Omega Const. Co., Inc. v. Murray , 129 Mich. App. 509 ( 1983 )

129 Mich. App. 509 (1983) 341 N.W.2d 535

OMEGA CONSTRUCTION COMPANY, INCORPORATED
v.
MURRAY

Docket No. 63723.

Michigan Court of Appeals.

Decided October 10, 1983.

Tolley, Fisher & Verwys, P.C. (by Mark H. Verwys and Sharon R. Brinks), for plaintiff.

Patterson, Gruber & Kennedy (by Brian M. Kennedy), for defendant.

Before: DANHOF, C.J., and ALLEN and K.N. HANSEN,^[*] JJ.

DANHOF, C.J.

Defendant, Norbert T. Murray, contracted with plaintiff, Omega Construction Company, Incorporated, to have plaintiff build a shopping plaza. The contract, signed by the parties on March 30, 1979, provided that plaintiff would build a Kroger store to "turnkey" (ready for occupancy) completion and leave the remainder of the plaza in "shell" (ceiling and walls only) condition. The contract set the price for construction at $1,114,000. On the same day, defendant executed a noninterest-bearing note to plaintiff providing for payment of $326,000 after satisfactory completion of the construction contract and 90 days after written demand.

Plaintiff built the shopping plaza and was paid the full construction contract price. Defendant failed to pay the note upon written demand, and plaintiff sent a letter threatening suit if defendant failed to sign a new note incorporating a payment schedule and interest. Defendant executed the second note on December 11, 1980, but made no payments thereon.

At trial, defendant claimed that the original promissory note was contingent upon plaintiff's completing the entire plaza to "turnkey" status. He argued that he signed the second note as an accommodation to plaintiff, to satisfy plaintiff's bonding company, and because plaintiff led defendant to believe that he owed the additional amount due to cost overruns. Defendant also argued that the interest rate of 12% on the second note was usurious. The trial court granted summary judgment to plaintiff, pursuant to GCR 1963, 117.2, subds (2) and (3), at the conclusion of the parties' opening statements at trial.

On appeal, defendant argues that the trial court erred by holding that the interest rate on the December note was not usurious. Defendant bases his argument on 12 USC 86a, and contends that the section applies to national banks only.

12 USC 86a provides:

"(a) If the applicable rate prescribed in this section exceeds the rate a person would be permitted to charge in the absence of this section, such person may in the case of a business or agricultural loan in the amount of $1,000 or more, notwithstanding any State constitution or statute which is hereby preempted for the purposes of this section, take, receive, reserve, and charge on any such loan, interest at a rate of not more than 5 per centum in excess of the discount rate, including any surcharge thereon, on ninety-day commercial paper in effect at the Federal Reserve bank in the Federal Reserve district where the person is located.

Definitions

"(b) For the purpose of this section —

"(1) the term `loan' includes all secured and unsecured loans, credit sales, forbearances, advances, renewals or other extensions of credit made by or to any person or organization for business or agricultural purposes;

"(2) the term `interest' includes any compensation, however denominated, for a loan;

"(3) the term `organization' means a corporation, government or governmental subdivision or agency, trust, estate, partnership, cooperative, association, or other entity; and

"(4) the term `person' means a natural person or organization."

Defendant's argument is undercut by the fact that 12 USC 85 sets forth the interest rate chargeable by an "association". "Associations" are defined in 12 USC 37 as associations organized to carry on the business of banking under any act of Congress. Since 12 USC 85 expressly applies to national banks only, we see no reason to read § 86a as applying solely to the same lenders. The plain language of the statute indicates that it applies to loans made by a "person". State law is specifically pre-empted by § 86a, and interest at the rate of "5 per centum in excess of the discount rate, including any surcharge thereon" is allowed. According to the affidavit submitted by plaintiff, uncontested by defendant, the federal discount rate in effect at the time defendant signed the second note was 12%, plus a surcharge of 2%. An interest rate of up to 19% was therefore allowable under § 86a. The trial court correctly determined that the 12% interest rate incorporated in the promissory note was not usurious.

Defendant also argues that the trial court erred by holding that the parol evidence rule barred extrinsic evidence offered by defendant to show that the first promissory note was contingent upon completion of the entire plaza to "turnkey" status and that the note was also designed to cover overruns on certain costs.

We note initially that defenses open on an original note are open on renewal notes between the original parties. Warner v Fallon Coal Mines Co, 246 Mich. 493; 224 N.W. 601 (1929). Plaintiff conceded this at trial and the trial court allowed argument on the March note.

The parol evidence rule precludes the admission of evidence of antecedent understandings and negotiations to vary or contradict a contract which the parties have agreed is complete and integrated. NAG Enterprises, Inc v All State Industries, Inc, 407 Mich. 407; 285 NW2d 770 (1979); 3 Corbin, Contracts, § 573. However, "[e]xtrinsic evidence of prior or contemporaneous agreements or negotiations is admissible as it bears on this threshold question of whether the written instrument is such an `integrated' agreement". NAG Enterprises, supra, p 410. (Footnote omitted.)

We find that the trial court erred in excluding defendant's proffered parol evidence on the note. Although the instant note appears complete on its face, before the parol evidence rule may be applied to exclude extrinsic evidence, "there must be a finding that the parties intended the written instrument to be a complete expression of their agreement as to the matters covered". NAG Enterprises, supra, p 410. (Footnote omitted.) See also Vergote v K Mart Corp, 125 Mich. App. 48; 336 NW2d 229 (1983). The integration of the note is strongly contested by defendant here. The parties dispute the price agreed upon for completion of the shopping plaza and the work included in the entire agreement. Evidence of oral negotiations and agreements was admissible to resolve this material issue. In Sawyer v Arum, 690 F2d 590 (CA 6, 1982), the court, applying Michigan law, considered a similar fact situation heard by the trial court without a jury. The court summarized the relevant Michigan law and concluded:

"Pursuant to the clear and controlling pronouncements of the Michigan Supreme Court, it is plain that the district court was not obligated to find evidence of facial ambiguity in the contract prior to considering extrinsic evidence of intent herein. Indeed, as specifically noted in NAG Enterprises, the intent of the parties to integrate `prior or contemporaneous agreements or negotiations' is a `threshold' issue to interpreting an agreement. Simply stated, the identity of the full agreement must be ascertained prior to any interpretation of that agreement.

"Inasmuch as proof of the entire agreement between the parties rests upon a factual finding reflecting the intent of the parties in arriving at their agreements; and inasmuch as the trial judge was presented with direct testimony on this issue, not inconsistent with the circumstantial evidence of intent, the Court hereby affirms the decision below." Sawyer, supra, p 594.

The extrinsic evidence offered by defendant here must be presented to the jury to allow the jury to determine whether the note was intended to be a complete integration of the parties' agreement, or whether the condition alleged by defendant was a prerequisite to payment.

The remaining issues raised by defendant concern defenses available on the December note only. Defendant argues that the December note is unenforceable because no separate consideration was given by plaintiff. We disagree. MCL 566.1; MSA 26.978(1) provides that an agreement to change or modify "any contract, obligation, or lease, or any mortgage or other security interest in personal or real property" shall not be invalidated because of an absence of consideration where the modification agreement is in writing and signed by the party against whom the modification is sought to be enforced. A written agreement such as the present, which is based on a contract involving real property, is governed by this statute. See Michigan National Bank of Detroit v Holland-Dozier-Holland Sound Studios, 73 Mich. App. 12, 17-18; 250 NW2d 532 (1976), lv den 402 Mich. 846 (1978); Hayes-Albion Corp v Kuberski, 108 Mich. App. 642, 650; 311 NW2d 122 (1981). The December note was in writing and signed by defendant. Defendant's argument that the December note fails for lack of consideration is without merit. Even if consideration were required, plaintiff's forbearance from suit and extension of time to defendant to pay the debt would constitute sufficient consideration. WKBW, Inc v Children's Bible Hour, 332 Mich. 569; 52 NW2d 219 (1952).

We find no error in the trial court's ruling that the defenses of fraud, misrepresentation, and mutual mistake were unavailable to defendant. Defendant's pleadings do not state these defenses under the rules set forth in GCR 1963, 111.7 and GCR 1963, 112.2. Defendant's pleadings, in their most favorable light, allege unilateral mistake only, which the trial court properly allowed defendant to argue.

We do not address defendant's remaining evidentiary issue, as the transcript clearly indicates that the trial judge refrained from ruling on the admissibility of evidence on construction practices and market prices.

Reversed and remanded for further proceedings consistent with this opinion. Costs to defendant.

NOTES

[*] Circuit judge, sitting on the Court of Appeals by assignment.