### No. 80-207 

### INTHE SUPREME COURT OF THE STATEOF MONTANA 1981

HUGH

### A. SPRAGGINS, Plaintiffand Respondent,

-vs

### GARY L. ELVIDGE, Defendant andAppellant.

Appeal from: District Court of the Sixth JudicialDistrict, Inand for the County of Park, The Honorable Jack D. Shanstrom,Judgepresiding. Counsel of Record:

ForAppellant: Berger, Anderson, Sinclair,Murphy,Nelson, Edwards,McGimpsey an Molloy, Billings,Montana

For Respondent: 

### Yardley and Yardley, Livingston,Montana

Submitted on Briefs: October 23, 

### 1980 Decided:



### Filed: 

### PPR 

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## 4g87'

Clerk

### Mr. Justice John Conway Harrison delivered the Opinion of the Court. Appellant-defendant, Gary Elvidge, and respondentplaintiff,Hugh Spraggins,were engaged in a business called Diablo Mobile Repair in California. As partners, they sold and transferred thebusiness to a third party in 1978. In September 1977 appellant and respondent contracted to purchase equally stock shares of the Mint Bar of Livingston, Inc., from George A. and Donna F. Moore. Each partner was to participate and share in the new business. The California business was sold. From the total purchase price, $12,500 was invested in the Mint Bar. Later,appellant agreed to buy, and respondent agreed to sell, respondent's interest in the 1501 shares of stock of the Mint Bar. The parties entered into a contract (assignmentof agreement and a release) on August 31, 1978. Prior to this time appellant and respondent discussed the sale and purchase of the stock of the Mint Bar. These discussions covered all business interests of the partners including the California business. Respondent and his wife testified that appellant was entitled to one half of the proceeds from the sale of Diablo Mobile Repair and one half of the cash on hand. Respondent claims, and the District Court found, that appellant and respondent mutually agreed, prior to the signing and execution of the assignment of agreement, that the sum of $25,000 would be paid by appellant to respondent. Respondent contends the amount was in full settlement of all transactions between respondent and appellant. Any interest appellant had in the Diablo Mobile Repair was completelysettled and resolved and any interest respondent had in the sharesof stock of theMint Bar was completely settled. Appellant paid respondent $15,000 on September 5, 1978, and executed a promissory note for $10,000 payable to respondent for the remaining amount. Appellant failed to pay the $10,000 promissory note when due, and respondent commenced this action. Appellant counterclaimed formoniesdue and owing him from the saleof the California business as a setoff for the amount due to respondent on thepromissory note. The District Court found in favor of respondent's claim for collection of the promissory note and against appellant on his claim of setoff asa resultof the saleof theCaliforniabusiness. Appellant contends that the only written agreement between the parties pertains to the termination of respondent's interest in the Mint Bar. The assignment of agreement and the release executed by the parties both provide that the consideration to be given by appellant to respondent is $25,000. Nowhere ineitherof thesedocuments 

### is there anymention of theDiabloMobile Repair or the sums due and owing from respondent toappellant asa consequence of the sale thereof. Appellant argues the District Court allowed respondent to alter the terms of the written contract by adding approximately $15,000 as the total consideration paid (appellant's alleged one half of the proceedsfrom the saleof Diablo Mobile Repair). The DistrictCourtmade the following finding: "That Rule 106 of the Montana Rules of Evidence applies as to the admission of evidence by Plaintiff to Defendant's counterclaimand affirmativedefenseand that

### the Montana completeness doctrine rule allows evidence by Plaintiff that all business transactions were resolved between Plaintiff and Defendant, specifically including Diablo Mobile Repair." This finding permitted the District Court to modify thewritten agreement. The sole issue in this appeal is whether Rule 106, Mont.R.Evid., allows parol evidence under the facts of this

case. We find the District Court erred in allowing parol evidence to alter and vary the terms of this written agreement under the theory of the completeness doctrine. Respondent does not argue that this case represents one where testimony was offered and properly admitted as part of one of the exceptions of the parol evidence rule. Instead, Rule 106, Mont.R.Evid., was used to modify the written contract. The relevant statutes which address parol evidence

are set forth below. Section 28-2-904, MCA: "The execution of a contract in writing, whether the law requires it to be written or not, supersedes all the oral negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument." Section 72-11-304, MCA: "(1)When the terms of an agreement have been reduced to writing by the parties, it is to be considered as containing all those terms, and therefore there can be between the parties and their representatives or successors in interest no evidence of the terms of the agreement other than the contents of the writing, except in the following cases: "(a) where a mistake or imperfection of the writing isput in issueby thepleadings;"(b)where the validity of the agreement is the fact indispute. "(2)But this section does not exclude other evidence of thecircumstancesunder which the agreement was made or towhich it relates, as defined in 1-4-102, or to explain an extr insic ambiguity or to establish illegality or fraud. "(3) The term agreement includes deeds and wills, aswell ascontractsbetween parties."

Section 1-4-102, MCA: "For the proper construction of an instrument, the circumstances under which it was made, including the situation of the subjectof the instrument and of theparties to it,may alsobe shown sothatthejudge be placed in the position of those whose languagehe 

### is to interpret." None of the parol evidence exceptions contained in section 72-11-304, MCA, apply here. Respondent never claimed in his pleadings that the writings were imperfect. No one assailed the validity of the contract. Section 28-2-904, MCA, 

### is controlling. When the contract is clear and unequivocal on 

### its face, section 1-4-102, MCA, does not apply. Ryan v. Ald, Inc. (1965), 146 Mont. 299, 406 P.2d 373. We have here a written contract. The contract is signedby appellantand respondent. The written contract is clear on its face. It speaks directly and exclusively of the Mint Bar. The "oral" agreement which preceded the written agreementdoesnot control, nor can itbe allowed to alter the terms of thewrittencontract. "The principle is well-established and of general application, subject to certain exceptions, that -- when a contracthas been 

### ----- reduced towritinq the contents of such 

### ----------------- ------------------- writing cannot be added to, contradicted, 

### -- 

### ---------------- altered, or varied by parol or extrinsic



### .................... 

### --- evidence, and that such writing supersedes all oral negotiations concerning its matter whichpreceded, accompanied, or led up toits execution. This was the rule atcommon law,and has been embodied in the statute law of this state." Leigland v. McGaffick (1959), 135Mont. 188, 338 P.2d 1037. Rule 106, Mont.R.Evid., provides in pertinent part: "(a) When part of an act, declaration, conversation, writing or recorded statement or series thereof 

### is introducedby a party: (1)an adverseparty may require him atthat timetointroduce any other part of such item or series thereof which ought in fairnessto be considered atthat time;

# ..."(Emphasis supplied

# .) Without even discussing the par01 evidence rule the District Court relied on Rule 106 inmodifying and varying the terms of awritten agreement. Suchwas never the intent of Rule 106. Rule 106 of the Federal Rules of Procedure is thecounterpart toMontana's Rule 106, and, according tothe advisory committee's note, the federal rule is based on two considerations: (1)the danger of taking matters out of context, and (2)the inadequacy of delayed completeness asa remedy. See 21 Wright and Graham, FederalPractice and Procedure: Evidence, S 5007 at367. No one introduced part of an act or writing in this

case. Respondent introduced all of the writings governing the buy out of the Mint Bar operation. All of the terms surrounding the consideration to be paid to respondent for the surrendering of his interest in the Mint Bar were offered and received inevidence. We addressed a similar issue in State Highway Commission v. Churchwell (1965), 146Mont. 52, 403 P.2d 751, where the parties were contesting a jury award of the taking of land by condemnation. The parties were arguing about the fairmarket value of the land thatwas taken. At the trial, to establish the value of the property, the landowners offered final agreements of salefor land in thevicinity of the land inquestion todemonstrate thevalue of their land. The Statethen, over objection, was allowed to introduce alldocuments regarding the negotiations that led to each of the various sales. The State argued that the entirefileswere admissibleunder section93-401-11, R.C.M. 1947. That section was the predecessor and forerunner to Rule 106, Mont.R.Evid., and read: "When part of an act, declaration, conversation, or writing is given inevidence by one party, the whole on the same subject may be inquired into by the other; when a letter is read, the answer may be given; and when a detached act, declaration, conversation, or writing 

### is given in evidence, any other act, declaration, conversation or writing, which is necessary to make it understood, may also be given in evidence

# ." We rejected the State's argument in Churchwell, stating: "'When a contract is reduced towriting, the intentionof theparties is tobe ascertained from thewriting alone, ifpossible; subject, however, to the other provisions of this chapter.' (Section 13-705.) "'When the terms of an agreement have been reduced to writing by the parties, it is to be considered as containing all those terms, and therefore there can be between the parties and their representatives, or successors in interest, no evidence of the terms of the agreement other than the contents of the writing, except in the following cases: 1 Where a mistake or imperfection of the writing isput in issueby thepleadings. "'2. Where the validity of the agreement is the fact indispute. "'But this section does not exclude other evidenceof the circumstancesunder which the agreement was made, or to which it relates, as defined in section 93-401-17, or to explain an extrinsic ambiguity, or to establish illegality or fraud. The term agreement includes deeds and wills, as well ascontractsbetween parties.' (Section"A careful study of the negotiation agreements in the Negotiation File shows that the agreement speaks for itself and that section 93-401-11, R.C.M. 1947, has no application." 403 P.2d at754-55. In the instant case respondent offered the parol testimony to vary and alter the terms of a written instrument. This cannot be done. For this Court to hold otherwise would, in effect, rob theparol evidence rule and the corresponding Montana statutes of any vitality atall. Rule 106 

### is a procedural rule and does not affect the substance of the existing law of parol evidence. We affirm in part the District Court's finding that appellant 

### is liable for the $10,000 promissory note. We

reverse the finding that all business transactions, including theDiablo Mobile Repair business, were settledby the agreement. We remand to the District Court to conduct furtherproceedings todetermine thevalidityof appellant's counterclaim.

Weconcur: 

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