Opinion ID: 39695
Heading Depth: 2
Heading Rank: 2

Heading: The Breach of Contract Claim: Original Designs Created by Condrey

Text: 16 Magistrate Judge Hayes' report stated that because the licensing agreement was not ambiguous and because it contained an integration clause, parol evidence was not admissible to negate or vary the terms of the written contract. On appeal, Condrey asserts that, [w]hen a contract is silent as to a material provision, parol evidence is admissible to supply the missing provision. Condrey further explains that because the licensing agreements were silent as to the ownership of the blueprints, we should consider Condrey and Harrell's testimony that the parties intended Condrey to own all data related to his patent. He argues that, contrary to the district court's holding, this testimony does not negate or vary the terms of the written contract; instead it only supplements the contract and presents an additional, non-contradictory facet to the agreement. Condrey also argues that the Louisiana Civil Code permits consideration of parol evidence where the interests of justice demand such consideration. His argument, however, contravenes basic understanding of Louisiana law. 17 Louisiana law bars parol evidence to evaluate contractual intent [w]hen the words of a contract are clear and explicit and lead to no absurd consequences. La. Civ.Code Ann. art. 2046 (1987). Louisiana law does allow, however, for the admissibility of parol evidence when the written agreement is manifestly incomplete and is not intended to constitute the entire agreement between the parties. United Investors Life Ins. Co. v. Alexander, 662 So.2d 831, 833 (La.App. 2 Cir.1995); Edwards v. State of Louisiana Through the Dep't of Corrections, 244 So.2d 69, 72 (La.App.1 Cir.1971). Additionally, La. Civ.Code Ann. Art. § 1848 states: 18 Testimonial or other evidence may not be admitted to negate or vary the contents of an authentic act or an act under private signature. Nevertheless, in the interest of justice, that evidence may be admitted to prove such circumstances as a vice of consent, or a simulation, or to prove that the written act was modified by a subsequent valid oral agreement. 19 La. Civ.Code Ann. Art. § 1848 (1987). Thus, when the terms of a written agreement are susceptible to more than one interpretation, or there is uncertainty or ambiguity as to its provisions, or the intent of the parties cannot be ascertained from the language employed, parol evidence is admissible to clarify the ambiguity or to show the intention of the parties. Martin Exploration Co. v. Amoco Prod. Co., 637 So.2d 1202, 1205 (La.App. 1st Cir.1994); writ denied, 644 So.2d 1048 (La.1994). Parol evidence may not be used, however, to vary, alter or add to the terms of a written contract. Edwards, 244 So.2d at 72. 20 Condrey makes the additional argument that his evidence qualifies under the exception for modifications by subsequent oral agreements under which courts will consider parol evidence. We conclude that Condrey's reasoning is faulty. Condrey is attempting to prove the existence of a contemporaneous oral agreement, and according to Louisiana law, such agreements do not fit within the parol evidence exception. First Nat'l Bank of Jefferson Parish v. Campo, 537 So.2d 268, 270-71 (La.Ct.App.1988) (contemporaneous oral agreement or understanding between the parties that is not made part of the written contract does not qualify as such an exception [to the parol evidence rule].); Badalamenti v. Jefferson Guar. Bank, 759 So.2d 274, 280-281 (La.App. 5 Cir. 2000). A review of the affidavits of Condrey and Harrell shows that they are not claiming the two licensing agreements were modified by a subsequent agreement; as the magistrate judge's report and recommendation pointed out, they claim that it was always understood that Condrey and Modtrack would own the engineering drawings, specifications, bills of material, computer software and related materials undisputedly created by Harrell. At least, this evidence supports a contemporaneous and not a subsequent agreement. Therefore, we are not persuaded to look beyond the four corners of the licensing agreement. 21 Condrey's next argument on this issue is that he is not trying to negate or vary the terms of the licensing agreement; he is trying to show the intent of the parties concerning the ownership of data, the creation of which was an essential part of the contract. Condrey contends that he merely wishes to supply a missing element in the contract. Condrey is correct that Louisiana law allows parol evidence to complete an incomplete contract. See Davis v. Stern, 348 So.2d 726, 727 (La. Ct.App.1977) (Where the contract itself is incomplete or silent in respect to the obligations assumed by one of the parties, parol evidence may be admitted to show the complete agreement.). On the other hand, as the district court recognized, not all obligations arising out of a contract need be explicitly stated. McKee v. Southfield Sch., 613 So.2d 659, 661 (La.Ct.App.1993). Therefore, for this missing material provision exception to apply, the contract must be incomplete. This is not the case in the Condrey/Harrell Equipment licensing agreement; it contains an integration clause that states the written agreement acknowledges all prior discussions between the parties. Louisiana law is consistent in its interpretation of contracts vis a vis an integration or merger clause. Parol evidence is admissible to show that the written agreement was incomplete and was not intended by the parties to exhibit the entire agreement. Guilbeau v. C&D Reprographics-Lafayette, Inc., 568 So.2d 206, 211 (La.Ct.App.1990). By its very definition, an integration or merger clause negates the legal introduction of parol evidence; it is a provision in a contract to the effect that the written terms may not be varied by prior or oral agreements because all such agreements have been merged into the written document. Blacks Law Dictionary 683 (6th ed.1983). For example, in Omnitech International Inc. v. Clorox Co., 11 F.3d 1316 (5th Cir.1994), where Omnitech, a roach spray manufacturer, brought suit against The Clorox Company in Louisiana for breach of contract, we analyzed the contract's integration clause and opined: 22 The written agreements between the parties include an express integration clause, reflecting that the entire agreement between the parties had been reduced to writing ... While we by no means interpret the merger clause, per se, to preclude any parol evidence as to other possible agreements and/or representations between the parties, the facts of the instant case compel a conclusion that the merger clause correctly reflected the parties' intentions and should thus be enforced as written. 23 11 F.3d at 1328. Thus, because the crux of the inquiry is whether a contract properly reflects the parties' intentions, we must evaluate the substance of the licensing agreement. 24 The licensing agreement at issue is six pages long and contains eighteen subparts. The subparts discuss a wide variety of topics including: the fate of the Modtrack patents, consideration paid by both parties, a best efforts requirement, manufacturing and design standards, confidentiality, financial obligations, trademark issues, responsibilities of the contracting parties, termination of the agreement, rights of first refusal, patent infringement, and waiver of rights. The scope of the licensing agreement is conspicuously broad in that the document exhausts a spectrum of issues surrounding the parties' contractual relationship. Harrell Equipment and Condrey labored to create a document that would elucidate their intentions, as well as plan for the future of their business endeavor. Furthermore, subpart seventeen seals the deal by providing, This agreement sets forth the entire agreement and understanding between the parties as to the subject matter of this agreement and acknowledges all prior discussions between them. This is a fully integrated contract. Therefore, because Louisiana contract law explains that integration clauses must be given effect where the contract properly reflects the parties' intentions, parol evidence must be excluded from this court's review in this case. See Henning Constr. v. First E. Bank & Trust Co., 635 So.2d 273, 275 (La.App. 4 Cir. 1994);. 25 Condrey, however, relies on Southern Hardware Co., Ltd. v. Honeywell Information Systems, Inc., 373 So.2d 738 (La.Ct.App.1979), as authority for the proposition that integration clauses are not dispositive on the issue of disallowing parol evidence. In that case, the plaintiff sued the defendant for its failure to deliver a computer system. Id. at 739. The sales contract did not provide for a delivery date. Id. The court nevertheless admitted parol evidence regarding the agreed-upon date of delivery and reasoned: 26 While it is true that parol evidence is not admissible to prove a collateral agreement which is inconsistent with the written contract, it is admissible to supply a patent deficiency in the contract. This rule is particularly applicable to situations where the contract is silent regarding an essential term or a term the parties would necessarily have considered. 27 Id. at 740. 28 The court in Honeywell admitted the parol evidence as a means of giving effect to the contract. But in that case, the date of delivery was unequivocally an essential term that had been omitted; the contract centered around the purchase and delivery of computer systems. In the case before us, the relative necessity of a term explaining the ownership of the documents and blueprints is not as clear-cut. Furthermore, the licensing agreement does contain provisions addressing property interests other than the blueprints and drawings. For example, the licensing agreement details Harrell Equipment's one-time payment to Condrey and explains the royalties to be paid to Condrey. Royalty is defined as the landowner's share of production, free of expenses of production. Ramming v. Natural Gas Pipeline Co. of Am., 390 F.3d 366, 372 (5th Cir.2004). Thus, the licensing agreement discusses the consideration paid by and to the parties, including ownership interests in the share of production. It also notes that the patents are and will remain the property of Condrey. Further, the licensing agreement contemplates several potential situations, including the dissolution of the licensing agreement. 29 These are just a few of the many points noted by the district court as evidence that the licensing agreement is a fully integrated document that embodies the intentions of the parties. Therefore, because the drafters of the document included an exhaustive list of current concerns and future safeguards in the licensing agreement, we conclude that it is safe to say that a provision determining the ownership of the drawings and blueprints, unlike the provision in Honeywell, was not and is not a necessary term inadvertently omitted from the contract. 30 Continuing with his parol evidence argument, Condrey also asserts that his testimony should be admitted based on the equitable remedy of detrimental reliance. The elements of a cause of action for detrimental reliance are (i) a promise made (ii) by one who knows or has reason to know (iii) that the promise will induce the other party to rely, (iv) to his detriment, (v) provided the reliance is reasonable. La. Civ.Code Ann. art.1967 (1987). The court in Omnitech International analyzed the potential admission of parol evidence based on the detrimental reliance exception, stating, We ... note that such promises, if made, were outside the scope of the fully-integrated, written agreements between Omnitech and Clorox ... we refuse to look past the written terms of the agreements. Omnitech Int'l, 11 F.3d at 1330. Applying the holding in Omnitech International, having determined that parol evidence is inadmissible, we also determine that the doctrine of detrimental reliance does not apply. 31 Therefore, we conclude that Louisiana law bars parol evidence in this case, where the contract is unambiguous and where a merger clause confirms the intent of the parties that the contract be a fully integrated document. Likewise, we conclude that the doctrine of detrimental reliance does not apply. Further, Condrey's interest of justice argument under La. Civ.Code Ann. art. 1848 (1987) also fails. Even though, as Condrey contends, he may be an innocent third party, because this testimony is inadmissible parol evidence, it is immaterial that both Condrey and Harrell's statements regarding their understanding of the ownership of the Modtrack documents point to Condrey as the rightful owner. Thus, we agree with the district court's conclusion that because the language of the licensing agreement at issue is not misleading, unclear or vague, parol evidence is barred and Condrey has not presented independent evidence that there is a genuine issue of material fact regarding this issue. Neither the September 25, 1992, licensing agreement nor the amended licensing agreement dated May 12, 1995, 1 contain any reference to the ownership of the property in question; both, however, reference other ownership interests and contain an identical all-encompassing merger clause, designating the licensing agreement as an integrated contract. 32