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Brady v. Park

Supreme Court of Utah

May 8, 2019

Don Brady, Sinnikka Brady, Don Brady Interior Design, and Finnish Touch Day Spa, Appellees and Cross-Appellants,
v.
Kang S. Park, Kang Sik Park, and Bank of Utah, Appellants and Cross-Appellees.

          On Direct Appeal

          Third District, Salt Lake The Honorable Robert P. Faust No. 060917206

          J. Michael Gottfredson, Mark F. James, Mitchell A. Stephens, Salt Lake City, for appellees and cross-appellants

          Troy L. Booher, Clemens A. Landau, Salt Lake City, for appellants and cross-appellees

          Chief Justice Durrant authored the opinion of the Court, in which Justice Pearce and Justice Petersen joined. Associate Chief Justice Lee and Judge Connors joined in the majority as to Sections II, III, IV, V, VI, and VII. Associate Chief Justice Lee authored a dissenting opinion as to Section I.B. Judge Connors authored a dissenting opinion as to Section I. Having Recused Himself, Justice Himonas does not participant herein. District Court Judge David Connors sat.

          OPINION

          DURRANT, CHIEF JUSTICE.

         Introduction

         ¶1 This is the latest chapter in a contract dispute that began nearly twenty years ago. The parties' dispute stems from a seller-financed real estate transaction in 1996. On one side are Kang S. Park (the seller-financer), his trust (represented by Mr. Park as trustee), and the Bank of Utah (the custodian of Mr. Park's IRA account) (collectively, Park Defendants). On the other side are the Bradys (the buyers). The Bradys purchased the real estate in question with two promissory notes. One of the notes required the Bradys to make an installment payment each month, in the amount of $5, 923.61, from January 1, 1997 to October 1, 2006; and a final balloon payment, consisting of the remaining unpaid principal and accrued interest, on October 31, 2006. The note applied a 10 percent base interest rate on the unpaid principal. And it established two consequences in the event the Bradys missed an installment payment: (1) a late fee (equal to 10 percent of the missed installment payment), and (2) a bump up in the base interest rate (10 percent) to a default interest rate (20 percent) until the note was "brought current."

         ¶2 Although the Bradys made monthly installment payments throughout the life of the note, when the time came to pay the final balloon payment, the parties disagreed over the amount owing. The Bradys filed suit for declaratory relief in 2006 and have been locked in litigation ever since.

         ¶3 Most of the disagreements between the parties relate to the manner in which the amount owed is calculated. Although many disputed issues have been resolved through two rounds of litigation in the district court and one round in the court of appeals, the parties now ask us to resolve seven final issues.

         ¶4 The first and most important issue is what the note's 20 percent default interest provision requires in order to be "brought current," thereby returning the note's interest rate back to a base 10 percent rate after a missed installment payment had bumped up the interest rate to the 20 percent default rate. Because the currency of the note determines when, and for how long, 20 percent default interest accrued throughout the ten year life of the note, our resolution of this issue will significantly affect the amounts owed under the note.

         ¶5 The Bradys argue that the note's currency is exclusively tied to the monthly installment payments. In other words, they argue that the 20 percent default interest begins accruing when an installment payment becomes late, and it stops once the late installment payment is paid. During a previous appeal, the Park Defendants argued that, in addition to late installment payments, the note also required the Bradys to pay any of the additional, accrued default interest to bring it current. This issue was resolved by the court of appeals in a decision upon which we denied certiorari review.[1] On remand, the Park Defendants argued that the note is not current if there is any unpaid 10 percent penalty fee amount. But the district court rejected this argument.

         ¶6 The Park Defendants now argue that the mandate rule precluded the district court from reaching this question. We hold that the district court was not so precluded. The Park Defendants also argue that the district court erred in determining that the 10 percent late fee need not be paid to bring the note current. We hold that the district court erred in deciding this issue by construing an ambiguity in the note against the Park Defendants, as drafters, without first considering extrinsic evidence. Accordingly, we remand this question to the district court for a new determination after considering relevant extrinsic evidence.

         ¶7 The second issue before us is whether the note's 10 percent late fee provision applies to the final balloon payment. The district court, after considering extrinsic evidence, held that it did not and that it would be unconscionable if it did. The Park Defendants challenge both determinations. We affirm the court's interpretation of the note on this point because it was not clearly erroneous. Because our resolution of this issue renders a consideration of the unconscionability issue unnecessary, we decline to address it.

         ¶8 The third issue before us is whether the district court violated the mandate rule when it applied installment payment dates differing from the court's previously accepted payment dates. We hold that it did. Accordingly, we reverse the district court's payment date determination and remand for a new accounting in accordance with the pre-appeal payment dates.

         ¶9 The fourth issue before us is whether the district court erred when it awarded pre- and postjudgment interest to the Bradys at a rate of 10 percent. The Park Defendants argue that this was not authorized under the plain language of Utah Code sections 15-1-1 and 15-1-4. We agree. Accordingly, we reverse and remand to the district court for an entry of default interest at an appropriate rate.

         ¶10 The fifth issue is whether the district court erred in denying the Park Defendants' rule 60(b) motion. The Park Defendants argue that the district court erred by failing to remove the "joint and several" designation from the final judgment because two of the Park Defendants-Paul M. Halliday, as trustee of two trust deeds, [2]and the Bank of Utah, as custodian of Mr. Park's IRA account-were in the litigation only as part of a claim for injunctive relief. We hold that the district court's ruling on the rule 60(b) motion was not clearly erroneous, so we affirm.

         ¶11 The sixth issue on appeal is raised by both parties. After the latest round of litigation, the district court concluded that neither party had prevailed and, therefore, neither party was entitled to attorney fees. Because our rulings on the other issues in this case may have upended the basis for the court's attorney fees decision, we remand for a new attorney fees determination.

         ¶12 The seventh and final issue is raised by the Bradys. They assert that we do not have jurisdiction over Mr. Park's IRA, because the Bank of Utah, as custodian of Mr. Park's IRA, failed to file a timely notice of appeal. We hold that even though we do not have jurisdiction over the Bank of Utah, our jurisdiction over the IRA's owner and beneficiary necessarily includes jurisdiction over the IRA.

         Background

         ¶13 Don and Sinnika Brady purchased commercial property from Kang S. Park[3] in 1996 for $755, 625. The Bradys paid Mr. Park in the form of two promissory notes. The smaller note was for $80, 625 and the larger was for $675, 000. Each note was secured by two trust deeds: one on the commercial property and one on a Summit County investment property owned by the Bradys. Only the larger note (Note) is at issue here. The Note bore interest at a rate of 10 percent per year on the unpaid principal. Under the terms of the Note, the Bradys were required to make monthly payments of $5, 923.61 starting on January 1, 1997, and a final balloon payment on October 31, 2006 consisting of "the entire principal balance together with interest thereon." Importantly, the Note specified two consequences for a late payment-a 10 percent late fee and a bump up to a 20 percent default interest rate:

If payment is not made within five (5) days of due date, a late fee of 10 percent will be due. If payment is not made within 5 days of due date the entire balance shall bear interest at the rate of 20% until note is brought current.

         The Note was prepared by a title company, but the 20 percent default interest provision was included at Mr. Park's request.

         ¶14 The Bradys made the first three payments on time, but made the April 1, 1997 payment late. On May 2, 1997, they made a double payment comprising the April and May payments plus a 10 percent late fee (10 percent of the late installment payment) for the April payment. But they did not pay off any of the default interest that had accrued from the date the payment was due until the date the late installment payment was paid. The Bradys made other payments late, but ultimately made every monthly installment payment. Seeking to refinance the Note, and believing their payments had kept the Note current, the Bradys approached Mr. Park through a bank loan officer in 2000 to obtain a payoff amount.

         ¶15 According to the Bradys, Mr. Park did not respond to their payoff request until 2002, when he provided a payoff amount between $1.4 million and $1.5 million. That is when the Bradys first learned that Mr. Park believed the Note had not been current, and had been accruing interest at a 20 percent rate, since March 1997. The Bradys disputed Mr. Park's calculation and over the next four years asked Mr. Park for a corrected payoff amount. They claim Mr. Park did not respond until October 18, 2006-thirteen days before the balloon payment was due-when he notified the Bradys that the payoff amount was $2, 585, 398. Mr. Park calculated these amounts based on his assumption that the Note had not been current since the March 1997 payment, so it had been accruing interest at a 20 percent rate.

         ¶16 After receiving the October 2006 payoff calculation, the Bradys sued Mr. Park to receive a judicial determination of the amounts owed on the Note. The Bradys also alleged a number of other claims, including a request for injunctive relief[4] against the Bank of Utah, as custodian of Mr. Park's IRA, and Paul M. Halliday, as trustee of two trust deeds securing the Note. They also sought damages for Mr. Park's alleged refusal to accept their tenders of payment. The Park Defendants counter-sued with a number of contract-related claims, including breach of contract.

         ¶17 After a bench trial, the district court ruled, among other things, that the Note required the Bradys, in order to bring the Note current, to pay off any default interest that accrued after late payments. As a result, the court concluded that the 20 percent default interest had been accruing since March 1997. The district court also ruled that the Note called for the interest to be compounded annually during the delinquent period, and that the 10 percent late fee for a late installment payment constituted an unconscionable penalty.

         ¶18 The district court then instructed the parties to find a third-party expert accountant to calculate the remaining amount owed on the Note in accordance with the court's legal conclusions. It explained that the designated accountant should consider the installment payment date to be the date that Mr. Park actually received the checks. The court noted, however, that the delivery dates for some of the checks were unclear because Mr. Park had allowed those checks to accumulate before depositing them as a group. So for the accumulated checks, the court instructed the designated accountant to consider the payment date to be the date the checks were sent.

         ¶19 The parties selected Rick Hoffman to perform the Note calculations. As part of his calculations, Mr. Hoffman determined the date of each installment payment and applied interest at a 20 percent rate, compounding annually, from March 1997 to June 30, 2010. He did not include any amounts for late fees.

         ¶20 The district court incorporated Mr. Hoffman's findings into its February 2, 2011 findings of fact and conclusions of law by awarding judgment in the amount Mr. Hoffman had calculated and stating that the "amount was determined in accordance with the Court's direction and the Parties' stipulation in selecting Mr. Rick Hoffman to perform this calculation." The final judgment amount was $2, 440, 845.

         ¶21 The parties appealed the district court's determination. The Bradys challenged the court's conclusions that the Note called for compound interest, that the accrued 20 percent default interest had to be paid to stop further accrual of default interest, and that the 20 percent default interest provision was conscionable. The Park Defendants, on the other hand, challenged the court's rulings that the 10 percent late fee provision was unconscionable and that the interest compounded annually rather than monthly. Importantly, neither party challenged the court's legal determinations or Mr. Hoffman's factual findings related to the payment dates.

         ¶22 The court of appeals subsequently issued an opinion deciding these issues.[5] It reversed the district court's decision on two points. It concluded, first, that the Note called for simple rather than compound interest[6] and, second, that the Note did not require the Bradys to pay the accrued 20 percent default interest to stop the accrual of additional default interest.[7] The court also concluded that the district court erred when it ruled that the 10 percent late fee provision was unconscionable because it had failed to evaluate the provision using the standard we set out in Commercial Real Estate Investment, L.C. v. Comcast of Utah II, Inc.[8] As a result, it remanded the case back to the district court to resolve four issues:

(1) whether the challenged provision is unconscionable under Commercial Real Estate as applied to installment payments, (2) if not, which installment payments generated a late fee, (3) whether the late fee provision applies to the [Note's final] balloon payment, and (4) if so, whether that application of the late fee is unconscionable.[9]

         ¶23 On remand, the district court applied the Commercial Real Estate test and concluded that the 10 percent late fee provision was conscionable, that the 10 percent late fee provision did not apply to the Note's balloon payment, and that, even if it did, its application to the final balloon payment would be unconscionable. It also concluded that the district court's pre-appeal instructions regarding the payment dates had not been appealed and would "remain the law applicable in this case." Finally, it requested the parties to submit accountings consistent with its order.

         ¶24 Both parties submitted proposed accountings, but their calculations differed drastically from each other. Under the Park Defendants' accounting, the Bradys still owed $785, 977.01, and under the Bradys' accounting, the Bradys' had overpaid Mr. Park by $256, 255.00-a discrepancy of $1, 042, 232.01.

         ¶25 The wide gap between each party's calculation was due, in part, to a disagreement regarding whether the 10 percent late fee had to be paid with each late installment payment or at the end with the final balloon payment. Mr. Park argued that it became due upon each default, so it had to be paid with the late installment payment to bring the Note current, thereby stopping the accrual of 20 percent default interest. The Bradys, in contrast, argued that late fees were not due until the final balloon payment. After considering these arguments, the district court agreed with the Bradys and held that only the late installment payment needed to be paid to bring the Note current.

         ¶26 The parties also disagreed over the dates of the installment payments. The Park Defendants' accountant incorporated Mr. Hoffman's original payment dates into his calculation, but the Bradys' accountant made his calculation using different dates.[10] The Park Defendants urged the district court to adopt their proposed accounting because it was "consistent with the previous undisturbed findings in this case," whereas the accounting submitted by the Bradys' accountant contained "a number of errors inconsistent with the record." Although the district court considered the Park Defendants' arguments, it ultimately accepted the Bradys' proposed accounting and issued final judgment to the Bradys in the amount of $256, 255.00. Additionally, the court declined to award attorney fees to either party, but awarded pre- and postjudgment interest at the rate of 10 percent per annum pursuant to Utah Code sections 15-1-1 and 15-1-4.

         ¶27 The court awarded the judgment amount joint and severally against the Park Defendants. The Park Defendants filed a motion pursuant to rule 60(b) of the Utah Rules of Civil Procedure to remove the joint and several designation from the Bank of Utah and Paul M. Halliday. The motion was brought on the ground that the Bank of Utah-as custodian of Mr. Park's IRA-and Mr. Halliday- as trustee of two trust deeds securing the Note-had been joined in the case only as defendants to the Bradys' claim for injunctive relief. According to the Park Defendants, the court could not now award monetary damages against the Bank of Utah and Mr. Halliday because the Bradys' never alleged any monetary damages against them in their complaint. The Bradys argued, however, that the joint and several designation was appropriate because the Note was held in Mr. Park's IRA account-of which the Bank of Utah is the custodian. They also argued that it was appropriate because the Bank of Utah, acting on behalf of the IRA, had used the pre-appeal judgment[11] to foreclose on the Bradys' real property. The district court issued a two-sentence order denying the rule 60(b) motion.

         ¶28 The Park Defendants appeal the judgment and the district court's denial of the rule 60 motion. We have jurisdiction pursuant to Utah Code section 78A-3-102(3)(j).

         Standards of Review

         ¶29 The first and second issues require us to consider the district court's interpretation of a contract. We review a district court's interpretation of a contract for correctness.[12] But if a contract term is ambiguous, district courts should consider extrinsic evidence to resolve the ambiguity.[13] If a district court makes a determination of the parties' intent after considering extrinsic evidence, this is a factual determination to which we grant deference.[14] So if the court's decision hinges upon extrinsic evidence, it should be overturned only if clearly erroneous.[15]

         ¶30 Third, we consider whether the district court violated the mandate rule. We review a district court's holdings regarding the mandate rule for correctness.[16]

         ¶31 Fourth, we consider the district court's decision to award pre- and postjudgment interest. We review a district court's decision in this regard for correctness.[17]

         ¶32 Fifth, we consider the district court's decision to award no attorney fees. We review a district court's determination of which party is the prevailing party under an abuse of discretion standard.[18]But legal questions that pertain to the attorney fees issue, such as the proper interpretation of the Note at issue here, are reviewed for correctness.[19]

         ¶33 Sixth, we consider the district court's rule 60(b) determination. We conduct this review under an abuse of discretion standard.[20]

         ¶34 Finally, we consider our jurisdiction over the Bank of Utah, as custodian of Mr. Park's IRA. The question of whether we have jurisdiction over an appeal is a question of law.[21]

         Analysis

         ¶35 The parties raise seven issues on appeal. First, the Park Defendants argue that the district court erred in interpreting the Note as providing that the 10 percent late fee amounts need not be paid to bring the Note current. They argue that the court erred in making this interpretation because it violated the mandate rule. We disagree. They also argue that, even if it did not violate the mandate rule, the court's interpretation of the Note was incorrect. Although we agree with the district court that the Note is ambiguous on this point, we hold that the court erred in deciding this issue because it construed the ambiguity against the Park Defendants, as drafters, without first considering extrinsic evidence. Accordingly, we reverse the district court's decision on this point and remand for a new determination after the court considers relevant extrinsic evidence.

         ¶36 The Park Defendants also challenge the district court's interpretation of the Note's 10 percent late fee provision as it relates to the final balloon payment. We affirm the court's finding, because it was not clearly erroneous, that extrinsic evidence showed that the parties did not intend the 10 percent late fee provision to apply to the final balloon payment.

         ¶37 Next, the Park Defendants argue that the district court violated the mandate rule by accepting payment dates that differed from payment dates accepted by the pre-appeal district court. We agree. Accordingly, we reverse the court's payment date determination and remand for an accounting consistent with the pre-appeal payment dates.

         ¶38 Furthermore, the Park Defendants challenge the district court's determination regarding pre- and postjudgment interest and its rule 60(b) ruling. We affirm the court's rule 60(b) ruling, but reverse its pre- and postjudgment interest determination and remand for an award of interest at a more appropriate interest rate.

         ¶39 Additionally, both parties challenge the district court's attorney fees determination. Because our holdings regarding the other issues in this case may have upended the basis for the court's attorney fees decision, we remand for a new attorney fees determination.

         ¶40 Finally, the Bradys claim that we do not have jurisdiction over Mr. Park's IRA, because the Bank of Utah, as custodian for Mr. Park's IRA, failed to file a timely notice of appeal. We hold that we have jurisdiction over the IRA through its owner, even though we do not have jurisdiction over the Bank of Utah.

         ¶41 We discuss the merits of each issue in turn.

         I. The District Court Did Not Violate the Mandate Rule by Determining that the Note Did Not Require the 10 Percent Late Fees to be Paid to Bring the Note Current, But Erred in Making This Determination By Construing an Ambiguity in the Note Against the Park Defendants Without First Considering Relevant Extrinsic Evidence

         ¶42 The district court determined that the Note did not require the Bradys to pay unpaid 10 percent late fee amounts to bring the Note current. The Park Defendants argue that the court erred in making this determination for two reasons. First, they assert that it violated the mandate rule-a subcategory of the law of the case doctrine. Second, they argue that the court's interpretation of the Note was incorrect. Although we hold that the district court was not precluded by the mandate rule from deciding this issue, we hold that the court erred in deciding this issue by construing the ambiguity in the Note against the Park Defendants, as drafters, without first considering relevant extrinsic evidence.

         A. The district court did not violate the mandate rule when it determined that the 10 percent late fees were not required to be paid to bring the Note current

         ¶43 First, the Park Defendants argue that the district court violated the mandate rule when it determined that the Note did not require the 10 percent late fees to be paid to bring the Note current, thereby stopping the accrual of the 20 percent default interest. Because neither the pre-appeal district court nor the court of appeals had previously decided this issue, we hold that it never became the law of the case under the mandate rule, and so the district court on remand was free to decide the issue.

         ¶44 The "[l]aw of the case terminology has been applied to a number of distinct sets of problems, each with a separate analysis."[22]For example, "[i]n the initial stages of litigation . . . this rule has reference only to the parties to the case."[23] So "[w]hile a case remains pending before the district court prior to any appeal, the parties are bound by the court's prior decision, but the court remains free to reconsider that decision."[24]

         ¶45 But after a "case has been appealed and remanded," the law of the case becomes binding upon the district court under what is commonly referred to as the mandate rule.[25] The mandate rule "dictates that pronouncements of an appellate court on legal issues"[26] and "prior decision[s] of a district court become[] mandatory after an appeal and remand."[27] This branch of the law of the case doctrine "serves the dual purpose of protecting against the reargument of settled issues and of assuring adherence of lower courts to the decisions of higher courts."[28]

         ¶46 The mandate rule is especially important in a case, such as this, that involves parties locked in seemingly endless cycles of litigation.[29] For this reason, we will enforce the mandate rule if the district court disturbed any of its pre-appeal factual findings or legal conclusions, or a legal determination of the court of appeals. But because neither the pre-appeal district court, nor the court of appeals, had previously determined this issue, the district court on remand was free to reach it.

         ¶47 Before the first appeal, the district court never reached the question of whether the 10 percent late fee must be paid to bring the Note current, because it ruled that the late fee was unconscionable and thus unenforceable. The court of appeals considered the district court's unconscionability determination, but because the court of appeals held that the district court had applied the wrong legal test, it remanded the case to the district court so that it could make a new unconscionability determination using the test we established in Commercial Real Estate Investment, L.C. v. Comcast of Utah II, Inc.[30]Consequently, the court of appeals never discussed the effect the payment of the 10 percent late fee would have on the accrual of default interest.

         ¶48 The Park Defendants maintain, however, that at one point in the opinion the court of appeals ruled that the payment of the 10 percent late fee would be paid "together" with late installment payments. But when this comment is viewed in context of the opinion as a whole, it is clear that the court was not attempting to make a legal determination regarding the due date of the late fees or their effect on the accrual of default interest.

         ¶49 The court of appeals made the comment in considering the separate issue of whether the Note required the Bradys to pay off any of the already accrued default interest in order to bring the Note current, thereby stopping the accrual of additional default interest. During this discussion, the court stated that "payment of the accrued default interest was not required to bring the Note current," and so "the 20% default interest rate runs from the expiration of the five-day grace period until the payment was made, together with the 10% late fee (if the trial court determines on remand that the 10% late fee is enforceable)."[31]

         ¶50 The Park Defendants argue that the "together with the 10% late fee" language constituted a determination that the 10 percent late fee had to be paid to bring the Note current. But we disagree. It is unlikely that by making this comment the court of appeals intended to rule on this issue because the issue had not been presented and briefed by the parties.[32]

         ¶51 Because the district court ruled that the 10 percent late fee provision was unconscionable before the first appeal, it did not decide whether a late fee incurred under that provision had to be paid to bring the Note current. Consequently, there was no order for the parties to challenge and, as a result, the parties did not brief this issue for appeal. For this reason, it is unlikely that the court of appeals intended its passing statement-that any late fees would be paid "together" with a late installment payment-to be a binding legal determination that any incurred 10 percent late fees must be paid to bring the Note current.[33] This inference is strengthened by the fact that the court of appeals did not include this phrase when summarizing the court's legal determinations in the opinion's conclusion section.[34] Accordingly, we hold that the court of appeals did not make a legal determination regarding whether the 10 percent late fee must be paid to bring the Note current, so the district court did not violate the mandate rule when it decided this issue.

         B. The district court correctly concluded that the Note is ambiguous regarding what is required to bring the note current under the 20 percent default interest provision, but it erred by failing to consider extrinsic evidence before construing the ambiguity against the Park Defendants

         ¶52 The Park Defendants also argue that even if the district court did not violate the mandate rule by determining this issue, it nevertheless erred by interpreting the Note incorrectly. The court determined that the Note was ambiguous regarding what was required to bring the Note current. Rather than attempting to resolve this ambiguity by considering extrinsic evidence, it decided the issue by construing the ambiguity against the Park Defendants as the drafters of the provision. As a result, it concluded that the Note did not require the 10 percent late fee to be paid to stop the accrual of interest at the 20 percent default rate. We agree that the Note is ambiguous, but we reverse the district court's decision and remand for further factual findings because the district court failed to adequately consider extrinsic evidence before construing the Note against the Park Defendants.

         ¶53 When we interpret a contract "we first look at the plain language [of the contract] to determine the parties' meaning and intent."[35] "If the language within the four corners of the contract is unambiguous, the parties' intentions are determined from the plain meaning of the contractual language, and the contract may be interpreted as a matter of law."[36] But where a contractual term or provision is ambiguous as to what the parties intended, the question becomes a question of fact to be determined by the fact-finder.[37] So where parties to a contract dispute propose competing interpretations of a contractual term or provision, we must determine whether the contract as a whole unambiguously supports one interpretation over the other. If "uncertain meanings of terms, missing terms, or other facial deficiencies" prevent the court from determining which of the "proffered alternative interpretations" the parties intended when they entered into the contract, then the court deems the contractual provision at issue ambiguous, and the ambiguity must be resolved by considering extrinsic evidence of the parties' intent.[38]

         ¶54 In his dissent, Justice Lee argues that we have never clearly explained when a contractual term is sufficiently ambiguous to open the door to extrinsic evidence. But this argument brushes aside sixty years of our caselaw in which we have repeatedly set forth the following standard: where there are two reasonable[39] interpretations of a contractual provision, we look to extrinsic evidence.[40] So a contractual term or provision is ambiguous if "it is capable of more than one reasonable interpretation because of uncertain meanings of terms, missing terms, or other facial deficiencies."[41]

         ¶55 Justice Lee argues, however, that we have never explained "what it means for competing parties both to offer a 'reasonable' interpretation of the contract provision in question."[42] Although it is true that we have used the term "reasonable" repeatedly for decades without defining the term further-presumably under the assumption that it is a bedrock term whose meaning was obvious- we have provided a consistent explanation for what constitutes a reasonable interpretation sufficient to create an ambiguity. Under our caselaw a reasonable interpretation is an interpretation that cannot be ruled out, after considering the natural meaning of the words in the contract provision in context of the contract as a whole, as one the parties could have reasonably intended.[43] In other words, if the court determines that either of the competing interpretations could reasonably have been what the parties intended when they entered into the contract, then the contract is ambiguous.[44] Where we conclude that either of the contract interpretations could reasonably have been what the parties intended, we will not substitute our judgment for that of the parties by choosing what we believe to be the better of the two interpretations.[45]

         ¶56 So where a contractual term is genuinely ambiguous, "we seek to resolve the ambiguity by looking to extrinsic evidence of the parties' intent."[46] A determination of the parties' intent based on extrinsic evidence is a factual determination that should be made by the fact-finder.[47] In the rare case where the extrinsic evidence "does not reveal the intent of the parties, "[48] a district court should then, and only then, "resolve the ambiguity against the drafter."[49]

         ¶57 The first step of this analysis-deciding whether the contractual term is ambiguous-is a legal determination that we review for correctness, but the district court's findings regarding the extrinsic evidence are factual determinations that deserve deference.[50] Accordingly, if the district court's decision hinges upon extrinsic evidence, it should be overturned only if it was clearly erroneous.[51]

         ¶58 Although the district court in this case was correct in holding that the Note is ambiguous regarding what must be paid to bring the Note current, we hold that the court erred by deciding the issue by construing the ambiguity against the Park Defendants without first considering relevant extrinsic evidence.

         1. The note's plain language

         ¶59 First, we address the district court's determination that the Note is ambiguous regarding what is required to bring the Note current under the 20 percent default interest provision. The Park Defendants argue that any potential ambiguity in the 20 percent default interest provision should be resolved in their favor when considered together with their proposed interpretation of a phrase within the Note's 10 percent late fee provision. We hold that the language of the 20 percent default interest provision is ambiguous even if we interpret the 10 percent late fee provision as the Park Defendants suggest.[52]

         ¶60 The 20 percent default interest provision states: "If payment is not made within 5 days of due date the entire balance shall bear interest at a rate of 20 percent until note is brought current." So under this provision interest accrues on "the entire balance" at 20 percent until the Note "is brought current." Although the Park Defendants assume that any and all outstanding debts owed under the Note must be paid to bring the Note current, this assumption is not expressly supported by anything in the Note. The phrase "brought current" is not defined elsewhere in the Note and is not used in connection with a payment type other than the monthly installment payment. So even though it is reasonable to interpret the phrase-as the Park Defendants suggest-to require that the Bradys pay all late installment payments and late fees in order to bring the Note current, we find that it is also reasonable to read the Note to allow the Bradys to bring it current by paying only late, or missing, installment payments.

         ¶61 The latter interpretation is suggested by the structure of the Note. The structure contemplates three categories of payments: (1) monthly installment payments, (2) a final balloon payment, and (3) a 10 percent late fee for every late installment payment. Under the terms of the Note, a monthly installment payment of $5, 923.61 is due "on the [first] day of each and every month" for ten years. The "entire principal balance together with interest thereon" (final balloon payment) is due on October 31, 2006. And the 10 percent late fees are potentially due either immediately when incurred or together with the final balloon payment.

         ¶62 Importantly, of these three types of payments, it is only the monthly installment payment that is specifically tied to the 20 percent default interest provision. The Note specifies that the 20 percent default interest will begin accruing on "the entire balance"[53] if the "[installment] payment is not made within 5 days of due date."[54] So it is only the failure to timely pay installment payments-and not a failure to pay the other two types of payments contemplated in the Note-that triggers the 20 percent default interest. In this way, the Note specifically ties the installment payments to the 20 percent default interest provision, something it does not do for the other types of payments. Because the monthly installment payment is the only type of payment contemplated in the default interest provision, it is reasonable to conclude that the phrase "brought current" within the provision refers only to the payment of late installment payments.

         ¶63 In sum, the phrase "brought current" has two reasonable interpretations. The Note could, as the Park Defendants argue, require the payment of the missed installment payments as well as a payment of any 10 percent late fees that are currently due to bring the Note current. But it could just as reasonably require only the payment of the missed installment payments. Because the phrase "brought current" is not defined in the Note-and this omission leads to two contradictory but reasonable interpretations-we conclude that the Note is ambiguous.[55]

         2. Extrinsic evidence

         ¶64 Because the 20 percent default interest provision is ambiguous, our well-established pattern of contract interpretation would ordinarily require us to consider the district court's factual findings regarding relevant extrinsic evidence.[56] But that is not possible in this case because the district court failed to make the necessary factual findings. Rather than looking to the extrinsic evidence to resolve the ambiguity, the court instead skipped to construing the provision against the Park Defendants as the drafters. This was error.

         ¶65 By failing to consider extrinsic evidence before construing the ambiguous provision against the Park Defendants, the district court did what we expressly refused to do in Meadow Valley Contractors.[57] In that case the appellant asked us to resolve an ambiguity in a construction contract against the appellee who drafted the contract. We noted that by suggesting this, the appellant was ignoring "a critical analytical step."[58] We then explained the proper methodology a court should follow after concluding that the text of a contract is ambiguous: "when a trial court concludes that contractual language is ambiguous, the court will invite extrinsic evidence bearing on the intentions of the parties to the contract concerning the ambiguity. The court would then assess the merits of the extrinsic evidence and reach a conclusion about the intentions of the parties."[59] We finished by stating that "[o]nly if the court concludes that the extrinsic evidence does not reveal the intent of the parties and uncertainty remains will the court construe the ambiguity against the drafter."[60] In this case, the district court failed to assess the merits of the extrinsic evidence before construing the ambiguity in the default interest provision against the Park Defendants as the drafters. For this reason, we reverse the district court's decision and remand for a determination that considers the relevant extrinsic evidence.

         II. We Affirm the District Court's Determination Regarding the 10 Percent Late Fee's Application to the Balloon Payment

         ¶66 Next, we consider the Park Defendants' challenge of the district court's interpretation of the Note's 10 percent late fee provision as it relates to the final balloon payment. The district court concluded that, under the plain language of the Note, the 10 percent late fees did not apply to the final balloon payment. Additionally, the court held that extrinsic evidence, in the form of a memorandum of understanding drafted by the parties, supported this interpretation. And, alternatively, the court held that even if the 10 percent late fee provision did apply to the final balloon payment, it would be unconscionable and thus unenforceable. The Park Defendants challenge each of these determinations. We hold that the district court's interpretation of the language of the 10 percent late fee provision is reasonable. Therefore a determination that the Park Defendants' alternative interpretation is also reasonable would merely render the Note ambiguous. And because we find that the district court's determination regarding extrinsic evidence was not clearly erroneous, we affirm its determination on this basis.[61] This holding moots the Park Defendants' unconscionability challenge, so we decline to address it. As we did with the district court's interpretation of the 20 percent default interest provision, we first examine the contract's plain language. And because the Park Defendants' alternative interpretation could render the contract ambiguous, we also consider the district court's findings regarding the extrinsic evidence.[62]

         A. Plain meaning of the Note

         ¶67 We begin by interpreting the text of the 10 percent late fee provision. The district court concluded that the provision unambiguously did not apply the 10 percent late fee to the final payment. The court considered the Note's relevant text, which states that Dr. Park would be paid $675, 000:

[T]ogether with interest from date at the rate of 10 per cent per annum on the unpaid principal, said principal and interest payable as follows:
$5, 923.61 due in [sic] the 1st day of January 1997, and $5, 923.61 on the 1st day of each and every month thereafter until October 31, 2006, at which time the entire principal balance together with interest thereon is paid in full.
Interest shall accrue from December 1, 1996.
The payment is based on a 30 year amortization.
Each payment shall be applied first to accrued interest and the balance to the reduction of principal. If a payment is not made within five (5) days of due date, a late fee of 10 per cent will be due. If payment is not made within 5 days of due date the entire balance shall bear interest at the rate of 20% until note is brought current.

         The district court noted that this provision differentiates between the $5, 923.61 installment payments made "every month" from the "entire principal balance" balloon payoff, which is due on October 31, 2006. The court also noted that this distinction carries through to the 10 percent late fee provision. For example, the 10 percent late fee provision applies only if "payment" is not made within the five-day grace period and nothing in the provision suggests that the 10 percent late fee also applies if the "entire principal balance" payoff is not timely made. Thus, according to the district court, the Note clearly contemplates two types of payments-the installment payments and the balloon payment-and the 10 percent late fee provision applies only to the installment payments.[63] This interpretation is reasonable, especially when the entire Note is viewed in context.

         ¶68 That "payment" refers only to the Note's monthly installment payments is suggested by language in the Note's amortization provision. After specifying that an installment payment in the amount of $5, 923.61 is due each month, the Note states that the "payment is based on a 30 year amortization." Amortization is defined as "[t]he act or result of gradually extinguishing a debt . . . by contributing payments of principal each time a periodic interest payment is due."[64] So when the Note states that the "payment is based on a 30 year amortization," it means that the $5, 923.61 monthly installment payment amount was determined by calculating how much the Bradys would need to pay each month for a period of thirty years in order to pay off the Note's $675, 000 principal while incurring interest at a 10 percent rate. Because no other type of payment contemplated in the Note could be "based on a 30 year amortization," it is reasonable to conclude that the term "payment" in the amortization provision refers to the monthly installment payment.

         ¶69 The meaning of the term "payment" in the amortization provision is consistent with its meaning throughout the rest of the Note. For example, the first sentence of the Note's next paragraph states that "[e]ach payment shall be applied first to accrued interest and the balance to the reduction of principal." Once again, the term "payment"-as it is used here-could only reasonably refer to the monthly installment payment, and not the other two types of payments contemplated by the Note. It couldn't reasonably refer to the 10 percent late fee payment, because that payment would necessarily be applied to amounts owed for late fees. And it couldn't reasonably refer to the final balloon payment, because the final balloon payment, by its very nature, must be in the amount of the total remaining balance (principal plus interest), so it would not matter in which order it is applied. So once again the only payment type the term "payment" could reasonably refer to in this provision is the monthly installment payment.

         ¶70 Because it is reasonable to conclude that "payment," as it is used throughout the Note, refers only to the monthly installment payment, it arguably maintains this meaning when it is used in the 10 percent late fee provision.[65] It is reasonable, therefore, to conclude that the 10 percent late fee provision applies only to the monthly installment payments-and not to the final balloon payment.

         ¶71 The Park Defendants interpret the 10 percent late fee provision, however, as applying to the final balloon payment. They state that the term "payment," as it is used throughout the Note, plainly refers to all payments due under the Note, including the final payment on October 31, 2006. So according to them, the use of the term "payment" in the late fee provision should be read to include the balloon payment. But we need not address the merits of the Park Defendants' alternative interpretation, because even if we found it to be reasonable, it would merely render the 10 percent late fee provision ambiguous, thereby requiring us to consider the district court's factual determination regarding extrinsic evidence. And because we conclude that the court did not clearly err when it determined that the extrinsic evidence shows that the parties did not intend the 10 percent late fee to apply to the final balloon payment, we must affirm the district court's decision even if the Park Defendants' alternative interpretation is reasonable.

         B. Extrinsic evidence

         ¶72 The district court's factual determination regarding the 10 percent late fee provision's application to the final payment was not clearly erroneous. When reviewing a factual determination under a clearly erroneous standard, an "appellate court . . . does not consider and weigh the evidence de novo."[66] Accordingly, "[t]he mere fact that on the same evidence the appellate court might have reached a different result does not justify it in setting the findings aside."[67] Instead, "[i]t may regard a finding as clearly erroneous only if the finding is without adequate evidentiary support or induced by an erroneous view of the law."[68] In this case, the district court considered the parties' handwritten memorandum of understanding before finding that the parties intended the 10 percent late fee provision to apply only to the monthly installment payments. This determination is adequately supported by relevant extrinsic evidence.

         ¶73 In the memorandum of understanding, the parties wrote that "the payment will be made via monthly installments due on [the] First of each month with 10% late fee after five days." The district court concluded that "nothing in that provision addressed the balloon payment." Rather, "the parties defined 'payment' as 'monthly installments' made 'each month' and further provided that the 10% late fee applied only if those 'monthly installments' were more than five days late." Under this definition, the 10 percent late fee would apply to every installment payment from January 1, 1997 to October 1, 2006, but not to the final balloon payment due on October 31, 2006. We cannot say the district court clearly erred in making this determination.

         ¶74 The Park Defendants argue, however, that the memorandum of understanding shows that the 10 percent late fee should apply to the final balloon payment, as well as the monthly installment payments, because it treats all payments the same. In support, they assert that the memorandum of understanding "does not contain any separate definition of the final 'balloon payment,' nor does it set forth a different due date for that payment." But this argument fails because, as the district court pointed out, the Note treats the monthly installment and the final balloon payment differently, and it discusses the 10 percent late fee only in connection with the monthly installment payment.

         ¶75 Most noticeably, the Note treats the payments differently by establishing a different due date for the two payment types: each monthly installment is due on the first day of each month, but the due date for the final balloon payment is specifically set for October 31, 2006.

         ¶76 And as we have already noted, the memorandum of understanding treats the final balloon payment differently from the monthly installment payment by specifically establishing the 10 percent late fee for "monthly installment[]" payments without any reference to the final balloon payment. The Park Defendants argue that the term "monthly installments" includes the final balloon payment. But even if we agree that the term could be interpreted in this way, their argument would still fail because they have not shown that the district court's conclusions are unsupported by the language of the memorandum of understanding.[69] Accordingly, the Park Defendants have failed to show that the extrinsic evidence does not adequately support the district court's factual determination, so we cannot say the court's determination was clearly erroneous.

         ¶77 For this reason, we affirm the district court's determination that the 10 percent late fee provision does not apply to the final balloon payment. Because this determination renders a review of the district court's unconscionability determination unnecessary, we decline to address it.

         III. The District Court Violated the Mandate Rule by Recalculating the Dates of the Bradys' Installment Payments

         ¶78 The Park Defendants argue that the district court violated the mandate rule when it accepted an accounting determination that used payment dates that differed from the payment dates established pre-appeal. As we stated earlier, [70] under the mandate rule when a "case has been appealed and remanded, "[71]"pronouncements of an appellate court on legal issues"[72] and "prior decision[s] of a district court [that were not disturbed on appeal] become[] mandatory" upon the district court on remand.[73] So in this case, the district court's recalculation of the payment dates would violate the ...


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