NO. 83-541 INTHE SUPRl3ME COURT OF TIIE STATE OF FONTA21A 1984

NORWEST BANK BILLINGS, f /d/b/a FIRSTNORTHIYESTERN BANK, Plaintiff and Respondent,

-vsJAMESW. MUPaION, DefendantandAppellant.

APPEAL FROM: DistrictCourtof theThirteenthJudicialDistrict, Inand fortheCountyof Yellowstone, The HonorableRobert13. Wilson, Judgepresiding.

COUNSEL OF RECORD:

For Appellant: Sandall, Cavan & Smith, 3illings,Montana

ForRespondent: John K. Addy, Billings, $lantana

Filed: Submittedon Briefs: March 15, 1984 Decided: June 14, 1984



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ClerkI.Justice L.C. Gulbrandson delivered the Opinion of the Court.

Defendant James Murnion appeals from a judgment rendered againsthim in theDistrict Court of theThirteenth JudicialDistrict,YellowstoneCounty. We affirm. On August 14, 1979, James Murnion purchased a.Trojan front-end loader from Montana Machine Inc., in Billings, Montana. Thepurchase is evidenced by a retail installment contract and security agreement prepared and dated August 15, 1979. The contract shows a cash price of $17,500 for the loader and a $5,500 allowance for a trade in by Murnion of adiesel tractor, tobe applied against thecash price of the loader, thus leaving an unpaid balance of $12,000. Murnion agreed to pay this amount plus about $1,870 in interest in four installments between December 1, 1979 and July 1,1981. The contract was signedbyMurnion and Howard Hanson, president of Montana Machine. The contract lists plaintiff First Northwestern National Bank (now Norwest Bank) asMontana Machine's assignee with full recourse. Murnion did not make the first installment due under the contract, and in January, 1980, was deemed to have defaulted. The bank exercised its right to require Montana Machine to repurchase the contract. Instead of repurchase, Montana Machine entered intoa second contract withMurnion. This new agreement converted the original installment payment scheme into a single payment due December 1,1980. The agreement was signedby Montana Machine and Murnion,and Montana Machine assigned this contract to the bank with right of fullrecourse. Murnion did not make the December 1 payment, and onDecember 31, the Bank notifiedMurnion of thedeficiency and requested that he make some arrangements for payment. On January 6,1981, ameeting washeld at the office of Montana Machine between Murnion and Howard Hanson. PaulBorisevich, dealer program supervisor for the Bank, was also in attendanceduring portions of this meeting. Murnion claims to have confronted Hanson during the meeting about a material misrepresentation involving the loader. According to Murnion, the serial number on the loader indicated that the machine was approximately ten years older than had been represented to him by Hanson. Murnion maintains that he discovered this discrepancy while attempting to obtain parts for the loader from a parts dealer in Billings. Murnion asserts that he wanted to rescind his contract with Montana Machine because of this allegedmisrepresentation. Hanson supposedly conceded that a misrepresentation had been made, but allegedly reached an oral agreement with Murnion to rectify the problem and renegotiate the sales contract. Under the terms of this alleged oral agreement, Murnion agreed to pay an additional sum of money on the loader contract and use the machine until Hanson picked it up in April for resale. If sale of the loader broughtmore than the balancedue on the contract,Murnion would be paid the excess. If the sale brought less than the balance due, Murnion would notbe held liable for thedeficiency. A third written contract was prepared on January 6, the day of the meeting, calling for Murnion to pay in cash approximately $2,467 of the $13,471.40 owed under the last agreement, with the remaining $11,004 to be paid at fifteenpercent interest on September 1, 1981. The total sum due amounted to $12,241.50. The contract, a form document supplied by the Bank, was prepared by Paul Borisevich and signed by Murnion and Hanson, with the latter's interest being assigned to the bank. 

### A brief description of the loader and the payment terms were filled in by Borisevich. There is no mention of the terms of Murnion's and Hanson's alleged oral agreement. Murnion insists that Borisevich was present during those portions of the meeting when the a1.leged misrepresentation was discussed and when the negotiation of the terms of the oral agreement took place. During trial, Borisevich testified that he recalled a conversation about the "age" of the loader, but he never characterized the conversation as one about misrepresentation about age. Borisevich also testified that he was aware 

### of no terms or conditions in the agreement between Murnion and Hanson other than those thatappear in theJanuary 6written contract. During the springof 1981,Borisevichdid contact some implement dealers and bank customers about the possibility of purchasingMurnion's loader tohelp Murnion raise revenue to pay off the contract. Some of the dealers and customers contacted Murnion, but none desired to purchase the loader. The bank did not act as an intermediary between Murnion and theprospective buyers,and did notdiscusswith Murnion any absorption by the bank of any deficiency arising from resale. Sometime prior to the September 1 payment date, Montana Machine Inc. went outofbusiness, and Howard Hanson moved to Australia. Murnion did not make the September 1payment. The bank notified Murnion of his default, and urged him to speak to bank officials concerning the outstanding debt. On September 28, 1981, Murnion signed a deferral agreement with the bank, agreeing to pay the outstanding balance February 1,1982,for an additional $918 consideration. Murnion did not remit the unpaid balance, so the bank brought this action inMay 1982. Murniondid not answer the complaint, and the bank filed a praecipe for entry of default. Default was entered in July of 1982, but the District Court, upon motion of defendant, eventually set aside the default inNovember, 1982. Murnion then filed an answer, wherein he admitted signing the January 6 contract but denied owing the unpaid balance specified therein. Murnion asserted an affirmative defense ofmisrepresentation and failure of the bank to resell the loader as allegedly agreed. The case came to trial in August 1983. The only witnesses were Paul Borisevich, appearing on behalf of the Bank, and Murnion,appearingonhis own behalf. Murnionwas permitted to testify, over the bank's continuing objection, to the terms of the oral agreement. Thebank also objected to admission of evidence of the contracts signed prior to January 6,1981,but the real dispute involves the terms of the oral agreement. Both objectionswerebased on thepar01 evidence rule. In addition, Murnion was permitted to testify, over the bank's objection, to the allegations of misrepresentation. This objection was based on the rule against hearsay. The court heard all of Murnion's testimony, reserving the right to strike it when decidingthe case. The trial court rendered judgment for the bank. In its findings and conclusions, the court concluded that the bank's objections to the prior and contemporaneous agreements were valid, and disallowed the evidence. The court ordered Murnion to pay the $12,241.50 unpaid balance plus interest of fifteen percent and reasonable attorney's fees. Murnion appeals from theDistrictCourt judgment. Murnion raises the following three issues: (1)Whether the trial court erred by disallowing the evidence of contemporaneous and prior agreements offered by Murnion? (2) Whether the trial court erred by failing to consider evidence of the contemporaneous oral agreement in order topermit Murnion toprove unconscionability? (3)Whether the trial court erred by failing to apply Section 31-1-231, MCA, dealing with the requirements for a retail installmentcontract,to the facts of thiscase?

THEPAROLEVIDENCE ISSUE In resolving thisdispute,the trial courtapplied the traditional par01 evidence rule, codified at Section 28-2-904, MCA, which provides that "[tlhe 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." With the adoptionof theUniform CommercialCode,however, litigation arising out of a transaction like that involved here should be controlledby theprinciples of the Code,with the law ofcontract being used only to supplement Code provisions. Section 30-1-103,MCA. The loader in this case comes within the Code definition of "goods." See Section 30-2-105(1), MCA. Thus, the sale of the loader is governed by the Code and any Code provisions addressing the parol evidence question

### mustbegivenprimary consideration. The relevant statute for this case is Section 30-2-202,MCA: "Final written expression--par01 or extrinsic evidence. Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented: "(a) by course of dealing or usage of trade (30-1-205) or by course of performance (30-2-208);and "(b)by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement." This statute, based on U.C.C. sec. 2-202 (1962), continues the operation of the traditional parol evidence rule, although with some modifications. See 2 R. Anderson, Uniform Commercial Code Section 2-202:3 (1982). Although the trial court should have used this provision, rather than Section 28-2-904,to resolve the instantdispute, the result remains the same. Where the conclusion of the District Court is correct, it is immaterial, for the purpose of affirmance on appeal, what reasons the District Court gives 

## crs for its conclusion. Bolz v.

# & (Mont. 19821, 651P.23According to the provisions of Section 30-2-202, an initial determinationmustbe made that theparties intended the finalwriting or contract to be the final expression of their agreement with respect to the terms included in the writing. If it is determined that the parties did not intend the writing to be final with respect to the terms expressed therein, parol evidence may be admitted, subject to the rules of evidence, to elucidate the true nature of theparties' agreement. If,however, the writing is deemed to be a finalexpression, then the trial courtmay consider evidence of termsofprior and/or contemporaneous agreements only if these terms do 

### - not contradict the terms of the writing. Par01 evidence of terms of prior agreements or contemporaneous oral agreements may be admitted to explain

or supplement the terms of the writing insofar as they relate to course of dealing, usage of trade, or course of performance, concepts specifically defined in the Montana version of the Uniform Commercial Code. Inaddition, parol evidence of "consistentadditional terms"may be admitted to explain or supplement thewriting unless the courtconcludes that the writing was intended as a "complete and exclusive statement of the terms of the agreement." The parol evidence rule, as it appears in the law of contract and in the Uniform Commercial Code, is actually a principle of substantive law and not 

### a procedural rule of evidence. Childers & Venters, Inc. v. Sowards (Ky. 1970)

## , 460S.W.2d 343, 345; 2Anderson, supra,sec. 2-202:5. Thus, the admissibility of any evidence is ultimately subject to the provisions of the Montana Rules of Evidence. We also note that traditional common law exceptions to the parolevidence rule,suchasproof of fraud,misrepresentation, or mistake, remain exceptions to theparol evidence doctrine as codified in Section 30-2-202. See J. White & R. Summers, Uniform CommercialCode 88 (2d ed. 1982) and Section 30-1-103, MCA (law pertaining to fraud, misrepresentation and mistake supplements provisions of code unless displaced). Applying Section 30-2-202 to the trial court's findingsand conclusions in the instantdispute, we conclude that the result remains the same. We first decide whether the court's findings speak to the issue of whether the parties intended the January 6, 1981 contract to be their final expression of agreement with respect to the terms contained therein. The court found that Murnion, Hanson and the bank had indeed agreed to the terms stated in the contract, and that Murnion's promise to pay was "stated in plain and unequivocal terms and refers to no antecedent or contemporaneous agreements not reduced to writing." By implication, the court indicated that there was an appropriate degree of finality respecting the terms of the January 6written contract. Murnion is correct in stating that, under the Code version of the parol evidence rule, evidence of a writing which is final on some matters must not necessarily be construed to imply mean that the writing must be taken as including all the matters agreed upon. See Comment 1, Official Comments, U.C.C. sec. 2-202 (1962), incorporated intoMontana CodeAnnotated (Annotations), section 30-2-202. Nevertheless, Murnion is incorrect in construing the Code version of the parol evidence rule so as to suggest thatpractically 

### any evidence of outside agreements must be consideredby the court. Next, we determine whether the evidence offered by Murnion must be excluded from consideration, as the trial court concluded,because the evidence either contradicts the terms of the January 6 contract or does not explain or supplement the terms of that contract in the ways permitted by subsections (a)and (b) of Section 30-2-202. We note that, although the bank objected to consideration of all evidence of agreements prior to or contemporaneous with the January 6 contract, the real dispute centers on the alleged contemporaneous oral agreement to excuse Murnion frompaying any deficiency due under the contract, primarily on account of the alleged misrepresentation. The trial court specifically rejected consideration of this evidence. This is the correct resultunder Section 30-2-202. To the extent that evidence of the terms of this alleged oral agreement between Murnion and Hanson are accepted as true, it definitely contradicts the clear and unequivocal promise to pay as stated in the January 6 contract, and must be excluded as amatter of law. The kind of parol evidence offered by Murnion respecting the alleged oral agreement can be excluded on grounds that it is not credible, even though the Code version of the parol evidence rule does not speak directly to this proposition. See J. White & R. Summers, supra, at 77,citingC. McCormick,Handbook of theLawof Evidence 440 (1954). Although the trial court did not address the issue of Murnion's credibility, his trial testimony is uncorroborated and contradictory. Furthermore, Murnioncould never explain, either under direct 

### or cross-examination, why the January G contract and the September deferral agreement do not make reference to any of the terms of the oral agreement allegedly made in January contemporaneouswith the signingof the contract. Even if we could construe the terms of this alleged oral agreement to be non-contradictory, we would still find them inadmissible under subsections (a) and (b)of Section 30-2-202. The terms are clearly not the kind contemplated 

### 285 by Section 30-1-m,MCA as evidence of "course of dealing and useage of trade," or by Section 30-2-208, MCA, as "course ofperformance." Nor can they be deemed "consistent additional terms." According to Comment 3 of the Official Comments to U.C.C. sec. 2-202, incorporated as part of the annotations to Section 30-2-202, if "the additional terms are such that, if agreed upon, they would certainly have been included in thedocument in theview of the court,then evidenceof their alleged makingmustbe kept from the trier of fact." Here, the trial court recognized the obligation imposed on Murnionby theJanuary 6 contract. The courthad before it evidence of Murnionls subsequent default and September, 1981 agreement to make good on the debt by February, 1982. 

### By implication, had the terms of the alleged January agreement been confirmedby Murnion and the bank, it seems likely that these terms would have been incorporated into the January 6 contract or the subsequent deferrel agreement. Evidence of the terms should therefore be excluded as a matter of law. Braund, Inc. 

### v. White (Alaska 1971), 486 P.2d SO, 56; 2 Anderson, supra, Section 2-202: 18.Murnion's defense of misrepresentation is not sufficient to surmount the hurdle of the parol evidence rule. While it is true that theJanuary 6contract contains language to the effect that the bank, as holder of the contract, takes the contract subject to all defenses which Murnion can assert against Montana Machine, Inc., this presumes the existence of a valid defense. Here, although the trial court does not refer to the allegations of misrepresentation, none of thisevidence was admissible asa matter of law. The only evidence of misrepresentation came through the hearsay testimony of Murnion. As such, the evidence was clearly inadmissible. See Rule 802, Mont.R.Evid. Murnion offered no independent evidence pointing to misrepresentation. The parts dealer who allegedly alerted Murnion to the possibility of misrepresentation didnot testify. Murnion portrayed himself as one well-aquainted with heavy equipment, and claimed knowledge that serial numbers

are an indication of age of equipment. During cross-examination, he indicated that the loader's serial number tag,with the correctnumber listed on it,was on the loader the day he purchased it in 1979. In any event, Murnion failedas amatter of lawto present avalid defense of misrepresentation that would protect him against the bank's claim. In summary, we hold that, under the circumstances of this case, the parol evidence rule as embodied in Section 30-2-202, MCA, barred admission of evidence of the alleged contemporaneous oral agreement of January 6, 1981. We stress again that this is the same result reached by thetrialcourtusing Section 28-2-904,MCA.

THEUNCONSCIONABILITY ISSUE Murnion argues that the evidence of the contemporaneous oral agreement was admissible under Section 30-2-302(2), MCA toprove unconscionability of thecontract. The trial courtdid not discuss this matter in its findings and conclusions,but theomission is of no consequence. Murnion's argument concerning unconscionability actually involves the alleged misrepresentation of the age of the machine and the unsupported assertion that every party to the contractwas aware of this "fact." Because the evidence of misrepresentation was inadmissible as a matter of law on hearsay grounds, and because there is no independent evidence for the trial court to consider, Murnion cannot press the unconscionability issue. We note that this particular issue was not raised in the pretrial order signed by theparties, and that itwas brought to the trial court's attention after the hearing in Murnion's post-trial memorandum.

THE PROPRIETY OF THEJANUARY 6CONTRACT UNDER THERETAIL INSTALLMENT SALESACT Here,Murnion argues that the January 6 contract does not state the true cash sales price of the loader and does not describe the buyer's downpayment in sufficient detail, violations of Section 31-1-231(5)(a) and (b), MCA. This issue,also raised after tria.1in thedefendant'spost-trial memorandum, is withoutmerit. There isno dispute that the January 6 agreement represents a renewal of earlierobligations which are evidenced by writings and which were offered into evidence by Murnion himself. All the written agreements, taken together, adequately described all the relevant terms of purchase and payment for the loader, such that the relevant provisions of Section 31-1-231 are satisfied. It is more than a little questionable for Murnion to challenge the legality of a contract when the other documents supplementing and explaining it were known to him.

The judgment of theDistrict Court isaffirmed. 

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,' Justice,:

We concur: