Union Central Life Insurance Co. v. Neuhoff

THOMAS, J.: The point presented for decision by this court was determined in the trial court on a motion to strike defendant’s pleas and enter a judgment for the plaintiff, now appellee, who had brought suit to recover certain interest paid by him, under protest, to the appellant. The facts are quite simple. Appellant lent appellee money bearing interest at five per cent and secured by a mortgage. This transaction was consummated 1 October 1935. On 15 November 1940 the lender, for certain considerations, agreed in writing to reduce the interest rate to four and one-half per cent from 1 April 1940. Upon the interpretation of one clause in this agreement hinges the decision of this appeal. The interest rate was lowered “on the condition that any prepayment of principal . . . within the first year from the date of this agreement shall be subject to a 2% penalty and any such prepayment within the next two years from the date of this agreement shall be subject to a 1% penaltyWe have italicized that part of the stipulation which is doubly important in a study of this controversy. To continue with the facts — meanwhile it should be remembered that the contract was executed 15 November 1940 —the mortgage was fully paid 1 April 1943 and the appellee was charged a penalty of one per cent. The question is, then, whether this was improperly exacted and should be returned. *100 The- circuit judge held that judgment should be entered for the recovery of this premium. The dispute arose because of the rather unfortunate phraseology we have quoted, apparently providing that both the one- and two-year periods should be computed “from the date of this agreement.” Counsel for appellee urges us to invoke the rule of interpretation that ambiguities will be resolved against the parties responsible for them, and insists that it is appropriate to do so here because the rule is particularly “applied to insurance companies, and it so happens that the appellant... is an insurance company.” It is a primary rule of construction recognized in decisions of overwhelming number that the meaning of a contract will be determined from the entire instrument, and we believe that when applied here the intention of the parties may be collected without resorting to the rule for which appellee contends. It is plain enough that the first period of one year, payment during which would carry a penalty of two per cent, ended 15 November 1941. If we were to invoke the secondary rule, asserted by appellee, the two-year period would have begun at the same time and would have expired before the prepayment, but so to construe the agreement would be to ignore the adjective “next.” If this word is accorded any significance at all, it means that the second term of two years was intended to follow or succeed the first of one. We find nothing unreasonable in the provision- that if the debt was discharged within a year there would be a premium of two per cent, if within the next two years one per cent, but if not paid within three years, the lender meanwhile receiving interest for the use of its money, the penalty, or premium, would vanish. Another reason for our view is that a contrary construction could have, had prepayment been made within the first year, actually caused conflict and confusion. If the terms were concurrent the question would have arisen whether the over-payment was two per cent under one clause or one per cent under the other. The fallacy of appellee’s second position is that frequent application of the secondary rule in litigation about insurance *101 policies does not arise from the nature of the contracting parties, but the nature of the contract. There is no cause to adopt a peculiar rule of interpretation of a contract like the one in the instant case simply because one of the parties, the lender, “happens” to be an insurance company. Such a contract of an insurance corporation should be judged by the same rules as a similar contract of an individual or of any other corporation. It is our view that the judgment is erroneous and should be reversed and that the cause should proceed in accordance with the opinions we have expressed. Reversed. TERRELL, BUFORD and SEBRING, JJ., concur. CHAPMAN, C. J„ BROWN and ADAMS, JJ., dissent.