Excalibur Auto. Corp., Matter of

• Decision Date: 26 September 1988
• Docket Number: No. 87-2861,87-2861
• Citation: 859 F.2d 454
• Parties: In the Matter of EXCALIBUR AUTOMOBILE CORPORATION. EXCALIBUR AUTOMOBILE CORPORATION, Debtor-Appellant, v. Roosevelt V. ROBINSON, Respondent-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 454

859 F.2d 454

In the Matter of EXCALIBUR AUTOMOBILE CORPORATION EXCALIBUR AUTOMOBILE CORPORATION, Debtor-Appellant, v. Roosevelt V. ROBINSON, Respondent-Appellee.

No. 87-2861.

United States Court of Appeals Seventh Circuit.

Argued May 24, 1988.

Decided Sept. 26, 1988.

Joseph C. Niebler, Niebler & Muren, S.C., Brookfield, Wis., for debtor-appellant.

James L. Fox, Abramson & Fox, Chicago, Ill., for respondent-appellee.

Before POSNER and COFFEY, Circuit Judges, and WILL, Senior District Judge. ^*

COFFEY, Circuit Judge.

Excalibur Automobile Corporation, Debtor-Appellant, applied to the bankruptcy court for an order to compel Roosevelt V. Robinson to advance it up to $900,000 in "interim" financing and to obtain a $1.9 million irrevocable letter of credit pursuant to the terms of written agreements signed by the parties. Alternatively, Excalibur requested authority from the bankruptcy court to permit the company to negotiate financing with other third parties without prejudice. The bankruptcy court rejected Excalibur's application to compel performance under the agreements, and the district court affirmed. Excalibur appeals, and we reverse and remand for further findings of fact.

I

Debtor-Appellant Excalibur Automobile Corporation is a Wisconsin corporation with its principal place of business in West Allis, Wisconsin. It manufactures Excalibur automobiles and is a wholly owned subsidiary of Excalibur Management, Inc., a holding company ("Excalibur Management"). Excalibur Management is also the corporate parent of Excalibur Marketing Corporation ("Excalibur Marketing") and Excalibur Sales, Inc. ("Excalibur Sales"). Only Excalibur Automobile Corporation ("Excalibur") is a party to this proceeding. Roosevelt V. Robinson is the chief executive officer of a car dealership, Robinson Cadillac/Excalibur, located in Atlanta, Georgia.

On October 30, 1985, Excalibur filed a Chapter 11 petition for reorganization in the United States Bankruptcy Court for the Eastern District of Wisconsin and, thereafter, continued business as a debtor in possession. After the petition was filed, Ray Besasie, an officer of Excalibur Marketing, contacted Robinson to advise him of the filing of the reorganization petition. This led to informal discussions between Robinson and Excalibur concerning Excalibur's need for additional financing. The discussions included the possibility of the sale of Excalibur corporate stock to raise additional capital for the company. Excalibur hoped that a sale of stock would provide it with the capital necessary to propose a viable plan of reorganization to its creditors hopefully leading to plan confirmation by the bankruptcy court.

On November 6, 1985, Robinson, William Howard (an officer of a subsidiary of Equitable Life Assurance Society of the United States ("Equitable")), and the principals and legal counsel for Excalibur met in Milwaukee, Wisconsin, to discuss Robinson's possible investment in Excalibur.

The investment plan discussed at the November 6, 1985, meeting would have required Robinson to pay $2,500,000 to Excalibur and $600,000 to its stockholders in return for a majority of Excalibur's stock. At about the same time as the meeting, Excalibur gave Robinson several documents, including a confidential private placement memorandum, ¹ a confidential investor questionnaire, and other financial information. Negotiations continued, and Excalibur prepared a draft agreement and forwarded it to Robinson.

At Howard's suggestion, he and the parties met again on January 28, 1986. This meeting was held at Equitable's offices in Atlanta, Georgia, and its purpose was to sign a detailed stock purchase agreement. As a result of discussions during the meeting, the parties reached and signed an agreement providing for Robinson's purchase of 51 percent of Excalibur. The terms of the signed agreement differed from earlier discussions and the initial draft agreement in that it provided for an equity injection of $1,300,000 rather than $2,500,000 and a payment to stockholders of $500,000 rather than $600,000. The signed agreement also required Robinson to purchase 40 Excalibur cars secured with a $1,960,000 irrevocable letter of credit.

In addition to being required to deliver corporate stock, the January 28 agreement required Excalibur to apply to the bankruptcy court for approval of a $900,000 convertible secured loan from Robinson to Excalibur. Excalibur, Robinson and the Marshall & Ilsley Bank of Milwaukee, Wisconsin ("M & I Bank"), were to be parties to the loan. The note evidencing the loan carried an interest rate of one percent plus the prime rate charged to M & I Bank customers, and it was to automatically convert to a portion of Robinson's stock purchase price upon closing of the stock deal.

The agreement contained a standard merger (integration) clause and a choice of law clause stating that Wisconsin law controlled the operation of the agreement. The agreement was duly executed by Excalibur, Excalibur Management, Excalibur Marketing, Excalibur Sales and Robinson. Neither Equitable nor any of its subsidiaries were signatories of the January 28, 1986, agreement, and it did not expressly condition Robinson's performance on his obtaining financing. ²

By February 7, 1986, the bankruptcy court had approved the $900,000 loan, and William C. Stevens (executive vice president of Excalibur) and Robinson met in Chicago to execute the necessary loan documentation. M & I Bank agreed to subordinate its existing security interest to Robinson's loan on the condition that Robinson provide an irrevocable letter of credit securing his purchase of the cars as called for in the January 28 agreement. Robinson then advanced $75,000 to Excalibur as an "initial draw" on the loan. This initial draw was in accordance with Excalibur's needs shown in the financial information previously provided to Robinson. Stevens also advised Robinson that, consistent with the same financial information used for purposes of the initial draw, a second draw of $110,000 would be required on or before February 21, 1986, to continue Excalibur's operations.

On February 20, 1986, Robinson told Stevens that he could not meet the $110,000 advance. Nonetheless, he did provide Excalibur an additional $20,000 the next day.

On February 24, 1986, Excalibur filed a motion to compel Robinson to comply with and perform the January 28 and February 7, 1986, agreements or, alternatively, to permit Excalibur to negotiate with other third parties for needed capital without prejudice. The bankruptcy court initially scheduled a hearing on February 28, 1986, but adjourned the matter at the request of the parties. An evidentiary hearing was ultimately held on April 17, 1986, and the bankruptcy court orally denied the motion on the record at the close of the hearing. The court ruled, without benefit of legal argument or briefing: (1) the January 28 and February 7 agreements were aleatory contracts; (2) Equitable's financing of Robinson was a condition precedent to his performance under the agreements; and (3) rescission of the agreements was Robinson's appropriate remedy.

Excalibur appealed the bankruptcy court's denial of its motion to district court pursuant to 28 U.S.C. Sec. 158(a) as an appeal from the final order of the bankruptcy court. ³ The district court: (1) reversed the bankruptcy court's holding that the agreements were aleatory contracts ⁴; (2) affirmed that parol evidence is admissible to establish the existence of conditions precedent; (3) affirmed the denial of the requested order to compel performance based on the existence of a condition precedent that Robinson's performance was dependent on his receiving financing from Equitable; and (4) determined that Robinson's advancement of funds did not waive the condition precedent.

The issues presented on this appeal are: (1) whether the bankruptcy court erred in admitting parol evidence to demonstrate the existence of a condition precedent; (2) whether the bankruptcy court erred in finding a condition precedent to the agreement; and (3) whether the district court erred in finding that Robinson did not waive the condition precedent by advancing funds in the total amount of $95,000. We review findings of fact under the clearly erroneous standard. In re Kimzey, 761 F.2d 421, 423 (7th Cir.1985); In re Land Investors, Inc., 544 F.2d 925, 933 (7th Cir.1976).

II

Excalibur argues that the bankruptcy court erred in admitting parol evidence to demonstrate the existence of a condition precedent to the agreements. We agree that it is settled Wisconsin law that parol evidence is generally not admissible where a contract is intended to be the final and complete expression of the parties' agreement. ⁵ See, e.g., Kramer v. Alpine Valley Resort, Inc., 108 Wis.2d 417, 426, 321 N.W.2d 293, 297 (1982) (where the court admitted evidence that defendant made oral promises in addition to the parties' written lease which failed to provide for essential elements). Parol evidence is not admissible to "contradict, vary, add to, or subtract from the terms of a valid agreement." Marshall & Ilsley Bank v. Milwaukee Gear Co., 62 Wis.2d 768, 776, 216 N.W.2d 1, 5 (1974).

In this case, parol evidence was admitted to establish that the agreements were subject to a condition precedent and not to vary the terms of the written agreements. Such use fits squarely within an exception to the general rule of exclusion. The exception specifically provides that:

"parol evidence is admitted to prove the non-existence of an agreement or, at least, that the writing in question never became binding and that it was to take effect only upon the happening of a subsequent event which never did happen."

Marshall & Ilsley Bank v. Milwaukee Gear Co., Id. (quoting Tees v. Lee, 234 Wis. 607, 610, 291 N.W. 792, 793 (1940)). ⁶ See also, Bultman v. Frankart, 194 Wis. 296, 297, 215 N.W. 432, 433 (1927); Paulson v. Boyd, 137 Wis. 241, 247, ...