Masterson v. Sine

Supreme Court of California

68 Cal.2d 222 (1968)

TRAYNOR, C. J. Dallas Masterson and his wife Rebecca owned a ranch as tenants in common. On February 25, 1958, they conveyed it to Medora and Lu Sine by a grant deed "Reserving unto the Grantors herein an option to purchase the above described property on or before February 25, 1968" for the "same consideration as being paid heretofore plus their depreciation value of any improvements Grantees may add to the property from and after two and a half years from this date." Medora is Dallas' sister and Lu's wife. Since the conveyance Dallas has been adjudged bankrupt. His trustee in bankruptcy and Rebecca brought this declaratory relief action to establish their right to enforce the option.

The case was tried without a jury. Over defendants' objection the trial court admitted extrinsic evidence that by "the same consideration as being paid heretofore" both the grantors and the grantees meant the sum of $50,000 and by "depreciation value of any improvements" they meant the depreciation value of improvements to be computed by deducting from the total amount of any capital expenditures made by defendants grantees the amount of depreciation allowable to them under United States income tax regulations as of the time of the exercise of the option.

The court also determined that the parol evidence rule precluded admission of extrinsic evidence offered by defendants to show that the parties wanted the property kept in the Masterson family and that the option was therefore personal to the grantors and could not be exercised by the trustee in bankruptcy.

The court entered judgment for plaintiffs, declaring their right to exercise the option, specifying in some detail how it could be exercised, and reserving jurisdiction to supervise the manner of its exercise and to determine the amount that plaintiffs will be required to pay defendants for their capital expenditures if plaintiffs decide to exercise the option.

[1] Defendants appeal. They contend that the option provision is too uncertain to be enforced and that extrinsic evidence as to its meaning should not have been admitted. The trial court properly refused to frustrate the obviously declared intention of the grantors to reserve an option to repurchase by an overly meticulous insistence on completeness and [68 Cal.2d 225] clarity of written expression. (See California Lettuce Growers, Inc. v. Union Sugar Co. (1955) 45 Cal.2d 474, 481 [289 P.2d 785, 49 A.L.R.2d 496]; Rivers v. Beadle (1960) 183 Cal.App.2d 691, 695-697 [7 Cal.Rptr. 170].) It properly admitted extrinsic evidence to explain the language of the deed (Nofziger v. Holman (1964) 61 Cal.2d 526, 528 [39 Cal.Rptr. 384, 393 P.2d 696]; Barham v. Barham (1949) 33 Cal.2d 416, 422- 423 [202 P.2d 289]; Union Oil Co. v. Union Sugar Co. (1948) 31 Cal.2d 300, 306 [188 P.2d 470]; Schmidt v. Macco Constr. Co. (1953) 119 Cal.App.2d 717, 730 [260 P.2d 230]; see Farnsworth, "Meaning" in the Law of Contracts (1967) 76 Yale L.J. 939, 959-965; Corbin, The Interpretation of Words and the Parol Evidence Rule (1965) 50 Cornell L.Q. 161) to the end that the consideration for the option would appear with sufficient certainty to permit specific enforcement (see McKeon v. Santa Claus of Cal., Inc. (1964) 230 Cal.App.2d 359, 364 [41 Cal.Rptr. 43]; Vurrow v. Timmsen (1963) 223 Cal.App.2d 283, 288 [35 Cal.Rptr. 668, 100 A.L.R.2d 544]). The trial court erred, however, in excluding the extrinsic evidence that the option was personal to the grantors and therefore non-assignable.

[2] When the parties to a written contract have agreed to it as an "integration"--a complete and final embodiment of the terms of an agreement--parol evidence cannot be used to add to or vary its terms. (Pollyanna Homes, Inc. v. Berney (1961) 56 Cal.2d 676, 679-680 [16 Cal.Rptr. 345, 365 P.2d 401]; Hale v. Bohannon (1952) 38 Cal.2d 458, 465 [241 P.2d 4]; see 3 Corbin, Contracts (1960) sec. 573, p. 357; Rest., Contracts (1932) sec. 228 (and com. a), 237; Code Civ. Proc., sec. 1856; Civ. Code, sec. 1625.) [3] When only part of the agreement is integrated, the same rule applies to that part, but parol evidence may be used to prove elements of the agreement not reduced to writing. (Hulse v. Juillard Fancy Foods Co. (1964) 61 Cal.2d 571, 573 [39 Cal.Rptr. 529, 394 P.2d 65]; Schwartz v. Shapiro (1964) 229 Cal.App.2d 238, 250 [40 Cal.Rptr. 189]; Mangini v. Wolfschmidt, Ltd. (1958) 165 Cal.App.2d 192, 200-201 [331 P.2d 728]; Rest., Contracts (1932) sec. 239.)

[4] The crucial issue in determining whether there has been an integration is whether the parties intended their writing to serve as the exclusive embodiment of their agreement. [5] The instrument itself may help to resolve that issue. It may state, for example, that "there are no previous understandings or agreements not contained in the writing," and [68 Cal.2d 226] thus express the parties' "intention to nullify antecedent understandings or agreements." (See 3 Corbin, Contracts (1960) sec. 578, p. 411.) Any such collateral agreement itself must be examined, however, to determine whether the parties intended the subjects of negotiation it deals with to be included in, excluded from, or otherwise affected by the writing. Circumstances at the time of the writing may also aid in the determination of such integration. (See 3 Corbin, Contracts (1960) secs. 582-584; McCormick, Evidence (1954) sec. 216, p. 441; 9 Wigmore Evidence (3d ed. 1940) sec. 2430, p. 98, sec. 2431, pp. 102-103; Witkin, Cal. Evidence (2d ed. 1966) sec. 721; Schwartz v. Shapiro, supra, 229 Cal.App.2d 238, 251, fn. 8; contra, 4 Williston, Contracts (3d ed. 1961) sec. 633, pp. 1014-1016.)

California cases have stated that whether there was an integration is to be determined solely from the face of the instrument (e.g., Thoroman v. David (1926) 199 Cal. 386, 389-390 [249 P. 513]; Heffner v. Gross (1919) 179 Cal. 738, 742- 743 [178 P. 860]; Gardiner v. McDonogh (1905) 147 Cal. 313, 318-321 [81 P. 964]; Harrison v. McCormick (1891) 89 Cal. 327, 330 [26 P. 830, 23 Am.St.Rep. 469]), and that the question for the court is whether it "appears to be a complete ... agreement. ..." (See Ferguson v. Koch (1928) 204 Cal. 342, 346 [268 P. 342, 58 A.L.R. 1176]; Harrison v. McCormick, supra, 89 Cal. 327, 330.) Neither of these strict formulations of the rule, however, has been consistently applied. The requirement that the writing must appear incomplete on its face has been repudiated in many cases where parol evidence was admitted "to prove the existence of a separate oral agreement as to any matter on which the document is silent and which is not inconsistent with its terms"--even though the instrument appeared to state a complete agreement. (E.g., American Industrial Sales Corp. v. Airscope, Inc. (1955) 44 Cal.2d 393, 397 [282 P.2d 504, 49 A.L.R.2d 1344]; Stockburger v. Dolan (1939) 14 Cal.2d 313, 317 [94 P.2d 33, 128 A.L.R. 83]; Crawford v. France (1933) 219 Cal. 439, 443 [27 P.2d 645]; Buckner v. A. Leon & Co. (1928) 204 Cal. 225, 227 [267 P. 693]; Sivers v. Sivers (1893) 97 Cal. 518, 521 [32 P. 571]; cf. Simmons v. California Institute of Technology (1949) 34 Cal.2d 264, 274 [209 P.2d 581].) Even under the rule that the writing alone is to be consulted, it was found necessary to examine the alleged collateral agreement before concluding that proof of it was precluded by the writing alone. (See 3 Corbin, Contracts (1960) sec. 582, pp. 444-446.) It is therefore evident that "The conception of a writing as wholly and intrinsically self- determinative of the parties' intent to make it a sole memorial [68 Cal.2d 227] of one or seven or twenty-seven subjects of negotiation is an impossible one." (9 Wigmore, Evidence (3d ed. 1940) sec. 2431, p. 103.) For example, a promissory note given by a debtor to his creditor may integrate all their present contractual rights and obligations, or it may be only a minor part of an underlying executory contract that would never be discovered by examining the face of the note.

In formulating the rule governing parol evidence, several policies must be accommodated. One policy is based on the assumption that written evidence is more accurate than human memory. (Germain Fruit Co. v. J. K. Armsby Co. (1908) 153 Cal. 585, 595 [96 P. 319].) This policy, however, can be adequately served by excluding parol evidence of agreements that directly contradict the writing. Another policy is based on the fear that fraud or unintentional invention by witnesses interested in the outcome of the litigation will mislead the finder of facts. (German Fruit Co. v. J. K. Armsby Co., supra, 153 Cal. 585, 596; Mitchill v. Lath (1928) 247 N.Y. 377, 388 [160 N.E. 646, 68 A.L.R. 239] [dissenting opinion by Lehman, J.]; see 9 Wigmore, Evidence (3d ed. 1940) sec. 2431, p. 102; Murray, The Parol Evidence Rule: A Clarification (1966) 4 Duquesne L.Rev. 337, 338- 339.) McCormick has suggested that the party urging the spoken as against the written word is most often the economic underdog, threatened by severe hardship if the writing is enforced. In his view the parol evidence rule arose to allow the court to control the tendency of the jury to find through sympathy and without a dispassionate assessment of the probability of fraud or faulty memory that the parties made an oral agreement collateral to the written contract, or that preliminary tentative agreements were not abandoned when omitted from the writing. (See McCormick, Evidence (1954) sec. 210.) He recognizes, however, that if this theory were adopted in disregard of all other considerations, it would lead to the exclusion of testimony concerning oral agreements whenever there is a writing and thereby often defeat the true intent of the parties. (See McCormick, op. cit. supra, sec. 216, p. 441.)

[6] Evidence of oral collateral agreements should be excluded only when the fact finder is likely to be misled. The rule must therefore be based on the credibility of the evidence. One such standard, adopted by section 240(1)(b) of the Restatement of Contracts, permits proof of a collateral agreement if it "is such an agreement as might naturally be made as a separate agreement by parties situated as were the parties [68 Cal.2d 228] to the written contract." (Italics added; see McCormick, Evidence (1954) sec. 216, p. 441; see also 3 Corbin, Contracts (1960) sec. 583, p. 475, sec. 594, pp. 568-569; 4 Williston, Contracts (3d ed. 1961) sec. 638, pp. 1039-1045.) The draftsmen of the Uniform Commercial Code would exclude the evidence in still fewer instances: "If the additional terms are such that, if agreed upon, they would certainly have been included in the document in the view of the court, then evidence of their alleged making must be kept from the trier of fact." (Com. 3, sec. 2-202, italics added.) fn. 1

[7a] The option clause in the deed in the present case does not explicitly provide that it contains the complete agreement, and the deed is silent on the question of assignability. Moreover, the difficulty of accommodating the formalized structure of a deed to the insertion of collateral agreements makes it less likely that all the terms of such an agreement were included. fn. 2 (See 3 Corbin, Contracts (1960) sec. 587; 4 Williston, Contracts (3d ed. 1961) sec. 645; 70 A.L.R. 752, 759 (1931); 68 A.L.R. 245 (1930).) The statement of the reservation of the option might well have been placed in the recorded deed solely to preserve the grantors' rights against any possible future purchasers, and this function could well be served without any mention of the parties' agreement that the option was personal. There is nothing in the record to indicate that the parties to this family transaction, through experience in land transactions or otherwise, had any warning of the disadvantages of failing to put the whole agreement in the deed. This case is one, therefore, in which it can be said that a collateral agreement such as that alleged "might naturally be made as a separate agreement." A fortiori, the case is not one [68 Cal.2d 229] in which the parties "would certainly" have included the collateral agreement in the deed.

It is contended, however, that an option agreement is ordinarily presumed to be assignable if it contains no provisions forbidding its transfer or indicating that its performance involves elements personal to the parties. (Mott v. Cline (1927) 200 Cal. 434, 450 [253 P. 718]; Altman v. Blewett (1928) 93 Cal.App. 516, 525 [269 P. 751].) The fact that there is a written memorandum, however, does not necessarily preclude parol evidence rebutting a term that the law would otherwise presume. In American Industrial Sales Corp. v. Airscope, Inc., supra, 44 Cal.2d 393, 397-398, we held it proper to admit parol evidence of a contemporaneous collateral agreement as to the place of payment of a note, even though it contradicted the presumption that a note, silent as to the place of payment, is payable where the creditor resides. (For other examples of this approach, see Richter v. Union Land etc. Co. (1900) 129 Cal. 367, 375 [62 P. 39] [presumption of time of delivery rebutted by parol evidence]; Wolters v. King (1897) 119 Cal. 172, 175-176 [51 P. 35] [presumption of time of payment rebutted by parol evidence]; Mangini v. Wolfschmidt, Ltd., supra, 165 Cal.App.2d 192\, 198-201 [presumption of duration of an agency contract rebutted by parol evidence]; Zinn v. Ex-Cell-O Corp. (1957) 148 Cal.App.2d 56\, 73-74 [306 P.2d 1017]; see also Rest., Contracts, sec. 240, com. c.) fn. 3 Of course a statute may preclude parol evidence to rebut a statutory presumption. (E. G. Neff v. Ernst (1957) 48 Cal.2d 628\, 635 [311 P.2d 489] [commenting on Civ. Code, sec. 1112]; Kilfoy v. Fritz (1954) 125 Cal.App.2d 291\, 293-294 [270 P.2d [68 Cal.2d 230] 579] [applying Deering's Gen. Laws, 1937, Act. 652, sec. 15(a)]; see also Com. Code, sec. 9-318, subd. (4).) Here, however, there is no such statute. [8] In the absence of a controlling statute the parties may provide that a contract right or duty is nontransferable. (La Rue v. Groezinger (1890) 84 Cal. 281, 283 [24 P. 42, 18 Am.St.Rep. 179]; Benton v. Hofmann Plastering Co. (1962) 207 Cal.App.2d 61, 68 [24 Cal.Rptr. 268]; Parkinson v. Caldwell (1954) 126 Cal.App.2d 548, 552-553 [272 P.2d 934]; see 4 Corbin, Contracts (1951) secs. 872-873.) [9] Moreover, even when there is no explicit agreement--written or oral--that contractual duties shall be personal, courts will effectuate a presumed intent to that effect if the circumstances indicate that performance by a substituted person would be different from that contracted for. (Farmland Irr. Co. v. Dopplmaier (1957) 48 Cal.2d 208, 222 [308 P.2d 732, 66 A.L.R.2d 590]; Prichard v. Kimball (1923) 190 Cal. 757, 764-765 [214 P. 863]; Simmons v. Zimmerman (1904) 144 Cal. 256, 260-261 [79 P. 451, 1 Ann.Cas. 850]; La Rue v. Groezinger, supra, 84 Cal. 281, 285; Coykendall v. Jackson [68 Cal.2d 231] (1936) 17 Cal.App.2d 729, 731 [62 P.2d 746]; see 4 Corbin, Contracts (1951) sec. 865; 3 Williston, Contracts (3d ed. 1960) sec. 412, pp. 32-33; Rest., Contracts (Tent. Draft No. 3, 1967) sec. 150(2).)

[7b] In the present case defendants offered evidence that the parties agreed that the option was not assignable in order to keep the property in the Masterson family. The trial court erred in excluding that evidence.

The judgment is reversed.

-FN 1. Corbin suggests that, even in situations where the court concludes that it would not have been natural for the parties to make the alleged collateral oral agreement, parol evidence of such an agreement should nevertheless be permitted if the court is convinced that the unnatural actually happened in the case being adjudicated. (3 Corbin, Contracts, sec. 485, pp. 478, 480; cf. Murray, The Parol Evidence Rule: A Clarification (1966) 4 Duquesne L. Rev. 337, 341-342.) This suggestion may be based on a belief that judges are not likely to be misled by their sympathies. If the court believes that the parties intended a collateral agreement to be effective, there is no reason to keep the evidence from the jury.

-FN 2. See Goble v. Dotson (1962) 203 Cal.App.2d 272 [21 Cal.Rptr. 769], where the deed given by a real estate developer to the plaintiffs contained a condition that grantees would not build a pier or boathouse. Despite this reference in the deed to the subject of berthing for boats, the court allowed plaintiffs to prove by parol evidence that the condition was agreed to in return for the developer's oral promise that plaintiffs were to have the use of two boat spaces nearby.

-FN 3. Counsel for plaintiffs direct our attention to numerous cases that they contend establish that parol evidence may never be used to show a collateral agreement contrary to a term that the law presumes in the absence of an agreement. In each of these cases, however, the decision turned upon the court's belief that the writing was a complete integration and was no more than an application of the rule that parol evidence cannot be used to vary the terms of a completely integrated agreement. (Cf. discussion in Mangini v. Wolfschmidt, Ltd., supra, 165 Cal.App.2d 192, 203.) In Gardiner v. McDonogh, supra, 147 Cal. 313, 319, defendants sought to prove a collateral agreement that beans sold them were to conform to a sample earlier given. The court purportedly looked only to the face of the writing to decide whether parol evidence was admissible, and such evidence would be excluded if the writing was "clear and complete." Defendants argued that the written order was not complete because it did not fix a time and place of delivery, but the court answered that the failure to state those terms did not result in incompleteness because the law would supply them by implication. This decision was based on the belief that the question of admissibility had to be decided from the face of the instrument alone. Virtually every writing leaves some terms to be implied and almost none would qualify as integrations without implying some terms. The decision was therefore a product of an outmoded approach to the parol evidence rule, not of any compulsion to give conclusive effect to presumptions of implied terms.

In Standard Box Co. v. Mutual Biscuit Co. (1909) 10 Cal.App. 746, 750 [103 P. 938], the rationale of Gardiner v. McDonogh was extended to exclude evidence of an agreement for a time of performance other than the "reasonable time" implied by law in a situation where the writing, although stating no time of performance, was "clear and complete when aided by that which is imported into it by legal implication." This decision was simply an application of the then-current theory regarding integration. The court regarded the instrument as a complete integration, and it therefore precluded proof of collateral agreements. Since it is now clear that integration cannot be determined from the writing alone, the decision is not authoritative insofar as it finds a complete integration. There is no reason to believe that the court gave any independent significance to implied terms. Had the court found from the writing alone that there was no integration, there is nothing to indicate that it would have excluded proof contrary to terms it would have otherwise presumed.

In Buffalo Arms, Inc. v. Remler Co. (1960) 179 Cal.App.2d 700, 710 [4 Cal.Rptr. 103], the court refused to admit parol evidence showing a collateral oral agreement that a buyer would have more than the "reasonable time" presumed by law to refuse goods, but the decision is based on a conclusion that the writing on its face was a complete expression of the agreement. In La France v. Kashishian (1928) 204 Cal. 643, 645 [269 P. 655], and Fogler v. Purkiser (1932) 127 Cal.App. 554, 559-560 [16 P.2d 305], there are no clear findings concerning the completeness of the writings; but the argument in each case is borrowed from the Standard Box Co. decision and thus implies a finding of a complete integration. Calpetro Producers Syndicate v. C. M. Woods Co. (1929) 206 Cal. 246, 247-248, 252 [274 P. 65], relies on Standard Box Co. and expressly finds a complete integration.

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