Pinnacle Peak Developers v. TRW Investment Corp

Brief Fact Summary.

An Arizona trial court granted partial summary judgment to the property owners by quieting title to the property and awarding attorney fees. The developer appealed.

Synopsis of Rule of Law.

The parol evidence rule renders inadmissible any evidence of prior or contemporaneous oral understandings and of prior written understandings, which would contradict, vary or add to a written contract, which was intended as the final and complete statement or integration of the parties’ agreement.

Facts.

TRW purchased 40 acres of property from Pinnacle Peak for residential housing. Their agreement required TRW to make improvements, including the building of roads and utility installation, by a certain date. TRW had an option to purchase additional acreage contingent on the completion of the above-mentioned improvements. The deadline for the option arrived, the improvements having been completed, and Pinnacle considered the option expired. TRW claimed that Pinnacle had fraudulently induced to forego the improvements, and thus the option period was still open. TRW alleged that it was induced to enter into the purchase and option agreement, relying on Pinnacle Peak’s promise that the non-completion of improvements in question would not be an impediment in the exercising of the option if significant progress towards completion had been made. Thus, they argued, Pinnacle had falsely represented their position. The trial court granted partial summary judgment to Pinnacle.

Issue.

Did the parol evidence rule apply, thus barring the admission of alleged oral representations that were made prior to the execution of the option contract?

Held.

Yes. The court held that the parol evidence rule did indeed apply

Discussion.

In Pinnacle, Judge (later Justice) Sandra Day O’Connor, writing for the Arizona Court of Appeals, addresses what she termed “the confusion which exists in the judicial opinions in this state and elsewhere on the question of application of the parol evidence rule to allegations of promissory fraud when it contradicts or varies the terms of the written agreement of the parties.”
After a cursory review of the requirements for the granting of summary judgment, i.e., that the latter should be granted only where the pleadings, depositions, admissions on file, and affidavits, if any, show that there is no genuine issue as to any material fact, O’Connor begins with a simple working definition of misrepresentation: “A promise, when made with a present intention not to perform it, is a misrepresentation which can give rise to an action of fraud.” It follows, then, that “Representations which give rise to an action of fraud must, of course, be of matters of fact which exist in the present, and not merely an agreement or promise to do something in the future, or an expression of opinion or judgment as to something which has happened or is expected to happen.”
O’Connor then provides an overview of the application of the parol evidence rule:
The parol evidence rule renders inadmissible any evidence of prior or contemporaneous oral understandings and of prior written understandings, which would contradict, vary or add to a written contract, which was intended as the final and complete statement or integration of the parties’ agreement. There are three situations in which it is said that the above rule does not apply and parol evidence is admissible: (1) to show that no contract was in fact made or that the contract is voidable for fraud, mistake, duress, undue influence, incapacity, or illegality; (2) to demonstrate that the parties intended the writing to be only a partial integration of their agreement, thereby permitting the existence of non-contradictory collateral agreements to be proved; and (3) to assist in the interpretation of the contract, or to prove the usages and customs in relation to which the parties contracted, thus allowing the addition of consistent terms of performance or the definition of words used in
the contract.
She notes that the rule was designed to prevent fraudulent claims by excluding certain types of evidence that are easy to fabricate. However, O’Connor states, “The application of the parol evidence rule moves along a continuum based on the extent of the contradiction and the relative strength and sophistication of the parties and their negotiations.” Further, she adds, “There are circumstances under which evidence of a prior or contemporaneous contradictory oral representation or promise would be admissible notwithstanding the subsequent integrated written agreement of the parties.” In this instance, she observes, that in the present instance, “the parties each had experience in business transactions and that the written option agreement was prepared as the result of negotiations between the parties, who were represented by counsel. It involved a relatively substantial and sophisticated real estate transaction. The written option agreement was a ‘formal contract.’ The contradiction of
the written agreement and the oral representation is clear.” Thus, as the terms of the contract were clear and unambiguous and all parties had experience in business transactions, evidence of the prior oral statements was properly denied.