Opinion ID: 71015
Heading Depth: 2
Heading Rank: 2

Heading: Is the Written Agreement Incomplete?

Text: 24 Moore's second argument in support of the district court's admission of the parol evidence is that the parties did not intend the written instrument to embody their complete agreement. The parol evidence rule is based upon the idea that a completely integrated writing, executed by the parties, contains all of the stipulations, engagements, and promises that the parties intended to make, and that all of the previous negotiations, conversations, and parol agreements are merged into the terms of the instrument. Quimby v. Memorial Parks, Inc., 667 So.2d 1353, 1357 (Ala.1995) (quoting Alfa Mutual Ins. Co. v. Northington, 561 So.2d 1041, 1044 (Ala.1990)). In light of its purpose, [t]he parol evidence rule ... does not apply to every contract of which there exists written evidence, but applies only when the parties to an agreement reduce it to writing, and agree or intend that the writing shall be their complete agreement. Hibbett Sporting Goods, Inc. v. Biernbaum, 375 So.2d 431, 434 (Ala.1979) (plurality opinion); see also Quimby, 667 So.2d at 1357. Accordingly, prior negotiations and oral conversations merge into a resulting written instrument only if that instrument was actually intended to contain the parties' entire agreement. See Hibbett, 375 So.2d at 436 (plurality opinion); I.H.M., Inc. v. Central Bank of Montgomery, 340 So.2d 30, 33 (Ala.1976) ([T]here was no error in allowing parol evidence where there is no doubt that the written instrument was not intended to reflect the full agreement between the parties.); Alabama Power Co. v. Pierre, 236 Ala. 521, 183 So. 665 (1938) ([W]e think the parol agreement admissible upon the theory that it clearly appears the parties never intended that the written ... contract should express their full agreement.); Southern Guaranty Ins. Co. v. Rhodes, 46 Ala.App. 454, 243 So.2d 717, 721 (1971) ([W]e must determine ... whether it was the intent of the parties that the written instrument embody all of the prior negotiations and represent the final jural act, or whether it represented only a part thereof and it was intended there be an additional, collateral and separate oral agreement.). 25 The question whether the parties have assented to a writing as a complete integration of their agreement is a question of law for the court, which is subject to the de novo standard of review. Walley v. Bay Petroleum Corp., 312 F.2d 540, 544 (5th Cir.1963); Hibbett, 375 So.2d at 435; Hartford Fire Ins. Co. v. Shapiro, 270 Ala. 149, 117 So.2d 348, 353 (1960). To resolve this legal question, we must examine not only the written instrument itself, but also the conduct of the parties and the surrounding circumstances. See Hibbett, 375 So.2d at 435-36 (plurality opinion); Southern Guaranty Ins. Co. v. Rhodes, 46 Ala.App. 454, 243 So.2d 717, 721 (1971). In Hartford Fire Ins. Co. v. Shapiro, 270 Ala. 149, 117 So.2d 348 (1960), the Supreme Court of Alabama adopted a three-part test to determine whether a collateral or separate oral agreement is admissible in addition to a written agreement: 26 (1) The agreement must in form be a collateral one; (2) it must not contradict express or implied provisions of the written contract; (3) it must be one that parties would not ordinarily be expected to embody in the writing.... 27 Id. at 353 (quoting Mitchill v. Lath, 247 N.Y. 377, 160 N.E. 646, 647 (1928)); see also Alabama Farm Bureau Mut. Cas. Ins. Co. v. Haynes, 497 So.2d 82, 83-84 (Ala.1986) (applying the three-part test articulated in Hartford ); Southern Guaranty Ins. Co. v. Rhodes, 46 Ala.App. 454, 243 So.2d 717, 722 (1971) (same). 28 Examining the written agreement itself, as well as the surrounding circumstances, we conclude that the written instrument was intended to be a complete integration of the parties' agreement. Therefore, the alleged oral agreement between Moore and TRW merged into the written document as a matter of law. Several considerations persuade us to reach this conclusion. 29 First, we note that the written agreement itself is a formal document that appears to embody all the terms of the parties' agreement with respect to the six wells, as opposed to an informal memorandum not purporting to be complete. Cf. I.H.M. v. Central Bank of Montgomery, 340 So.2d 30, 33 (Ala.1976) (parol evidence held admissible because document at issue was intended only as an informal, preliminary memorandum of agreement). 3 Also, Moore studied the written document and insisted upon certain changes before she agreed to sign it, which indicates that she recognized the importance of the written document in governing the parties' relationship. Moore's conduct also indicates that she had the opportunity to require TRW to put its alleged oral promises in writing. 30 Second, with respect to TRW's alleged oral promises relating to the location of the wells, we note that the written agreement directly addresses that same subject. The written agreement specifically describes the location of two wells, and provides that TRW has the final decision for location of the remaining four wells. The alleged oral agreement that TRW would drill its wells only in accordance with the sites indicated on the map, and that TRW would never drill in the Field, is inconsistent with this language. If the parties wished to confine TRW to the drill sites shown on the map, then presumably they would have described all six sites (rather than just two) in the written agreement, and they would not have left the location of four of the sites to TRW's absolute discretion. 31 Third, we find that TRW's alleged oral promise never to drill more than six wells on the Moore property is not collateral to the written agreement, and therefore that this promise also merged into the written agreement. The purpose of the written agreement was to define the parties' rights and obligations with respect to TRW's contemplated extraction of methane gas from the Moore property. Accordingly, any forfeiture of TRW's common-law right to drill more than six wells would reasonably be expected to appear in the written document. Although Moore agreed to accept $10,000 as full payment for any damage which might be occasioned by TRW's construction and operation of six coalbed methane gas wells, nowhere in the written agreement does TRW trade away its common-law right to drill additional wells, if drilling such additional wells is reasonably necessary to extract the methane gas. We conclude that the parol evidence rule bars the admission of TRW's alleged oral promise never to drill more than six wells. 32 Before concluding, we pause to distinguish Hibbett Sporting Goods, Inc. v. Biernbaum, 375 So.2d 431 (Ala.1979), a case upon which Moore relies in her brief. In Hibbett, a plurality of the Alabama Supreme Court reversed a trial judge's exclusion of testimony of an oral non-competition agreement between a lessor, a retail shopping center, and its lessee, a sporting goods store. Their lease, which included a merger clause, did not contain a covenant not to compete, and expressly stated that there were no 'restrictive covenants or exclusives in favor of Lessee.'  Id. at 434. However, the existence of the oral agreement was not disputed, and both parties stipulated that the lease was not a true and complete expression of their agreement. Id. at 436. Thus, the court reasoned that [t]he parol evidence rule ... is based on the assumption that the written contract contains the full and exact agreement of the parties; but where admittedly it does not, the reason for the rule ceases. Id. 33 Hibbett is distinguishable from the case at bar, because Penn Castle does not concede the validity of the alleged oral agreement. Rather, Penn Castle maintains that the written documents express the entire agreement of the parties, and that the alleged oral agreement was merged. For that reason, Hibbett does not support the district court's admission of parol evidence in this case. See Intercorp., Inc. v. Pennzoil Co., 877 F.2d 1524, 1531 (11th Cir.1989) (distinguishing Hibbett in a case where the parties disputed the validity of the oral agreement); Hurst v. Nichols Research Corp., 621 So.2d 964, 968 (Ala.1993) (same).