Case Name: UNITED STATES of America, acting on Behalf of the SMALL BUSINESS ADMINISTRATION, Appellant, v. SOUTH ATLANTIC PRODUCTION CREDIT ASSOCIATION, successor to Mid-Florida Production Credit Association, Appellee
Court: Florida District Court of Appeal
Jurisdiction: Florida
Decision Date: 1992-09-30
Citations: 606 So. 2d 691
Docket Number: No. 91-109
Parties: UNITED STATES of America, acting on Behalf of the SMALL BUSINESS ADMINISTRATION, Appellant, v. SOUTH ATLANTIC PRODUCTION CREDIT ASSOCIATION, successor to Mid-Florida Production Credit Association, Appellee.
Judges: SHIVERS and KAHN, JJ., concur.
Reporter: Southern Reporter, Second Series
Volume: 606
Pages: 691–698

Head Matter:
UNITED STATES of America, acting on Behalf of the SMALL BUSINESS ADMINISTRATION, Appellant, v. SOUTH ATLANTIC PRODUCTION CREDIT ASSOCIATION, successor to Mid-Florida Production Credit Association, Appellee.
No. 91-109.
District Court of Appeal of Florida, First District.
Sept. 30, 1992.
Kenneth W. Sukhia, U.S. Atty., Roy F. Blondeau, Jr., Asst. U.S. Atty., Tallahassee, for appellant.
W. Henry Barber, Jr. of Dell, Graham, Willcox, Barber & Henderson, P.A., Gaines-ville, for appellee.

Opinion:
PER CURIAM.
This appeal is from a final judgment of foreclosure finding (1) appellee South Atlantic Production Credit Association's (PCA's) mortgage dated April 17, 1978, is superior to any mortgage of the appellant Small Business Administration (SBA), and (2) the notes to PCA, together with the interest, attorneys' fees and court costs relative thereto, are secured by PCA's mortgage and are therefore superior to any claims of SBA. We affirm in part and reverse in part.
On December 30, 1977, Michael and Carol Spencer, who were farmers, borrowed $84,000 from the appellant SBA. Their promissory note was secured by a mortgage to SBA on their farm land.
On April 17, 1978, the Spencers obtained a loan from PCA and executed a promissory note in the amount of $85,000 secured by a mortgage on said farm land. The Spencers also signed a PCA form entitled "Request for Subordination," which was submitted to SBA on May 30, 1978. The stated purpose of the request was to "Purchase irrigation equipment $79,393.50; Purchase PCA stock and closing costs $9,060.50." The repayment terms were "6 annual installments at $16,325.00 beginning 4-5-79 and a final due April 5, 1985." Although the PCA mortgage provided for future advances, the request made no mention of future advances.
SBA's Disaster Branch in Jacksonville, in analyzing the request, noted in an interoffice memo that since the Spencers were going to use the money from the PCA loan to purchase irrigation equipment, "[s]ubor-dination to allow Capital Improvement will not dilute SBA position as equity will be improved by amount of loan increase." On that basis the branch manager approved the request for subordination without looking at the PCA mortgage. PCA did not send a copy of the mortgage, SBA did not ask for a copy of the mortgage, and the mortgage was not yet recorded.
SBA prepared a subordination agreement describing the Spencers' encumbered farm land and stating that SBA
does hereby consent and agree that its mortgage lien encumbering the real property above described shall be and is subordinate and subject to that mortgage lien executed in favor of Mid-Florida Production Credit Association, in an amount not to exceed $85,000.00 as recorded in Official Records Book_, Page _, public records of Alachua County, Florida.
(emphasis added). SBA signed the agreement on June 19, 1978, and sent it to PCA. PCA recorded their mortgage — secured by the same farm land encumbered by the SBA mortgage — on June 27, 1978. The Official Record book number (1145) and page number (418) of PCA's recordation were filled into the blanks on the subordination agreement, which was recorded the day after the PCA mortgage was recorded.
Over the next few years, PCA made future advances to the Spencers totalling approximately $273,000, although the balance owed presumably never exceeded $85,000 in principal. The future advances were typically one year loans for agricultural operating expenses.
On January 17, 1985, the Spencers executed a one-year note to PCA in the amount of $56,300, which PCA claims was a future advance under the April 17, 1978, mortgage. On April 23, 1985, the Spencers signed a renewal note to PCA in the amount of $28,618.08, which represented the unpaid balance of the April 17, 1978, mortgage.
On September 9, 1987, PCA filed a complaint against the Spencers, the United States of America, and two other parties not related to this appeal. The complaint sought to foreclose the Spencers' mortgages and security agreements. The only notes held by PCA that were not paid at the time of trial were the two for $56,300 and $28,618.08. Judge Doughtie granted summary final judgment of foreclosure as to all parties except the United States of America in that
7. The Court retains jurisdiction as to the following issues of priority between Plaintiff and Defendant THE UNITED STATES OF AMERICA:
(a) Whether the Promissory Note dated January 17, 1985, in the principal sum of $56,300.00 from [the Spencers] to [PCA] is secured by that certain Mortgage from [the Spencers] to [PCA] recorded in Official Records Book 1145, Page 418, of the public records of Ala-chua County, Florida;
(b) Whether the UNITED STATES OF AMERICA, acting through the Small Business Administration, subordinated its Mortgage described therein to Plaintiff's $85,000.00 Mortgage being foreclosed, including the usual obligation of accrued interest, costs and attorneys' fees.
The case was transferred to Judge Tench, who heard argument and testimony on these priority issues.
SBA argued they had no intention to subordinate themselves to anything above $85,000 or to the $56,300 mortgage. SBA therefore claimed that they were only subordinate to $28,618 (the balance under the original PCA loan), or at most subordinate up to $85,000 in toto.
PCA argued that the intentions of the parties are not at issue because the subordination agreement unambiguously subordinated SBA to the PCA mortgage, which provided for future advances, and that since the $56,300 loan was a future advance, SBA is subordinated to the $56,300 note. PCA also argued that SBA was subordinated to interest, costs and attorneys' fees totalling approximately $57,000.
An attorney testified as an expert witness in real estate financing. He said that a subordination to $85,000 in principal would also create a subordination to other sums that might become due, such as insurance premiums, taxes, or attorneys' fees in the event of a foreclosure; a lender would not be willing to take priority on the principal without taking priority on the related interest and costs. The attorney testified that although the subordination agreement does not mention interest, costs or attorneys' fees, it is subordinating to all the terms and conditions of the PCA mortgage.
James Avery testified he was the PCA loan officer who handled the Spencers' account. When Avery was asked whether he intended for SBA to subordinate to interest, costs and attorneys' fees, SBA objected based on the parol evidence rule. SBA argued the subordination agreement unambiguously states SBA is subordinated to $85,000 in toto, and therefore extrinsic evidence is inadmissible. Judge Tench said "the subordination agreement talks about $85,000 and we're talking about a mortgage that lets you have an advance which would let you go above $85,000. So . I think we're in a position where we have to take [parol] evidence." Avery testified PCA's intent was to subordinate SBA to $85,000 in principal plus interest, costs and attorneys' fees, even though the agreement does not say '$85,000 in principal.' Avery admitted PCA did not send a copy of their mortgage to SBA and it was not recorded until after the agreement was executed. He said PCA did not notify SBA when they made future advances because the principal never exceeded $85,000.
Thomas Schimmerling testified he was the SBA attorney who drafted the subordination agreement. He said he envisioned that $85,000 would be SBA's maximum exposure. Although he did not recall the specific transaction, Schimmerling could tell from the documents that the PCA mortgage appeared to be for the purchase of irrigation equipment and not to act as an operating loan. Judge Tench asked Schim-merling whether it would have been prudent to look at PCA's mortgage. Schim-merling answered he thought PCA would be bound by their own request for subordination.
William Devore testified he has worked for PCA since 1967. He said it is fairly common knowledge that PCA mortgages use a future advances clause.
Felton Bridges testified he is a special assets manager for PCA. He said PCA never asked for SBA to consent to future advances because consent was not needed, and he assumed SBA knew PCA had a future advances mortgage. He responded affirmatively when asked whether the $56,-300 note was secured by PCA's 1978 mortgage to which SBA was subordinate.
Tommy Rhodes testified he is the chief of portfolio management for SBA. He had no personal knowledge of the transactions with the Spencers, but he said it was not necessary to look at PCA's mortgage because they had put the amount they were subordinating to in the agreement. Rhodes said it is SBA policy to not subordinate to future advances. SBA agrees to only two kinds of subordinations: (1) operating loans for a term of one year or less, and (2) loans which improve the value of the property, such as the installation of an irrigation system.
Mr. Spencer testified he intended for the $56,300 note to be secured by the 1978 mortgage for $85,000.
Ranfred Rewis testified by deposition he was the PCA loan officer who handled the $56,300 loan. He said the purpose of the loan was for the farm's operating expenses. He also said the loan was intended as a future advance as evidenced by the credit summary or history and the comments thereon, which show it was intended that the note for $56,300 be secured by the 1978 mortgage subordinated to by SBA.
A final judgment of foreclosure was entered on December 7, 1990. Judge Tench found (1) PCA's mortgage is superior to any mortgage of SBA, and (2) the notes to PCA, together with the interest, attorneys' fees and court costs relative thereto, are secured by PCA's mortgage and are therefore superior to any claims of SBA. Judge Tench found PCA was owed $187,247.02, which represents a principal balance of $84,916.08 plus interest, costs and attorneys' fees. This timely appeal followed.
Where the language used in a contract is ambiguous or unclear, the court may consider parol evidence not to vary the terms of the contract, but to explain, clarify or elucidate the ambiguous language with reference to the subject matter of the contract, the circumstances surrounding its making, and the relation of the parties. Vienneau v. Metropolitan Life Ins. Co., 548 So.2d 856, 859 (Fla. 4th DCA1989). Extrinsic evidence is admissible only where the ambiguity is latent, and extrinsic evidence is admissible as to the intent thereof. Hunt v. First National Bank, 381 So.2d 1194 (Fla. 2d DCA1980). A latent ambiguity arises when the writing on its face appears clear and unambiguous, but there is some collateral or extrinsic matter which renders its application uncertain. 23 Fla. Jur.2d Evidence and Witnesses § 347 (1980). In the absence of an ambiguity, the actual language used in the contract is the best evidence of the intent of the parties and the plain meaning of the language controls. Acceleration National Service Corp. v. Brickell Financial Services Motor Club, Inc., 541 So.2d 738 (Fla. 3d DCA1989).
The threshold question, therefore, is whether the following language in the subordination agreement is ambiguous: "[SBA's mortgage lien] is subordinate and subject to [PCA's mortgage lien] in an amount not to exceed $85,000." The trial court found the language ambiguous because PCA thought interest, costs and attorneys' fees over and above the $85,000 were receiving priority, and SBA thought interest, costs and attorneys' fees would be included in the $85,000.
Although PCA appears to have brokered the subordination agreement, it is not a party to it. The Spencers signed and sent a request for subordination to SBA. The request is loosely in the form of an offer: 'If you subordinate to PCA, we will use the money to purchase irrigation equipment, PCA stock and pay closing costs.' SBA accepted the offer in the form of the subordination agreement. The mutual obligations of the agreement are that SBA will subordinate to PCA if the Spencers will execute a mortgage in favor of PCA "for an amount of not more than $85,000." PCA is not obligated to do anything, and they are not formal parties to the agreement. PCA is an intended third party beneficiary to the agreement, and as such, PCA can maintain an action to enforce the contract. Legare v. Music & Worth Construction, Inc., 486 So.2d 1359 (Fla. 1st DCA1986). However, the trial court abused its discretion by considering parol evidence of PCA's intent regarding supposedly ambiguous language in a contract to which they are not a party. See Pittman v. Providence Washington Ins. Co., 394 So.2d 223 (Fla. 5th DCA1981) ("A third-party beneficiary is a stranger to the contract. The parol evidence rule may be invoked by any party to such contract or their privies, but cannot be invoked by a stranger to such contract." Id. at 224 (citations omitted)).
Since evidence of PCA's intent is not relevant to the agreement between the Spencers and SBA, the ambiguity perceived by the trial court does not exist. There is no ambiguity in subordinating one's self to "an amount not to exceed $85,000." To add the words 'in principal' or 'plus interest, costs and attorneys' fees' is to improperly vary the terms of the contract, and there is no competent substantial evidence to support the trial court's conclusion that the interest, costs and attorneys' fees related to PCA's notes were secured by PCA's mortgage—at least to the extent the amount owed PCA exceeds $85,000. The subordination agreement provides SBA was to subordinate to no more than $85,000 in toto.
There is no question, however, that SBA subordinated itself to a future advances mortgage. As Judge Tench suggested, it would have been prudent for SBA to look at the mortgage to which it was subordinating since it has a policy against subordinating to future advances mortgages and PCA is in the' future advances mortgage business. Further, the subordination agreement was recorded after the PCA mortgage, and "[o]nce that mortgage was recorded [SBA] was on constructive notice of the contents of the mortgage, including the future advance clause allowing advances_" Dunson v. Stockton, Whatley, Davin & Co., 346 So.2d 603, 606 (Fla. 1st DCA1977). Contrary to the suggestion made by the dissent, we have not reached this result by application of waiver or estoppel arguments to SBA's position; neither have we strayed from the clear terms of the subordination agreement prepared by SBA. That agreement, authored by attorney Schimmerling, expressly subordinates SBA's position to the mortgage lien in favor of PCA "in an amount not to exceed $85,000." The instrument contains no other words of limitation. PCA has but one "mortgage lien," and this lien exists by virtue of the April 17, 1978 mortgage. SBA subordinated to an amount not to exceed $85,000, and not merely to the initial loan amount received by the Spenc-ers from PCA.
We conclude that the January 17, 1985, note in the sum of $56,300 as well as the April 23, 1985, note to PCA in the sum of $28,618.08 are secured by the April 17, 1978, mortgage to PCA. The final judgment, dated December 7, 1990, adjudged PCA to be due, under its notes and mortgage, $137,247.02 for principal, interest, costs and attorneys' fees. SBA's mortgage, which was recorded first, is superior to PCA's mortgage except for $85,000 (of the $137,247.02). In all amounts over $85,-000 the SBA mortgage has priority over the PCA mortgage.
AFFIRMED IN PART, REVERSED IN PART AND REMANDED.
SHIVERS and KAHN, JJ., concur.
ZEHMER, J., concurs in part and dissents in part, with an opinion.