Title: MARGOT BELDEN and FISH CREEK DESIGN, LLC V. JOHN THORKILDSEN and STACY THORKILDSEN, his wife

State: wyoming

Issuer: Wyoming Supreme Court

Document:

MARGOT BELDEN and FISH CREEK DESIGN, LLC V. JOHN THORKILDSEN and STACY THORKILDSEN, his wife2007 WY 68156 P.3d 320Case Number: 06-112Decided: 04/26/2007
APRIL 
TERM, A.D. 2007

 
 
MARGOT BELDEN and FISH CREEK 
DESIGN, LLC,

 
 
Appellants

(Plaintiffs),

 
 
v.

 
 
JOHN THORKILDSEN and STACY 
THORKILDSEN, his wife,

 
 
Appellees

(Defendants).

 
 
Appeal from the 
DistrictCourtofTetonCounty

The Honorable Nancy 
Guthrie, Judge

 
 
Representing 
Appellants:

Richard J. 
Mulligan, of Mulligan & Owens, LLC, Jackson, 
Wyoming; Heather Noble, Jackson, Wyoming.  
Argument by Ms. Noble.

 
 
Representing Appellees:

David G. 
Lewis, Jackson, Wyoming.

 
 
Before 
VOIGT, C.J., and GOLDEN, HILL, KITE, and BURKE, 
JJ.

 
 

BURKE, 
Justice, delivers the opinion of the Court; HILL, Justice, files a dissenting 
opinion.

 
 
BURKE, 
Justice.

 
 
[¶1]      Margot Belden and 
Fish Creek Design, LLC, appeal a judgment entered in favor of John 
Thorkildsen.  They claim that the 
district court erred when it concluded that Mr. Thorkildsen was not liable to 
Ms. Belden, or the LLC, for debt incurred when he purchased his interest in the 
business.  Because we find that the 
district court's decision was premised upon an improper application of the parol 
evidence rule, we reverse and remand.

 
 
ISSUE

 
 
[¶2]      Although several 
issues were raised by the parties, we find one issue dispositive:  

 
 

Did 
the district court err by refusing to consider 
evidence of an agreement between Ms. Belden and Mr. Thorkildsen concerning the 
indebtedness incurred for the purchase of Mr. Thorkildsen's partnership 
interest?

 
 
FACTUAL 
BACKGROUND

 
 
[¶3]      Margot Belden and 
her son purchased an interior design business located in Wilson, Wyoming, in June 1999.  They owned the business as common law 
partners with Ms. Belden owning a 70% interest and her son 30%.  Mr. Thorkildsen was an employee of the 
business working as an interior designer for both the previous owner and 
subsequently for Ms. Belden and her son.  

 
 
[¶4]      In June 2000, Ms. 
Belden approached Mr. Thorkildsen, giving him the opportunity to purchase her 
son's interest in the business for $180,000.  Mr. Thorkildsen and his wife signed a 
buyout agreement, which mentioned financing for the $180,000, 
stating:

 
 
It 
is hereby agreed that John and Stacy Thorkildsen will purchase the 30% ownership 
of Fish Creek Interiors & Gifts currently owned by Sean O'Brien for 
$180,000.00, cash.  This is due and 
payable upon completion of the financing provided by Bank of Jackson Hole, but 
no later than July 1, 2000.

 
 
Ms. Belden and Mr. 
Thorkildsen subsequently signed a note with the bank pledging assets of the 
partnership, as well as some of Ms. Belden's property as collateral.  The partnership paid every monthly 
payment to the bank for the remaining life of the partnership.   

 
 
[¶5]      Approximately one 
year later, in April 2001, Fish Creek Interiors and Gifts pooled assets with 
another design company, forming Fish Creek Design, LLC.  The new LLC had four members: Ms. 
Belden, Mr. Thorkildsen, Cheryl Wery and Jacque Jenkins.  The promissory note with the bank was 
paid off and the debt was retired.  
The funds to pay the note came from a new note taken in the name of the 
LLC and was signed by all of the members of the LLC.  

 
 
[¶6]      In May 2002, Mr. 
Thorkildsen was fired.  Thereafter, 
he formed a new design company and store operating in Jackson.  The remaining three members of the LLC 
sold the retail portion of Fish Creek Design, LLC in the summer of 2002.  Eventually, under pressure from the 
bank, Ms. Belden was forced to pay off the remaining balance of the loan in 
order to protect her assets that had been pledged as security for the loan.  

 
 
[¶7]      Ms. Belden 
initiated litigation against Mr. Thorkildsen and his wife claiming that she was 
entitled to recover amounts that were never paid by Mr. Thorkildsen to purchase 
his interest in the business and damages resulting from Mr. Thorkildsen's 
appropriation of clients from the business.1  In 
response, the Thorkildsens argued that when the original promissory note was 
paid by the LLC, Mr. Thorkildsen was released from his obligation and was no 
longer personally liable because he signed the second note as a member of the 
LLC, and that Mrs. Thorkildsen should be dismissed because she was not involved 
other than signing the original purchase agreement.  A bench trial was held and after Ms. 
Belden's case in chief, Mrs. Thorkildsen was dismissed as a party without 
objection from the plaintiff.  

 
 
[¶8]      At trial, Ms. 
Belden testified about the financing arrangements for Mr. Thorkildsen's purchase 
of her son's interest in the business.  
According to her testimony, Mr. Thorkildsen could not make the $3,870.16 
monthly payment towards the note.  
She agreed that the business would make those payments and Mr. 
Thorkildsen would repay the debt with any future bonuses and commissions he 
received.  She also testified that 
this debt was carried on the company's financial records as an account 
receivable due from Mr. Thorkildsen and that the loan for the $180,000 would not 
have been consummated by the Bank unless she personally guaranteed 
it.

 
 
[¶9]      Mr. Thorkildsen 
also testified about the financing arrangements for his purchase of Ms. Belden's 
son's interest in the company.  He 
testified that he agreed he would apply any future commissions and bonuses 
towards the note.  He admitted that 
even though he may have received a commission in 2000, he has not repaid any 
portion of the loan.  To explain his 
failure to make any payments, Mr. Thorkildsen claimed that Ms. Belden gifted the 
30% interest in the partnership to him.

 
 
[¶10]   The district court found that Mr. 
Thorkildsen was not personally liable for the original $180,000 debt without 
resolving the dispute of whether the ownership interest was a gift.  The court relied upon the parol evidence 
rule in rejecting Ms. Belden's contention that Mr. Thorkildsen orally agreed to 
repay the debt with commissions and bonuses.  The court found in favor of Mr. 
Thorkildsen on all counts and awarded him attorney's fees.  This appeal followed.  

 
 
STANDARD OF 
REVIEW

 
 
[¶11]   Following a bench trial, this court 
reviews a district court's findings and conclusions using a clearly erroneous 
standard for the factual findings and a de novo standard for the conclusions of 
law.  Piroschak v. Whelan, 2005 WY 26, ¶ 7, 
106 P.3d 887, 890 (Wyo. 2005) (citing Hansuld v. Lariat Diesel Corp., 2003 WY 
165, ¶ 13, 81 P.3d 215, 218 (Wyo. 2003) and Rennard v. Vollmar, 977 P.2d 1277, 1279 
(Wyo. 1999)).

The factual findings of a judge are not 
entitled to the limited review afforded a jury verdict. While the findings are 
presumptively correct, the appellate court may examine all of the properly 
admissible evidence in the record. Due regard is given to the opportunity of the 
trial judge to assess the credibility of the witnesses, and our review does not 
entail re-weighing disputed evidence. Findings of fact will not be set aside 
unless they are clearly erroneous. A finding is clearly erroneous when, although 
there is evidence to support it, the reviewing court on the entire evidence is 
left with the definite and firm conviction that a mistake has been 
committed.

 
 

Piroschak, 
¶ 7, 106 P.3d  at 890.  Findings may not be 
set aside because we would have reached a different result.  Harber v. Jensen, 2004 WY 104, ¶ 7, 97 P.3d 57, 60 (Wyo. 2004).  
Further, 

 
 
we assume that the 
evidence of the prevailing party below is true and give that party every 
reasonable inference that can fairly and reasonably be drawn from it. We do not 
substitute ourselves for the trial court as a finder of facts; instead, we defer 
to those findings unless they are unsupported by the record or erroneous as a 
matter of law.

 
 
 Id.  (quotation marks 
omitted).

 
 
DISCUSSION

 
 

[¶12]   After 
trial, the parties submitted proposed findings of fact and conclusions of 
law.  In her proposed findings, Ms. Belden claimed that her signature and 
pledge of collateral for the $180,000 note was only to facilitate the financing 
of the buyout agreement signed by the Thorkildsens.  She asserted that Mr. 
Thorkildsen was to repay the loan from future bonuses, commissions, and profit 
sharing distributions paid to him, pointing to his testimony to that 
effect.  She also requested that the district court find that neither she 
nor the partnership made a gift to Mr. Thorkildsen.

 
 

[¶13]   Mr. 
Thorkildsen argued that he was not personally liable for any of the debt 
satisfied by Ms. Belden.  He urged the district court to find that his 
liability on the $180,000 note was extinguished when it was paid, via 
refinancing and assumption by the LLC.  As to that subsequent debt, he 
relied upon his signature as a member of the LLC to disclaim personal liability 
for any of the underlying debt.  Mr. 
Thorkildsen asked the district court to disregard any promise he may have made 
to repay the $180,000 debt, relying upon the parol evidence rule.  He 
proposed the following conclusion of law:

 
 
The 
Court will not consider a contrived ambiguity in a written instrument such as 
the modification added to Exhibit C, that this was a "John Thorkildsen Loan," as 
grounds to considering parol evidence.  Moreover, Plaintiff Margot Belden's 
testimony that she had a side-deal with John Thorkildsen, which contradicted the 
unambiguous terms of the notes, cannot be considered by the Court. 


 
 
The district court 
essentially adopted this conclusion of law proposed by Mr. Thorkildsen.   

 
 
[¶14]   In reliance upon the parol evidence 
rule, the district court disregarded Ms. Belden's testimony concerning a 
separate agreement for repayment of the debt and did not determine whether the 
partnership interest was a gift.  
Ms. Belden contends that the district court misapplied the parol evidence 
rule.  She claims that there was no 
contradiction between the notes and the separate agreement she had with Mr. 
Thorkildsen.  In essence, Ms. Belden 
claims that the first note was to pay for Mr. Thorkildsen's purchase of her 
son's partnership interest, the second note was to pay off the balance of the 
first note, and the separate agreement was to reimburse Ms. Belden and/or the 
business for repayment of the loans.  

 
 
[¶15]   Mr. Thorkildsen's position is that 
because the first note was discharged by the second note and because the second 
note was signed by the managers of the LLC in their managerial capacities, there 
could be no personal liability on the note to either the bank or the other 
managers or members of the LLC.  Mr. 
Thorkildsen cites Wyo. Stat. Ann. § 34.1-3-402(b)(i) (LexisNexis 2005), which provides, 
"If the form of the signature shows unambiguously that the signature is made on 
behalf of the represented person who is identified in the instrument, the 
representative is not liable on the instrument."  He also relies upon Wyo. Stat. Ann. § 
17-15-113 (LexisNexis 2005), which 
states, "Neither the members of a limited liability company nor the managers of 
a limited liability company managed by a manager or managers are liable under a 
judgment, decree or order of a court, or in any other manner, for a debt, 
obligation or liability of the limited liability company."  Mr. Thorkildsen argues that a "side 
deal" making him liable to Ms. Belden, or the LLC, would contradict the statutes 
and the terms of the note.  

 
 
[¶16]   The parol evidence rule generally 
states that the intent of the parties to a contract or instrument is to be 
determined solely from the language of the instrument and extrinsic evidence may 
be examined only when the language is ambiguous.  Burk v. Burzynski, 672 P.2d 419, 423 
(Wyo. 1983); Amoco Production Company v. Stauffer 
Chemical Company of Wyoming, 612 P.2d 463, 
465 (Wyo. 
1980).  However, we depart from the 
parol evidence rule if the evidence is used to establish a separate and distinct 
contract, a condition precedent, fraud, mistake, or repudiation.  Applied Genetics v. First Affiliated 
Securities, 912 F.2d 1238, 1245 (10th Cir. 1990); Western Nat'l Bank of Lovell v. Moncur, 
624 P.2d 765, 770-71 (Wyo. 1981).  Evidence of an oral agreement is 
considered if the oral agreement does not vary the terms of the writing, or if 
it is "separate and distinct from, and independent of, the written instrument." 
 Applied Genetics, 912 F.2d  at 1246 
(quoting Moncur, 624 P.2d  at 771 and 
citing Allen v. Allen, 550 P.2d 1137, 
1141 (Wyo. 1976) and Cordova v. Gosar, 719 P.2d 625, 640-42 
(Wyo. 1986)).  In other words, the parol evidence rule "does not 
affect a purely collateral contract distinct from, and independent of, the 
written agreement, even though it relates to the same general subject matter and 
grows out of the same transaction, if it is not inconsistent with the writing."  Moncur, 624 P.2d  at 
770-71.

 
 
[¶17]   Ms. Belden argues that the separate 
agreement was independent of the two notes, only relating to the same subject 
matter in that it required reimbursement to the business and Ms. Belden for 
repayment of the notes.  We 
agree.  The evidence Ms. Belden 
presented of a separate agreement between herself and Mr. Thorkildsen did not 
vary the terms of the notes and was consistent with the notes.  The clear intent of the $180,000 note 
was to finance the buyout agreement signed by the Thorkildsens.  On its face, the buyout agreement 
obligated Mr. Thorkildsen to pay $180,000 for the partnership interest.  It is not disputed that he received that 
interest in the partnership and that he never paid the $180,000 debt.  The dispute between the parties does not 
concern the terms of the notes with the bank, but rather, whether there was a 
separate, shared intent that Mr. Thorkildsen be ultimately responsible for the 
financed debt.  This is the type of 
agreement that is contemplated by the separate agreement exception to the parol 
evidence rule.  See Moncur, 624 P.2d  at 771-72.  Therefore, the district court erred in 
refusing to consider evidence regarding the separate agreement.

[¶18]   Additionally, we find it 
appropriate to comment upon an issue likely to arise upon remand.  Koontz v. South Superior, 716 P.2d 358, 362 (Wyo. 
1986).  Mr. Thorkildsen asked the 
district court to find that Ms. Belden was not an accommodation party to the 
note.  He recognized that if Ms. 
Belden held that status, she may have had recourse against Mr. Thorkildsen for 
satisfying the debt.  An 
accommodation party who pays the debt on the instrument is entitled to 
reimbursement from the accommodated party.  
Wyo. 
Stat. Ann. § 34.1-3-419(e) (LexisNexis 2005).  The question of whether a person is an 
accommodation maker is a question of fact.  
Wyo. Stat. Ann. § 34.1-3-419 cmt. 1, 3 (LexisNexis 2005).  

 
 
[¶19]   The district court did not make any 
findings regarding Ms. Belden's status as an accommodation maker.  While the district court may have found 
it unnecessary to reach the issue, a corrected view of the parol evidence in 
this case may necessitate a different analysis. Courts examine a number of 
factors in determining a party's status as an accommodation maker.  See Narans v. Paulsen, 803 P.2d 358, 361-62 
(Wyo. 1990) 
(citing cases).  When the status is 
not readily apparent from the face of the instrument, parol evidence is 
admissible to establish the intentions of those concerned.  Id., 803 P.2d  at 361.  Accordingly, the existence of an 
agreement between Ms. Belden and Mr. Thorkildsen may impact Ms. Belden's status 
as an accommodation party.  

 
 
CONCLUSION

 
 
[¶20]   Evidence of the parties' agreement 
regarding repayment of the debt incurred for Mr. Thorkildsen's partnership 
interest should have been considered by the district court.  This evidence fits squarely within 
exceptions to the parol evidence rule allowing examination of evidence of oral 
agreements that are collateral to, and independent of, the written contracts and 
which allow examination of the parties' intentions as to accommodation party 
status.  Therefore, we conclude that 
the district court erred when it did not consider evidence of a separate 
agreement regarding repayment between Ms. Belden and Mr. Thorkildsen.  

 
 

[¶21]   We 
reverse and remand for further proceedings consistent with this 
opinion.

 
 
FOOTNOTES

 
 

1The 
complaint alleges several counts:  
(1) Breach of Contract, based upon the non-compete clause of the LLC's 
operating agreement; (2) Intentional Interference with Prospective Economic 
Advantage, based upon interference with the economic relationship between the 
LLC and its clients; (3) Breach of Fiduciary Duty, based upon Mr. Thorkildsen's 
competition with the LLC while he was still a member; (4) Money owed on the 
Promissory Note and Buyout Agreement, claiming the Thorkildsens owe Ms. Belden 
$92,000 and the LLC $34,000; and (5) Attorneys' Fees and Costs, based upon 
breach of the LLC's operating agreement.

HILL, 
Justice, dissenting.

 
 
[¶22]   
I respectfully dissent because I do not agree that the resolution of this 
case should be decided on how, or if, the parol evidence rule should be applied 
to the circumstances of this case.  
Because these parties mutually adopted a mode of performing their 
contract that differed almost in its entirety from the terms of that contract, I 
would affirm the basic findings of the district court and its conclusions of 
law.  My perception of the trial 
court's findings is that it found Margot Belden's testimony to be untruthful and 
John Thorkildsen's to be, perhaps, just somewhat more believable than that of 
Belden.  Thus, the district court 
opted to rely principally on the documentary evidence and less on the 
"testimony."  Where I have set out 
facts below, I do so because they appear to be undisputed facts that do not 
really go to the issues to be decided by the trial court or by this Court.  The only reliable evidence presented at 
the "trial" in this case were the written documents that controlled the 
relations of the parties.

 
 
[¶23]   
As I perceive the record on appeal in this case, in late 1998 or early 
1999, Margot Belden and her son Sean O'Brien, as "partners," bought a business 
known as Fish Creek Interiors and Gifts (at that time "they" paid $500,000.00 
for the business and $2,000,000.00 for the building it was housed in).  On June 5, 2000, John Thorkildsen, at 
Belden's urging, agreed to purchase Sean O'Brien's 30% interest in Fish Creek 
Interiors and Gifts.  Thorkildsen 
had been an employee of that business for many years.  He was paid a salary of $70,000.00 a 
year by Belden.  O'Brien's 30% 
interest was valued at $180,000.00, because the basis in the "business" portion 
of their investment had increased from $500,000.00 to $600,000.00 in the year or 
so they had owned it.  Thorkildsen 
had no money with which to purchase that interest, and so  Belden took Thorkildsen to the Bank of 
Jackson Hole, where she and Thorkildsen borrowed $180,000.00 (posting Belden's 
property as collateral), so that Thorkildsen could pay O'Brien for his 
interest.  Payments of $3,870.16 a 
month ($46,441.92 annually) were made on that loan until, on June 8, 2001, it 
was paid off in its entirety.  At 
that time the "partnership" disappeared, and Fish Creek Design LLC, a documented 
business organization, came into being.  
The money to pay off the earlier loan that bound both Belden and 
Thorkildsen was borrowed by the new LLC in the amount of $151,781.37.  The following individuals signed that 
contract:  "Margot Belden, FIN MNGR; 
Cheryl Wery, D MNGR; John Thorkildsen, RET MNGR; and Jacqeline Jenkins, BUS 
MNGR."  The payments on this loan 
were $3,623.44 a month, and payments were made until, on February 28, 2003, the 
loan was paid off in full.

 
 
[¶24]   
Thorkildsen conceded that he had never personally made any of the 
payments.  It appears that most of 
the payments were made by one or other of the Fish Creek entities and both 
Belden and Thorkildsen were members of those entities until Thorkildsen was 
fired on May 9, 2002.  To the extent 
Thorkildsen ever owned any interest in either of the Fish Creek entities, he 
never received any payment for it.  
Belden and Thorkildsen each had a "story."  However, giving any particular credence 
to the details of either of those stories would do a disservice to the law 
governing contracts and business relations in general.

 
 
[¶25]   
The parol evidence rule has been described thus:

 
 
It is at once perhaps the simplest substantive rule 
of contract law to state and to understand in its abstract foundational purpose, 
but undoubtedly the most difficult rule to apply to concrete fact 
situations.  Generally stated, this 
rule prohibits the admission of extrinsic evidence of prior or contemporaneous 
oral agreements, or prior written agreements, to explain the meaning of a 
contract when the parties have reduced their agreement to an unambiguous 
integrated writing.  The rule 
springs from several sources.  It 
reflects and implements the legal preference, if not the talismanic legal 
primacy, historically given to writings.  
It effectuates a presumption that a subsequent written contract is of a 
higher nature than earlier statements, negotiations, or oral agreements by 
deeming those earlier expressions to be merged into or superseded by the written 
document.  Finally, it seeks to 
achieve the related goals of insuring that the contracting parties, whether as a 
result of miscommunication, poor memory, fraud, or perjury, will not vary the 
terms of their written undertakings, thereby reducing the potential for 
litigation.

 
 
11 Williston on Contracts, Parol Evidence Rule, §33:1, at 540-50 
(4th ed. 1999).

 
 
[¶26]   
Continuing, Williston states:

 
 
For purposes of the rule, "extrinsic evidence" 
includes any evidence that seeks to prove an agreement or understanding arising 
out of the parties' words or conduct  
spoken or engaged in prior to or contemporaneous with the execution of 
the final, fully integrated written agreement.  Such evidence, according to the 
traditional approach of the vast majority of courts, may not be used to explain, 
vary, supplement, or contradict unambiguous language appearing in the 
contract.

 
 
11 Williston on Contracts, supra, §33:1, at 
550-51.

 
 
[¶27]   
I am concerned that, in elevating these extremely crude contractual 
agreements that were virtually ignored by the parties for years and by infusing 
these very informal court proceedings 
with greater substance than they deserve, so as to make this a case that merits 
the application of the parol evidence rule, we run the risk so eloquently 
identified in the Williston treatise:

 
 
The fact that the parol evidence rule may be stated 
simply belies a perplexing and confusing number of difficulties in its 
application.  As has been seen, the 
facially simple rule states that, absent fraud, mistake or other invalidating 
cause, the parties' final written integration of their agreement may not be 
varied, contradicted or supplemented by evidence of prior or contemporaneous 
oral agreements, or prior written agreements.  Beneath this facial simplicity, however, 
is, as one federal court has declared, a "morass": "To even the most courageous 
Pickwickian, the parol evidence rule must seem a treacherous bog in the field of 
contract law.  Interspersed in this 
quagmire are quicksand-like state court decisions, which appear equitable in 
specific situations but remain perilous for legal precedent.  Federal courts, attempting to clarify, 
have sometimes but confused and compounded muddled interpretation of the 
axiom."

 
 
11 Williston on Contracts, supra, §33:4, at 
569-70.

 
 
[¶28]   
We have held that:  "As a 
general rule, if the parties mutually adopt a mode of performing their contract 
differing from its strict terms or if they mutually relax the contract's terms 
by adopting a loose mode of executing them, neither party can go back upon the 
past and insist upon a breach because the contract was not fulfilled according 
to its letter."  Schuler v. Community First Nat. Bank, 
999 P.2d 1303, 1305 n.1 (Wyo. 2000) (citing Quin Blair Enterprises, Inc. v. Julien 
Constr. Co., 597 P.2d 945, 951 n.6 (Wyo.1979)).

 
 
[¶29]   
Parties to a contract are free to ignore the terms of their contracts, 
but they must also understand that they may bear the consequences of such 
disregard when breach becomes a fact of life.  If parties mutually adopt a mode of 
performing their contract differing from its strict terms or if they mutually 
relax its terms by adopting a loose mode of executing it, neither party can go 
back upon the past and insist upon a breach, because it was not fulfilled 
according to its letter.  Here there 
was never any mutual agreement to vary any terms.  There was unilateral disregard of 
terms.  There were terms neither 
party ever seemed to be cognizant of or understand.  However, there was never any mutual 
agreement to do anything different, and the parties must be held bound to their 
agreements.  It is in just such 
instances as this that it becomes most important to read and strictly construe 
contracts.  Quin Blair Enterprises, Inc. v. Julien 
Constr. Co., 597 P.2d 945, 951 n.6 (Wyo.1979); also see Collins v. Finnell, 2001 WY 74, 
¶ 12, 29 P.3d 93, 98 (Wyo. 2001); Colorado Interstate Gas v. Natural Gas 
Pipeline, 842 P.2d 1067, 1070 (Wyo. 1992).

 
 
[¶30]   
I would affirm the district court's judgment.