Student Loan Guarantee Foundation of Arkansas, Inc. v. Barnes, Quinn, Flake & Anderson, Inc.
Docket: CA 90-173
Court: Court of Appeals of Arkansas; April 3, 1991; Arkansas; State Appellate Court
Melvin Mayfield, Judge, presided over the appeal by the Student Loan Guarantee Foundation of Arkansas, Inc. (SLGFA), which contested a Pulaski County Circuit Court ruling that held it liable to Barnes, Quinn, Flake, Anderson, Inc. for a $26,000 real estate commission. SLGFA argued that the circuit judge erred in determining (1) that the contract was ambiguous, and (2) that the property purchased constituted 'office space.'
On February 18, 1988, Ronald L. Nichoalds, executive director of SLGFA, entered into an Exclusive Agency agreement with Ramsay Ball of Barnes, Quinn, designating the firm to assist SLGFA in finding office space in Little Rock for a nine-month term. The agreement stipulated that the fee would be paid by the property owner, with no additional fees unless mutually agreed upon.
Barnes, Quinn filed suit on September 22, 1988, claiming SLGFA purchased the 'Shack' property for $260,000 without utilizing their services, thus violating the exclusive agency agreement and entitling them to a commission. SLGFA acknowledged the purchase but denied the commission, asserting that the property did not qualify as 'office space' per the contract and that the seller was responsible for fees.
During the trial, Dickson Flake from Barnes, Quinn testified about the firm's efforts to assist SLGFA in finding office space, including a one-year lease negotiated for interim office space, for which they received a fee. Flake expressed concern when he learned SLGFA was negotiating for the 'Shack' property, asserting that such negotiations fell under the terms of their contract.
Instructions were given that Barnes, Quinn was not to contact Claude Carpenter, the owner of the 'Shack' property, and was to abstain from negotiations, with SLGFA’s in-house counsel acting as the sole representative. Flake was presented with a letter agreement from February 18, 1988, which included a clause stating that no agency relationship existed between SLGFA and Barnes, et. al. for real estate purchases or office space. Flake refused to sign this addendum, explaining that if SLGFA prevented his firm from participating, they could not collect their commission from the seller. He claimed entitlement to a $26,000 commission, based on a 10% fee of the $260,000 purchase price, which he stated was standard for undeveloped property.
Flake also explained zoning requirements that necessitate parking for office space, asserting that a parking lot associated with an office building constitutes office space. After SLGFA acquired the 'Shack' property, it leased a building managed by Barnes, Quinn, located close to the existing SLGFA offices. The lease was for five years and was established post-acquisition of the 'Shack' property, where Barnes, Quinn was not acting on behalf of SLGFA but was managing the leased building.
During the trial on September 28, 1989, Flake testified that while the 'Shack' property was being used as a parking lot at that time, there was no office building on it. He inferred from discussions that the property was purchased for expansion purposes, although he was not explicitly told a building would be constructed. He acknowledged that SLGFA could hold the property for speculation or use it for office expansion.
Real estate agent James E. Hathaway testified that the 'Shack' property, now a decent parking lot, qualified as 'office space' due to its connection to SLGFA’s office building. Ronald L. Nichoalds, SLGFA’s executive director, noted the urgent need for office space and executed the letter agreement without board approval, which led to a one-year lease for offices. He described the 'Shack' property as initially containing an old restaurant and two block buildings, all of which were demolished, with $30,000 spent to convert it into a parking lot.
The property was initially acquired due to its potential as an investment, its suitability for development, and the option for resale. Currently, it is utilized as a parking lot, with no long-term plans for development by the Student Loan Guarantee Foundation (SLGFA). Nichoalds indicated a preference to move from SLGFA’s original location and stated that Ball only showed properties after the directors sought new leasing options. Although the agreement with Barnes, Quinn included provisions for acquiring "office space," Nichoalds clarified that the "Shack" property was not intended for that purpose and was being used solely as a parking lot.
The trial court ruled in favor of Barnes, Quinn, concluding that SLGFA's acquisition of the "Shack" property violated their exclusive agency agreement by not adhering to the terms regarding office space. Relevant case law established that selling a property with an exclusive listing constitutes a breach of contract, exposing the owner to liability for resulting damages. SLGFA disputed the amount awarded, claiming the "Shack" did not qualify as "office space" and argued that the agreement's terms were clear, thus challenging the trial court's use of parol evidence to clarify the ambiguous term "office space."
The judge acknowledged that parol evidence could be used to address ambiguities in the contract but would not permit its use to amend a formal contract. Despite objections from SLGFA's counsel regarding the potential violation of the parol evidence rule, the court allowed such evidence for the purpose of determining ambiguity, providing a continuing objection to any questions that might breach this rule.
The appellant asserts that the agreement with the appellee is clear and unambiguous, arguing the trial court incorrectly allowed parol evidence to interpret the term "office space." Definitions from various dictionaries clarify "office" as a business location and "space" as an area designated for a purpose. The appellant contends that a parking lot does not fit these definitions. Citing case law, the court emphasizes that when contract language is clear, it should be interpreted based on its plain meaning, and parol evidence is only admissible if there is ambiguity. The court distinguishes between patent ambiguities, which are evident on the contract's face, and latent ambiguities, which arise from undisclosed facts. In this case, the term "office space" is deemed unambiguous, as the written agreement explicitly states that SLGFA engaged Barnes, Quinn to find office space, leading to the negotiation of a lease for an actual office, rather than a parking lot, which is deemed insufficient. Testimony suggesting that a parking lot qualifies as "office space" contradicts the parol evidence rule, which prohibits altering a written contract with oral agreements. The court reinforces that clear contract language should be upheld, and any ambiguity must be established before considering external evidence.
The court ruled that oral testimony cannot be used to claim that clear and unambiguous contract terms were intended to have a different meaning than what is attributable to them. Instead, if such a claim arises, the appropriate remedy is a suit for reformation of the contract. The trial judge’s consideration of testimony equating a parking lot with office space was deemed improper due to violations of the parol evidence rule. Although the judge did not explicitly find the term "office space" ambiguous, the rationale for excluding this testimony aligns with precedents indicating that prior negotiations can clarify ambiguous terms only if they reflect a mutual understanding, not subjective interpretations.
The appellee argued that an addendum to the original contract indicated acknowledgment by SLGFA that the property in question fell under the contract. However, the court emphasized that this does not circumvent the parol evidence rule, which is designed to ensure the stability of written agreements. Past cases reinforce that verbal evidence cannot modify unambiguous written terms. Furthermore, the court found no indication that SLGFA acknowledged the property as office space; rather, attempts to negotiate an addendum were simply efforts to address commission concerns related to the potential purchase of the property. The court concluded that the evidence did not support the notion that the property was purchased for office use as defined in the original agreement, leading to a reversal and dismissal of the case.
