Sands v. E.I.C., Inc.

Opinion

Plaintiff filed an action for declaratory relief requesting the court to determine his rights and obligations under a contract with defendant. He appeals from the summary judgment granted to defendant E.I.C., Inc. Plaintiff does not argue that the judgment in favor of defendant Sam Stein, president of defendant E.I.C., Inc., was improperly granted.

Plaintiff borrowed $364,000 from defendant E.I.C., Inc. The note executed by the parties required plaintiff to prepay one year’s interest ($20,815) at the time of execution and make monthly interest payments thereafter. Thus, interest was always to be paid one year in advance. The note contained a prepayment clause providing that plaintiff could pay “the principal” by tendering $272,000 “as payment in full of this note.” There was no provision for a prepayment penalty.

The issue is whether plaintiff, when he prepaid the $272,000, was entitled to offset the amount of the interest he had prepaid. This is a question of first impression in California.

In support of its motion, defendant filed plaintiff’s admissions that the documents attached to the complaint were intended to serve as the exclusive and final understanding of the parties and were not modified by any other agreements. Plaintiff filed a declaration stating that “at all times it was the intention of the parties to reimburse the prepaid interest,” but this conclusionary statement was not admissible in evidence and could not be considered by a court on a motion for summary judgment even in the absence of objection. (Larsen v. Johannes (1970) 7 Cal.App.3d 491 , 500 [ 86 Cal.Rptr. 744 ].) The statute changing this rule (Stats. 1980, ch. 57) was expressly made inapplicable “to any appeal if the notice of appeal is filed prior to January 1, 1981.” Such notice herein was filed March 10, 1980. Interpretation of the note herein is a question of law.

The $272,000 tendered was approximately 75 percent of the full amount of the loan ($364,000). There is no evidence in the record indicating how the parties arrived at the discounted amount. They may or may not have taken into consideration the prepayment of interest. The ambiguity remains unresolved after examining the contract as a whole.

Civil Code section 1654 provides that in cases of uncertainty not governed by other rules, the language óf a contract should be interpreted most strongly against the party who caused the uncertainty to exist. The uncontradicted declaration of plaintiff shows that it was drafted by counsel for defendant at the direction of defendant’s president. Construing the ambiguity most strongly against defendant requires an interpretation that the parties intended the prepayment clause to mean that tender of $272,000 constituted payment of the unpaid principal owing on the note, and that plaintiff is therefore entitled to an offset in the amount of prepaid but unearned interest. Otherwise, defendant would be unjustly enriched.

Since payment of the principal constitutes payment in full of the note, this interpretation also satisfies the requirement of Civil Code section 1652 that “Repugnancy in a contract must be reconciled, if possible, by such an interpretation as will give some effect to the repugnant clauses, subordinate to the general intent and purpose of the whole contract.” (In re Marriage of Whitney (1977) 71 Cal.App.3d 179 , 182 [ 139 Cal.Rptr. 324 ].)

The trial court erred in granting defendant’s motion for summary judgment. Defendant did not sustain its burden of proving that the claims of the plaintiff are entirely without merit under any legal theory. (Murphy v. Allstate Ins. Co. (1978) 83 Cal.App.3d 38 , 41 [ 147 Cal.Rptr. 565 ]; Fuller v. Goodyear Tire & Rubber Co. (1970) 7 Cal. App.3d 690 , 693 [ 86 Cal.Rptr. 705 ].)

Kingsley, Acting P. J., and Woods, J., concurred.