No. 80-207
IN THE SUPREME COURT OF THE STATE OF MONTANA
1981
HUGH A. SPRAGGINS,
Plaintiff and Respondent,
-vs-
GARY L. ELVIDGE,
Defendant and Appellant.
Appeal from: District Court of the Sixth Judicial District,
In and for the County of Park, The Honorable
Jack D. Shanstrom, Judge presiding.
Counsel of Record:
For Appellant:
Berger, Anderson, Sinclair, Murphy, Nelson,
Edwards, McGimpsey an Molloy, Billings, Montana
For Respondent :
Yardley and Yardley, Livingston, Montana
Submitted on Briefs: October 23, 1980
Decided :
Filed: PPR ! 4g87'
Clerk
Mr. Justice John Conway Harrison delivered the Opinion of
the Court.
Appellant-defendant, Gary Elvidge, and respondent-
plaintiff, Hugh Spraggins, were engaged in a business called
Diablo Mobile Repair in California. As partners, they sold
and transferred the business to a third party in 1978.
In September 1977 appellant and respondent contracted
to purchase equally stock shares of the Mint Bar of
Livingston, Inc., from George A. and Donna F. Moore. Each
partner was to participate and share in the new business.
The California business was sold. From the total
purchase price, $12,500 was invested in the Mint Bar.
Later, appellant agreed to buy, and respondent agreed
to sell, respondent's interest in the 1501 shares of stock
of the Mint Bar. The parties entered into a contract
(assignment of agreement and a release) on August 31, 1978.
Prior to this time appellant and respondent discussed the
sale and purchase of the stock of the Mint Bar. These
discussions covered all business interests of the partners
including the California business.
Respondent and his wife testified that appellant was
entitled to one half of the proceeds from the sale of Diablo
Mobile Repair and one half of the cash on hand. Respondent
claims, and the District Court found, that appellant and
respondent mutually agreed, prior to the signing and
execution of the assignment of agreement, that the sum of
$25,000 would be paid by appellant to respondent.
Respondent contends the amount was in full settlement of all
transactions between respondent and appellant. Any interest
appellant had in the Diablo Mobile Repair was completely
s e t t l e d and r e s o l v e d and any i n t e r e s t r e s p o n d e n t had i n t h e
s h a r e s o f s t o c k o f t h e M i n t Bar was c o m p l e t e l y s e t t l e d .
Appellant paid respondent $15,000 on September 5,
1 9 7 8 , and e x e c u t e d a p r o m i s s o r y n o t e f o r $ 1 0 , 0 0 0 p a y a b l e t o
r e s p o n d e n t f o r t h e r e m a i n i n g amount.
A p p e l l a n t f a i l e d t o pay t h e $ 1 0 , 0 0 0 p r o m i s s o r y n o t e
when d u e , and r e s p o n d e n t commenced t h i s a c t i o n . Appellant
c o u n t e r c l a i m e d f o r m o n i e s d u e and owing him from t h e s a l e o f
the California business as a setoff f o r t h e amount d u e t o
r e s p o n d e n t on t h e p r o m i s s o r y n o t e .
The D i s t r i c t Court found in favor of respondent's
claim for collection of the promissory note and against
a p p e l l a n t on h i s c l a i m o f s e t o f f a s a r e s u l t o f t h e s a l e o f
the California business.
Appellant contends that the only written agreement
between the parties pertains to the termination of
respondent's interest i n t h e Mint Bar. The a s s i g n m e n t o f
agreement and the release executed by the parties both
p r o v i d e t h a t t h e c o n s i d e r a t i o n t o b e g i v e n by a p p e l l a n t t o
r e s p o n d e n t i s $25,000. Nowhere i n e i t h e r o f t h e s e d o c u m e n t s
i s t h e r e any m e n t i o n o f t h e D i a b l o M o b i l e R e p a i r o r t h e sums
d u e and owing from r e s p o n d e n t t o a p p e l l a n t a s a c o n s e q u e n c e
of the s a l e thereof. Appellant argues t h e D i s t r i c t Court
allowed respondent to alter the terms of the written
contract by adding approximately $15,000 as the total
consideration paid (appellant's alleged one half of the
p r o c e e d s from t h e s a l e of D i a b l o Mobile R e p a i r ) .
The D i s t r i c t C o u r t made t h e f o l l o w i n g f i n d i n g :
"That Rule 106 o f t h e Montana R u l e s o f
Evidence a p p l i e s a s t o t h e admission of
evidence by Plaintiff to Defendant's
c o u n t e r c l a i m and a f f i r m a t i v e d e f e n s e and t h a t
the Montana completeness doctrine rule allows
evidence by Plaintiff that all business
transactions were resolved between Plaintiff
and Defendant, specifically including Diablo
Mobile Repair."
This finding permitted the District Court to modify
the written agreement.
The sole issue in this appeal is whether Rule 106,
Mont.R.Evid., allows parol evidence under the facts of this
case.
We find the District Court erred in allowing parol
evidence to alter and vary the terms of this written
agreement under the theory of the completeness doctrine.
Respondent does not argue that this case represents
one where testimony was offered and properly admitted as
part of one of the exceptions of the parol evidence rule.
Instead, Rule 106, Mont.R.Evid., was used to modify the
written contract.
The relevant statutes which address parol evidence
are set forth below.
Section 28-2-904, MCA:
"The execution of a contract in writing,
whether the law requires it to be written or
not, supersedes all the oral negotiations or
stipulations concerning its matter which
preceded or accompanied the execution of the
instrument."
Section 72-11-304, MCA:
"(1) When the terms of an agreement have been
reduced to writing by the parties, it is to
be considered as containing all those terms,
and therefore there can be between the
parties and their representatives or
successors in interest no evidence of the
terms of the agreement other than the
contents of the writing, except in the
following cases:
"(a) where a mistake or imperfection of the
writing is put in issue by the pleadings;
" ( b ) where t h e v a l i d i t y o f t h e agreement is
the fact in dispute.
" ( 2 ) But t h i s s e c t i o n d o e s n o t e x c l u d e o t h e r
e v i d e n c e o f t h e c i r c u m s t a n c e s u n d e r which t h e
a g r e e m e n t was made o r t o w h i c h i t r e l a t e s , a s
d e f i n e d i n 1-4-102, o r t o e x p l a i n a n ex-
t r i n s i c ambiguity or t o e s t a b l i s h i l l e g a l i t y
or fraud.
" ( 3 ) The t e r m a g r e e m e n t i n c l u d e s d e e d s and
w i l l s , a s w e l l a s c o n t r a c t s between p a r t i e s . "
S e c t i o n 1-4-102, MCA:
"For the proper construction of an
i n s t r u m e n t , t h e c i r c u m s t a n c e s u n d e r which i t
was made, i n c l u d i n g t h e s i t u a t i o n o f t h e
s u b j e c t o f t h e i n s t r u m e n t and o f t h e p a r t i e s
t o i t , may a l s o be shown s o t h a t t h e j u d g e be
p l a c e d i n t h e p o s i t i o n o f t h o s e whose
l a n g u a g e h e is t o i n t e r p r e t . "
None of the parol evidence exceptions contained in
s e c t i o n 72-11-304, MCA, apply here. Respondent never
claimed i n h i s p l e a d i n g s t h a t t h e w r i t i n g s were i m p e r f e c t .
No one assailed the validity of the contract. Section
28-2-904, MCA, is c o n t r o l l i n g . When t h e c o n t r a c t i s c l e a r
and u n e q u i v o c a l on i t s f a c e , s e c t i o n 1-4-102, MCA, does not
apply. Ryan v. Ald, Inc. ( 1 9 6 5 ) , 1 4 6 Mont. 299, 406 P.2d
373. We have h e r e a w r i t t e n contract. The c o n t r a c t is
s i g n e d by a p p e l l a n t and r e s p o n d e n t . The w r i t t e n c o n t r a c t i s
c l e a r on i t s f a c e . It s p e a k s d i r e c t l y and e x c l u s i v e l y o f
the Mint Bar. The "oral" agreement which preceded the
w r i t t e n agreement does n o t c o n t r o l , nor can it be allowed t o
a l t e r t h e terms of t h e w r i t t e n c o n t r a c t .
"The p r i n c i p l e is w e l l - e s t a b l i s h e d and o f
general application, subject t o certain
exceptions, that - when a c o n t- -c t h a s b e e n
- r- -
a-
r e d u c e d t o w r i t i n q -------------------c h
----------------- t h e c o n t e n t s of su
-i t i n g c a n n o t b ---------------- t r a d i c t e d ,
w r- e added t o , c o n
.................... d b y p a r - o- e x t r i n s i c
altered, or varie o l- r
e v i d e n c e , and t h a t s u c h w r i t i n g s u p e r s e d e s
a l l o r a l n e g o t i a t i o n s concerning its matter
w h i c h p r e c e d e d , a c c o m p a n i e d , o r l e d up t o i t s
execution. T h i s was t h e r u l e a t common l a w ,
and h a s been embodied i n t h e s t a t u t e law o f
t h i s state." L e i g l a n d v . McGaff i c k ( 1 9 5 9 ) ,
1 3 5 Mont. 1 8 8 , 338 P.2d 1 0 3 7 .
R u l e 1 0 6 , Mont.R.Evid., provides i n pertinent part:
" ( a ) When p a r t o f a n a c t , d e c l a r a t i o n ,
conversation, writing or recorded statement
o r s e r i e s t h e r e o f i s i n t r o d u c e d by a p a r t y :
(1) a n a d v e r s e p a r t y may r e q u i r e him a t t h a t
t i m e t o i n t r o d u c e any o t h e r p a r t o f s u c h i t e m
o r s e r i e s t h e r e o f which o u g h t i n f a i r n e s s t o
be considered a t t h a t t i m e ; . . ."
(Emphasis
supplied ) .
Without even d i s c u s s i n g t h e par01 evidence r u l e t h e
D i s t r i c t C o u r t r e l i e d on R u l e 1 0 6 i n m o d i f y i n g and v a r y i n g
t h e terms of a w r i t t e n agreement. S u c h was n e v e r t h e i n t e n t
of Rule 106. R u l e 106 o f t h e F e d e r a l R u l e s o f P r o c e d u r e is
t h e c o u n t e r p a r t t o Montana's Rule 106, and, according t o t h e
advisory committee's note, t h e f e d e r a l r u l e is b a s e d o n two
considerations: (1) t h e danger of taking matters out of
c o n t e x t , and ( 2 ) t h e i n a d e q u a c y o f d e l a y e d c o m p l e t e n e s s a s a
remedy. See 21 Wright and Graham, F e d e r a l P r a c t i c e and
P r o c e d u r e : E v i d e n c e , S 5007 a t 367.
No o n e i n t r o d u c e d p a r t o f a n a c t o r w r i t i n g i n t h i s
case. Respondent i n t r o d u c e d a l l of t h e w r i t i n g s governing
t h e buy o u t o f t h e M i n t Bar o p e r a t i o n . All of t h e terms
s u r r o u n d i n g t h e c o n s i d e r a t i o n t o be p a i d t o r e s p o n d e n t f o r
the surrendering of his interest in the Mint Bar were
o f f e r e d and r e c e i v e d i n e v i d e n c e .
We addressed a similar issue in State Highway
Commission v . C h u r c h w e l l ( 1 9 6 5 ) , 1 4 6 Mont. 5 2 , 403 P.2d
751, where t h e p a r t i e s w e r e c o n t e s t i n g a j u r y award o f t h e
t a k i n g of land by condemnation. The p a r t i e s w e r e a r g u i n g
a b o u t t h e f a i r m a r k e t v a l u e o f t h e l a n d t h a t was t a k e n . At
the trial, to establish the value of the property, the
landowners o f f e r e d f i n a l agreements of s a l e f o r land i n t h e
v i c i n i t y of t h e l a n d i n q u e s t i o n t o d e m o n s t r a t e t h e v a l u e o f
t h e i r land. The S t a t e t h e n , o v e r o b j e c t i o n , was a l l o w e d t o
i n t r o d u c e a l l documents r e g a r d i n g t h e n e g o t i a t i o n s t h a t l e d
t o each of the various sales. The S t a t e a r g u e d t h a t t h e
e n t i r e f i l e s were a d m i s s i b l e u n d e r s e c t i o n 93-401-11, R.C.M.
1947. T h a t s e c t i o n was t h e p r e d e c e s s o r and f o r e r u n n e r t o
R u l e 1 0 6 , Mont .R. E v i d . , and r e a d :
"When part of an act, declaration,
c o n v e r s a t i o n , o r w r i t i n g is g i v e n i n e v i d e n c e
by one p a r t y , t h e whole on t h e same s u b j e c t
may be i n q u i r e d i n t o by t h e o t h e r ; when a
l e t t e r is r e a d , t h e answer may be g i v e n ; and
when a detached act, declaration,
conversation, or writing is given i n
evidence, any other act, declaration,
c o n v e r s a t i o n o r w r i t i n g , which i s n e c e s s a r y
t o make it u n d e r s t o o d , may a l s o be g i v e n i n
evidence " .
We rejected the State's argument i n Churchwell,
stating:
"'When a c o n t r a c t is r e d u c e d t o w r i t i n g , t h e
i n t e n t i o n o f t h e p a r t i e s is t o be a s c e r t a i n e d
from t h e w r i t i n g a l o n e , i f p o s s i b l e ; s u b j e c t ,
however, t o t h e o t h e r p r o v i s i o n s o f t h i s
chapter.' ( S e c t i o n 13-705.)
"'When t h e t e r m s o f a n a g r e e m e n t h a v e been
r e d u c e d t o w r i t i n g by t h e p a r t i e s , it is t o
be c o n s i d e r e d a s c o n t a i n i n g a l l t h o s e t e r m s ,
and t h e r e f o r e t h e r e c a n be between t h e
parties and their representatives, or
s u c c e s s o r s i n i n t e r e s t , no e v i d e n c e o f t h e
terms of t h e agreement o t h e r than t h e
c o n t e n t s of t h e w r i t i n g , except i n t h e
following cases:
1 Where a m i s t a k e o r i m p e r f e c t i o n o f the
w r i t i n g i s p u t i n i s s u e by t h e p l e a d i n g s .
"'2. Where t h e v a l i d i t y o f t h e a g r e e m e n t is
the fact in dispute.
"'But t h i s s e c t i o n does not exclude other
e v i d e n c e o f t h e c i r c u m s t a n c e s u n d e r which t h e
a g r e e m e n t was made, o r t o which i t r e l a t e s ,
a s d e f i n e d i n s e c t i o n 93-401-17, or t o
e x p l a i n an e x t r i n s i c ambiguity, or t o
establish i l l e g a l i t y or fraud. The t e r m
a g r e e m e n t i n c l u d e s d e e d s and w i l l s , a s w e l l
a s c o n t r a c t s between p a r t i e s . ' ( S e c t i o n
"A c a r e f u l s t u d y o f t h e n e g o t i a t i o n a g r e e -
m e n t s i n t h e N e g o t i a t i o n F i l e shows t h a t t h e
a g r e e m e n t s p e a k s f o r i t s e l f and t h a t s e c t i o n
93-401-11, R.C.M. 1 9 4 7 , h a s no a p p l i c a t i o n . "
403 P.2d a t 754-55.
In the instant case respondent offered the parol
testimony to vary and alter the terms of a written
instrument. T h i s c a n n o t be d o n e . For t h i s C o u r t t o h o l d
o t h e r w i s e would, i n e f f e c t , r o b t h e p a r o l e v i d e n c e r u l e and
t h e c o r r e s p o n d i n g Montana s t a t u t e s o f a n y v i t a l i t y a t a l l .
Rule 106 is a procedural rule and does not affect the
s u b s t a n c e of t h e e x i s t i n g law o f p a r o l e v i d e n c e .
W affirm in part the District Court's
e finding that
appellant is l i a b l e f o r t h e $10,000 p r o m i s s o r y n o t e . We
reverse the finding that all business transactions,
i n c l u d i n g t h e D i a b l o M o b i l e R e p a i r b u s i n e s s , were s e t t l e d by
t h e agreement. W e remand t o t h e D i s t r i c t C o u r t t o c o n d u c t
f u r t h e r p r o c e e d i n g s t o d e t e r m i n e t h e v a l i d i t y of a p p e l l a n t ' s
counterclaim.
W e concur: /