O.F. Duffield and Sue Ann Duffield v. Charles F. Duffield and Donna Duffield

ca04-796

ARKANSAS COURT OF APPEALS
NOT DESIGNATED FOR PUBLICATION

DIVISION IV

O.F. DUFFIELD and SUE ANN DUFFIELD

APPELLANTS

V.

CHARLES F. DUFFIELD and DONNA DUFFIELD

APPELLEES

CA04-796

March 16, 2005

APPEAL FROM THE BENTON COUNTY CIRCUIT COURT

[NO. CIV-97-61-1]

HON. TOMMY J. KEITH,

JUDGE

REVERSED and REMANDED

Robert J. Gladwin, Judge

O.F. "Bud" Duffield and Sue Ann Duffield (referred to collectively as "Bud") have appealed from an order of the Benton County Circuit Court granting the motions in limine and for directed verdict of appellees Charles Duffield and Donna Duffield ("Charles," collectively) and dismissing Bud's complaint for breach of an oral contract with prejudice. On appeal, Bud challenges the court's decision to exclude evidence of an oral agreement he allegedly had with Charles to equally divide the proceeds from the sale of real property and the court's refusal to permit him to take a nonsuit. We agree that the court erred in granting the motion in limine and reverse the entry of directed verdict. On the basis of that ruling, we need not address the nonsuit issue.

In the 1980s, Bud and Charles owned an undivided one-half interest in real property in Benton County. Charles permitted Bud to use Charles's interest as collateral to secure a loan to Bud from a bank in Texas, and Bud conveyed his one-quarter interest in the property to Charles. In 1989, Charles lost his interest in the property in foreclosure after Bud

defaulted on the debt and, through a complicated series of transactions, Amvest Properties, Inc., acquired title to the property. In January 1994, Bud, Charles, Clinton Wong, Amerifirst Properties, Inc., Amvest, and O.F. Duffield as Trustee, entered into a settlement agreement and release resolving a dispute involving a partition suit, the property in question, some promissory notes, a 1991 trust agreement for which Bud was trustee, and some real estate in Texas. In this agreement, Bud and Charles were aligned in interest and were collectively referred to as "the Duffields," and at that time, there was no dispute between them. The settlement agreement provided:

6. Amvest has title to the Arkansas Property which it purchased from the FDIC, and Charles F. Duffield and Donna Duffield, Husband and Wife, desire to acquire such Arkansas Property.

7. The parties to this Agreement intend, by making the payments and exchanging the property rights referred to with each other, to settle all current disputes and claims between the parties hereto arising out of the Partition Suit, the $100,000.00 Promissory Note, the Arkansas Property, or in connection with the Texas Property, and all matters related thereto....

....

The parties named herein wish to compromise and settle all claims and causes of action of any kind whatsoever which either party has or may have against the other, alleged in or arising out of the Partition Suit and the disputed $100,000.00 Promissory Note; to dismiss completely the claims asserted by the Duffields in the Partition Suit or to cause the same to be dismissed; to assign any rights to Charles F. Duffield and Donna Duffield, Husband and Wife, respecting said FDIC Notes and Judgment; to transfer the interest of the Arkansas Property to the Duffields; to release Amerifirst and Wong from any further obligations respecting the Texas Property; and to otherwise compromise and settle all matters in dispute between the parties and referred to in this Agreement.

....

.... Upon payment to the Wong Group by the Duffields, of the sums referred to herein (not exceeding $50,000.00), the Wong Group shall conclude the purchase of the Judgment and the FDIC Notes and then assign the Judgment and the FDIC Notes to Charles F. Duffield and Donna Duffield, Husband and Wife, and execute and deliver, or cause to be executed and delivered, a Special Warranty Deed to the Duffields (or their designee), covering the interest of Amvest in the Arkansas Property, subject to any and all encumbrances and other matters of record....

....

6. With respect to the matters asserted in the Partition Suit, all parties to this Agreement acknowledge and agree that this is a compromise of disputed claims, and nothing contained herein shall be construed as an admission of liability by or on behalf of any party, all such liability being expressly denied.

7. All terms and conditions of this Agreement have been voluntarily agreed upon, and that no one is under any disadvantage and no representation other than those set forth in this Agreement have been made. Liability for present and future claims is in dispute and the parties have had the opportunity to consult with their respective attorneys. All parties are signing this Agreement without any coercion. All parties hereby declare that they have carefully read this Agreement and fully understand the same and have voluntarily accepted it for the purposes of making a complete and full compromise and settlement of all claims mentioned in this Agreement.

8. The parties acknowledge and agree that no other consideration will be paid or furnished by any party, nor has any party relied upon any other representation or promise except as may be set forth expressly in this Agreement.

In January 1997, Bud sued Charles, alleging that, prior to the execution of the settlement agreement, they had entered into an oral agreement to jointly acquire a fifty-percent interest in the Benton County real estate and thereafter sell it to James Lindsey for $678,000, leaving the parties with a net return of $296,500, which they would equally share. In his complaint, he stated:

6. That said consideration by [Bud] included [Bud] paying $50,000.00 to Clinton Wong and Amvest Properties, Inc., part owners of the property, at which time Amvest Properties, Inc., transferred, executed and delivered a special warranty deed to [Charles], conveying the interest of Amvest Properties, Inc., in the property.

7. In addition, [Bud] canceled and released a $100,000.00 promissory note from Clinton Wong, Amerifirst Properties, Inc., and Amvest Properties, Inc.

8. In addition, O.F. Duffield entered into a renewal and extension agreement for an existing $50,000.00 promissory note, for which [Bud is] still responsible.

9. That said consideration as set forth herein above constituted the sole and exclusive consideration used by [Charles] in acquiring a fifty-percent interest in the afore-mentioned Benton County property.

10. That the oral contract of the parties provided that [Bud] and [Charles], and their partners, upon acquisition of said property, would then sell the property to JamesE. Lindsey, in the amount of $678,000.00. Upon the sale of said property, [Bud] and [Charles] were to share equally one-half of the net proceeds realized from said sale.

According to Bud's complaint, Charles and his co-owner in the property conveyed title to the real estate in February 1994, with Charles receiving a net profit of $296,500. Bud contended that, when Charles attended the closing for this property, the parties' attorney, William R. Mayo, presented Charles with specific instructions as to the disposition of the funds that Bud was to receive. Bud alleged that Charles disregarded those instructions and refused to pay him one-half of the funds. Since that time, he stated, Charles had refused to pay him his $148,250 share of the proceeds. In the second count of his complaint, Bud alleged that he had an oral agreement with Charles that the parties were to equally share in the proceeds from the sale of Charles's one-half interest in another, smaller tract of land in Benton County, which Charles had sold at a price unknown and for which Charles had failed to compensate him. In response, Charles denied having any obligation to pay Bud and raised the affirmative defenses of the statute of frauds, set off, release, failure of consideration, compromise and settlement, waiver, and estoppel.

The case was finally set for a jury trial on November 18, 2003. On the day before trial, Charles's counsel delivered a letter to the trial court stating that he intended to make a motion in limine to exclude any testimony regarding the oral agreement. He argued that this evidence was barred by the parol evidence rule as a result of the 1994 written settlement agreement. On the morning of trial, the attorneys for both sides met in the trial court's chambers for a pretrial hearing, at which Charles's counsel argued that Bud's evidence of the oral agreement was barred by the parol evidence rule. Bud's counsel argued that the parol evidence rule did not apply because the written settlement agreement was not between the same parties; it did not address the oral agreement between the brothers; and the oral agreement was a collateral agreement.1 The trial court stated that it would grant Charles's motion in limine and said: "Where does this leave us?" Bud's counsel replied: "I don't think I've got anything else, Judge." The court then stated: "All right. Well, if you rest then I'll grant his directed verdict." Charles's attorney said: "Move for directed verdict." The court stated: "All right. Now, I need for you to prepare me a precedent." Bud's attorney said that he was inclined to prepare a motion for reconsideration "to make sure that I've got all the facts in there for the record in the event of an appeal...." The hearing was then concluded. The next day, Bud moved for a voluntary dismissal of this action pursuant to Rule 41(a) of the Arkansas Rules of Civil Procedure. By letter, Charles's attorney responded that Bud's motion for nonsuit was not timely because that rule allows a plaintiff to voluntarily dismiss his case only if he does so prior to its being submitted for a decision. He stated:

The Court will recall that after granting [Charles's] Motion in Limine on the record, [Bud] rested [his] case without putting on any evidence. Thereafter, I moved for a directed verdict which the Court granted. As soon as [Bud] rested, [his] case was submitted to the Court for a decision and it then became too late for [Bud] to take a voluntary dismissal under Rule 41(a).

On March 9, 2004, the court entered an order granting Charles's motion in limine to exclude evidence of the purported oral agreement, stating: "Having no evidence or testimony to present other than that excluded by the Court's ruling set forth above, [Bud] rested [his] case. [Charles] then moved for a directed verdict, and said Motion for Directed Verdict should be, and it is hereby, granted." The court dismissed Bud's complaint with prejudice, and this appeal followed.

Bud argues that the court erred in granting Charles's motion in limine on the basis of the parol evidence rule. He asserts that the rule did not apply to bar his evidence of the oral agreement because the oral and written agreements did not involve the same parties or the same subject matter; the oral contract was an independent collateral agreement about which the written contract was silent and that would naturally be the subject of a separate agreement; and the oral contract did not contradict the written contract. Bud also argues that the court erred in refusing to permit him to take a nonsuit. However, we need not address that argument because we agree that the court erred in granting the motion in limine. We will not reverse a trial court's ruling allowing or disallowing evidence on the basis of the parol evidence rule absent an abuse of discretion. Schueck v. Burris, 330 Ark. 780, 957 S.W.2d 702 (1997). In this case, such an abuse of discretion occurred.

The parol evidence rule prohibits the introduction of extrinsic evidence, parol or otherwise, that is offered to vary the terms of a written agreement; it is a substantive rule of law, rather than a rule of evidence, and its premise is that the written agreement itself is the best evidence of the intention of the parties. First Nat'l Bank of Crossett v. Griffin, 310 Ark. 164, 832 S.W.2d 816 (1992), cert. denied, 507 U.S. 919 (1993); accord Cate v. Irvin, 44 Ark. App. 39, 866 S.W.2d 423 (1993). It is a general proposition of the common law that, in the absence of fraud, accident or mistake, a written contract merges, and thereby extinguishes, all prior and contemporaneous negotiations, understandings, and verbal agreements on the same subject. Id. Such testimony is inadmissible if it tends to alter, vary, or contradict the written contract but is admissible if it tends to prove a part of the contract about which the written contract is silent. Id.; see also Gallion v. Toombs, 268 Ark. 955, 597 S.W.2d 842 (Ark. App. 1980). This rule applies only to documents that the parties intended as a final and complete expression of their agreement. See Farmers Coop. Ass'n, Inc. v. Garrison, 248Ark. 948, 454 S.W.2d 644 (1970). The parol evidence rule may be applied to the parties to the instrument and to those claiming some right or interest under it. Rainey v. Travis, 312 Ark. 460, 850 S.W.2d 839 (1993).

Parol evidence can be used to vary a contract when the litigation is between a party to the contract and a stranger thereto. See Sterling v. Landis, 9 Ark. App. 290, 658 S.W.2d 429 (1983). The parol evidence rule will not apply when the same parties and the same subject matter are not involved. Farm Bureau Policy Holders v. Farm Bureau Mut. Ins. Co., 335 Ark. 285, 984 S.W.2d 6 (1998). Also, extrinsic proof of an independent collateral agreement is not excluded by the parol evidence rule. Rainey v. Travis, supra.

When the settlement contract was executed, there was no dispute between Bud and Charles. Bud contends that, because he and Charles constituted one party, "the Duffields,"2 to the written contract and were aligned in interest, and because the Wong Group was not a party to the oral contract, the oral and written contracts involved essentially different parties, making the parol evidence rule inapplicable. We agree. Additionally, although both the oral and written agreements concerned the same real property, the oral agreement did not contradict, alter, or vary any part of the written contract. The settlement agreement contained no terms addressing Charles's and Bud's obligations as to each other. It was silent on the subject of the ultimate disposition of the property and the proceeds of its sale after its conveyance to Charles; what happened next was obviously of no concern to the Wong Group. Therefore, the oral and written contracts concerned different subjects. Further, a side agreement between Bud and Charles as to the ultimate disposition of this property and the proceeds of its sale, as between themselves, was a logical subject for an independent collateral agreement, especially in light of the concern about the property's potential encumbrance by the judgments against Bud. See Ark. Aviation Sales, Inc. v. Carter Constr. Co., 250 Ark. 1007, 469 S.W.2d 118 (1971); Loe v. McHargue, 239 Ark. 793, 394 S.W.2d 475 (1965); Magee v. Robinson, 218 Ark. 54, 234 S.W.2d 27 (1950); White v. Hickey, 8 Ark. App. 264, 651 S.W.2d 467 (1983). For these reasons, we hold that the trial court abused its discretion in applying the parol evidence rule and in granting the motion in limine. We therefore reverse the directed verdict for Charles and remand this case for trial.

Reversed and remanded.

Griffen and Baker, JJ., agree.

1 He said that, because Bud had some judgments against him, the brothers had arranged for the property to be conveyed to Charles to keep it unencumbered.

2 The "Wong Group" was the other party.