NO. 83-541 

IN THE SUPRl3ME COURT OF TIIE STATE OF FONTA21A 

1984 

NORWEST BANK BILLINGS, f /d/b/a 

FIRST NORTHIYESTERN BANK, 

Plaintiff and Respondent, 

-vsJAMES W. MUPaION, 

Defendant and Appellant. 

APPEAL FROM: District Court of the Thirteenth Judicial District, 

In and for the County of Yellowstone, 

The Honorable Robert 13. Wilson, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Sandall, Cavan & Smith, 3illings, Montana 

For Respondent: 

John K. Addy, Billings, $lantana 

Filed: 

Submitted on Briefs: March 15, 1984 

Decided: June 14, 1984 

JUN n 4 "18@ 

Clerk 
I. Justice L.C. Gulbrandson delivered the Opinion of the 

Court. 

Defendant James Murnion appeals from a judgment 

rendered against him in the District Court of the Thirteenth 

Judicial District, Yellowstone County. We affirm. 

On August 14, 1979, James Murnion purchased a. Trojan 

front-end loader from Montana Machine Inc., in Billings, 

Montana. The purchase 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 a diesel tractor, to be applied against the cash 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 signed by Murnion and Howard 

Hanson, president of Montana Machine. The contract lists 

plaintiff First Northwestern National Bank (now Norwest 

Bank) as Montana 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 into a second contract with Murnion. 

This new agreement converted the original installment 

payment scheme into a single payment due December 1, 1980. 

The agreement was signed by Montana Machine and Murnion, and 

Montana Machine assigned this contract to the bank with 

right of full recourse. 

Murnion did not make the December 1 payment, and on 
December 31, the Bank notified Murnion of the deficiency and 

requested that he make some arrangements for payment. On 

January 6, 1981, a meeting was held at the office of Montana 

Machine between Murnion and Howard Hanson. Paul Borisevich, 

dealer program supervisor for the Bank, was also in 

attendance during 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 

alleged misrepresentation. 

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 brought more 

than the balance due on the contract, Murnion would be paid 

the excess. If the sale brought less than the balance due, 

Murnion would not be held liable for the deficiency. 

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 fifteen 
percent 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 that appear in the January 6 written contract. 

During the spring of 1981, Borisevich did contact some 

implement dealers and bank customers about the possibility 

of purchasing Murnion's loader to help 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 

the prospective buyers, and did not discuss with Murnion any 

absorption by the bank of any deficiency arising from 

resale. 

Sometime prior to the September 1 payment date, 

Montana Machine Inc. went out of business, and Howard Hanson 

moved to Australia. Murnion did not make the September 1 
payment. 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 in May 1982. Murnion did 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 in November, 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 of misrepresentation 

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, appearing on his own behalf. Murnion was 

permitted to testify, over the bank's continuing objection, 

to the terms of the oral agreement. The bank 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 objections were based on the par01 

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 deciding 
the 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 the District Court 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 to permit Murnion to prove unconscionability? 

(3) Whether the trial court erred by failing to apply 

Section 31-1-231, MCA, dealing with the requirements for a 

retail installment contract, to the facts of this case? 

THE PAROL EVIDENCE ISSUE 

In resolving this dispute, the trial court applied 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 

adoption of the Uniform Commercial Code, however, litigation 

arising out of a transaction like that involved here should 

be controlled by the principles of the Code, with the law of 
contract 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 must be given primary 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 instant dispute, 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, 651 P.23 
According to the provisions of Section 30-2-202, an 

initial determination must be made that the parties intended 

the final writing 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 

the parties' agreement. If, however, the writing is deemed 

to be a final expression, then the trial court may consider 

evidence of terms of prior 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. In addition, parol 

evidence of "consistent additional terms" may be admitted to 

explain or supplement the writing unless the court concludes 

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) , 

460 S.W.2d 343, 345; 2 Anderson, 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 parol 
evidence rule, such as proof of fraud, misrepresentation, or 

mistake, remain exceptions to the parol evidence doctrine as 

codified in Section 30-2-202. See J. White & R. Summers, 

Uniform Commercial Code 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 

findings and conclusions in the instant dispute, 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 6 written 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 

into Montana Code Annotated (Annotations), section 30-2-202. 

Nevertheless, Murnion is incorrect in construing the Code 

version of the parol evidence rule so as to suggest that 
practically any evidence of outside agreements must be 

considered by 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 from paying 

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 result under 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 a matter 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, citing C. McCormick, Handbook of the Law of Evidence 440 

(1954). Although the trial court did not address the issue 

of Murnion's credibility, his trial testimony is 

uncorroborated and contradictory. Furthermore, Murnion 
could 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 

contemporaneous with the signing of 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 of performance." 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 the document in the view of the court, then 

evidence of their alleged making must be kept from the trier 

of fact." Here, the trial court recognized the obligation 

imposed on Murnion by the January 6 contract. The court had 

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 confirmed by 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 the January 6 contract 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 this evidence was admissible as a 

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 did not 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 correct number listed on it, was on the 

loader the day he purchased it in 1979. In any event, 

Murnion failed as a matter of law to present a valid 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 the 
trial court using Section 28-2-904, MCA. 

THE UNCONSCIONABILITY ISSUE 

Murnion argues that the evidence of the 

contemporaneous oral agreement was admissible under Section 

30-2-302(2), MCA to prove unconscionability of the contract. 

The trial court did not discuss this matter in its findings 

and conclusions, but the omission 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 contract was 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 the parties, and that it was brought to the 

trial court's attention after the hearing in Murnion's 

post-trial memorandum. 

THE PROPRIETY OF THE JANUARY 6 CONTRACT UNDER THE RETAIL 

INSTALLMENT SALES ACT 

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.1 in the defendant's post-trial 

memorandum, is without merit. There is no dispute that the 

January 6 agreement represents a renewal of earlier 
obligations 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 the District Court is affirmed. 

.,F / 

.:?' 

,' 

Justice ,: 

We concur: