Hobbs Trailers v. J. T. Arnett Grain Co., Inc.

• Decision Date: 14 December 1977
• Docket Number: No. B-6261,B-6261
• Citation: 560 S.W.2d 85
• Parties: HOBBS TRAILERS, a division of Fruehauf Corporation, Petitioner, v. J. T. ARNETT GRAIN COMPANY, INC., et al., Respondents.
• Court: Texas Supreme Court

Page 85

560 S.W.2d 85

HOBBS TRAILERS, a division of Fruehauf Corporation, Petitioner,

v. J. T. ARNETT GRAIN COMPANY, INC., et al., Respondents.

No. B-6261.

Supreme Court of Texas.

Dec. 14, 1977.

Rehearing Denied Feb. 1, 1978.

J. C. Jacobs, Corsicana, for petitioner.

Ken R. Davey, Kerry P. Fitzgerald, Dallas, for respondents.

ON MOTION FOR REHEARING

POPE, Justice.

We grant Hobbs Trailers' motion for rehearing and withdraw and set aside our former opinion and judgment of June 29, 1977. The controlling questions are whether the trial court correctly disregarded findings of the jury based on evidence that violated the parol evidence rule and whether the trial court correctly rejected certain offsets against the judgment for Hobbs on the grounds that they were barred by limitations. We reverse the judgment of the court of civil appeals and affirm that of the trial court. Tex.Civ.App., 540 S.W.2d 441.

J. T. Arnett Grain Company, Inc., was the original plaintiff. It alleged an action against Hobbs Trailers, A Division of Fruehauf Corporation, for breach of implied warranty of fitness as to certain refrigeration units and for title and possession of some trailers that Hobbs had repossessed. After extensive pleadings, the trial court cast Hobbs as plaintiff and Arnett Grain as defendant. The trial court rendered judgment for Hobbs in the sum of $11,081.28, the amount of unpaid purchase price for certain trailers that Arnett Grain bought from Hobbs. That part of the judgment is not here in question. The trial court also rendered judgment, notwithstanding the verdict, in favor of Hobbs in an additional amount of $13,440 for sixteen months of rentals that Arnett Grain failed to pay after the expiration of the term of a lease on three other trailers. The court of civil appeals held that parol evidence was admissible to show the true contract between the seller and buyer and reversed that part of the trial court's judgment. It is our opinion that the court of civil appeals was wrong in holding that the parol evidence was admissible, since the evidence varied and contradicted the clear and exclusive terms of the written contract.

On May 1, 1969, Hobbs and Arnett Grain executed a written contract which evidenced their arrangement concerning three trailers. Hobbs says that the contract was a lease; Arnett Grain says it was a lease-purchase contract with a collateral oral agreement by which, upon payment of one dollar per trailer at the end of sixty rental payments, Arnett Grain would acquire title to the trailers. Arnett Grain argues that it owed nothing by way of rentals for the trailers after its payment of rentals for the sixty months because it contracted to buy, not rent, the trailers. It also claims an offset against any damages it owes to Hobbs. The offset, says Arnett Grain, was that amount of damages it sustained by reason of Hobbs' breach of a warranty of fitness for the refrigeration equipment.

Arnett Grain produced evidence that Hobbs in its business offered several different kinds of deals for its vehicles. They made outright sales, they leased, or they leased with an agreement that the lessee would obtain title upon payment of one dollar at the end of the lease term. Arnett Grain then called James Harper as a witness. Harper was the salesman who showed the vehicles to Arnett Grain's representative when they made the deal. Over Hobbs' objection that the evidence violated the parol evidence rule, the salesman was permitted to testify that he understood the agreement was for "a full lease payoff . . .." Mr. Arnett also testified that his understanding with Harper and Bruce Meyer, the only one who was authorized to approve and make a deal for the trailers, was that he "was buying this on the full lease payout, which would be a dollar option," meaning that, upon the payment of one dollar per trailer after sixty months of lease payments, Arnett Grain would own the trailers.

The contract was denominated an "equipment lease." It designated Hobbs throughout as lessor and Arnett Grain as lessee. Arnett Grain agreed to pay "rental payments." Arnett Grain, as lessee, agreed not to assign or sublet the trailers. Hobbs agreed as lessor to pay the taxes on the trailers and reserved the right to place at two places on the trailers the words "Fruehauf Corporation, Lessor." The contract said that the purpose of those quoted words was to indicate the ownership of the equipment. Arnett Grain agreed as lessee to return the equipment to lessor at the termination of the agreement. Paragraphs 4 and 13 of the contract are significant enough to state in full.

"4. This transaction is a leasing and not a sale, conditional or otherwise. The parties understand and agree that Lessee does not acquire hereunder, or by the payment of rental hereunder, any right, title, or interest in or to said equipment or any thereof, except the right to possess and use said equipment so long, and only so long, as Lessee shall not be in default hereunder.

"13. This instrument contains the entire agreement between the parties pertaining to the subject matter. No agreements, representations or understandings, not specifically contained herein shall be binding upon any of the parties hereto unless reduced to writing and signed by the parties to be bound thereby."

Confronted with those terms of the contract between these parties, the trial court correctly concluded that the transaction was a lease, not a sale. The trial court properly held that the contract was controlling and that parol evidence could not contradict it. This court has said "the very purpose of putting the agreement in writing is to definitely settle its terms and to exclude all oral understandings to the contrary." Super-Cold Southwest Co. v. Elkins, 140 Tex. 48, 166 S.W.2d 97, 98 (1942). We have not departed from that rule of substantive law. Hubacek v. Ennis State Bank, 159 Tex. 166, 317 S.W.2d 30 (1958). Article 2.202 of the Uniform Commercial Code prohibits the contradiction of final written expressions by evidence of a prior or contemporaneous agreement. See also 2 C. McCormick & R. Ray, Texas Law of Evidence § 1602, at 445-446 (1956).

Arnett Grain relies upon the rule of law which permits a collateral contract to stand so long as it is not inconsistent with another contract. That rule is a sound one, and it was the one that this court applied in Hubacek v. Ennis State Bank, 159 Tex. 166, 317 S.W.2d 30 (1958). The present contract between the parties, however, was complete and final, and it expressly excluded any other agreements. A lease of the trailers with an express agreement that the lessee will not, by paying the rental, acquire any right, title, or interest in the equipment is inconsistent with a contemporaneous collateral agreement that the lessee will acquire title.

Arnett Grain also has an application for writ of error. It complains of the refusal of the courts below to allow a setoff for Hobbs' breach of a warranty of fitness for four refrigeration units that Hobbs installed on four trailers. The courts below denied the claimed setoff because the claims were barred by limitations.

On March 23, 1968, Hobbs installed two refrigeration units, known as Arctic Travelers on two trailers that Arnett Grain was buying from Hobbs. On May 1, 1968, Hobbs installed two of the same kind of units on two trailers that Arnett Grain was leasing. The units malfunctioned from their first use and in November of 1968 Arnett Grain replaced all of the units with Thermo King units. Its cause of action arose at that time. The jury found that Arnett Grain was damaged by the inadequate refrigeration units in the sum of $7,159.13 which it says should be offset against the damages Hobbs sustained.

The trial court denied a setoff for the two units installed on the trailers Arnett Grain was buying because Arnett Grain had executed a modification agreement wherein it released Hobbs "of and from any and all claims, demands, actions, causes of action, and suits at law or in equity, without relief, which buyer has or may hereafter have against Seller based upon, arising in connection with, or growing out of the sale of said goods, or any thereof, whether such claims, etc., arise in tort, contract or warranty, express or implied."

The trial court denied the alleged setoff as to all four units for the additional reason that the claims were barred by limitations. Arnett Grain initiated its suit for breach of warranty by filing its original petition on January 26, 1973. That action was then barred. Arnett Grain argues, however, that since, after extensive pleading by the parties, it was cast as a defendant with Hobbs as the plaintiff, it may assert the setoff defensively. Arnett Grain's claim for breach of warranty was not a defense but an independent cause of action and was at first so asserted. As such, the plea of limitations was a valid one. Southern Pacific Company v. Porter, 160 Tex. 329, 331 S.W.2d 42 (1960); Morriss-Buick Co. v. Davis, 127 Tex. 41, 91 S.W.2d 313 (1936); Nelson v. San Antonio Traction Co., 107 Tex. 180, 175 S.W. 434 (1915); Finger v. Morris, 468 S.W.2d 572 (Tex.Civ.App.1971, writ ref'd n. r. e.). The difference between an independent cause of action to which limitations runs and a defense to an action against which it does not run was explained in Mason v. Peterson, 250 S.W. 142, 147 (Tex.Comm.App.1923, judgmt approved), where the Commission of Appeals wrote:

The distinction between partial or total failure of consideration of a contract by reason of fraud or mutual mistake, as a defense . . ., on the one hand, and the right of action for damages for breach of or failure to comply with a contract, on the other is clearly drawn. . . . In the former the relief may be awarded in abatement of the price contracted to be paid, and when so sought it is purely defensive matter; whereas the right to relief for breach of contract is clearly independent of the obligation of the...