NO. 96-072
IN THE SUPREMECOURT OF THE STATE OF MONTANA
1996
MARLEN G. SAVIK, an individual
and JACK W. PIIPO, an individual,
Plaintiffs and Appellants,
v.
ENTECH, INC., a Montana Corporation;
MICHAEL J. MELDAHL, an individual;
and DOES l-100, inclusive,
Defendants and Respondents
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Missoula,
The Honorable Ed P. McLean, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Donald V. Snavely; Snavely Law Firm, Missoula
Montana
Cynthia K. Smith; Cederberg, Shott & Smith,
Missoula, Montana
For Respondents:
Terry J. MacDonald; Garlington, Lohn & Robinson,
Missoula, Montana
Patrick T. Fleming, Attorney at Law, Butte, Montana
Submitted on Briefs: August 8, 1996
Decided: September 12, 1996
Filed:
Justice W. William Leaphart delivered the Opinion of the Court.
Marlen G. Savik and Jack Piippo (Savik and Piippo) appeal from
the jury verdict of the Fourth Judicial District Court, Missoula
County, denying their request for damages for breach of contract.
We affirm in part, reverse in part and remand.
For purposes of this decision, this Court will discuss only
the following dispositive issues:
1) Did the District Court err in dismissing Savik and
Piippo's breach of contract claim?
2) Did the District Court err in instructing the jury on
parol evidence when Savik and Piippo sought recovery
under a theory of fraudulent inducement?
BACKGROUND
In 1983, Savik and Piippo organized Touch America, Inc., a
long distance telephone company with services in Montana. In May
of 1990, Savik and Piippo were the sole stockholders and principal
officers of Touch America and were in control of all of its
operations. Entech is a Montana corporation that has owned and
operated various non-utility businesses including businesses
involved in communications technology. On May 15, 1990, Savik and
Piippo entered into a written contract with Entech for the sale of
all of the assets of Touch America. During negotiations and
following the negotiation period, Entech's Vice President, Michael
J. Meldahl (Meldahl) was the chief negotiator for Entech.
Following negotiations, Entech purchased all of Touch America's
assets pursuant to a written sale agreement.
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The Sale Agreement (Agreement) set forth a variable sale price
consisting of a $1.15 million down payment, plus a distribution to
Savik and Piippo of twenty percent of the net profits of the
business generated during the first five years after the sale. The
net profits distribution had a maximum payment of $783,545.
The Agreement also required that Savik and Piippo be permitted
to work for Entech for three years after the sale of Touch America.
The Agreement stated that Savik and Piippo would "be entitled to
those benefits that are afforded to other employees under Entech's
employment policies." In accordance with the Agreement, Savik and
Piippo worked for Entech for three years prior to their
termination.
In 1993, Savik and Piippo brought an action in District Court
claiming damages based on two theories. First, Savik and Piippo
claimed that Entech breached the Agreement by terminating their
employment after three years. Second, Savik and Piippo claimed
that they were fraudulently induced into entering the Agreement.
The District Court granted summary judgment dismissing Savik and
Piippo's claims of breach of contract finding that the express
terms set forth in the contract were clear and the parol evidence
rule barred consideration of the oral communication between Meldahl
and Savik and Piippo. Therefore, the only remaining issue before
the District Court was whether Entech fraudulently induced Savik
and Piippo into entering the Agreement.
At trial, Savik and Piippo argued that the employment clause,
along with various representations by Meldahl, created the
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impression that they would become permanent Entech employees.
Meldahl's alleged representations are the basis of the fraudulent
inducement claims made by Savik and Piippo. Following a jury
verdict in favor of Entech, Savik and Piippo brought this appeal
challenging, among other things, the District Court's decision to
dismiss their breach of contract claim as well as jury instructions
regarding parol evidence.
DISCUSSION
1) Did the District Court err in dismissing Savik
and Piippo's breach of contract claim?
Our standard of review in appeals from summary judgment
rulings is de novo. Mead v. M.S.B., Inc. (1994), 264 Mont. 465,
470, 872 P.2d 782, 785. When we review a district court's grant of
summary judgment, we apply the same evaluations as the district
court based on Rule 56, M.R.Civ.P. Bruner v. Yellowstone County
(1995), 272 Mont. 261, 264, 900 P.2d 901, 903.
Savik and Piippo's claims of breach of contract stem from
their interpretation of the intent of paragraph 4.13 of the
Agreement. That paragraph provided in relevant part:
Subject to satisfying Entech's hiring policies,
Entech shall retain Messrs. Savik and Piippo for terms of
three (3) years each at annual initial salaries of
$60,000 each. Messrs. Savik and Piippo will be entitled
to those benefits that are afforded to other employees
under Entech's employment policies[.l
Savik and Piippo maintain that the "benefits" available to them as
Entech employees included not only vacation, health insurance, and
pension, but also permanent employment terminable only for good
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cause. Savik and Piippo based their interpretation of the contract
on oral representations that they claim were made to them by
Meldahl. They also claim that the term "benefits," as used in the
contract, was ambiguous and thus parol evidence was needed to
explain what the parties intended in using that term.
The parol evidence rule in Montana has been codified under §§
28-2-904, and 28-2-905, MCA. Section 28-2-904, MCA, explains,
"[tlhe 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 28-2-905, MCA, further
provides that when an agreement has been reduced to writing by the
parties, there can be no evidence of the terms of the agreement
other than the contents of the writing except when a mistake or
imperfection of the writing is claimed or when the validity of the
agreement is the fact in dispute. In their claim for breach of
contract, Savik and Piippo contend that the term "benefits" was
ambiguous and thus the court should have allowed parol evidence as
to statements made to them by Meldahl which led them to believe
that "benefits" included permanent employment.
This Court has held that where the terms of the contract are
ambiguous and uncertain, evidence of attending circumstances is
admissible. Molerway Freight Lines v. Rite-Line Transp. (1995),
273 Mont. 95, 100, 902 P.2d 9, 12. In Monte Vista Co. v. Anaconda
Co. (1988), 231 Mont. 522, 528-29, 755 P.2d 1358, 1362, this Court
explained:
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An ambiguity exists when a contract is subject to two
interpretations and parol testimony can be used to
determine what the parties intended. [Citations
omitted.] However, intent of the parties is only looked
to when the agreement in issue is not clear on its face.
[Citation omitted.]
In the present case, the District Court gave the following
rationale for granting summary judgment:
The express language of that provision c4.131 clearly
establishes a three year term of employment. Plaintiffs
contend that the intent of the provision was to bind the
individual Plaintiffs to a minimum of three years, and
that the language in the provision entitling Plaintiffs
to "those benefits that are afforded to other employees
under Entech's employment policies" include the "benefit"
of permanent employment absent good cause for firing
Plaintiffs. This Court does not find that the provision
language is ambiguous and therefore, there is no need to
look to the parties' intent, and in any event, such
interpretation would require adding language to the
agreement which would contradict the express three year
term in violation of the parol evidence rule.
After reviewing the record and the Agreement, we agree with the
District Court that the provision regarding "benefits" and three
years of employment was clear and unambiguous and did not include
permanent employment. Our decision in Sherrodd, Inc. v. Morrison-
Knudsen Co. (1991), 249 Mont. 282, 815 P.2d 1135, is on point. In
that case, Sherrodd had contracted to perform certain earth work
for Morrison-Knudsen. The terms of the written contract provided
that all of the earthwork would be performed for a lump sum of
$97,500. Sherrodd, 815 P.2d at 1136. After completion of the
work, Sherrodd claimed that it was owed more money than the $97,500
because it had been pressured to execute the contract and that it
had been told that a deal would be worked out wherein Sherrodd
would be paid more than the sum provided for in the contract.
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Sherrodd, 815 P.2d at 1136. The district court granted summary
judgment to Morrison-Knudsen, holding that the parol evidence rule
precluded Sherrodd from relying upon oral representations which
were not incorporated into the written contract. This Court
affirmed and held that Sherrodd's contention that the $97,500 did
not cover the entire job contradicted the terms of the written
agreement. Sherrodd, 815 P.2d at 1137. In applying the parol
evidence rule, we concluded:
the compensation of Sherrodd is governed exclusively by
the written contract and that Sherrodd's claims are
barred under the parol evidence rule. We hold that the
District Court did not err in granting summary judgment
for defendants.
Sherrodd, 815 P.2d at 1137. As with Sherrodd's attempt to vary the
amount of compensation specified, Savik and Piippo's reliance on
oral representations that would vary the expressed term of
employment was barred by the parol evidence rule. Accordingly, the
District Court was correct in granting summary judgment and
dismissing the breach of contract claim.
2) Did the District Court err in instructing the
jury on parol evidence when Savik and Piippo
sought recovery under a theory of fraudulent
inducement?
The standard of review of a district court's conclusions of
law is whether the court's interpretation of the law is correct.
Carbon County v. Union Reserve Coal Co. (19951, 271Mont. 459, 469,
898 P.2d 680, 686. A district court has broad discretion in
instructing the jury and we will not reverse the court on the basis
of alleged instructional errors absent an abuse of discretion.
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Werre v. David (Mont. 1996), 913 P.2d 625, 635, 53 St.Rep. 187,
193. Further, when we examine whether jury instructions were
properly given or refused, we consider the challenged instructions
in their entirety, the evidence at trial and other instructions
given by the court. Cechovic v. Hardin & Associates, Inc. (1995),
273 Mont. 104, 116, 902 P.2d 520, 527.
When a party alleges fraud in the inducement, it is incumbent
upon the district court to admit parol evidence on the question.
Dew v. Dower (1993), 258 Mont. 114, 120, 852 P.2d 549, 552; Dodds
v. Gibson Products Company of Western Montana (1979), 181 Mont.
373, 377, 593 P.2d 1022, 1024. For a jury to adequately consider
a party's claim of fraudulent inducement, it is critical that it
consider evidence outside of the written agreement as such evidence
goes to the heart of the claim.
In the instant case, the District Court gave the following
jury instructions over Savik and Piippo's objection:
[No. 81 The execution of a contract in writing,
whether the law requires it to be ornot, supersedes all
the oral negotiations or stipulations concerning its
matter which preceded or accompanied the execution of the
instrument.
[No. 101 A contract is to be construed according to
the intention of the parties at the time of contracting.
If the contract is reduced to writing, the intention of
the parties is to be ascertained from the writing alone,
if possible.
These instructions were given to the jury despite the fact that
Savik and Piippo's contract claim had been dismissed and,
thereafter, they were advancing only a claim of fraud in the
inducement. In effect, these instructions kept the jury from
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considering the evidence Savik and Piippo brought forward in
support of their claim of fraudulent inducement.
When fraud is alleged, par01 evidence may be considered by the
jury. Section 28-2-905(2) MCA. See also Flemmer v. Ming (1980),
190 Mont. 403, 621 P.2d 1038. Limiting a jury's consideration of
evidence to a written agreement creates an illogical requirement
that an alleged fraud leading to the creation of the contract be
demonstrated by a writing. Webcor Electronics v. Home Electronics
(1988), 231 Mont. 377, 382, 754 P.2d 491, 494. This Court has
previously held that, notwithstanding the parol evidence rule,
fraud in the inducement is provable by parol evidence. Dew
-I 852
P.2d at 552; Dodds, Mersy v. Gibson Products Co. (19791, 181 Mont.
373, 377, 593 P.2d 1022, 1024; Goggans v. Winkley (1970), 154 Mont.
451, 459, 465 P.2d 326, 330.
In the instant case, the District Court's instructions
regarding parol evidence effectively precluded the jury from
considering pre-contract conversations between Meldahl and Savik
and Piippo. Since Savik and Piippo's claim of fraud in the
inducement was based on pre-contract representations by Meldahl,
the communications between Savik and Piippo and Meldahl were
crucial to the jury's consideration.
Having reviewed the jury instructions in their entirety, we
hold that the challenged instructions effectively precluded the
jury from considering communications between the parties outside of
the written agreement. Evidence of communication between the
parties was crucial to Savik and Piippo's claims of fraudulent
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inducement. We hold that the District Court abused its discretion
by instructing the jury not to consider parol evidence in a claim
of fraudulent inducement.
Accordingly, we affirm in part, reverse in part and remand for
a new trial on the issue of fraudulent inducement.
We concur:
Justices
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