Title: COLLINS v. FINNELL

State: wyoming

Issuer: Wyoming Supreme Court

Document:

COLLINS v. FINNELL2001 WY 7429 P.3d 93Case Number: 00-127Decided: 08/15/2001

APRIL TERM, A.D. 2001

 

                                                                                                            

 

JOHN W. 
COLLINS and REXINE

COLLINS; 
EMPIRE AUTO SALES, INC.;

and 
WILLIAM J. WHITE and JUDY

WHITE,

 

Appellants(Defendants/Third 
Party Plaintiff),

 

v.

 

RICK L. 
FINNELL and KAREN FINNELL,

 

Appellees(Plaintiffs/Third 
Party Defendants).

 

 

Appeal 
from the District Court of Laramie County

The 
Honorable Nicholas G. Kalokathis,  
Judge

 

Representing 
Appellants Collins and Empire Auto Sales:

            
Franklin D. Bayless of Bayless & Slater Law Firm, P.C., Cheyenne, 
Wyoming 

 Representing 
Appellants Whites: 

            
Ernest W. Halle, Cheyenne, Wyoming

 Representing 
Appellees:

            
Bert T. Ahlstrom, Jr., Cheyenne, Wyoming  

 

 

Before 
LEHMAN, C.J.; GOLDEN, HILL, and KITE, JJ.; and DAN SPANGLER, D.J. 
(RET.)

  

            
KITE, Justice.

 [¶1]      John and Rexine 
Collins and William and Judy White (the buyers) and Empire Auto Sales, Inc. 
appeal from the trial court's order which awarded $20,340.16 to Rick and Karen 
Finnell (the sellers) as a result of the breach of a Stock Purchase 
Agreement.  The judgment was for all 
amounts unpaid under the Stock Purchase Agreement, and the trial court further 
provided that the parties should remain bound by all the terms and conditions 
therein.  In addition, the buyers 
breached a separate agreement, the Assumption Agreement, claiming the sellers 
had committed fraud by falsely representing the existence of certain loans that 
they were to assume.  The trial 
court found no fraud, yet it determined the sellers failed to prove the 
existence of the underlying debts which were the consideration for the 
agreement.  Even so, the trial court 
held the buyers were not entitled to a refund of the payments made pursuant to 
the Assumption Agreement.  We affirm 
that portion of the trial court's order relating to the Assumption Agreement but 
on different grounds than those employed by the trial court and reverse that 
portion of the order pertaining to the Stock Purchase 
Agreement.

 

 

ISSUES

 

[¶2]      The Collinses and 
Empire Auto Sales present the following issues for our 
review:

 

            
1.  Whether the District Court Orders and Judgment relative to 
individual Defendants (Appellants herein) John Collins, Rexine Collins, William 
J. White and Judy White are in error, not warranted by sufficient evidence and 
are contrary to law as to the finding:

 

A.  That 
Defendants are in breach of the Stock Purchase Agreement.

 

B.  That 
Plaintiffs Rick Finnell and Karen Finnell shall have judgment through April 30, 
1999 for Twenty Seven  Thousand Nine 
Hundred Sixty Seven Dollars and Fifty [Six] Cents ($27,967.56) less the deposit 
in Court of Seven Thousand Six Hundred Twenty Seven and Fifty Six Cents 
($7,[62]7.[5]6).

 

C.  That 
individual Defendants shall remain bound by the "Stock Purchase Agreement" as to 
all terms and conditions thereof to include but not be limited to, payments to 
be made thereunder.

 

            
2.  Whether the district court erred as a matter of fact and 
law as to the court's order on Collins and White's Counterclaim in ruling that 
although Rick and Karen Finnell failed in their proof of the existence of notes 
as Empire Auto obligations under the "Assumption Agreement," John Collins and 
William White are not entitled to recover the $27,000.00 paid on the nonexisting 
obligations.

 

The 
Whites raise these issues:

 

            
ISSUE 1:  Did the District 
Court err when it granted Plaintiffs/Appellees a judgment against the 
Defendants/ Appellants for the remaining balance due on a defaulted Stock 
Purchase Agreement which contained a forfeiture upon default 
provision[?]

 

            
ISSUE 2:  Did the District 
Court err when it failed to order a refund of monies paid by the 
Defendants/Appellants, by mistake, under an Assumption Agreement by erroneously 
deeming the Defendants/Appellants to be volunteers as per Commercial Union 
Insurance Co. v. Postin, 610 P.2d 984 (Wyo. 1980)[?]

 

The 
sellers did not list any issues in their brief.

 

 

FACTS

 

[¶3]      In November of 
1994, the sellers entered into various agreements with the buyers regarding the 
purchase of a used car business for approximately $370,000.  One of the agreements was the Stock 
Purchase Agreement providing for the purchase of all the stock of Empire Auto 
Sales, Inc., a Wyoming corporation.  
As consideration for the stock, the buyers agreed to pay $75,000 by 
making payments over a period of seventy-two months.  In addition to the Stock Purchase 
Agreement, the parties entered into an Assumption Agreement whereby the buyers 
were to assume and repay certain debts for and on behalf of the 
corporation.  The debts totaled 
$85,000 and consisted of the "Hillard Note," payable at the rate of $1,800 
annually, and the "Finnell Call Note," payable at the rate of $750 monthly, 
until each was satisfied.  Two years 
later, after paying on the notes as provided in the contract, the buyers became 
delinquent.  The sellers demanded 
complete payment in satisfaction of the Assumption Agreement which the buyers 
refused claiming the sellers had not produced promissory notes for the debts 
referenced in that agreement.  As a 
consequence of the dispute over the Assumption Agreement, the buyers also 
defaulted on the Stock Purchase Agreement which referenced those terms provided 
in the Assumption Agreement, and the sellers sued.  The buyers counterclaimed alleging fraud 
in the Assumption Agreement and sought return of the monies they had already 
paid under that agreement.

 

[¶4]      On July 13, 1999, 
the trial court entered a judgment against Mr. and Mrs. Collins and Mr. and Mrs. 
White, jointly and severally, on the Stock Purchase Agreement.  It examined the Stock Purchase Agreement 
and concluded the buyers breached the agreement without just cause or 
excuse.  The trial court further 
determined the contract did not provide for acceleration; however, the parties 
should remain bound by all terms and conditions including future payments for 
the unpaid balance in the amount of $20,340.16.  As to the Assumption Agreement, the 
court found no fraud but concluded the sellers failed in their proof of the 
existence of the underlying debts which were the consideration for the 
Assumption Agreement.  Despite this 
finding, the trial court determined the sellers were entitled to keep the monies 
already paid on the obligations. 

 

[¶5]      Pursuant to 
W.R.C.P. 59, the buyers alleged the court erred in the assessment of the amount 
of the recovery, the decision was not sustained by sufficient evidence, and the 
decision was contrary to law on several bases.  Subsequent to a hearing on the W.R.C.P. 
59 motions, the trial court generally denied the motions with the exception of a 
modification to clarify that the order as it relates to the Assumption Agreement 
was res judicata as to the sellers, and, as a result, the sellers are foreclosed 
from pursuing any further cause of action relating to the Assumption 
Agreement.  This appeal 
followed.

 

 

DISCUSSION

 

A.        
Assumption Agreement

 

[¶6]      The trial court 
properly concluded the buyers are not entitled to recover for payments made 
pursuant to the Assumption Agreement; however, the decision was not based on the 
appropriate theory of law.  After a 
thorough exploration of the issue at trial, the trial court determined the 
sellers had not committed fraud as claimed by the buyers with regard to the 
notes.  However, they also could not 
prove the existence of the underlying obligations, and, apparently, the trial 
court concluded such proof was a prerequisite to the sellers' enforcing the 
remaining payment obligations under the agreement.  Applying Commercial Union Insurance 
Company v. Postin, 610 P.2d 984 (Wyo. 1980), the trial court determined that 
Mr. Collins and Mr. White were volunteers and thus not entitled to reimbursement 
for monies paid.  We consider de 
novo questions of application of the law, including identification of the 
correct rule.  Fontaine v. Board 
of County Commissioners of Park County, 4 P.3d 890, 892 (Wyo. 2000).  We do not substitute ourselves for the 
trial court as a finder of fact; instead, we defer to the trial court's findings 
unless they are not supported by the record or are erroneous as a matter of 
law.  Kendrick v. Barker, 
2001 WY 2, ¶12, 15 P.3d 734, ¶12  
(Wyo. 2001).

 

[¶7]      The language of 
the Assumption Agreement provides in pertinent part:

 

WHEREAS, 
Finnell is obligated on two (2) notes/loans, described for purposes hereof as 
the "Finnell Call Note", in the approximate sum of Sixty-Five Thousand Dollars 
($65,000.00), and the "Hillard Note", in the approximate sum of Twenty Thousand 
Dollars ($20,000.00); and,

WHEREAS, 
said notes/loans indirectly relate to Empire Auto Sales, Inc., a Wyoming 
corporation, ownership of which is being transferred this date from Finnell to 
Collins and White; and,

 

WHEREAS, 
Collins and White desire to assume the said notes/loans and obligations related 
thereto, as part of the said consideration for the sale and transfer of 
corporate assets referred to above, and Finnell desires to be released from said 
note[s]/loans and obligations.

 

NOW 
THEREFORE, in consideration of the above, and of the mutual covenants and 
conditions herein contained and other good and valuable consideration, the 
parties hereto contract and agree as follows:

 

I.  Collins and White hereby assume all 
liability and responsibility for the "Finnell Call Note" and the "Hillard Note", 
and agree to fully pay and satisfy the same within two (2) years from date 
hereof.

 

II.  Collins and White hereby agree to pay 
interest-only payments on said notes/loans and obligations, on behalf of 
Finnell, until the same are satisfied and paid in full, as 
follows:

 

A.  "Finnell Call Note":  Seven Hundred Fifty Dollars ($750.00) 
per month; and,

 

B.  "Hillard Note":  One Thousand Eight Hundred Dollars 
($1,800.00) per year.

 

III.  Collins and White hereby agree to save 
and hold harmless Finnell from any and all payments, liability and 
responsibility for and relating to said notes/loans and 
obligations.

 

[¶8]      The language 
relating to the assumed notes is also referenced in the Stock Purchase Agreement 
and provides in pertinent part:

 

B.  Buyer represents and warrants as 
follows:

 

            
1.  Buyers are employees of 
the Corporation or are otherwise familiar with the books and records and 
business dealings of the Corporation.

 

            
2.  Buyers are aware of all 
outstanding liabilities and obligations of the Corporation[], or in any way 
related thereto, and agree to pay and save harmless Seller as to any and all of 
such liabilities and obligations, of any type, nature or description, including, 
but not limited to taxes, assessments, financing, and floor planning, pending or 
threatened legal matters, the "Hillard Note", and the "Finnell Call Note", and 
all other similar liens, encumbrances and charges, leases and other contractual 
obligations.

 

[¶9]      For the buyers to 
recover the amounts paid under the Assumption Agreement, they had to prove 
fraudwhich the trial court concluded they did notor support some other claim 
that the monies were wrongfully paid.  
The contract language did not require the sellers to produce promissory 
notes for the specifically identified debts the buyers agreed to assume.  Simply because the sellers could not 
produce promissory notes does not mean the payments made on those debts of the 
corporation were not contractually required.  The plain language of the contract 
authorized and required the payments.  
The buyers cite no legal basis to support their claim for reimbursement 
of such payments.   

 

[¶10]   To avoid their contractual 
commitment, in essence the buyers assert there was an oral condition precedent 
which required the sellers to produce evidence of the "Hillard Note" and the 
"Finnell Call Note" before they had to perform under the contract.  This argument is inconsistent with the 
clear language of the written contract which makes no mention of such a 
requirement.  "The parol evidence 
rule prevents extrinsic evidence from being used to contradict, subtract from, 
add to, or vary the terms of an unambiguous contract."  Frost Construction Company v. Lobo, 
Inc., 951 P.2d 390, 394 (Wyo. 1998).  
"We depart from the parol evidence rule only if parol evidence is used to 
establish a separate and distinct contract, a condition precedent, fraud, 
mistake or repudiation."  Snyder 
v. Lovercheck, 992 P.2d 1079, 1086 (Wyo. 1999).

 

"A 
written document, unconditional on its face and fully executed, can be shown by 
oral testimony to have been delivered subject to a condition precedent.  As long as the condition has not 
occurred, so they say, no contract has been made.  Therefore, oral proof of the conditional 
delivery is admissible in spite of the face of the document to the 
contrary."  3 Corbin on Contracts, § 
589, pp. 530-532 (1960)

 

Lewis v. 
Roper, 579 P.2d 434, 438 (Wyo. 1978).  "The 
key, however, to such a position is a showing that the parties agreed to the 
condition precedent."  579 P.2d  at 
439.  "Conditions precedent are not 
a favorite of the law and will not be read into a contract by implication."  Id.

 

[¶11]   Significant time at trial was 
devoted to determining whether the sellers had committed fraud by failing to 
prove the existence of the assumed debt.  
The trial court ultimately dismissed the buyers' claim of fraud.  It specifically 
concluded:

 

While 
there may be a dispute over the significance of these instruments, the fact that 
the loans are not embodied in the promissory note does not mean that Finnell had 
committed fraud.  He may have been 
lax in his promise to produce the "notes" in a timely manner, but I am not 
persuaded that fraud has been established by clear and convincing 
evidence.

 

 [¶12]  The record does not support the 
conclusion that the parties agreed the sellers would produce evidence of the 
notes as an oral condition precedent to the buyers' performance, and the trial 
court made no such finding.  In 
fact, the buyers' own testimony and conduct contradict this assertion.  Mr. Collins, who as general manager of 
the used car business had full knowledge of the corporation's books and records, 
testified he signed the Assumption Agreement without evidence of the underlying 
debts because he trusted Mr. Finnell.  
For the same reason, they continued to make payments on the notes for two 
years without production of the promissory notes until Mr. Finnell demanded 
complete satisfaction of the Assumption Agreement.  "[A] condition precedent may not be 
implied when the same might have been foreseen and provided against by express 
agreement.'"  Lewis, 579 P.2d  
at 439 (quoting Jaffe v. Patterson Realty Company, 133 N.E.2d 655, 659 
(Ohio Ct. App. 1955)).  The buyers 
had the opportunity to insert clear language into the contract to require 
written proof of the underlying obligations.  Short of that contractual requirement, 
we cannot imply the existence of an oral condition precedent where there is 
inadequate evidence in the record to support such an agreement by the 
parties.  The buyers were aware that 
the consequence of terminating payments on the Assumption Agreement was 
default.  Parties are free to ignore 
the provisions of an applicable contract, but those parties do so at their peril 
and must recognize they may bear the consequences of disregarding those 
provisions when a breach of the contract becomes a reality.  Colorado Interstate Gas Company v. 
Natural Gas Pipeline Company of America, 842 P.2d 1067, 1070 (Wyo. 
1992).  The buyers cite no theory of 
law that would support their recovery of monies paid pursuant to a valid 
contract.

 

[¶13]   The buyers urge this court to 
consider the theories of mutual mistake and failure of 
consideration.  "A mutual 
mistake is one that is reciprocal and common to both parties, each alike 
laboring under the same misconception."  
Kendrick, ¶19.  No 
evidence exists that the sellers were mistaken as to the existence of the debts 
which were to be assumed.  Thus, the 
theory of mutual mistake is unsupported by the record.

 

[¶14]   Lastly, the buyers briefly argue 
failure of consideration.  However, 
this assertion is provided without any analysis.  In fact, the clear contract language 
provides that the debts were obligations of the corporation and the assumption 
of the notes was "consideration for the sale and transfer of corporate 
assets."  We hold the buyers are not 
entitled to a refund of the monies already paid pursuant to the Assumption 
Agreement.1

 

 

B.        Stock 
Purchase Agreement

 

[¶15]   In resolving whether the remedies 
provided by the Stock Purchase Agreement in the event of default by the buyers 
included a deficiency judgment, we must apply our established rules of contract 
interpretation.  The primary purpose 
in interpreting or construing a contract is to determine the intent and 
understanding of the parties, and our initial inquiry centers on whether the 
language of the contract is clear and unambiguous.  Reed v. Miles Land and Livestock 
Co., 2001 WY 16, ¶10, 18 P.3d 1161, ¶10 (Wyo. 2001).  The interpretation and construction of a 
contract are done by the court as a matter of law.  Id.  Where an agreement is in writing and 
the language is clear and unambiguous, the parties' intent is to be secured from 
the four corners of the contract.  
Cliff & Co., Ltd. v. Anderson, 777 P.2d 595, 598 (Wyo. 
1989).  We consider the contract as 
a whole, taking into consideration the relationship between the various 
parts.  Id.  "We turn to extrinsic evidence and 
rules of contract construction only when the contract language is ambiguous and 
its meaning is doubtful or uncertain."  
Wolter v. Equitable Resources Energy Company, Western Region, 979 P.2d 948, 951 (Wyo. 1999).  Whether 
or not a contract is ambiguous is a question of law for the court.  Corpening v. Corpening, 2001 WY 
18, ¶8, 19 P.3d 514, ¶8 (Wyo. 2001).

 

[¶16]   The pertinent language of the Stock 
Purchase Agreement which shall be reviewed for ambiguity is as 
follows:

 

            
IV.  DELIVERY IN 
ESCROW:  Seller shall deliver in 
escrow, to BERT T. AHLSTROM, JR., as escrow agent, certificate for the shares of 
stock sold pursuant to this Agreement, duly endorsed in blank for transfer, and 
accompanied by all other documents necessary for an effective transfer.  Upon payment of the total purchase price 
as set forth hereinabove, on the due dates specified, the escrow agent shall 
deliver the shares of stock being sold hereunder, and all other documents 
delivered to the escrow agent, to Buyer.  
The fees and expenses of the escrow agent, if any, shall be paid by 
Buyer.  Should Buyer default 
hereunder, said escrow agent shall redeliver the shares/certificates and all 
other escrowed documents to Seller.

 

            
. . . .

 

            
VI.  DEFAULT BY 
BUYER:  In the event Buyer 
defaults hereunder, by non-payment of the sums of money set forth hereinabove or 
otherwise, this Agreement shall become automatically and immediately null and 
void and of no force and effect as to transfer of stock certificate and sale of 
the same; and Seller shall be allowed to retain all monies paid by Buyer 
hereunder to that point in time.  
This delineation does not exclude Seller's additional rights at law or 
equity.

 

 [¶17]  The buyers argue the language of the 
Stock Purchase Agreement is unambiguous and the only remedy specified in the 
contract is termination of the contract and retention by the sellers of the 
amount already paid.  They contend 
the contract language, which provides that the sellers' additional rights at law 
or equity are not excluded, can only be construed to be applicable to those 
remedies available to a null and void contract.  Therefore, the trial court's decision 
that the parties shall remain bound by the agreement is contrary to the clear 
language of the contract.  The 
buyers additionally argue the agreement is in the nature of an installment land 
contract and therefore the exclusive remedy is forfeiture, not a deficiency 
judgment.

 

[¶18]   In contrast, the sellers contend 
there is at least a modicum of ambiguity in the contract language.  According to the sellers, the contract 
only specifically provides the agreement is automatically and immediately null 
and void and of no force and effect as to the transfer and sale of the stock 
certificates.  However, the contract 
language does not preclude the availability of additional remedies upon default 
with regard to the remaining amount owed under the contract.  Moreover, the sellers argue the contract 
states that the remedies provided do not exclude their additional rights at law 
or equity.  They claim the reliance 
on installment land contract cases, which involve the sale of real estate, is 
inapplicable to the facts of the instant case which involves the sale of stock 
escrowed as security.  As a result 
of this distinction and the ambiguous contract language, the sellers claim the 
deficiency judgment was appropriately ordered.

 

[¶19]   Upon an examination of the Stock 
Purchase Agreement as a whole, we conclude the contract language was 
unambiguous.  The express terms of 
the contract provide that upon default the Stock Purchase Agreement shall become 
automatically null and void as to the transfer and sale of the stock.  The only remedy provided by the contract 
was for the sellers to retain all previously made payments and to have the 
escrow agent return possession of the stock certificates.  There are no enforceable contract rights 
where a contract is null and void.  
Police Protective Association of Casper v. City of Casper, 575 P.2d 1146, 1150 (Wyo. 1978).  If an 
agreement is void, it cannot be a contract because the law will neither give a 
remedy for its breach nor recognize its performance as a duty.  1 Richard A. Lord, Williston on 
Contracts, § 1:20 (4th ed. 1990); see also Restatement 
(Second) of Contracts § 7 cmt. a (1981).  
We will not require parties to remain bound under an agreement which 
clearly states that it shall become automatically null and void upon the 
occurrence of a specified event.  
"When parties make a contract and reduce it to writing, they must abide 
by its plainly stated terms."  
Colorado Interstate Gas Company, 842 P.2d  at 1070.  Even if we were to have found ambiguity 
in the contract as urged by the sellers, we note that the sellers' attorney 
drafted the Stock Purchase Agreement and any ambiguity in the contract is 
construed against the drafter of the agreement.  Prudential Preferred Properties v. 
Underwood Ranch Company, 873 P.2d 598, 600 (Wyo. 
1994).

 

[¶20]   The sellers argue the contract 
language preserves their "additional rights at law or equity."  We agree, but only those available 
rights at law or equity which arise in the face of this null and void contract 
are preserved.  For example, the 
sellers' brief tenuously suggests there was a diminution in value of the 
corporation while it was in the buyers' control.  If the suggestion is accurate, a 
derivative action brought by the sellers, now the stockholders, could provide an 
alternative remedy for the loss in value of the business.  W.R.C.P. 23.1; Wyo. Stat. Ann. §§ 
17-16-740 to -747 (LexisNexis 2001).  
However,  we make no 
determination concerning whether a derivative action is warranted in this 
case.  We mention this possibility 
only as an example of possible "additional rights at law or equity" which might 
exist and to illustrate the provision has significance and does not create 
ambiguity.

 

[¶21]   Having determined there is no 
ambiguity in the contract, we have no reason to examine the parties' intent or 
the distinction between the effect of an installment land contract and a 
mortgage/security agreement.  
However, we do note this agreement involved the escrow of stock 
certificates rather than the sale of real estate.  As the sellers point out, the difference 
lies in the potential for retaining the value of the asset sold.  As written, this contract contemplated 
the stock certificates would be held in escrow.  Upon default, the escrow agent was 
instructed to return the stock certificates to the sellers.  The contract clearly intended the 
sellers would have no control over the operation of the business during the term 
of the escrow, exemplified by the sellers' release of voting rights.  While it may have been imprudent for the 
sellers to enter into such a business transaction, we have often stated we will 
not rewrite contracts under the guise of interpretation and, so long as there is 
no ambiguity, we are bound to apply contracts as they have been written.  Amoco 
Production Company v. EM Nominee Partnership Company, 2 P.3d 534, 540 (Wyo. 2000).  We note that the amount at issue in the 
Stock Purchase Agreement comprised only a small portion of the entire business 
transaction.  Furthermore, the 
parties selected a remedy upon default which was the return of the stock 
certificates and the recovery of the sellers' rights as stockholders rather than 
opting for a deficiency judgment.  
It is not the court's duty to make a contract for the parties.  Flora Construction Company v. Bridger 
Valley Electric Association, Inc., 355 P.2d 884, 886 (Wyo. 1960).  We reverse that portion of the trial 
court's order which granted $20,340.16 to the sellers as a result of the buyers' 
breach of the Stock Purchase Agreement.

 

[¶22]   Affirmed in part and reversed in 
part.

 

FOOTNOTES

 

1This conclusion is premised upon the 
Assumption Agreement constituting an enforceable contract, and therefore the 
payments made pursuant thereto were contractually required.  However, the sellers did not 
cross-appeal the trial court's refusal to enforce the contract.  Therefore, we will not address whether 
the sellers are entitled to payment of the remaining amounts owed under the 
contract.  Racicky v. Simon, 
831 P.2d 241, 244 (Wyo. 1992).