P owned a ranch and conveyed it to D by a grant deed "reserving unto the grantors an option to purchase the above described property on or before 2/25/68.
P and D are family.
P went bankrupt, and P's creditors tried to take the house through the option.
D claims that there was an oral agreement that the parties wanted the property kept in the family and that the option was personal to the grantors and could not be transferred or exercised by the trustee in bankruptcy.
Procedural History:
Lower court found for P, trustee in bankruptcy can exercise option, parol evidence excluded.
CA Supreme Court reversed, found for D, trustee in bankruptcy cannot exercise option, parol evidence valid.
Issues:
When should evidence of collateral oral agreements be excluded?
How must the court determine whether a collateral agreement is such that it might naturally have been made as a separate agreement?
Holding/Rule:
Evidence of collateral oral agreements should be excluded only when the finder of fact (i.e. the jury) is likely to be misled.
When determining that a collateral agreement is such that it might naturally be made as a separate agreement, the court must look to the actual experience and dealings between the parties as they view the status of such a collateral agreement.
If an agreement is complete, parol evidence cannot be used to vary, contradict, or add to the terms of the contract. If an agreement is partial, parol evidence can be shown to prove the elements of the contract not reduced to writing.
Reasoning:
It is clear that the conception of a writing as wholly intrinsically self-determinative of the parties' intent to make it the only instrument of their negotiations is an impossible one.
Evidence of oral collateral agreements should be excluded only when the fact finder is likely to be misled. The rule must therefore be based on the credibility of the evidence.
Section 240(1)(b) permits proof of a collateral agreement if it is such an agreement as might naturally be made as a separate agreement by parties situated as were the parties to the written contract.
From UCC 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.
This case is not one in which the parties would certainly have included the collateral agreement in the deed.
This was a deed and from the very nature of deeds, the formalized structure does not lend itself to the insertion of collateral agreements and makes it less likely that all the terms of such an agreement were included.
Dissent:
There was nothing ambiguous about the granting language of the option and no suggestion that the option was to be nonassignable. To permit such words of limitation to be added by parol is to contract the absolute nature of the grant, and to directly violate the parol evidence rule.
This whole situation seems rather convenient (plot by parties to foil creditors).
Notes:
Pendulum is swinging back this direction. Use this position on the final!
This opinion was in bankruptcy court.
The writing was a deed, which are usually standard form, does not allow for a lot of customization.
