Opinion
No. C7-01-2004.
Filed May 7, 2002.
Appeal from the District Court, Hennepin County, File No. CT-00-002533.
Steven P. Carlson, Joseph A. Wentzell, (for appellants)
Eric D. Cook, Kerry A. Evans, Leonard, O'Brien, (for respondents)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
On appeal from the district court's judgment dismissing their action for specific performance of a real estate purchase agreement, appellant-buyers argue that the court erred by concluding that a nullification clause in the purchase agreement was not ambiguous and thus could not be modified by parol evidence. We affirm.
FACTS
Appellant's parents, Richard and Sharon Krawiecki, owned certain real property, which contains a 35-unit apartment building. There were at least five mortgages, a state tax lien, and one other junior lien on the property. Respondents David R. Johnson and Barbro E. Johnson (Johnsons) held the second mortgage and two other mortgages on the property. Appellant Daniel Krawiecki held the third mortgage and possibly one other.
Marcia Wahlstrom and Steven Wahlstrom, Daniel Krawiecki's sister and brother-in-law are also appellants in this case. They helped finance Daniel Krawiecki's real estate activities. Because Daniel Krawiecki was the principal actor and the Wahlstroms appear to have been silent investors, this opinion refers only to Daniel Krawiecki.
The parents were in default on the mortgage payments they owed the Johnsons. The Johnsons began foreclosure proceedings in November 1997. Two months later, the parents agreed to voluntary foreclosure. The Johnsons successfully bid on the property at the sheriff's sale, offering the full amount owed under the second mortgage. The redemption period was to expire on May 6, 1998.
On March 16, 1998, the state filed its Notice of Intent to Redeem. Approximately six weeks later, Krawiecki also filed a Notice of Intent to Redeem. On May 6, 1998, Krawiecki and the Johnsons signed a purchase agreement in which Krawiecki agreed to pay approximately $575,000 for the property. The ultimate price depended on the to-be-negotiated pay-off amount of the state's lien. An addendum to the purchase agreement described in detail how the ultimate price would be determined.
The addendum also contained a nullification clause, which is central to this appeal. That clause stated:
If the State of Minnesota or any other junior lien holder successfully redeems in the mortgage foreclosure action brought by Seller against [the Krawieckis] then this Purchase Agreement shall be null and void and Seller shall retain the earnest money paid pursuant to this Agreement.
The addendum further contained an integration clause that provided: "Any modification of this agreement shall be in writing and signed by Seller and Buyer."
On May 10, 1998, the state sued Krawiecki, his parents, and the Johnsons to enjoin Krawiecki from redeeming as a junior lien holder, on the ground that his mortgage was fraudulent and void. A settlement was reached under which Krawiecki waived his right to redeem the property, the state redeemed the property, the Johnsons paid the state $100,000, and the state executed a quit-claim deed to the Johnsons. The settlement agreement did not state what effect it would have on the nullification clause in the purchase agreement, or even refer to the purchase agreement.
In June 1998 and February 1999, Krawiecki contacted the Johnsons to schedule a closing date for his purchase of the property. The Johnsons did not respond. Instead, based on their understanding that the state's redemption voided the purchase agreement, they sold the property to a third party under a contract for deed.
Approximately one month after his last attempt to contact the Johnsons, Krawiecki brought an action for specific performance or, in the alternative, for damages for breach of contract. The parties stipulated that a referee would hear the case. The referee found that the purchase agreement's nullification clause was ambiguous, considered parol evidence and recommended that the district court grant specific performance. The district court initially approved the referee's recommendation, but later granted the Johnsons' request for amended findings, ruling that the nullification clause was not ambiguous, that parol evidence could not be considered and that the state's redemption caused the purchase agreement to become null and void. The court dismissed the case with prejudice. This appeal followed.
DECISION
"The application of the parol evidence rule is a question of law subject to de novo review." Mollico v. Mollico, 628 N.W.2d 637, 640 (Minn.App. 2001) (citation omitted). Daniel Krawiecki argues that parol evidence is admissible either because (1) the nullification clause is ambiguous, (2) the parties subsequently modified the nullification clause, or (3) the evidence shows a condition precedent that precludes the operation of the nullification clause.
I
Krawiecki acknowledges that the nullification clause was not ambiguous at the time the purchase agreement was signed, but argues it became ambiguous when read in the context of subsequent events. More specifically, Krawiecki argues that the redemption of the property by the state under the settlement agreement was not the type of redemption contemplated when the nullification clause was added to the purchase agreement. He argues that all parties to the settlement agreement understood that the only reason the Johnsons would be obtaining title after the state's redemption was so the Johnsons could convey title to Krawiecki under the purchase agreement. The referee accepted that argument and Krawiecki argues that the district court should have deferred to the referee's determination of ambiguity. See Minn.R.Civ.P. 53.05(b) (stating that courts must defer to a referee's factual findings unless they are clearly erroneous). However, the determination of ambiguity is a legal one that is subject to de novo review. State by Humphrey v. Delano Cmty. Dev. Corp., 571 N.W.2d 233, 236 (Minn. 1997).
A court may consider parol evidence to construe a contract only when the contract is ambiguous or incomplete. Mollico, 628 N.W.2d at 640-41; see also City of Virginia v. Northland Office Props. Ltd. P'ship, 465 N.W.2d 424, 427 (Minn.App. 1991) (stating that a court may consider extrinsic evidence when a contract is ambiguous), review denied (Minn. Apr. 18, 1991). "A contract provision is ambiguous if, judged by its language alone, it is reasonably susceptible to more than one meaning." Rick v. B.D.M.S., Inc., 347 N.W.2d 65, 66 (Minn.App. 1984) (citation omitted). When determining whether an ambiguity exists, courts must analyze the contract as a whole, giving effect to all of its terms. Brookfield Trade Ctr., Inc., v. County of Ramsey, 584 N.W.2d 390, 394 (Minn. 1998). Parol evidence cannot be used to create an ambiguity. Instrumentation Servs., Inc. v. Gen, Res. Corp., 283 N.W.2d 902, 908 (Minn. 1979).
The nullification clause and its terms are not reasonably susceptible to more than one meaning, nor do they irreconcilably conflict with the contract's other terms and provisions. See O'Shaughnessy v. Smuckler Corp., 543 N.W.2d 99, 101 (Minn.App. 1996) (using these factors to determine whether ambiguity existed), review denied (Minn. Mar. 28, 1996). Clearly, if the state or another junior lien holder successfully redeems in the mortgage-foreclosure action, the purchase agreement is void. Because the contract is unambiguous on its face, we cannot construe the contract beyond its language and cannot speculate about the parties' hidden or unexpressed intent. See Telex Corp. v. Data Prods. Corp., 271 Minn. 288, 294-95, 135 N.W.2d 681, 686-87 (stating that courts will not construe unambiguous contracts beyond their wording); Polk v. Mut. Serv. Life Ins. Co., 344 N.W.2d 427, 430 (Minn.App. 1984) (refusing to construe the contract beyond its language and analyze the parties' unexpressed intent).
Also, it is clear that the purchase agreement was completely. The last paragraph of the addendum includes the following integration clause:
This Purchase Agreement and attached addendum represents the parties['] entire understanding regarding the sale of the Property from [the Johnsons] to [Krawiecki]. Any modification of this agreement shall be in writing and signed by both [the Johnsons] and [Krawiecki].
See United Artists Communications, Inc. v. Corporate Prop. Investors, 410 N.W.2d 39, 42 (Minn.App. 1987) (holding that the district court did not err by finding that a contract was integrated where statements in the contract indicated that it contained the "entire agreement" and that the contract would not be modified "except in writing").
We conclude that the district court was correct in determining that the nullification clause was not ambiguous and the purchase agreement was complete.
II
Parol evidence is admissible to show a subsequent oral modification of a contract. Nord v. Herreid, 305 N.W.2d 337, 339 (Minn. 1981). Krawiecki argues that the settlement agreement, in which he waived his right to redeem and the state redeemed and executed a quit-claim deed to the Johnsons, was itself a written modification of the purchase agreement's nullification clause.
While Krawiecki's participation in the settlement agreement is curious, since he received no apparent consideration from it, we must conclude that the settlement agreement did not modify the purchase agreement. The settlement agreement does not refer to the nullification clause or even to the purchase agreement. In fact, the settlement agreement operates against Krawiecki's interest by making it clear that the state did actually redeem the property, which triggers the nullification clause.
Krawiecki further argues that the discussions between the parties, occurring in the negotiation of the settlement agreement, resulted in oral modifications of the purchase agreement to reflect the "understanding" that the settlement agreement was only made so that the Johnsons could convey the property to Krawiecki under the purchase agreement. Relying on this court's opinion in United Artists Communications, Inc., the district court rejected Krawiecki's argument, stating that the presence of the integration clause precluded oral modification.
The district court's analysis is incorrect. United Artists Communications, Inc. dealt not with subsequent oral modifications of a contract but with prior or contemporaneous oral modifications that were merged into a subsequent written modification. United Artists Communications, Inc., 410 N.W.2d at 40-41. This court held that the subsequent written modifications were integrated and, thus, the prior oral modifications were inadmissible under the parol evidence rule. Id. at 42.
The more apt precedent, applicable to the question of whether an integrated contract can be modified by a subsequent oral agreement, is Larson v. Hill's Heating Refrig. of Bemidji, 400 N.W.2d 777 (Minn.App. 1987), review denied (Minn. Apr. 17, 1987). In that case, we recognized that
[t]he general common law rule is that a written contract can be varied or rescinded by an oral agreement of the parties, even if the contract provides that it shall not be orally varied or rescinded.
Id. at 781 (citation omitted).
Accordingly, Krawiecki's argument is legally viable and the question remains whether Krawiecki produced sufficient evidence to support a finding that the parties had reached an oral agreement to modify the purchase agreement to eliminate the nullification clause. We conclude that he did not. Krawiecki did not testify to the content of any actual discussions with the Johnsons in which all parties orally agreed that the nullification clause would not operate, or that the Johnsons would convey title to Krawiecki despite that clause. The most Krawiecki could testify to was that he "understood" this would be the consequence of the settlement agreement.
Krawiecki's unilateral understanding is not sufficient to establish an oral modification. The Johnsons did not acknowledge any agreement to modify the purchase agreement and did not share Krawiecki's "understanding" concerning the effect of the settlement. Thus, even though the referee found that such an "understanding" was shared by Krawiecki, his attorney, the state, the Johnsons and their attorney, we hold that the evidence was insufficient to support that finding. As a result, we affirm the district court's conclusion that there was no subsequent modification of the purchase agreement, albeit on different grounds.
III
Finally, parol evidence may be admitted to show the existence of a condition precedent. Carl Bolander Sons Co., Inc., v. United Stockyards Corp., 298 Minn. 428, 433, 215 N.W.2d 473, 476 (1974). In his reply brief, Krawiecki argues for the first time that the nullification clause was subject to a condition precedent, and that the nullification clause would apply only if a redemption ultimately deprived the Johnsons of title, leaving them with nothing to sell. That condition precedent did not occur, the argument goes, because the Johnsons obtained title despite the redemption and had something to sell.
Unfortunately, this argument was not raised before the district court or even in the initial brief to this court. Issues not raised or argued in an initial brief generally cannot be raised in a reply brief. Balder v. Haley, 399 N.W.2d 77, 80 (Minn. 1987). Because Krawiecki did not raise this issue in his initial brief, we will not address it.