Esbensen (P) v. Userware International, Inc. (D) – Parol Evidence Case
(Partially Integrated Written Agreement)
Court
& Date: Cal. App., 1993
Parties: Computer programmer (P) who alleged wrongful termination without
good cause; Userware International, Inc. and several of its officers (D).
Allegation
and Relief: Breach of contract; monetary damages.
Facts: In 1977, Userware hired P as a computer programmer pursuant to an
oral contract between Esbensen and Rhodes (D – an officer and co-founder of
Userware). Contract was later reduced
to writing (May, 1979), and a series of three virtually identical one-year
contracts were signed. In the first
paragraph, the contract specifies that Esbensen will receive a weekly salary of
$675, which amount will be reviewed on an annual basis, plus a 10% commission
on sales of software products he developed.
Paragraph IV is titled “Term of Agreement” and provides that: the
agreement is effective June 1, 1981, for a period of one year, however, this
agreement may be terminated earlier…”
Paragraph V/Termination: “this agreement may be terminated by either
party by giving two weeks written notice of termination to the other
party. Upon termination for any reason,
all salary shall cease on the effective date of termination. [Userware] shall continue to pay
commission…for a period of 180 days after the effective date of termination.”
In
January, 1982, P was terminated by Userware allegedly, among other reasons,
because he failed to timely report for work following vacation. Esbensen (P) responded by filing breach of
contract suit, asserted that he had been told by Rhodes (D) that the series of
one-year contracts would be renewed perpetually as long as he was doing his
job, i.e., that his contract had included an implied term that he could not be
terminated except for good cause.
Procedural
History: The trial court agreed largely with Userware (D), and concluded
that Esbensen’s (P) employment contract was an integrated one-year agreement
and that P was precluded from introducing parol evidence that his employment
was to continue and that his contract was to be renewed so long as he performed
his job capably. P was allowed to seek
contract damages for breach of contract, but those damages were limited to what
P would have earned for six months following the expiration of the contract’s
one year term. Userware stipulated to
maximum limine judgment amount of $15,000.
Note: Userware had filed a
motion in limine to exclude evidence of any oral understanding between Esbensen
and Rhodes (D) concerning an implied “good cause” requirement for
termination. Limine: “at the beginning
or the threshold.” Motion in Limine: “a
motion used to exclude reference to anticipated evidence claimed to be
objectionable until the admissibility of the questionable evidence can be
determined either before or during the trial by presenting to the court, out of
the presence of the jury, offers and objections to the evidence. The motion seeks to avoid injection into
trial of irrelevant, inadmissible, or prejudicial evidence at any point.” (Barron’s Law Dictionary – 3rd
Edition).
BLUF
(Bottom Line Up Front) Holding: Written
contract was incomplete, and parol evidence should thus have been allowed to
shed light on the written contract vis-à-vis termination.
Issues: (Issue #1) Is the employment relationship terminable at will?
Userware Contention: According to D, paragraph V of the contract,
which provides for termination before the expiration of the one-year term,
allows for termination at any time for any reason. Thus, Esbensen’s testimony is inadmissible as inconsistent with
this portion of the written contract.
Court’s Holding: Paragraph V does not make the contract terminable at will. Userware relied on several cases in which the employment contracts specified that an employee could be terminated “at any time” and “for any reason.” However, the court held that the written agreement was silent on acceptable grounds for termination, and that the “for any reason” language referred to salary and commission payment upon termination, not grounds for actual termination.
(Issue
#2) Was the written contract fully
integrated, i.e., did the parties intend the written agreement to be final,
complete and exclusive, precluding the admission of parol evidence (including
as to termination)?
Userware Contention: Fully integrated contract à precludes admission of extrinsic evidence to
add additional terms. (“Integration”:
extent to which a writing constitutes the parties’ final expression of their agreement).
Rule Cited by Court: To the extent a contract is integrated, the
parol evidence precludes the admission of evidence of the parties’ prior or
contemporaneous oral statements to contradict the terms of the writing,
although parol evidence is always admissible to interpret the written
agreement.
Rule: Where following negotiations, the parties
execute a written agreement, that agreement is at least partially integrated
and parol evidence cannot be admitted to contradict the terms agreed to in writing. Evidence of related oral understandings,
however, is admissible to prove additional terms of the contract not
inconsistent with the express language of the writing.
(a) Parties’ intent is key: if
parties intended a “complete and exclusive statement of the terms of the
agreement” = the contract is fully integrated and parol evidence is
inadmissible (need to look at proof of the parties’ intent).
(b) Supreme Court – in order to bar
evidence of a consistent oral understanding, the court must convince itself at
a minimum that such an understanding would not “naturally” have been excluded
from the writing.
Rule: Even when a contract is not fully
integrated, parol evidence is not admissible to supply terms which are
inconsistent with the written agreement.
(Issue #3)
Was the parol evidence (i.e., assertion of oral agreement of implied
term that P could not be terminated except for good cause) offered to prove a
consistent oral understanding?
Userware Contention: Argues the oral understanding P seeks to prove is inconsistent with the one-year term specified in paragraph IV of the written contract and is therefore inadmissible. In other words, even if Userware could not fire Esbensen for any reason at any time, at a minimum, b/c the contract was for one year, gives them the right to terminate Esbensen at the end of the year for any reason.
Court’s Holding: Court agreed that one-year term provision of the contract must have some meaning, however, the meaning may not have been possible termination as the only possible meaning, i.e., could have been related to salary review. Under such circumstances, “good cause” for non-renewal would necessarily include the parties’ failure to agree on the terms for renewal.
Bottom
Line Rule from Case: Where
following negotiations the parties execute a written agreement, that agreement
is at least “partially” integrated and parol evidence cannot be admitted to
contradict the terms agreed to in the writing.
Evidence of related oral understandings, however, is admissible to prove
additional terms of the contract not inconsistent with the express language of
the writing (i.e., for terms not covered in the contract – i.e., for incomplete
contracts).
Bottom Line Holding from Case: Original judgment reversed! The fact that something is presumed or implied (i.e., termination possibilities), in the absence of an express statement to the contrary does not preclude a party to an incomplete written contract from attempting to demonstrate an express oral agreement contrary to the term which would otherwise be presumed or implied. In short, the parol evidence should have been admitted.