Rosenfeld v. Boniske, 2014 WL 832764 (Mo. Ct. App., E.D.), presents a question that requires some thought.
It concerns a contract for real estate, where the buyers’ obligation to buy is conditioned on the buyers’ entering a contract to sell their current residence.
The question: Does the parol evidence rule prevent introduction of evidence as to discussions between parties of the marketing effort buyers would make to sell their current residence?
Here’s the express condition, as stated in the brief:
This contract is contingent upon Purchasers entering into a contract for sale of their current residence at 19 Westwood Country Club on or before January 25, 2012. If no such contract has been entered into by 6:00 p.m. on January 25, 2012, Purchasers shall have the option to notify Seller that this contract shall thereafter be null and void, otherwise, absent such notification, Purchasers shall proceed with closing as set forth below. If Purchasers notify Seller that this contract shall be null and void as set forth above, Seller shall notify Investors Title to return Purchaser’s Earnest Money.
Here’s a summary of the argument, as stated in one party’s brief (removing the all caps):
The trial court erred in rendering judgment for plaintiffs and against defendant on plaintiffs’ claim for declaratory judgment and on defendant’s counterclaim for breach of a written real estate sale contract, based upon the court’s finding that plaintiffs did not waive a contingency clause of the contract, because the court improperly based its decision on plaintiffs’ testimony regarding an alleged oral agreement limiting the efforts plaintiffs needed to make to satisfy the contingency, in violation of the parol evidence rule in that the parties had a fully integrated written agreement so that parol evidence could not be used to add to or vary the terms of the parties’ written agreement.
Here we have a doctrinally correct statement of the pertinent operative rule:
Because the covenant of good faith and fair dealing implicates the defendant’s state of mind and the purposes and expectations of the parties to the contract, the parol evidence rule, which proscribes the use of oral statements to contradict the express terms of a written contract, does not apply. Id. at 256-57, 791 A.2d 1068. This is because parol evidence is always admissible “in order to provide understanding into the parties’ intentions” and because an application of the parol evidence rule to claims of breach of the covenant of good faith and fair dealing would extremely limit a party’s ability to prove the intentions and expectations in entering the contract. Ibid.
Kocher v. UC Overlook Development, LLC, 2010 WL 1655906, at *7 (N.J. Super. A.D., Apr. 22, 2010).
The question is, of course, Why? Here the express condition’s language does not appear to have an ambiguity.Do we have to get into whether the terms of the express condition in the contract is ambiguous? No. Why not? Because what is being construed is an implied provision, and the implied provision is, in fact ambiguous. And the parol evidence rule does not prevent introduction of evidence for purposes of explaining an ambiguity.
Precisely what the implied covenant requires can be stated in a variety of ways. Here are a couple of statements:
AquaSource, Inc. v. Wind Dance Farm, Inc., 833 N.E.2d 535 (Ind. App. 2005), states the rule as follows:
[A] party may not rely on the failure of a condition precedent to excuse performance where that party’s own action or inaction caused the failure. When a party retains control over when the condition will be fulfilled, it has an implied obligation to make a reasonable and good faith effort to satisfy the condition. A good faith effort is defined as what a reasonable person would determine is a diligent and honest effort under the same set of facts or circumstances.
Tennessee Valley Authority v. US, 60 fed. Cl. 665 (Ct. Fed. Claims 2004), states the principle as follows:
[T]he occurrence of a necessary condition “may be excused by prevention or hindrance of its occurrence through a breach of the duty of good faith and fair dealing.” Restatement (Second) Contracts § 225 cmt. b.
The implied covenant is vague in describing its scope. What is “reasonable” is context-specific. Hence, the correct answer is the parol evidence rule does not bar introduction of extrinsic evidence relevant to interpreting this vaguely-expressed obligation.
There is, I regret to say, some material likelihood that an appellate court will thoughtlessly apply the parol evidence rule, referencing a lack of ambiguity of the express language, and reach a doctrinally defective result.