To this extent, the rule is familiar to New York practitioners. But the manner in which the rule is applied in California is somewhat different.
In Masterson v. Sine, 68 Cal. 2d 222, 436 P.2d 561, 65 Cal. Rptr. 545 (1968)(in bank), the California Supreme Court, in an opinion by Chief Justice Traynor, flatly rejected the proposition that the question whether the parties intended their writing "to serve as the exclusive embodiment of their agreement" is to be determined by the court solely from the face of the instrument. Faced in that case with an intrafamily contract that lacked an integration clause and that did not address the issue as to which the proffered parol evidence was directed, the court concluded that the alleged additional term was one that naturally might have been made in a separate agreement and declined to exclude parol evidence on the point. Thus, while the question whether a writing was intended as the exclusive embodiment of the parties' agreement is for the court,
the court must give at least preliminary consideration to the parol evidence in determining exclusivity. Pacific Gas and Electric Co. v. G. W. Thomas Drayage & Rigging Co., 69 Cal. 2d 33, 39-40, 442 P.2d 641, 645, 69 Cal. Rptr. 561, 565 (1968); Gerdlund v. Electronic Dispensers International, 190 Cal. App. 3d 263, 270-71, 235 Cal. Rptr. 279, 282 (6th Dist. 1987).
Here, plaintiffs conceded at oral argument that the written agreement was fully integrated.
In consequence, under Section 1856, that agreement may not be contradicted, and may not be supplemented with additional consistent terms by parol.
That of course does not conclude the analysis. Both California and New York take the view that extrinsic evidence is admissible to explain the meaning of a written instrument only if the instrument is ambiguous. See Masterson v. Sine, 68 Cal. 2d 222, 436 P.2d 561, 65 Cal. Rptr. 545 (1968)(in bank) (California law); Burger King Corp. v. Horn & Hardart Co., 893 F.2d 525, 527 (2d Cir. 1990) (New York law). And the law of two States diverges as to the role of the affidavit in determining the existence of and in resolving ambiguity. The question remains whether the oral understanding urged by the Hansons contradicts the terms of the written agreements or, instead, merely resolves ambiguity.
In New York, the existence of ambiguity long has been determined with reference to the general understanding of the language of the instrument. See Burger King Corp., 893 F.2d at 527. This reflects the view, eloquently expressed by Judge Learned Hand, that "[a] contract has, strictly speaking, nothing to do with the personal, or individual, intent of the parties. A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent." Hotchkiss v. National City Bank of New York, 200 F. 287, 293 (S.D.N.Y. 1911), aff'd 201 F. 664 (2d Cir. 1912), aff'd sub nom. National City Bank v. Hotchkiss, 231 U.S. 50, 58 L. Ed. 115, 34 S. Ct. 20 (1913); accord Mencher v. Weiss, 306 N.Y. 1, 7-8, 114 N.E.2d 177 (1953).
In Pacific Gas and Electric Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal. 2d 33, 442 P.2d 641, 69 Cal. Rptr. 561, Chief Justice Traynor rejected this objective theory of contractual obligation in favor of the subjective intentions of the parties. Concluding that the objective theory of contract "can easily lead to the attribution to a written instrument of a meaning that was never intended,"
the California court held that a court confronted with parol evidence first must consider all of the proffered evidence in order to determine the meaning of the written agreement. If on consideration of all of the evidence the written agreement is reasonably susceptible of the meaning ascribed to it by the proponent of the evidence, then the parol evidence is admissible also to prove that the written agreement in fact had that meaning. If, on the other hand, a consideration of all the evidence results in the conclusion that the written agreement is not susceptible of the meaning ascribed to it by the proponent of the parol evidence, then the parol evidence is not admissible for the purpose of proving the meaning of the writing. Daily Dynamics v. Arioto, 69 Cal. 2d 525, 446 P.2d 785, 72 Cal. Rptr. 785 (1968); Pacific Gas, 69 Cal. 2d at 40-41, 442 P.2d at 646, 69 Cal. Rptr. at 566; Winet v. Price, 4 Cal. App. 4th 1159, 6 Cal. Rptr. 2d 554 (4th Dist. 1992); Blumenfeld v. R.H. Macy & Co., 92 Cal. App. 3d 38, 154 Cal. Rptr. 652 (1st Dist. 1979).
While California's approach has been sharply criticized,
I am bound to apply it and so I follow the two-step process mandated by California law. First, the Hanson affidavit is provisionally received. Second, I consider whether, in light of all of the evidence, the contract is reasonably susceptible of the interpretation advanced by the Hansons.
The Option Agreement provided that the purchase price "may be adjusted" if the Interest "is sold or transferred . . . within five (5) years from" the closing of the purchase of the Interest pursuant to the exercise of the put or call option. The adjustment "shall occur," it said, "if the proportionate cash equivalent sale price for the . . . Interest upon resale . . . (the 'Sale Price') exceeds the Purchase Price . . . . " Thus, under the Option Agreement, the event triggering an adjustment was a "sale," specifically a "resale" at a price in excess of the purchase price paid by McCaw Florida to the Hansons.
Plaintiffs argue that the word "sale" commonly is understood to include not only a consummated transaction, but also an executory contract to sell. Mrs. Hanson, moreover, asserts that the parties did not expressly define, at the time the Option Agreement was executed, when or how the price adjustment would be triggered. (Hanson Aff. P 9) Hence, I assume arguendo that the word "sale" as used in the Option Agreement was ambiguous as to whether a price adjustment would have been triggered by the execution within the adjustment period of a contract of sale subject to further conditions, for example, to FCC approval. But that is not the end of the matter.
The Amendment extended the price adjustment period from five to six years. It provided also that McCaw Florida, for the duration of that period, would "notify [the Hansons] of the impending sale or transfer of any interest in the System. . . at the time application is made to the FCC for authority to conduct such sale or transfer, if such authority is necessary, and in any event no later than closing such sale or transfer." The quoted sentence raises two formidable problems for plaintiffs' position.
The first lies in the requirement that McCaw Florida notify plaintiffs "of the impending sale . . . at the time [an FCC application] is made . . . " (Emphasis added) The Amendment thus contemplates that an FCC application would or, a least, might be filed before the occurrence of a "sale" within the meaning of the contract, as the word "impending" otherwise would make no sense. The parties, moreover, agree that the virtually universal practice, and the practice followed here, is that a conditional contract of sale is signed before an application is filed with the FCC.
If the word "sale" were construed as plaintiffs contend, the "sale" would occur when a conditional contract is signed or, perhaps, when the FCC application is made. Thus, on plaintiffs' view, the FCC application would be subsequent to or contemporaneous with the "sale." If that were so, the "sale" no longer would be "impending" by the time the FCC application is made. In consequence, the only reading of the agreement that makes sense of the quoted sentence is to regard the consummated transaction as the "sale" and a transaction for which a conditional contract has been signed and which is awaiting FCC approval as an "impending sale."
The second difficulty is in the description of the authority sought from the FCC by the application of which McCaw Florida was required to give notice. The Amendment required notice "at the time application is made to the FCC for authority to conduct such sale or transfer . . ." (Emphasis added) As we have seen, FCC permission is not required to enter into a conditional contract of sale. The Commission's approval is required only for the consummation of a transaction resulting in a change of control over a license. Hence, this language too is consistent only with a construction of the agreement that makes a timely consummation the triggering adjustment event.
Plaintiffs contend that this reading is incorrect based both on the Hanson affidavit and other arguments. I begin with the Hanson affidavit.
Mrs. Hanson asserts that the parties agreed at the time the Amendment was executed that a purchase price adjustment would be triggered by the occurrence within the six year period any event requiring notification under Section 9 of the Amendment. If the agreements, either considered alone or taken together with Mrs. Hanson's affidavit, were ambiguous on this point, the affidavit would be admissible for the purpose of interpretation. I conclude, however, that Mrs. Hanson's assertion is simply irreconcilable with the language of Section 9 of the Amendment. It can be squared with the Amendment only if Section 9 were read in a manner that would ignore the references to an "impending" sale and to an applications to the FCC "for authority to conduct such sale or transfer . . . " Mrs. Hanson's affidavit therefore would serve only to contradict the terms of an agreement which plaintiffs concede is fully integrated. It does not reveal ambiguity latent in the documents. Nor does it aid in construing contractual language. In consequence, I hold that the Hanson affidavit, although provisionally considered for purposes of determining the existence of ambiguity (as to which it adds nothing), is inadmissible under the California parol evidence rule for purposes of construing the contract. Put another way, although the two great judges probably would have disagreed as to whether the Hanson affidavit should be considered in any respect in deciding this motion, I think they would have reached the same result because both would have concluded that it is inadmissible on the issue of contract interpretation.
This conclusion is fully supported by the California authorities. Unlike the situation in Delta Dynamics, 69 Cal. 2d 525 at 528, 446 P.2d at 787, 72 Cal. Rptr. at 787, the Hanson affidavit is not "'relevant to prove a meaning to which the language of the instrument is reasonably susceptible'" and, as discussed above, "the rest of the contract . . . precludes the interpretation" advanced by plaintiffs. In such circumstances, California courts exclude extrinsic evidence as to interpretation and grant judgment in accordance with the clear terms of the written agreement. E.g., FPI Development, Inc. v. Nakashima, 231 Cal. App. 3d 367, 282 Cal. Rptr. 508 (3d Dist. 1991) (affirming summary judgment); Gerdlund v. Electronic Dispensers International, 190 Cal. App. 3d 263, 235 Cal. Rptr. 279 (reversing receipt of parol evidence that contradicted contract and directing judgment for defendant). Indeed, even the most vehement of critics of the California rule so acknowledge. Trident Center, 847 F.2d at 569-70 & n.6.
Plaintiffs' other arguments are unpersuasive.
Plaintiffs are correct in saying that the word "sale" sometimes is used in a manner that includes an executory or conditional contract of sale rather than a consummated transaction. The issue here, however, is the meaning ascribed to that word in the contract. Hence, the cases decided in other contexts and the statutes dealing with other matters upon which plaintiffs rely contribute nothing of importance to the resolution of this matter.
Plaintiffs argue too that the notification provision contained in Section 9 of the Amendment would be rendered "meaningless" by the construction adopted here. (Pl. Br. 17) Why, they ask, would there be any sense in notifying plaintiffs of an application made to the FCC for approval of a contemplated transaction, particularly an application made shortly prior to the expiration of the six year adjustment period, if the price adjustment would be triggered only by consummation of the transaction within the period? The answer, it seems to me, is fairly obvious. Plaintiffs might well have a substantial financial interest riding on favorable and timely FCC action. Persons in such circumstances frequently seek to be heard, whether formally or informally, by agencies. Some even have been known to seek intervention with the responsible agency by their elected representatives in an effort to speed matters to the desired outcome. Hence, plaintiffs' argument that the notification provision would be meaningless unless the price adjustment were triggered merely by an executory contract or an FCC application is zealous advocacy that fails to recognize the practicalities of business life in a regulated industry.
Finally, plaintiffs advanced a contention at oral argument not previously made in their brief. They note that the 1987 Option Agreement states that a price adjustment may be required upon a "sale or transfer" of the Interest within the adjustment period. They point to the Communications Act, which requires prior FCC approval of transfers of station licenses without using the word "sale." And they draw from these premises the conclusion that the "sale" in this case was the AT&T-McCaw merger agreement, while the transfer was the consummation of the transaction. This argument is rejected, as the term "sale" cannot responsibly be read as plaintiffs would read it given the documents executed by these parties.
As both parties have submitted documentary evidence outside the pleadings which the Court has not rejected, and as the Court has considered the Hanson affidavit to the extent outlined above, defendants' motion has been converted by the final sentence of FED. R. CIV. P. 12(b) into a motion for summary judgment. Accordingly, defendants' motion is treated as a motion for summary judgment. The motion for summary judgment dismissing the complaint is granted.
Dated: April 7, 1995
Lewis A. Kaplan
United States District Judge