Federal Deposit Ins. Corp. v. First Mortg. Investors

• Citation: 76 Wis.2d 151,250 N.W.2d 362
• Decision Date: 25 April 1977
• Docket Number: No. 75--131,75--131
• Parties: FEDERAL DEPOSIT INSURANCE CORP., Respondent, v. FIRST MORTGAGE INVESTORS, a Massachusetts Trust, Appellant.
• Court: United States State Supreme Court of Wisconsin

Page 362

250 N.W.2d 362

76 Wis.2d 151

FEDERAL DEPOSIT INSURANCE CORP., Respondent, v. FIRST MORTGAGE INVESTORS, a Massachusetts Trust, Appellant.

No. 75--131.

Supreme Court of Wisconsin.

Submitted on briefs Nov. 5, 1976.

Decided Feb. 15, 1977.

Rehearing Denied April 25, 1977.

Godfrey & Kahn, S.C., Milwaukee, for appellant.

Bruce C. O'Neill and Cahill & Fox, Milwaukee, for respondent.

ABRAHAMSON, Justice.

This action arises out of a claim by American City Bank & Trust Company, N.A. (hereinafter referred to as the Bank) ¹ for the unpaid balance of principal and interest allegedly due under a promissory note delivered May 22, 1974, and dated May 30, 1974, given by appellant, First Mortgage Investors, a real estate investment trust (hereinafter referred to as FMI). The promissory note purports to be payable on demand in the principal amount of $1,000,000; no interest is stated. The Bank moved for summary judgment. The proofs offered in support of and in opposition to the motion were affidavits by vice presidents of the Bank and FMI.

The parties agree that they entered into agreements at about the time of the execution of the note relating to interest rate, compensating balance arrangements and prepaid interest and that these matters are not incorporated in the terms of the note. FMI asserts that the parties agreed that the Bank would carry its loan to FMI as long as FMI paid interest due thereon on a current basis or until such time as FMI was able to repay various banks participating in a revolving credit agreement with FMI. The affidavit of the Bank's vice president states that he reviewed all written material in the Bank's possession or control relating to the FMI 'and has not found any reference to any of the alleged representations' relating to the extension or repayment of the note. The trial court ordered summary judgment in favor of the Bank in the amount of $850,311.11 (principal and interest due and owing) with interest and costs. The order granting judgment recites that the court 'determined that the evidence of an oral agreement as offered by the defendant to be both barred by the parol evidence rule and insufficient to establish a contract.' It is from this judgment that FMI appeals.

The issue presented on appeal is whether the trial court erred in granting the Bank's motion for summary judgment pursuant to sec. 270.635(2), Stats. ² Summary judgment is a drastic remedy and should be used only when there is no substantial issue of fact to be tried. ³ Prime Mfg. Co. v. A. F. Gallun & Sons Corp., 229 Wis. 348, 281 N.W. 697 (1938); Marco v. Whiting, 244 Wis. 621, 12 N.W.2d 926 (1944); Foryan v. Firemen's Fund Ins. Co., 27 Wis.2d 133, 133 N.W.2d 724 (1965). When there are substantial issues of fact to be determined or when there are permissible inferences from undisputed facts that would permit a different result, summary judgment should not be granted. Elder v. Sage, 257 Wis. 214, 42 N.W.2d 919 (1950); Voysey v. Labisky, 10 Wis.2d 274, 103 N.W.2d 9 (1960); Fjeseth v. New York Life Ins. Co., 14 Wis.2d 230, 111 N.W.2d 85 (1961); Frew v. Dupons Construction Co., 37 Wis.2d 676, 155 N.W.2d 595 (1968).

Following the methodology set forth by this court, the trial judge initially examines the pleadings. The plaintiff's amended complaint shows a cause of action and the defendant's answer shows the presence of a material fact issue, namely, the existence of an oral agreement relating to the date of the loan repayment. The affidavits submitted by the Bank in support of its motion make out a proper case for summary judgment. FMI's affidavit and other proof indicate a factual issue of whether the note is an integrated writing and whether an oral agreement exists. Thus it is apparent from the pleadings and the affidavits that there is a dispute as to just what the parties agreed to during the negotiations for the loan. However, the Bank urges that the parol evidence rule prevents the admission of FMI's evidence bearing on the oral agreement as to the date of repayment and that therefore summary judgment was properly granted because no issue of fact remained to be determined. ⁴

The parol evidence rule is a rule of substantive law and not a rule of evidence, ⁵ and can be stated as follows: When the parties to a contract embody their agreement in writing and intend the writing to be the final expression of their agreement, the terms of the writing may not be varied or contradicted by evidence of any prior written or oral agreement in the absence of fraud, duress, or mutual mistake. ⁶ Although the parol evidence rule thus stated appears simple and makes good sense--the final agreement of the parties supercedes earlier negotiations--it 'is in fact a maze of conflicting tests, subrules and exceptions adversely affecting both the counseling of clients and the litigation process.' ⁷ The rule has survived because it is thought to preserve the integrity and reliability of written contracts, to reduce the opportunity for perjury and to prevent unsophisticated jurors from being misled by false or conflicting testimony. However, the rule has been criticized. Several writers have commented that there are few subjects in the law seemingly as indefinite and uncertain of application as the so-called rule of integration or merger of prior or contemporaneous negotiations. The rule causes injustices because it allows a party to avoid a legal obligation which he accepted during the negotiation process. ⁸

The real question when a party invokes the parol evidence rule is whether the parties intended the written agreement to be final and complete or 'integrated' or whether they intended any prior agreements to be part of their total agreement. In cases where the writing is incomplete in that only part of the agreement has been reduced to writing, this court has recognized the doctrine of 'partial integration,' that is the parties reduced some provisions to written form and left others unwritten.

'(W)hen a writing is shown to be only a partial integration of the agreement reached by the parties, it is proper to consider parol evidence which establishes the full agreement, subject to the limitation that such parol evidence does not conflict with the part that has been integrated in writing.' Morn v. Schalk, 14 Wis.2d 307, 314, 111 N.W.2d 80, 84 (1961). ⁹

Parol evidence is always admissible with respect to the issue of integration, that is, parol evidence is admissible to show whether the parties intended to assent to the writing as the final and complete (or partial) statement of their agreement. Danielson v. Bank of Scandinavia, 201 Wis. 392, 398, 230 N.W. 83 (1930); Scarne's Challenge, Inc. v. M.D. Orum Co., 267 Wis. 134, 142, 64 N.W.2d 836 (1954); Touchett v. E Z Paintr Corp., 268 Wis. 635, 643, 68 N.W.2d 442 (1955); Johnson Hill's Press v. Nasco Industries, 33 Wis.2d 545, 550, 148 N.W.2d 9 (1967); Restatement of Contracts (Second), secs. 235(2), 240 (Tent. Draft 1973). ¹⁰

It is generally recognized that notes are not fully integrated documents. Parties to negotiable paper do not usually reduce the whole agreement into one writing because they wish to retain the features of a negotiable instrument. 4 Williston on Contracts, sec. 644 (3d ed. Jaeger 1961); Borden, Inc. v. Brower, 284 N.C. 54, 199 S.E.2d 414, 419 (1973). A writing to be a negotiable instrument must be signed by the maker, contain an unconditional promise to pay a sum certain and no other promise except as authorized by this law, be payable on demand or at a definite time, and be payable to order or to bearer. Sec. 403.104, Stats. The alleged agreement as to the time of payment would probably have made the note non-negotiable.

Several cases (including some in Wisconsin) appear to view a note as a partial integration and have held that the writing is the final embodiment of the terms contained therein, and these terms cannot be contradicted by prior agreement. ¹¹ This court has said that where a demand note is involved, the parol evidence rule prohibits introduction of an agreement prior to the signing of the note to extend the time of payment because such an agreement tends to vary the terms of the note. London & Lancashire Indemnity Co. v. Allen, 272 Wis. 75, 78, 74 N.W.2d 793 (1956); Perry v. Riske, 2 Wis.2d 377, 382, 384, 86 N.W.2d 429 (1957). ¹² On the other hand, other cases have permitted proof of a prior oral agreement between the parties in an action between the parties upon a negotiable instrument. In Gulf States Finance Corp. v. Airline Auto Sales Inc., 248 La. 591, 181 So.2d 36 (1965), the court admitted evidence of an oral 'floor-planning agreement,' which embodied trade custom, despite the plaintiff's averment that the notes and mortgages on the defendants' cars constituted the parties' complete agreement.

". . . Many of the exceptions to the parol evidence rule are quite as well settled as the general rule and require only a mere statement. It may not be contended for example, that, as between the parties to an instrument parol evidence is incompetent . . . to show that the writing is only a part of an entire oral contract between the parties.' . . .

'. . .

'If the contention of defendants is correct, and they are not permitted to show, if they can, that by their execution and delivery to plaintiff of the promissory notes forming the basis of this suit they were performing an obligation in accordance with their oral agreement that induced them to execute the notes, it would not only cause a grave injustice, resulting in irreparable injury to defendants, but would, in fact, perpetrate a fraud upon them. Under these circumstances, we think this case fully justifies the invocation of the exception to the parol evidence rule above discussed.' 248 La. at 598, 599, 602, 181 So.2d at 38, 40. (Emphasis in original.)

Slightly different but no less applicable reasons supported the admission of parol evidence in Birsner v. Bolles, 20...