Arkansas Aviation Sales, Inc. v. Carter Construction Co.

Frank Holt, Justice.

Appellee, Carter Construction Company, filed an action for a declaratory judgment against appellant, Arkansas Aviation Sales, Inc., to determine the ownership of a Piper Cherokee Aircraft. Appellee asserts ownership by the provisions of a written lease-purchase agreement. Appellant claims that this written agreement provides for a lease only and that it, therefore, retains ownership of the plane following completion of the agreed monthly rental payments.

The trial court found that appellant agreed to sell the aircraft to appellee under a lease-purchase agreement, and that the option to purchase was deleted from the contract “by agreement of the parties thereto and was not done with the intention of making said instrument a lease only of said aircraft * * For reversal appellant contends that the chancellor erred in admitting parol testimony which contradicted a prior written “Aircraft Lease” executed between the appellant and appellee. There is no appeal from that part of the decree finding a balance due on the contract and a note which were assigned to a local bank.

On May 1, 196£, the parties executed a five-year “Aircraft Lease” which contained an option to purchase clause. Appellee had the right to apply its monthly rental payments on the purchase price of $19,055.00 (whiclf included sales tax) plus any accrued interest. There was evidence that about two weeks later the parties, by mutual agreement, deleted the lease-purchase option. Several months after the written agreement was made the corporate ownership of appellant was transferred to the present owners.

Appellant does not dispute “that the parties mutually agreed on having the language in the contract relating to the option to purchase stricken.” Even so, appellant objects to the chancellor permitting the original parties to the transaction to testify that, at appellee’s accountant’s suggestion, the option to purchase was deleted for tax benefits to appellee and that this deletion was with the mutual understanding that the written agreement would remain a lease-purchase transaction.

In Ferguson v. C. H. Triplett Co., 199 Ark. 546, 134 S. W. 2d 538 (1939) we reiterated that: “It is well settled in this state that parties to a written contract may, subsequent to its execution, modify it and substitute a valid oral agreement therefor.”

In the case at bar we think the chancellor was correct in permitting these original parties to this written contract to testify about their “side agreement.” In Restatement, Contracts § 240 we find:

“(1) An oral agreement is not superseded or invalidated by a subsequent or contemporaneous integration, nor a written agreement by a subsequent integration relating to the same subject-matter, if the agreement is not inconsistent with the integrated contract, and

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(b) is such an agreement as might naturally be made as a separate agreement by parties situated as were the parties to the written contract.”

The Committee Comment on Subsection (1) (b) reads:

“d. The justification of the Parol Evidence Rule is that when parties incorporate an agreement in a writing it is a reasonable assumption that everything included in the bargain is set down in the writing. Though this assumption in most cases conforms to the facts, and the certainty attained by making the rule a general one affords grounds for its existence, there are cases where it is so natural to make a separate agreement, frequently oral, in regard to the same subject-matter, that the Parol Evidence Rule does not deny effect to the collateral agreement. This situation is especially likely to arise when the writing is of a formal character and does not so readily lend itself to the inclusion of the whole agreement as a writing which is not limited by law or custom to a particular form. Thus, agreements collateral to a negotiable instrument if incorporated in it might destroy its negotiability, and in any event would deprive it of the simplicity of form characteristic of negotiable paper. So in connection with leases and other conveyances, collateral agreements relating to the same subject-matter have been held enforceable. These illustrations of what agreements ‘might naturally be made’ without inclusion in an integrated contract are not exclusive. It is not essential that a particular provision would always or even usually be made in a separate collateral agreement. It is enough that making such a provision in that way is not so exceptional as to be odd or unnatural.”

In Magee v. Robinson, 218 Ark. 54, 234 S. W. 2d 27 (1950) we approved this section of the Restatement and permitted parol evidence to establish a contemporaneous oral agreement relating to a deed. There we said:

“* * * the separate agreement as to possession of the lands is neither odd nor exceptional, but is one that might naturally be made by parties situated as were appellees and appellant at the time the deed was executed.”

Also, in Bourque v. Edwards, 232 Ark. 665, 339 S. W. 2d 436 (1960) we again recognized the validity of § 240 in holding that although parol evidence is not admissible to vary a written instrument, it was there admissible to prove a “side agreement” with respect to whether a conveyance of real property included a butane tank.

We think this section is likewise applicable in the case at bar. There was evidence, adduced that the customary and popular method of acquiring an aircraft by a business enterprise was by the lease-purchase contract and, as previously indicated, this provision was eliminated only for tax purposes. Further, the transaction was entered on appellant’s books as a sale with the sales tax added and paid. In the circumstances, we are of the view that the deletion of the lease purchase paragraph from the written contract, for tax purposes, was a proper subject for a “side agreement;” that this deletion would not affect the original agreement between the parties and is consistent with their contract; and that it is an oral or collateral agreement which “might naturally be made as a separate agreement by parties situated as were the parties to the written contract.” Therefore, the trial court did not err in admitting parol testimony by the original parties to establish their “side agreement” made subsequent to the parties’ written contract, and to show the scope and effect of this oral agreement.

There being no contention that the findings of the chancellor are against the preponderance of the evidence should the parol evidence be admissible, the decree is affirmed.

Affirmed.

Byrd, J., not participating. Fogleman, J., dissents.