Hubacek v. Ennis State Bank

• Decision Date: 08 October 1958
• Docket Number: No. A-6679,A-6679
• Citation: 317 S.W.2d 30,159 Tex. 166
• Parties: F. A. HUBACEK, Petitioner, v. ENNIS STATE BANK, Respondent.
• Court: Texas Supreme Court

Page 30

317 S.W.2d 30

159 Tex. 166

F. A. HUBACEK, Petitioner, v. ENNIS STATE BANK, Respondent.

No. A-6679.

Supreme Court of Texas.

Oct. 8, 1958.

Rehearing Denied Nov. 12, 1958.

Griggith & Lumpkins, Waxahachie, for petitioner.

Geo. P. Hines, Ennis, Ralph Hartman, Waxahachie, Looney, Clark & Moorhead, Austin, Mary Joe Carroll, of Looney, Clark & Moorhead, Austin, for respondent.

CALVERT, Justice.

This is a suit by the Ennis State Bank against F. A. Hubacek for the principal, interest, and attorney's fees on five promissory notes and for a foreclosure of chattel mortgages securing same. Three of the notes were executed by Hubacek and the other two were endorsed by him. All notes provide for interest at the rate of ten per cent per annum.

Hubacek admitted his liability to the bank for the entire amount claimed as principal, interest and attorney's fees on the notes, but by way of counter claim he sought to offset the sum of $912.43 alleged to be due him under a prior oral agreement between himself and the bank whereby he, a dealer in used automobiles, would sell cars, and when cars were sold and notes acceptable to the bank were taken, they would be endorsed by him; that an interest rate of ten per cent would be charged on all notes; and that when a note endorsed by him was paid in full two per cent (2%) thereof would be held by the bank in reserve and credited to his account to be applied to any loss on any of the notes, the difference to be placed to the account of Hubacek if and when the parties should terminate their contract. Whether or not the alleged contract was ever made was a sharply disputed issue which was determined by the jury in favor of Hubacek.

The case was submitted to the jury on two special issues, which, together with the answers thereto, were as follows:

'Special Issue No. 1

'Do you find from a preponderance of the evidence that the plaintiff, Ennis State Bank, through its agents, servants or employees, and F. A. Hubacek made and entered into an agreement that from notes endorsed to said bank by Hubacek, that said bank would hold in reserve for Hubacek an amount equal to two per cent of the amount of the principal of said notes, out of the interest, which said reserve, if any, could be used by Hubacek, and the bank, to pay any loss on any of the notes endorsed to the bank by Hubacek, and any excess over said losses, if any, would be paid to Hubacek?

'Answer 'Yes' or 'No.'

'Answer: Yes.

'If you have answered the preceding issue 'Yes' then answer the following issue; otherwise, do not answer it,

'Special Issue No. 2

'From a preponderance of the evidence, what do you find was the amount created for such reserve, if any, under the terms of such agreement if you have found there was such agreement?

'Answer, stating the amount of dollars, if any, and cents, if any, in figures.

'Answer: $912.43.'

Upon that verdict the court rendered judgment in favor of the bank on the five notes in the aggregate amount of $1,562.84, which included interest at the rate of ten per cent plus attorney's fees upon the principal and interest. The court further found that the bank was indebted to Hubacek in the amount of $912.43 which should be allowed as a credit against the notes, and subtracting that amount from $1,562.84, rendered judgment in favor of the bank for $650.41 plus interest from date of the filing of the suit and attorney's fees, with foreclosure of the chattel mortgages. That judgment was reversed by the Court of Civil Appeals and judgment rendered in favor of the bank for $1,562.84, the full amount sued for, with foreclosure of the chattel mortgages. 308 S.W.2d 60.

Whether the trial court's judgment or that of the Court of Civil Appeals is correct turns on a proper application of the parol evidence rule to the facts of the case. The general incidents and consequences of that rule are not open to question and are well understood.

(1) The parol evidence rule is not a rule of evidence at all, but a rule of substantive law. McCormick and Ray, Texas Law of Evidence, 2nd Ed., § 1601; 20 Am.Jur., Evidence, § 1100; 32 C.J.S. Evidence § 851.

(2) When parties have concluded a valid integrated agreement with respect to a particular subject matter, the rule precludes the enforcement of inconsistent prior or contemporaneous agreements. 17 Tex.Jur., Evidence, §§ 352, 353; McCormick and Ray, supra, § 1601.

(3) On the other hand, the rule does not preclude enforcement of prior or contemporaneous agreements which are collateral to an integrated agreement and which are not inconsistent with and do not vary or contradict the express or implied terms or obligations thereof. McCormick and Ray, supra, § 1631; 17 Tex.Jur., Evidence, § 370; Williston on Contracts, Rev.Ed., Vol. 3, § 642; Wigmore on Evidence, 3rd Ed., Vol. IX, § 2430; Page on Contracts, 2nd Ed., Vol. 4, § 2191; Corbin on Contracts, Vol. 3, § 594.

(4) In oral argument before this Court counsel for respondent indicated that the agreement found by the jury might be enforceable if it had been written rather than oral. The parol evidence rule countenances no such distinction; it precludes enforcement of inconsistent agreements, whether written or oral. Wigmore states: 'Now, so far as the phrase 'parol evidence rule' conveys the impression that what is excluded is excluded because it is oral-because somebody spoke or acted other than in writing, or is now offering to testify orally-that impression is radically incorrect. * * * So that the term 'parol' not only affords no necessary clue to the material excluded, but is even positively misleading.' Wigmore on Evidence, 3rd Ed., Vol. IX, § 2400. Corbin refers to the Parol Evidence Rule as 'a rule that is as applicable to written evidence as to parol evidence.' Corbin on Contracts, Vol. 3, § 576, p. 230. From Page on Contracts, Vol. 4, § 2139, p. 3717 we take this statement: 'While the written contract usually acts substantially as a merger of prior or contemporaneous oral negotiations, it also operates as a merger of prior written negotiations, as where it merges prior letters between the parties, or a prior written instrument not made part of the subsequent contract * * *. The real objection to the evidence, therefore, is not that it is oral as distinguished from written, but that it is extrinsic-that is, that it tends to prove what is not a term of the contract.'

Petitioner tendered into court the full amount due, principal and interest, on all five notes in suit, less the sum of $912.43. The sum of $912.43 represents two per cent of $45,621.85 theretofore paid, or then due, the bank in discharge of notes endorsed by him and sold to the bank. He contends that the oral agreement which he seeks to enforce by counter claim is a collateral agreement which in no way varies or contradicts the terms or obligations of the notes or chattel mortgages made the basis of the bank's suit or of those previously paid and discharged.

The oral agreement established by the testimony of the petitioner and the finding of the jury related to and affected only notes made by others and endorsed by petitioner. To put it another way, no part of the proceeds of any note made by petitioner was to be placed in the reserve account. If, therefore, the parol evidence rule precludes enforcement of the oral agreement, it is because the agreement varies or contradicts the terms or obligations of the endorsed notes. Whether it does so requires a more detailed statement of the testimony supporting the jury's finding.

In 1953 respondent, Ennis State Bank, agreed to purchase automobile notes from petitioner on the same basis they had theretofore been purchased by the Citizens National Bank, that is, that two per cent on the principal amount of each endorsed note purchased by it would, out of the interest, be set up in a reserve account in petitioner's name when the note was liquidated. As consideration for the payment of the two per cent into the reserve account petitioner was to make collections from the makers of the notes and handle all necessary repossessions of automobiles in cases of default. The reserve account fund, although not subject to withdrawal, was to be the property of petitioner, but such fund, or so much thereof as was necessary, was to be used to pay any note in default, with surrender of the note and its security to petitioner, and at the termination of the agreement to pay any endorsed notes then unpaid, the balance, if any, to be paid to petitioner.

(5) The obligation of petitioner as endorser of two of the notes in suit and of the endorsed notes theretofore paid was that they would be paid according to their tenor when presented, and, upon dishonor, that he would pay them. Article 5936, sec. 66, Vernon's Annotated Texas Statutes. His obligation to pay the notes upon default of the makers was absolute and not contingent.

(6) The rule with respect to proof and enforcement of collateral agreements is thus stated in the Restatement of the Law of Contracts, Vol. 1, § 240:

'(1) An oral agreement is not superseded or invalidated by a subsequent or contemporaneous integration, nor a written agreement by a subsequent integration relating to the same subject-matter, if the agreement is not inconsistent with the integrated contract, and

'(a) is made for separate consideration, or

'(b) is such an agreement as might naturally be made as a separate agreement by parties situated as were the parties to the written contract.'

The collateral oral agreement found by the jury and supported by petitioner's testimony is obviously supported by a separate consideration-the undertaking to collect payments when due from makers of the endorsed notes and to attend to all necessary repossessions in the event of default. Conceivably, we could approve the rule of the Restatement found in Section 240(1)(a), and rest our judgment of reversal on that rule alone if the terms of the agreement be not inconsistent with petitioner's...