JAMES APPLEYARD & Another v. DANA R. ROGERS & Another.

NOTICE: Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule
23.0, as appearing in 97 Mass. App. Ct. 1017 (2020) (formerly known as rule 1:28,
as amended by 73 Mass. App. Ct. 1001 [2009]), are primarily directed to the parties
and, therefore, may not fully address the facts of the case or the panel's
decisional rationale. Moreover, such decisions are not circulated to the entire
court and, therefore, represent only the views of the panel that decided the case.
A summary decision pursuant to rule 23.0 or rule 1:28 issued after February 25,
2008, may be cited for its persuasive value but, because of the limitations noted
above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260
n.4 (2008).

COMMONWEALTH OF MASSACHUSETTS

APPEALS COURT

22-P-566

JAMES APPLEYARD & another1

vs.

DANA R. ROGERS & another.2

MEMORANDUM AND ORDER PURSUANT TO RULE 23.0

Defendants Dana R. Rogers and Pre Owned Auto Sales, Inc.

(Rogers), operated a used car dealership funded through credit

extended by the plaintiffs, James and Maureen Appleyard

(Appleyards). The Appleyards filed a complaint in the Superior

Court and obtained a default against Rogers for money owed under

a promissory note. A damages assessment hearing followed, and

Rogers appeared in opposition to the amount claimed. During the

hearing, the judge examined the promissory note as well as the

parties' course of performance under the credit arrangement. A

default judgment, as amended, entered in favor of the Appleyards

1 Maureen Appleyard.
2 Pre Owned Auto Sales, Inc. The first amended complaint also
named John R. Adams as a defendant, but the claims against him
were resolved through summary judgment in the trial court and he
is not part of this appeal.
for $93,214. Rogers challenges the damages amount on appeal.

We vacate the amended default judgment and remand for

recalculation of damages.

Background. On July 12, 2013, Rogers signed a promissory

note promising to pay the Appleyards $200,000, "or so much

thereof as may be advanced, with interest payable in arrears on

the unpaid principal balance" at an annual interest rate of

twelve percent. Unspecified payments of "interest only" would

commence immediately with the principal sum of $200,000 due in

three months. In the event of a default under the promissory

note, the Appleyards would be entitled to an interest rate of

twenty-four percent as well as reasonable attorney's fees and

costs.

The maturity date for the promissory note passed

uneventfully, but the parties continued their credit

relationship over the next five years. Through that

arrangement, the Appleyards deposited $200,000 into a TD Bank

account, in their names, with the intended purpose that the

funds would be available for use by Rogers to purchase

automobiles for resale. The Appleyards authorized disbursements

from the account to enable Rogers to purchase vehicles.

Following each purchase, the Appleyards held the title while the

vehicle remained in Rogers's inventory. On the sale of a

vehicle from the inventory, Rogers notified the Appleyards,

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obtained the title, and replenished the TD Bank account with the

principal amount originally allocated to fund the purchase. In

addition to paying off the principal through the sale of each

vehicle, Rogers paid monthly interest on the total amount that

the Appleyards deposited into the TD Bank account. Under this

arrangement, the Appleyards gradually increased the funds

deposited from $200,000 to amounts that eventually reached

$356,580. Through an e-mail dated August 1, 2018, the

Appleyards notified Rogers of their intent to end the credit

relationship and thereby terminate access to the TD Bank account

by December 31, 2018.

After his access to the TD Bank account ended on December

31, Rogers continued making payments to the Appleyards as

vehicles were sold from the accumulated inventory. Between

January 2019 and September 2020, Rogers paid off the outstanding

principal balance "to within a few hundred dollars." Despite

the payments in 2019 and 2020 and the ultimate repayment of

nearly the entire principal, the Appleyards sent a notice of

"default" to Rogers on April 23, 2019. The Appleyards claimed

that for the months of February, March, and April 2019, Rogers

failed to make separate monthly interest payments as had been

done for the previous five years in connection with the TD Bank

account. These alleged missed payments amounted to $21,374.55

after the Appleyards invoked a twenty-four percent default rate

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of interest and used the maximum amount that had previously been

available in the TD Bank account ($356,580) as the initial basis

for the interest calculation.

On October 22, 2020, the Appleyards filed a complaint in

the Superior Court. They alleged that Rogers signed a

promissory note promising to pay the Appleyards $200,000, and

Rogers failed to make payments as required. Rogers did not file

an answer, and the Superior Court entered a default under Mass.

R. Civ. P. 55 (a), 365 Mass. 822 (1974). Rogers unsuccessfully

sought to vacate the default, and the Superior Court scheduled a

damages assessment hearing. At that hearing, the judge reviewed

the language of the promissory note, spreadsheets on payments,

e-mail correspondence, affidavits, and testimony. Rogers

claimed that he owed at most $3,843.28, asserted the Appleyards

were "using the wrong number to apply the interest," and denied

the loan was ever in default. The judge accepted the

Appleyards' calculations and awarded damages of $93,214 (amount

including interest, costs, and attorney's fees). On appeal,

Rogers disputes the assessed damages and claims the judge erred

in calculating interest, permitting a usurious rate of interest,

and increasing the award of attorney's fees.

Discussion. "The measure of damages is a question of law

reviewed de novo on appeal." Twin Fires Inv., LLC v. Morgan

Stanley Dean Witter & Co., 445 Mass. 411, 424 (2005). "The

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usual rule for damages in a breach of contract case is that the

injured party should be put in the position [she] would have

been in had the contract been performed." Situation Mgt. Sys.,

Inc. v. Malouf, Inc., 430 Mass. 875, 880 (2000). It is

incumbent on the plaintiff "to establish the amount of its

damages." National Grange Mut. Ins. Co. v. Walsh, 27 Mass. App.

Ct. 155, 158 (1989). "[W]hen a judge awards damages after entry

of default, the judge has an obligation fairly to determine that

the amount of damages has a reasonable basis in fact." Jones v.

Boykan, 464 Mass. 285, 294 (2013).

In the present case, the judge determined that the language

of the promissory note was ambiguous as to the method of

calculating interest and thus looked to parol evidence to

ascertain the parties' intent. The parol evidence rule "bars

the introduction of prior or contemporaneous written or oral

agreements that contradict, vary, or broaden an integrated

writing." Kobayashi v. Orion Ventures, Inc., 42 Mass. App. Ct.

492, 496 (1997). Before the parol evidence rule comes into

operation, "the court must be sure that it has before it a

written contract intended by the parties as a statement of their

complete agreement." New England Factors, Inc. v. Genstil, 322

Mass. 36, 40 (1947), quoting Kesslen Shoe Co. v. Philadelphia

Fire & Marine Ins. Co., 295 Mass. 123, 129 (1936). For the

purpose of this preliminary determination, "the parties may

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present proof beyond the writing itself." Ryder v. Williams, 29

Mass. App. Ct. 146, 149 (1990). Also, the parol evidence rule

does not apply to a "subsequent agreement implied by the conduct

of the parties." Genstil, supra.

We agree with the judge that the promissory note, with an

overdue maturity date and silence as to payment terms, clearly

did not represent the entire agreement of the parties. The

promissory note was the origin, but not the totality, of the

parties' contract rights and obligations. While "[p]romissory

notes are contracts and are analyzed as such," JPMorgan Chase &

Co. v. Casarano, 81 Mass. App. Ct. 353, 356 (2012), when "an

agreement involves repeated occasions for performance by either

party with knowledge of the nature of the performance and

opportunity for objection to it by the other, any course of

performance accepted or acquiesced in without objection is given

great weight in the interpretation of the agreement."

Restatement (Second) of Contracts § 202(4) (1981). Because the

parties clearly intended a credit relationship that would last

well beyond the October 2013 maturity date of the promissory

note, the judge concluded "that there was a common and mutual

understanding between the parties that interest was to be paid

on the total amount of the funds that were available to [Rogers]

in the [TD Bank] loan account." That conclusion is supported by

the evidence up until December 31, 2018, when the mutual

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understanding came to an end through the Appleyards' unilateral

decision to terminate.

The judge erred, however, by failing to consider the legal

significance of the Appleyards' termination of the credit

agreement on that date. By sending an e-mail to Rogers "seeking

to conclude the practice of lending on automobile titles"

effective on December 31, the Appleyards terminated an open-

ended credit agreement that had been functioning for five years.

Where, as here, an agreement lacks any specified duration,

"[t]he agreement between the parties must be construed as one

that was terminable at will by either party upon reasonable

notice." Phoenix Spring Beverage Co. v. Harvard Brewing Co.,

312 Mass. 501, 506 (1942). This termination by the Appleyards

had legal consequences that should have been considered by the

judge as part of his "obligation fairly to determine that the

amount of damages has a reasonable basis in fact." Jones, 464

Mass. at 294.

As of the termination date of December 31, 2018, the

previous course of performance that shaped the contours of the

credit arrangement for more than five years no longer controlled

the obligations of the parties. From that date forward, Rogers

no longer had access to the TD Bank account funds and should

only have been paying interest on the unpaid principal balance

that remained. "The reason for this approach is manifest.

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Interest is compensation for the deprivation of the use of

principal. . . . Once the use of part of the principal is

returned to the lender, there is no longer any deprivation which

calls for recompense." Plasko v. Orser, 373 Mass. 40, 43

(1977). "[I]t would be unjust to permit the lender to receive

further interest on the amount that has been paid" by Rogers.

Id. On remand, monthly interest must be calculated at the

agreed on annual rate of twelve percent based on the unpaid

principal balance as of December 31, 2018, as reduced by

payments made from that date forward.

We agree with Rogers that the evidence before the judge did

not support the twenty-four percent default rate of interest.

As the promissory note in the instant case provides, the rate of

twenty-four percent is only available when there is a "default

in payment" or performance. "The ordinary meaning of the word

'default,' when used with respect to an obligation created by

contract, is failure of performance. When used with reference

to an indebtedness it means simply nonpayment." Massachusetts

Mun. Wholesale Elec. Co. v. Danvers, 411 Mass. 39, 58 (1991),

quoting Bradbury v. Thomas, 135 Cal. App. 435, 443 (Cal. Dist.

Ct. App. 1933). The undisputed record here shows that Rogers

made payments to the Appleyards through September of 2020 and

paid off the outstanding principal balance "to within a few

hundred dollars." In the absence of evidence that Rogers

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defaulted, the judge must apply the twelve percent interest rate

that "is consistent with the reasonable expectation of the

parties." Downer & Co., LLC v. STI Holding, Inc., 76 Mass. App.

Ct. 786, 797 (2010).

The Appleyards advanced a curious theory of "default" that

is unsupported by any evidence. At the hearing on damages,

Maureen Appleyard testified, "[T]he loan is in default for two

reasons; one, because we haven't received the interest, and two,

because we requested that it be paid off by December 31st of

2018, and it wasn't." Contrary to this assertion, the

Appleyards received substantial payments after December 31,

2018, that could have been applied to interest, but the

Appleyards chose to apply the payments to principal. For

example, during the first several months of 2019, the Appleyards

received substantial payments from Rogers, unilaterally

apportioned payments to principal, and concluded that interest

had not been paid. In the meantime, the alleged "unpaid"

interest (on the inaccessible TD Bank account) ballooned from

month to month, supposedly triggered the default rate of twenty-

four percent interest, and ultimately formed the basis for the

current litigation.

The Appleyards' method of allocating payments after

December 31, 2018, is inconsistent with Massachusetts law and

cannot justify a default rate of interest. "It has long been

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the rule in this Commonwealth that, absent any express agreement

to the contrary, partial payments on an interest bearing debt

are applied first to the interest due, with any excess payment

to be applied to reduce the principal debt." Plasko, 373 Mass.

at 42. There is no evidence that by December 31, 2018, the

parties had an express agreement to the contrary. Had the

Appleyards followed the long-standing rule in Plasko and

allocated payments "first to the interest due," interest would

have been paid, and there would not have been any basis for a

default rate of interest. Id. at 43.

Also, the record does not support Maureen Appleyard's

contention that there was a demand for immediate payment of the

entire outstanding principal. One would think that if such a

demand had been made it would have been in the e-mail

terminating the credit arrangement, but there is no such demand

in that e-mail or any that followed. Nor is there any evidence

that Rogers agreed to pay the outstanding principal balance by

December 31, 2018; without such an agreement, lack of full

payment on the outstanding principal does not constitute a

default. Thus, a close examination of the record shows that the

alleged "default" under the promissory note (as of April of

2019) was contrived by the Appleyards' allocation of payments to

principal and not by a failure of Rogers to pay during this

period.

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To the extent that Rogers is seeking to be credited for

interest payments he made prior to December 31, 2018, we reject

that claim. He argues that the plain language of the promissory

note shows that interest should always have been limited to the

amount drawn from the TD Bank account. While there is merit to

Rogers's current view of the language in the promissory note, we

are not at liberty to ignore the parties' course of performance

over five years. The undisputed evidence before the judge

showed that up until December 31, 2018, Rogers paid interest

every month for five years on the maximum amount on deposit in

the TD Bank account –- whether or not the Appleyards disbursed

those funds to Rogers. The wisdom or rationale for that

business arrangement is beyond the scope of our review because

"it is not the function of the judiciary to change the

obligations of a contract which the parties have seen fit to

make." 11 R.A. Lord, Williston on Contracts § 31:5 (4th ed.

2012). "It is not the role of the court to alter the parties'

agreement." Rogaris v. Albert, 431 Mass. 833, 835 (2000).

On appeal, the Appleyards protest that it is "frivolous"

for Rogers to dispute the default in payment and the interest

charges because Rogers's liability was already established by

the default under Mass. R. Civ. P. 55 (a). The Appleyards argue

that this appeal is nothing more than an "end run" around the

judge's denial of the motion to vacate the procedural default.

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We disagree. When damages are awarded following a procedural

default, "the judge has an obligation fairly to determine that

the amount of damages has a reasonable basis in fact." Jones,

464 Mass. at 294. Rogers's failure to answer the claim and the

entry of the default under Mass. R. Civ. P. 55 (a), did not

relieve the judge of this obligation, which is designed "to

protect the integrity of the litigation process and to advance

the goal of fair treatment to all parties." Jones, supra.

Rogers's claim is neither "frivolous" nor an "end run" and

merits a remand for a fair determination of damages.

Other arguments. Rogers also claims that the judge erred

by amending the judgment on a motion of the Appleyards and by

declining to address a usury argument raised by Rogers. We

disagree. As the docket entries indicate, the judge allowed the

Appleyards' motion "for the reasons stated on the record."

Rogers's claim fails because he has not provided the record

referenced by the judge. See Mass. R. A. P. 18 (a), as

appearing in 481 Mass. 1637 (2019) (appellant has obligation to

provide record appendix containing parts of record relevant to

issues on appeal). As to the usury argument, we need not reach

the merits of that claim because the twelve percent rate of

interest shall apply on remand. Also, we find no error in the

judge's conclusion that Rogers waived his belated usury claim

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because the "Appleyards were deprived of a fair opportunity to

adduce evidence at the hearing on this point."

Conclusion. The entry of default is affirmed, the May 17,

2022 amended default judgment is vacated, and the matter is

remanded to the Superior Court for recalculation of damages

consistent with this memorandum and order.3

So ordered.

By the Court (Sullivan,
Shin & Hodgens, JJ.4),

Clerk

Entered: May 16, 2023.

3 The Appleyards' request for appellate attorney's fees is
denied.
4 The panelists are listed in order of seniority.

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