NO. 83-541
I N THE SUPRl3ME COURT OF TIIE S T A T E O F FONTA21A
1984
NORWEST BANK B I L L I N G S , f/d/b/a
F I R S T NORTHIYESTERN BANK,
P l a i n t i f f and R e s p o n d e n t ,
-vs-
JAMES W. M U P a I O N ,
D e f e n d a n t and A p p e l l a n t .
APPEAL FROM: D i s t r i c t C o u r t of t h e T h i r t e e n t h J u d i c i a l D i s t r i c t ,
I n and f o r t h e C o u n t y of Y e l l o w s t o n e ,
T h e H o n o r a b l e R o b e r t 13. W i l s o n , J u d g e p r e s i d i n g .
COUNSEL O F RECORD:
For A p p e l l a n t :
Sandall, C a v a n & S m i t h , 3 i l l i n g s , M o n t a n a
For Respondent:
John K. A d d y , B i l l i n g s , $lantana
S u b m i t t e d on B r i e f s : March 1 5 , 1 9 8 4
Decided: June 1 4 , 1 9 8 4
Filed: JUN n 4 "18@
Clerk
I . Justice L.C. Gulbrandson delivered the Opinion of the
Court.
Defendant James Murnion appeals from a judgment
rendered against him in the District Court of the Thirteenth
Judicial District, Yellowstone County. We affirm.
On August 14, 1979, James Murnion purchased a. Trojan
front-end loader from Montana Machine Inc., in Billings,
Montana. The purchase is evidenced by a retail installment
contract and security agreement prepared and dated August
15, 1979. The contract shows a cash price of $17,500 for
the loader and a $5,500 allowance for a trade in by Murnion
of a diesel tractor, to be applied against the cash price of
the loader, thus leaving an unpaid balance of $12,000.
Murnion agreed to pay this amount plus about $1,870 in
interest in four installments between December 1, 1979 and
July 1, 1981. The contract was signed by Murnion and Howard
Hanson, president of Montana Machine. The contract lists
plaintiff First Northwestern National Bank (now Norwest
Bank) as Montana Machine's assignee with full recourse.
Murnion did not make the first installment due under
the contract, and in January, 1980, was deemed to have
defaulted. The bank exercised its right to require Montana
Machine to repurchase the contract. Instead of repurchase,
Montana Machine entered into a second contract with Murnion.
This new agreement converted the original installment
payment scheme into a single payment due December 1, 1980.
The agreement was signed by Montana Machine and Murnion, and
Montana Machine assigned this contract to the bank with
right of full recourse.
Murnion did not make the December 1 payment, and on
December 31, the Bank notified Murnion of the deficiency and
requested that he make some arrangements for payment. On
January 6 , 1981, a meeting was held at the office of Montana
Machine between Murnion and Howard Hanson. Paul Borisevich,
dealer program supervisor for the Bank, was also in
attendance during portions of this meeting.
Murnion claims to have confronted Hanson during the
meeting about a material misrepresentation involving the
loader. According to Murnion, the serial number on the
loader indicated that the machine was approximately ten
years older than had been represented to him by Hanson.
Murnion maintains that he discovered this discrepancy while
attempting to obtain parts for the loader from a parts
dealer in Billings. Murnion asserts that he wanted to
rescind his contract with Montana Machine because of this
alleged misrepresentation.
Hanson supposedly conceded that a misrepresentation
had been made, but allegedly reached an oral agreement with
Murnion to rectify the problem and renegotiate the sales
contract. Under the terms of this alleged oral agreement,
Murnion agreed to pay an additional sum of money on the
loader contract and use the machine until Hanson picked it
up in April for resale. If sale of the loader brought more
than the balance due on the contract, Murnion would be paid
the excess. If the sale brought less than the balance due,
Murnion would not be held liable for the deficiency.
A third written contract was prepared on January 6 ,
the day of the meeting, calling for Murnion to pay in cash
approximately $2,467 of the $13,471.40 owed under the last
agreement, with the remaining $11,004 to be paid at fifteen
percent interest on September 1, 1981. The total sum due
amounted to $12,241.50. The contract, a form document
supplied by the Bank, was prepared by Paul Borisevich and
signed by Murnion and Hanson, with the latter's interest
being assigned to the bank. A brief description of the
loader and the payment terms were filled in by Borisevich.
There is no mention of the terms of Murnion's and Hanson's
alleged oral agreement.
Murnion insists that Borisevich was present during
those portions of the meeting when the a1.leged
misrepresentation was discussed and when the negotiation of
the terms of the oral agreement took place. During trial,
Borisevich testified that he recalled a conversation about
the "age" of the loader, but he never characterized the
conversation as one about misrepresentation about age.
Borisevich also testified that he was aware of no terms or
conditions in the agreement between Murnion and Hanson other
than those that appear in the January 6 written contract.
During the spring of 1981, Borisevich did contact some
implement dealers and bank customers about the possibility
of purchasing Murnion's loader to help Murnion raise revenue
to pay off the contract. Some of the dealers and customers
contacted Murnion, but none desired to purchase the loader.
The bank did not act as an intermediary between Murnion and
the prospective buyers, and did not discuss with Murnion any
absorption by the bank of any deficiency arising from
resale.
Sometime prior to the September 1 payment date,
Montana Machine Inc. went out of business, and Howard Hanson
moved to Australia. Murnion did not make the September 1
payment. The bank notified Murnion of his default, and
urged him to speak to bank officials concerning the
outstanding debt. On September 28, 1981, Murnion signed a
deferral agreement with the bank, agreeing to pay the
outstanding balance February 1, 1982, for an additional $918
consideration.
Murnion did not remit the unpaid balance, so the bank
brought this action in May 1982. Murnion did not answer the
complaint, and the bank filed a praecipe for entry of
default. Default was entered in July of 1982, but the
District Court, upon motion of defendant, eventually set
aside the default in November, 1982. Murnion then filed an
answer, wherein he admitted signing the January 6 contract
but denied owing the unpaid balance specified therein.
Murnion asserted an affirmative defense of misrepresentation
and failure of the bank to resell the loader as allegedly
agreed.
The case came to trial in August 1983. The only
witnesses were Paul Borisevich, appearing on behalf of the
Bank, and Murnion, appearing on his own behalf. Murnion was
permitted to testify, over the bank's continuing objection,
to the terms of the oral agreement. The bank also objected
to admission of evidence of the contracts signed prior to
January 6 , 1981, but the real dispute involves the terms of
the oral agreement. Both objections were based on the par01
evidence rule. In addition, Murnion was permitted to
testify, over the bank's objection, to the allegations of
misrepresentation. This objection was based on the rule
against hearsay. The court heard all of Murnion's
testimony, reserving the right to strike it when deciding
the case.
The trial court rendered judgment for the bank. In
its findings and conclusions, the court concluded that the
bank's objections to the prior and contemporaneous
agreements were valid, and disallowed the evidence. The
court ordered Murnion to pay the $12,241.50 unpaid balance
plus interest of fifteen percent and reasonable attorney's
fees. Murnion appeals from the District Court judgment.
Murnion raises the following three issues:
(1) Whether the trial court erred by disallowing the
evidence of contemporaneous and prior agreements offered by
Murnion?
(2) Whether the trial court erred by failing to
consider evidence of the contemporaneous oral agreement in
order to permit Murnion to prove unconscionability?
(3) Whether the trial court erred by failing to apply
Section 31-1-231, MCA, dealing with the requirements for a
retail installment contract, to the facts of this case?
THE PAROL EVIDENCE ISSUE
In resolving this dispute, the trial court applied the
traditional par01 evidence rule, codified at Section
28-2-904, MCA, which provides that "[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. " With the
adoption of the Uniform Commercial Code, however, litigation
arising out of a transaction like that involved here should
be controlled by the principles of the Code, with the law of
contract being used only to supplement Code provisions.
Section 30-1-103, MCA. The loader in this case comes within
the Code definition of "goods." See Section 30-2-105(1),
MCA. Thus, the sale of the loader is governed by the Code
and any Code provisions addressing the parol evidence
question must be given primary consideration.
The relevant statute for this case is Section
30-2-202, MCA:
"Final written expression--par01 or
extrinsic evidence. Terms with respect
to which the confirmatory memoranda of
the parties agree or which are otherwise
set forth in a writing intended by the
parties as a final expression of their
agreement with respect to such terms as
are included therein may not be
contradicted by evidence of any prior
agreement or of a contemporaneous oral
agreement but may be explained or
supplemented:
"(a) by course of dealing or usage of
trade (30-1-205) or by course of
performance (30-2-208); and
"(b) by evidence of consistent additional
terms unless the court finds the writing
to have been intended also as a complete
and exclusive statement of the terms of
the agreement."
This statute, based on U.C.C. sec. 2-202 (1962), continues
the operation of the traditional parol evidence rule,
although with some modifications. See 2 R. Anderson,
Uniform Commercial Code Section 2-202:3 (1982). Although
the trial court should have used this provision, rather than
Section 28-2-904, to resolve the instant dispute, the result
remains the same. Where the conclusion of the District
Court is correct, it is immaterial, for the purpose of
affirmance on appeal, what reasons the District Court gives
crs
for its conclusion. Bolz v. & (Mont. 19821, 651 P.23
According to the provisions of Section 30-2-202, an
initial determination must be made that the parties intended
the final writing or contract to be the final expression of
their agreement with respect to the terms included in the
writing. If it is determined that the parties did not
intend the writing to be final with respect to the terms
expressed therein, parol evidence may be admitted, subject
to the rules of evidence, to elucidate the true nature of
the parties' agreement. If, however, the writing is deemed
to be a final expression, then the trial court may consider
evidence of terms of prior and/or contemporaneous agreements
only if these terms do - contradict the terms of the
not
writing. Par01 evidence of terms of prior agreements or
contemporaneous oral agreements may be admitted to explain
or supplement the terms of the writing insofar as they
relate to course of dealing, usage of trade, or course of
performance, concepts specifically defined in the Montana
version of the Uniform Commercial Code. In addition, parol
evidence of "consistent additional terms" may be admitted to
explain or supplement the writing unless the court concludes
that the writing was intended as a "complete and exclusive
statement of the terms of the agreement."
The parol evidence rule, as it appears in the law of
contract and in the Uniform Commercial Code, is actually a
principle of substantive law and not a procedural rule of
evidence. Childers & Venters, Inc. v. Sowards (Ky. 1970) ,
460 S.W.2d 343, 345; 2 Anderson, supra, sec. 2-202:5. Thus,
the admissibility of any evidence is ultimately subject to
the provisions of the Montana Rules of Evidence. We also
note that traditional common law exceptions to the parol
evidence rule, such as proof of fraud, misrepresentation, or
mistake, remain exceptions to the parol evidence doctrine as
codified in Section 30-2-202. See J. White & R. Summers,
Uniform Commercial Code 88 (2d ed. 1982) and Section
30-1-103, MCA (law pertaining to fraud, misrepresentation
and mistake supplements provisions of code unless
displaced).
Applying Section 30-2-202 to the trial court's
findings and conclusions in the instant dispute, we conclude
that the result remains the same. We first decide whether
the court's findings speak to the issue of whether the
parties intended the January 6 , 1981 contract to be their
final expression of agreement with respect to the terms
contained therein. The court found that Murnion, Hanson and
the bank had indeed agreed to the terms stated in the
contract, and that Murnion's promise to pay was "stated in
plain and unequivocal terms and refers to no antecedent or
contemporaneous agreements not reduced to writing." By
implication, the court indicated that there was an
appropriate degree of finality respecting the terms of the
January 6 written contract.
Murnion is correct in stating that, under the Code
version of the parol evidence rule, evidence of a writing
which is final on some matters must not necessarily be
construed to imply mean that the writing must be taken as
including all the matters agreed upon. See Comment 1,
Official Comments, U.C.C. sec. 2-202 (1962), incorporated
into Montana Code Annotated (Annotations), section 30-2-202.
Nevertheless, Murnion is incorrect in construing the Code
version of the parol evidence rule so as to suggest that
practically any evidence of outside agreements must be
considered by the court.
Next, we determine whether the evidence offered by
Murnion must be excluded from consideration, as the trial
court concluded, because the evidence either contradicts the
terms of the January 6 contract or does not explain or
supplement the terms of that contract in the ways permitted
by subsections (a) and (b) of Section 30-2-202. We note
that, although the bank objected to consideration of all
evidence of agreements prior to or contemporaneous with the
January 6 contract, the real dispute centers on the alleged
contemporaneous oral agreement to excuse Murnion from paying
any deficiency due under the contract, primarily on account
of the alleged misrepresentation. The trial court
specifically rejected consideration of this evidence. This
is the correct result under Section 30-2-202. To the extent
that evidence of the terms of this alleged oral agreement
between Murnion and Hanson are accepted as true, it
definitely contradicts the clear and unequivocal promise to
pay as stated in the January 6 contract, and must be
excluded as a matter of law.
The kind of parol evidence offered by Murnion
respecting the alleged oral agreement can be excluded on
grounds that it is not credible, even though the Code
version of the parol evidence rule does not speak directly
to this proposition. See J. White & R. Summers, supra, at
77, citing C. McCormick, Handbook of the Law of Evidence 440
(1954). Although the trial court did not address the issue
of Murnion's credibility, his trial testimony is
uncorroborated and contradictory. Furthermore, Murnion
could never explain, either under direct or
cross-examination, why the January G contract and the
September deferral agreement do not make reference to any of
the terms of the oral agreement allegedly made in January
contemporaneous with the signing of the contract.
Even if we could construe the terms of this alleged
oral agreement to be non-contradictory, we would still find
them inadmissible under subsections (a) and (b) of Section
30-2-202. The terms are clearly not the kind contemplated
285
by Section 3 0 - 1 - m , MCA as evidence of "course of dealing
and useage of trade," or by Section 30-2-208, MCA, as
"course of performance." Nor can they be deemed "consistent
additional terms." According to Comment 3 of the Official
Comments to U.C.C. sec. 2-202, incorporated as part of the
annotations to Section 30-2-202, if "the additional terms
are such that, if agreed upon, they would certainly have
been included in the document in the view of the court, then
evidence of their alleged making must be kept from the trier
of fact." Here, the trial court recognized the obligation
imposed on Murnion by the January 6 contract. The court had
before it evidence of Murnionls subsequent default and
September, 1981 agreement to make good on the debt by
February, 1982. By implication, had the terms of the
alleged January agreement been confirmed by Murnion and the
bank, it seems likely that these terms would have been
incorporated into the January 6 contract or the subsequent
deferrel agreement. Evidence of the terms should therefore
be excluded as a matter of law. Braund, Inc. v. White
(Alaska 1971), 486 P.2d SO, 56; 2 Anderson, supra, Section
2-202: 18.
Murnion's defense of misrepresentation is not
sufficient to surmount the hurdle of the parol evidence
rule. While it is true that the January 6 contract contains
language to the effect that the bank, as holder of the
contract, takes the contract subject to all defenses which
Murnion can assert against Montana Machine, Inc., this
presumes the existence of a valid defense. Here, although
the trial court does not refer to the allegations of
misrepresentation, none of this evidence was admissible as a
matter of law. The only evidence of misrepresentation came
through the hearsay testimony of Murnion. As such, the
evidence was clearly inadmissible. See Rule 802,
Mont.R.Evid. Murnion offered no independent evidence
pointing to misrepresentation. The parts dealer who
allegedly alerted Murnion to the possibility of
misrepresentation did not testify.
Murnion portrayed himself as one well-aquainted with
heavy equipment, and claimed knowledge that serial numbers
are an indication of age of equipment. During
cross-examination, he indicated that the loader's serial
number tag, with the correct number listed on it, was on the
loader the day he purchased it in 1979. In any event,
Murnion failed as a matter of law to present a valid defense
of misrepresentation that would protect him against the
bank's claim.
In summary, we hold that, under the circumstances of
this case, the parol evidence rule as embodied in Section
30-2-202, MCA, barred admission of evidence of the alleged
contemporaneous oral agreement of January 6, 1981. We
stress again that this is the same result reached by the
trial court using Section 28-2-904, MCA.
THE UNCONSCIONABILITY ISSUE
Murnion argues that the evidence of the
contemporaneous oral agreement was admissible under Section
30-2-302(2), MCA to prove unconscionability of the contract.
The trial court did not discuss this matter in its findings
and conclusions, but the omission is of no consequence.
Murnion's argument concerning unconscionability
actually involves the alleged misrepresentation of the age
of the machine and the unsupported assertion that every
party to the contract was aware of this "fact." Because the
evidence of misrepresentation was inadmissible as a matter
of law on hearsay grounds, and because there is no
independent evidence for the trial court to consider,
Murnion cannot press the unconscionability issue. We note
that this particular issue was not raised in the pretrial
order signed by the parties, and that it was brought to the
trial court's attention after the hearing in Murnion's
post-trial memorandum.
THE PROPRIETY OF THE JANUARY 6 CONTRACT UNDER THE RETAIL
INSTALLMENT SALES ACT
Here, Murnion argues that the January 6 contract does
not state the true cash sales price of the loader and does
not describe the buyer 's downpayment in sufficient detail,
violations of Section 31-1-231(5)(a) and (b), MCA. This
issue, also raised after tria.1 in the defendant's post-trial
memorandum, is without merit. There is no dispute that the
January 6 agreement represents a renewal of earlier
obligations which are evidenced by writings and which were
offered into evidence by Murnion himself. All the written
agreements, taken together, adequately described all the
relevant terms of purchase and payment for the loader, such
that the relevant provisions of Section 31-1-231 are
satisfied. It is more than a little questionable for
Murnion to challenge the legality of a contract when the
other documents supplementing and explaining it were known
to him.
The judgment of the District Court is affirmed.
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Justice :
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We concur: