Walley v. Bay Petroleum Corporation, 19858.

• Decision Date: 23 January 1963
• Docket Number: No. 19858.,19858.
• Citation: 312 F.2d 540
• Parties: Pettis WALLEY, Appellant, v. The BAY PETROLEUM CORPORATION, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

312 F.2d 540 (1963)

Pettis WALLEY, Appellant, v. The BAY PETROLEUM CORPORATION, Appellee.

No. 19858.

United States Court of Appeals Fifth Circuit.

January 23, 1963.

COPYRIGHT MATERIAL OMITTED

Francis T. Zachary, Jack B. Weldy, Hattiesburg, Miss., for appellant.

Frank J. Cope, Houston, Tex., for appellee.

Before HUTCHESON, WISDOM and GEWIN, Circuit Judges.

HUTCHESON, Circuit Judge.

Appellee recovered judgment against appellant for $96,321.19, with interest and attorneys' fees. Of that principal amount, $40,893.19 represented the amounts still due on two so-called promissory notes, while $55,428.00 represented an amount due on open account. The action against appellant was based upon his co-signing the two notes with his son, Pettis D. Walley, and signing a letter of guaranty of his son's past and future debts with appellee.

Appellant's son, Pettis D. Walley, operated the Walco Oil Co. During the course of its business, Walco purchased refined petroleum products from the appellee. By early 1959, Walco had fallen in arrears in paying for those purchases. On January 31, 1959, and again on March 2, 1959, Pettis D. Walley signed the two notes in order to cover the accrued indebtedness to appellee, and in February, 1959, appellant sent a letter of guaranty to appellee; appellant also co-signed each of the notes.¹

Thereafter, Walco continued to purchase refined petroleum products from the appellee, and the principal amount of the notes was reduced to some extent. Nevertheless, Walco had, by May, 1960, run up over $50,000 in debts on open account with appellee. By May 25, appellee had in its possession thirty-three checks issued to it by Walco, which had been returned because of insufficient funds, in the total amount of $19,062.25. Appellee thereafter put Walco on a "cash basis", that is, it refused to deliver products to Walco unless cash or a certified check was tendered at the time of each delivery. Walco and appellee ceased to do business with each other on June 29, 1960. Appellee declared the notes to be due and payable and thereafter brought this suit.²

It is the contention of appellee that it had the right to declare the notes due and payable because Walco ceased to purchase refined petroleum products "exclusively" from it.³ In directing a verdict against Pettis D. Walley, the trial judge held that the notes had become due, and he so instructed the jury. He erred in so doing. The evidence conclusively established that Walco did purchase exclusively from appellee until June 29. The record shows that, thereafter, the assets of Walco were transferred to Pettis D. Walley's mother, who operated her own oil company. She made purchases of refined petroleum products from companies other than appellee. Although the record indicates that no purchases were made in the name of, or for the account of Walco Oil Co., after June 29, the jury could have inferred, in our opinion, that the exclusive purchase promise was violated when Walco's assets were transferred to Pettis D. Walley's mother and she thereafter purchased refined petroleum products from companies other than the appellee. It follows that on a new trial the question of whether the exclusive purchase promise was breached must be submitted to the jury; only if it was breached, was appellee justified, under the express terms of the notes and guaranty, in declaring the principal amounts due and payable.

During the trial, the defendants sought to introduce evidence tending to show that appellant's guaranty was made in reliance upon appellee's promise to sell refined petroleum products to Walco on terms competitive with the independent field. Appellant (and his son) contended that the appellee failed so to price its products, and that such failure, which constituted a breach of appellee's promise, was the cause of the Walleys' breach, if any. The trial judge excluded that evidence on the basis of the parol evidence rule. The parol evidence rule does not preclude the introduction of evidence showing a prior or contemporaneous agreement if the writing, or writings, constitute only a partial integration of the agreement between the parties.⁴ That is, if the writings are but a partial integration of the agreement, the rest of the agreement, or collateral agreements, may be shown through parol.

It follows, therefore, that where the issue is fairly raised by the evidence, the court must preliminarily and initially determine whether the writings in question were intended to, and do, constitute a complete integration of the agreement between the parties.⁵ For the purpose of making that preliminary determination, the parol evidence rule is inapplicable; that rule comes into operation only after, and if, it is initially determined that the writings do in fact constitute the full agreement between the parties.⁶

When, therefore, the trial judge excluded the evidence offered by appellant, that appellee had agreed to sell its products on competitive terms, he was proceeding upon the assumption that the three writings in question did constitute a full integration of the agreement between the parties. We are of the opinion, and hold, that the three writings are so incomplete as to show on their face that they were not intended to constitute the full agreement between the parties.

In essence, the evidence offered, and rejected, went to show that, in addition to the recitation of consideration received, contained in the notes, there was promissory consideration to the appellant, namely, appellee's promise to sell the products to Walco on competitive terms. The only written consideration for appellant's promise of guaranty is the recital in the notes, "for value received". Of course, that recitation, being only the recital of a fact, could be contradicted in parol because, not being promissory, the recital is not part of the agreement.⁷ In additon, since the writings constituted only a partial integration of the agreement, the appellant could show the existence of additional, promissory consideration for his promise of guaranty.⁸

On a new trial, therefore, any evidence offered by appellant to show the existence of a collateral promise by appellee to sell its products to Walco on a competitive basis, is to be admitted. In addition, the appellant sought to introduce evidence that appellee had agreed to sell the products "on terms". Only if the trial judge initially determines that that evidence directly contradicts the recitation in the notes that the invoices will be paid "within the discount terms", rather than explaining, or adding to, the recitation, should he exclude that evidence.⁹ Of course, it will be for the jury to determine whether the appellee did, in fact, make the promises as alleged by appellant.

The appellant further complains that the trial court improperly excluded evidence showing a subsequent modification of the writings. Although, from an examination of the record, we do not find any ruling calling for a reversal on this point, we do point out that the parol evidence rule does not preclude the introduction of evidence showing a subsequent modification or variation in the terms of the agreement.

To some extent at least, the appellant has sought to inject considerations of equity into his defense. If fundamental equities do exist in this case, the parol evidence rule will not preclude the court's giving effect to them.¹⁰

If, as appellant alleges, his promise of guaranty was induced by certain promises of appellee not contained in the writings, and if the appellee subsequently breached those promises, appellant's liability was affected, not only on the promissory notes, but also on the open account, for which appellee also recovered judgment below. The same fundamental principles govern his liability on both the...