Johnston v. Holiday Inns, Inc.

• Decision Date: 15 November 1977
• Docket Number: No. 77-1149,77-1149
• Citation: 565 F.2d 790
• Parties: Alfred M. JOHNSTON et al., Trustees, Plaintiffs, Appellants, v. HOLIDAY INNS, INC., Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

Page 790

565 F.2d 790

Alfred M. JOHNSTON et al., Trustees, Plaintiffs, Appellants, v. HOLIDAY INNS, INC., Defendant, Appellee.

No. 77-1149.

United States Court of Appeals, First Circuit.

Argued Sept. 13, 1977.

Decided Nov. 15, 1977.

Mario Misci, Boston, Mass., with whom F. Lee Bailey, Boston, Mass., was on brief, for plaintiffs, appellants.

Samuel Hoar, Boston, Mass., with whom Goodwin, Procter & Hoar, Boston, Mass., was on brief for defendant, appellee.

Before COFFIN, Chief Judge, TUTTLE, ^* Circuit Judge, CAMPBELL, Circuit Judge.

COFFIN, Chief Judge.

This diversity case requires the court to apply long-established principles of contract law to a complicated modern business transaction. Plaintiffs, Alfred Johnston and Daniel Greenwood (hereinafter "appellant") entered into negotiations with defendant, Holiday Inns of America, Inc. (hereinafter "appellee"), to facilitate building a restaurant-motel complex on land that appellant owned. In May, 1968, appellee signed an instrument denominated a "Memorandum Agreement" that outlined the transaction. It provided that the parties would form a nominee trust to which the appellant would transfer the real estate and which in turn would lease the real estate to the appellee for a 20 year term. The Memorandum Agreement also recited that the nominee trustees would arrange a mortgage note, deed, and security agreement for $1,600,000 and that appellant would receive $60,000 per year for 20 years from the appellee. ¹

Thereafter the parties continued to negotiate and executed documents carrying out the provisions of the Memorandum Agreement. In addition the appellee formed a subsidiary (Boston Holiday) that entered a joint venture agreement with the appellant. The joint venture agreement incorporated many of the provisions of the Memorandum Agreement including a clause, requiring the subsidiary to pay $60,000 per year to plaintiff, but not explicitly making appellee a guarantor of that payment. In all, more than 50 documents were assembled by the time the parties were prepared to close the deal on June 28, 1968.

According to testimony for appellee, appellant, in a phone call on June 25, 1968, refused to close without a four year guarantee by appellee of the $60,000 annual payments. Appellee drafted such a letter, dated June 26, 1968, signed it, and delivered it to appellant. Appellee made payments at the agreed rate for four years. No payments were made after August 1, 1972.

This appeal grows out of appellant's suit for the balance due on appellee's 20 year guarantee. Appellant filed a motion for summary judgment which was denied. The case was tried to a jury. The court instructed the jury that it could find for the appellee if it found that the Memorandum Agreement "was not a binding contract or if there was a binding contract and a substitution occurred or it was modified and the defendant carried out everything under the modification or substitution." The jury returned a verdict for appellee. Appellant raises issues concerning each of the jury's possible decision routes. We will examine each in turn.

Appellant first suggests that the court erred in admitting evidence on the issue of whether the parties intended the Memorandum Agreement to be a binding contract. Appellant argues that this is an issue of law and that the parol evidence rule bars the use of extrinsic evidence to determine the intent of the parties to an unambiguous written agreement. Massachusetts courts have made it very clear, however, that the parol evidence rule does not come into play until there is a contract. ² "Before the (parol evidence rule) can be applied, the court must be sure that it has before it a written contract a writing, or writings, signed by the parties and intended by them as a statement of their complete agreement." Welch v. Bombardieri, 252 Mass. 84, 87, 147 N.E. 595, 596 (1925). In Welch "the writings . . . did not contain, and were not understood to contain, all the terms of a binding agreement." Id. Therefore, evidence of a contemporaneous oral agreement supplementing the writing should have been admitted. The case was remanded for trial to a jury. The district court here found that it could not be sure the Memorandum Agreement was meant to be a binding contract, let alone a complete statement of the agreement.

There is ample evidence in the record to support this threshold conclusion. "Ordinarily the question whether a contract has been made is one of fact. If the evidence consists only of writings, or is uncontradicted, the question is for the court; otherwise it is for the jury." Bresky v. Rosenberg, 256 Mass. 66, 75, 152 N.E. 347, 351 (1926). ³ Appellee denied that the document was a contract, showed that the ultimate transaction was set forth in a great number of documents, and presented oral testimony concerning the context of those documents that was relevant to the issue of the existence of a contract. Specifically, witnesses for appellee testified to the June 25 telephone conversation with a representative of appellant which was relevant to the significance of the June 26 letter and to the parties' understanding of the importance of the other documents. Therefore, the court was correct to submit the question to the jury.

Appellant correctly points out that the recitation on the Memorandum Agreement that it is under seal gave it the effect of a sealed instrument. But appellant is not correct that the instrument was, therefore, conclusively a binding contract. Mass.Gen.Laws Ann., ch. 4, § 9A, does no more than say when a writing has the effect of a sealed instrument. It does not say what that effect is. Unless a seal is required to make an instrument valid, the court may treat the seal as pure "surplusage" and carry out the intention of the parties in accordance with ordinary contract rules. Johnson-Foster Co. v. D'Amore Constr. Co., 314 Mass. 416, 421, 50 N.E.2d 89 (1943).

We conclude that the evidence of the negotiations carried on and documents drafted before and after the Memorandum Agreement were properly admitted into evidence. The jury would have been entitled to find that the Memorandum Agreement was not a binding contract. We do not know, however, whether the jury did reach that conclusion. It may have found that the Memorandum Agreement was a contract but that appellee was not liable because the contract was modified or substituted by novation. Therefore, if the court charged incorrectly as to either of those alternatives, a new trial would be necessary.

Appellant asserts as error the following instruction: "You may find that on all the evidence the telephone conversation of June 25, 1968, and the letter agreement of even date,( ⁴) functioned to modify the Memorandum Agreement. You may find on all the evidence that the letter agreement of June 26, 1968 was an effective subsequent modification of clause 8 of the Memorandum Agreement." Appellant argues that the Statute of Frauds, Mass.Gen.Laws Ann., ch. 259, § 1 (1959), requires any modification of the Memorandum Agreement to be in writing. The threshold question is whether appellant properly preserved this issue at trial. Appellee asserts that appellant's request for an instruction that the Memorandum Agreement was within the Statute of Frauds, without more, was properly refused because appellant "failed to request any instructions as to the significance of the agreement being within the Statute of Frauds". Appellee's assertion is without merit. In addition to the requested instruction that the Memorandum Agreement was within the Statute of Frauds, appellant requested the following two instructions and took exception to their not being given, thus preserving the issue for appeal:

"7. The jury may not consider any testimony, or any document not signed by the plaintiffs, to vary the provisions of Section 8 of the Memorandum Agreement. Lampasona v. Capriotti, 296 Mass. 34, 4 N.E.2d 621; Williston, Contracts, § 593.

8. The agreement of the defendant to pay the plaintiffs $5,000.00 per month for 20 years as set forth in Section 8 of the Memorandum Agreement could not be reduced without a memorandum signed by the plaintiffs to that effect."

These three requests, in combination, set out appellant's theory of the significance of the Statute of Frauds to this case. Appellee's own requests for instructions addressed the effect of the Statute of Frauds on the letter agreement. The trial court chose appellee's interpretation of the law. We must decide whether that choice was an error.

The guarantee in the Memorandum Agreement was governed by the Statute of Frauds, supra, as a contract that "is not to be performed within one year from the making thereof." Therefore, it must be evidenced by a writing "signed by the party to be charged therewith." Id. Appellee set up the modification from twenty to four years as a defense to appellant's suit on the written agreement. The agreement as modified was still within the Statute of Frauds. The letter of June 26 incorporating the modification was not signed by appellant. Therefore, to the extent appellee seeks to use the letter against appellant, it must be deemed an oral modification. See Lampasona v. Capriotti, 296 Mass. 34, 36, 4 N.E.2d 621 (1936). "The general rule is that an oral modification . . . of a written contract which originally was and as modified is within the statute of frauds, cannot be wholly or in part the foundation of an action." Id., 296 Mass. at 38, 4 N.E.2d at 623 (emphasis supplied).

Appellee seeks to avoid the requirements of the Statute of Frauds by invoking the "Cummings rule", a doctrine accepted in Massachusetts under which "in defence to an action on the written contract (within the Statute of Frauds), the defendant may show that he has performed it according to an oral agreement for a substituted performance." Rosenfeld v. Standard Bottling & Extracts Co., 232 Mass. 239, 245, 122 N.E. 299, 300 (1919), citing Cummings v. Arnold, 44...