Memorandum of Decision Re: Settlement as Judgment

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Decisions
IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re EDWARD NOTARIUS and PATRICIA                                               No. 93-11650 SCHWEIZER,        Debtors. ___________________________/ EDWARD NOTARIUS and PATRICIA SCHWEIZER,      Plaintiffs,       v.                                                                                                     A.P. No. 94-1368 DAVID and MARIANNE NEUFELD,      Defendants. ______________________________/
Memorandum of Decision
     The parties to this adversary proceeding were the parties to a prior adversary proceeding in this court. After a full day of trial, they reached a settlement. Most of the settlement terms were stated orally on the record, but certain "additional terms" of a confidential nature were in the form of a handwritten agreement prepared during settlement negotiations and signed by counsel for both sides. This adversary proceeding is over interpretation of one of those additional terms.      The first adversary proceeding had been over the residence and vineyard which the Neufelds had sold to Notarius and Schweizer. The Neufelds sought to foreclose due to failure of Notarius and Schweizer to make payments; the latter alleged that they did not have to pay because the Neufelds had made misrepresentations to them. As part of the settlement, the Neufelds were allowed to foreclose and take back the property.      While Notarius and Schweizer had owned the property, they had borrowed money from First Nationwide Bank secured by a deed of trust to the property. While the Bank claimed that its lien was superior to that of the Neufelds, the latter had a good claim that the lien was junior and had been wiped out by their foreclosure. Litigation over the priority of the bank's lien was pending in state court. One of the "additional terms" in the handwritten agreement was as follows:          [The Neufelds] to pay to [Notarius and Schweizer]          1/2 of any savings to first Nationwide below current          principal due (i.e. approximately $380,000) this          amount to be paid at time of final payment on prom-          issory note.      The parties contemplated that a more formal settlement agreement would be prepared and signed at a later date, and such an agreement was in fact prepared and signed. It contained the following provision relating to the First Nationwide lien:          [The Neufelds] shall pay to [Notarius and Schweizer]          one-half of any amount of reduction in the present princi-          pal balance of the First Nationwide note made under any          settlement or agreement between [the Neufelds] and First          Nationwide . . .      The Neufelds did not reach any agreement with First Nationwide. They proceeded to trial and prevailed, obtaining a judgment reducing the First Nationwide lien to zero. Notarius and Schweizer claim one-half of the reduction pursuant to the settlement agreement. The Neufelds take the position that a "judgment" is not a "settlement," and accordingly they are under no obligation to give Notarius and Schweizer anything even though they concede that if they had settled their lawsuit with First Nationwide Notarius and Schweizer would have been entitled to half.      After considering all the evidence, the court has no difficulty determining that the term "settlement" in the formal version of the agreement was intended by both sides to include any reduction in the First Nationwide lien won by judgment. The court reaches this conclusion for three reasons.      First, the term originally used by both sides in the handwritten agreement was "savings." Both sides agreed that there was no subsequent negotiation or discussion. The court therefore concludes that "savings" is what the parties agreed to, regardless of the words they used in the formal agreement.      Second, the term "settlement" can be defined as encompassing a judgment. See Kissel v. Creel, 83 F.Supp. 799, 801 (DC 1949)("A suit may be settled either by agreement or by final determination by a court...").      Third, interpretation of the agreement as urged by the Neufelds would render one of the words meaningless. The parties used the phrase "reduction . . . made under any settlement or agreement" to replace the word "savings" in the handwritten version. If the parties had truly meant to limit reduction to only a negotiated agreement, then that would make the word "settlement" redundant and unnecessary. While contracts do occasionally contain redundant and unnecessary words, it is more likely that the parties intended the word "settlement" to encompass something more than "agreement."      The court of course notes that the Notarius' position is not without merit. The term "settlement" is in fact used in other places in the agreement in a limited manner (e.g. "Defendants intend to negotiate a settlement with First Nationwide" at page 4, paragraph 10). If the court did not have the original handwritten agreement before it, it might be tempted into adopting the Notarius' interpretation. However, the written version makes it clear that the parties intended that any reduction of the First Nationwide lien would be split 50-50.      For the reasons stated above, judgment will be rendered in favor of Notarius and Schweizer in the amount of $188,719.87, plus interest at the legal rate from and after the time the payment was due under the agreement. They shall also recover their attorneys' fees and costs of suit.      This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a) and FRBP 7052. Counsel for plaintiffs shall submit an appropriate form of judgment forthwith.
Dated: February 14, 1996                                               _______________________                                                                                               Alan Jaroslovsky                                                                                               U.S. Bankruptcy