreement which secured the amount due on the note. The security agreement provided:
"(c) Expenses and Application of Proceeds. Debtor shall reimburse Bank for any expenses incurred by Bank in protecting or enforcing its rights under this Agreement including, without limitation, reasonable attorneys' fees and legal expenses and all expenses of taking possession, holding, preparing for disposition and disposing of the collateral."
This security agreement was a standard form agreement, and the word "bank" referred to the plaintiff, Kohlenberg.
It is generally held that the law does not recognize attorney's fees as recoverable unless authorized by statute or contract, except when they are the natural and proximate result of a wrongful act by the defendant which involved the plaintiff in litigation with other parties. City of Beloit v. Town of Beloit, 47 Wis.2d 377, 392, 177 N.W.2d 361 (1970); Widemshek v. Fale, 17 Wis.2d 337, 342, 117 N.W.2d 275 (1962). Here, the plaintiff argues that sec. 409.504(1)(a), Stats., authorizes the award of reasonable attorney's fees in this case. This section provides:
"409.504 Secured party's right to dispose of collateral after default; effect of disposition. (1) A secured party after default may sell, lease or otherwise dispose of any or all of the collateral in its then condition or following any commercially reasonable preparation or processing. Any sale of goods is subject to ch. 402. The proceeds of disposition shall be applied in the order following to:
"(a) The reasonable expenses of retaking, holding, preparing for sale or lease, selling, leasing and the like and, to the extent provided for in the agreement and not prohibited by law, the reasonable attorneys' fees and legal expenses incurred by the secured party; . . ." (Emphasis supplied.)
However, this section, as well as the security agreement, clearly relates to the expenses, including attorney's fees, of liquidating the collateral, i.e., exercising the rights arising from the terms of the security agreement. Neither relates to the expenses of a suit on a collateral promissory note. Therefore, the trial court did not err in limiting the plaintiff's recovery of expenses and attorney's fees to those provided in sec. 814.04, Stats.
Therefore, for the reasons set forth above, we conclude that the plaintiff is entitled to recover the difference between the whole of the principal and interest due on the note as of the date of the court ordered payment and the amount paid pursuant to that order, with interest thereon at the contract rate from the date of said payment to the date of the entry of judgment, together with statutory costs computed on the recovery as modified.
By the Court. — Modified and affirmed.