VERGOTE v. K MART CORP.

AFTER REMAND

ALLEN, J.

This action for damages and specific performance arising from defendant's breach of contract to purchase twenty-three acres of a 101-acre parcel of land owned by plaintiffs in Macomb County returns to us pursuant to Vergote v K mart, 125 Mich.App. 48; 336 N.W.2d 229 (1983), lv den 417 Mich. 1100.39 (1983). That opinion held that evidence of oral statements was admissible to determine the threshold question of whether paragraph 10 of the original contract to purchase, as amended following a closing meeting February 1, 1978, was or was not a complete and accurate expression of the agreement reached between the parties. The grant of summary judgment for defendant was revised and the matter was remanded for trial at which the parties' prior oral statements would be admissible.

On remand to the trial court, the parties stipulated that in lieu of presenting proofs in open court the case would be decided upon the pleadings, exhibits, depositions, and briefs as authorized under MCR 2.517. The matter was so decided by the trial court which, in a written opinion issued October 21, 1985, held that defendant had breached the contract to purchase twenty-three acres of plaintiffs' lands. Defendant appeals as a matter of right. Three claims of error are raised, the first being an issue of first impression. We affirm.

The central issue on remand and on appeal to us is the intent of the parties as expressed in the February 1, 1978, amendment to paragraph 10 of the original purchase agreement.1 As initially written, paragraph 10 read:

After negotiations at the February 1, 1978, closing meeting, closing paragraph 10 was amended to read:

On remand to the trial court, defendant argued that the purpose of the February 1, 1978, amendment was to relieve K mart from the obligation of paving the in-between road but at the same time guaranteeing the seller that all of the roads including the in-between roads, would be dedicated. When Macomb County refused to accept dedication of all of the road without the in-between roads also being paved, K mart refused to spend the estimated $92,000 necessary to pave the in-between roads and thus assure dedication.

Plaintiff Leo Vergote argued that in the negotiations leading to the February 1, 1978, amendment, he insisted that dedication of the entire loop road was imperative since it would provide plaintiffs frontage for the acreage not sold to K mart. Vergote stated that he so informed James Schmidt, purchaser's agent, and further told Schmidt that he did not believe Macomb County would accept the entire ring road for dedication without the in-between roads being paved, and that Schmidt then assured plaintiffs that K mart would do "whatever was necessary" to assure dedication of the entire ring road. When K mart refused to go ahead with the deal, Vergote and his wife filed the instant suit for breach of contract.

After reviewing the pleadings, exhibits, depositions and briefs as stipulated by the parties, the trial court issued a written opinion October 21, 1985, holding in plaintiffs' favor. The court found that the amended purchase agreement bound defendant to improve the property by constructing the two side arms of the original loop road. Although defendant was no longer required to improve the in-between road of the loop road, the amended purchase agreement expressly required defendant to purchase and dedicate the connecting road as a road and right of way. Dedication of both the improved and unimproved portions of the road would occur upon completion of the roads and written notice from plaintiffs. The court found that defendant was required to dedicate the roads "as is," viz.: without changing the improvements or utilities that defendant had installed.

The court further found that defendant did not make any inquiries into Macomb County's requirements for acceptance of lands involved for public use. The court noted that paragraph 9 of the purchase agreement provided both the time and opportunity to do so. The court noted that plaintiff had told defendant that his experience with Macomb County led him to believe that they would not accept the dead-end roads for dedication. The court found that defendant did not attempt to look into the accuracy or inaccuracy of plaintiff's statement. The court found that defendant agreed to dedicate the whole road. The court found that defendant's efforts to have the entire road dedicated were not successful since Macomb County would not accept the entire road for public use without the side roads being connected.

The court found that although the amendment negotiated relieved defendant of the obligation to improve the link connecting the two side roads, it also continued defendant's obligation to dedicate the entire road and right-of-way. The court found that defendant's failure to achieve dedication was a breach of contract unless excused. The court rejected defendant's defense of impossibility, stating that defendant knew that acceptance was required to effect the dedication but made no effort to determine the requirements of Macomb County.

The court found that the phrase "acceptance as is" was not a condition precedent to defendant's duty to dedicate the road. The court found that there was no term in the amendment which relieved defendant of its duty to dedicate the road if the county found the road to be unacceptable. The court noted that the testimony of Schmidt indicated that the phrase "acceptance as is" referred to improvements and utilities which defendant had installed. The court noted that this phrase was included to assure that defendant would not have to incur additional costs due to subsequent changes in dedication standards respecting the roads on which defendant installed utility uses. From these findings and conclusions of law, defendant appeals raising three issues.

I

THE APPLICABLE STANDARD OF REVIEW

The parties disagree upon the applicable standard of review to be employed by this Court. Not surprisingly, plaintiffs claim that the appropriate standard of appellate review is the "clearly erroneous" standard. The instant action is a suit in equity. A trial court's decision in an equity action will not be reversed unless the findings are clearly erroneous or that the reviewing court is convinced that it would have reached a different result had it occupied the position of the trial court. Calvary Presbyterian Church v Presbytery of Lake Huron of the United Presbyterian Church in the United States of America, 148 Mich.App. 105; 384 N.W.2d 92 (1986), lv den 425 Mich. 863 (1986). Equity actions are reviewed de novo, examining the entire record, weighing all the evidence and subjecting the trial court's findings to closer scrutiny than would be employed in the review of a jury verdict. Considerable weight is accorded in such cases to the lower court's findings of fact in light of its special opportunity to hear the evidence presented and to see the witnesses before it. In re Conant Estate, 130 Mich.App. 493; 343 N.W.2d 593 (1983).

In response, defendant contends that where, as here, a case is heard upon a stipulated record and the court does not see and hear the witnesses and the evidence consists mainly of deposition testimony, the reviewing court may make an independent evaluation of the sufficiency of the evidence. In such instances, the "clearly erroneous" standard is not applicable. The issue raised is of first impression in Michigan.

Other jurisdictions confronted with appellate review of a trial court's findings of fact upon a settled record in equity cases have rejected the "clearly erroneous" test. In Orvis v Higgins, 180 F.2d 537 (CA 2, 1950), cert den 340 U.S. 810; 71 S.Ct. 37; 95 L Ed 595 (1950), the United States Court of Appeals for the Second Circuit held that, if a trial judge decided a fact issue on written evidence alone, the Court of Appeals would be as able as the trial court to determine the credibility of the witnesses and, hence, could disregard the findings of the trial court. The court also said that, where evidence was partially oral and the balance was written or dealt with undisputed facts, an appeals court could ignore the trial court's findings of fact and substitute its own if the written evidence or some undisputed fact rendered credibility of the oral testimony to be extremely doubtful or if the trial court's findings rested exclusively on the written evidence or undisputed facts, so that its evaluation of credibility had no significance.

In Best Medium Publishing Co, Inc v The National Insider, Inc, 385 F.2d 384 (CA 7, 1967), the Seventh Circuit made a similar ruling when it held that where the only testimony was by deposition the findings of a trial court were not as binding as where the court had an opportunity to observe the demeanor of the witnesses. This ruling was echoed in an Illinois case, where the Illinois appellate court also held that, where the evidence before a trial court consisted entirely of deposition testimony, the appellate court was not bound by the trial court's findings of fact and could make an independent evaluation of the sufficiency of the evidence. Carlson v Carlson, 74 Ill.App.3d 673; 393 N.E.2d 643 (1979).

The Minnesota Supreme Court has similarly ruled that, where the critical evidence is documentary, there is no necessity for a reviewing court to defer to the trial court's assessment of the meaning and credibility of the evidence. The Minnesota Supreme Court stated that the rule of appellate review varies with the character of evidence. If the fact issue is dedicated on written evidence alone, the appellate court may determine credibility and disregard the trial court's finding. Where the evidence is partially oral and partially written, the reviewing court may ignore the trial court's findings of fact and substitute its own if (1) the written evidence or some undisputed fact renders credibility of the oral testimony doubtful or (2) the trial court's findings rest exclusively on the written evidence, so that evaluation of credibility has no significance. In re Trust Known As Great Northern Iron Ore Properties, 243 N.W.2d 302 (Minn, 1976), cert den 429 U.S. 1001; 97 S.Ct. 530; 50 L Ed 2d 612 (1976). Also holding to the same effect, see Lake v Hermes Associates, 552 P.2d 126 (Utah, 1976); In re Thompsons' Estate, 226 Kan. 437; 601 P.2d 1105 (1979); Matthews v R T Allen & Sons, Inc, 266 A.2d 240 (Me, 1970); D & M Development Co, Inc v Sherwood & Roberts, Inc, 93 Idaho 200; 457 P.2d 439 (1969); Leavy, Taber, Schultz & Bergdahl v Metropolitan Life Ins Co, 20 Wn.App. 503; 581 P.2d 167 (1978); Bush v Putty, 566 S.W.2d 819 (Ky App, 1978); Allstate Ins Co v Carr, 119 N.H. 851; 409 A.2d 782 (1979); Robinson v Nevada Immigration District, 101 Cal.App.3d 760; 161 Cal.Rptr. 863 (1980); 5 Am Jur 2d, Appeal and Error, § 823, pp 264-265.

In the instant case, the entire "trial" consisted of depositions and briefs. On remand the trial court never saw the witnesses. Because the proceedings in Vergote v K mart, supra, were resolved by summary judgment, the trial court's opportunity on the two occasions the case was before it to assess the credibility of the witnesses was limited, if in fact it existed at all. Granted that in the six and one-half years of litigation numerous meetings and discussions with the trial judge occurred, and that the respected trial judge thoroughly knew the subject matter and the issues, the situation was still not akin to judging the credibility of the witnesses "live." Therefore, we opine this Court should not defer to the trial judge's findings of fact, but should follow the rule of the other jurisdictions cited above and make our own findings to determine whether the trial court erred. As noted earlier, our decision in this regard is of first impression in Michigan.

Nevertheless, based on our own independent analysis of the stipulated affidavits, exhibits and briefs, we are of the opinion that the trial court did not err in its findings of fact. In particular, we note that paragraph 10 as last amended stated: "the dedication of the improved roads as well as the dedication of the land which is not required to be improved shall occur upon completion of the roads and the written notice from Seller that he desires the roads to be dedicated. Purchaser shall be required to dedicate the roads `as is' and shall not be required to change the roads, utilities and/or other improvements installed by Purchaser." Under this language defendant continued to have the express duty to have the improved and the unimproved portions of the road dedicated.

Contrary to defendant's assertion, the "as is" language does not refer to the unpaved condition of the in-between road. Schmidt's deposition explains "as is" as referring to the utilities that defendant had installed along the in-between road. Schmidt never said that the phrase "as is" referred to the specific condition of the in-between road itself. Stipulations of a contract are not usually construed as conditions precedent unless the court is compelled to do so by the language of the contract plainly expressed. McCall v Freedman, 35 Mich.App. 243; 192 N.W.2d 275 (1971). Nothing in the language of the amendment suggests that acceptance of the roads by the road commission was a condition precedent to defendant's duty to perform by dedicating the road. Therefore, the trial court did not err in finding that there was no condition precedent to defendant's duty to dedicate the roads.

Based upon our own independent review of the stipulated depositions, exhibits and briefs, we find that the defendant did breach its promise to have the entire ring road dedicated. That duty was not conditioned on the performance of third parties. Therefore, defendant is not excused from its breach.

II

ADMISSION OF PAROL EVIDENCE TO VARY THE TERMS OF THE WRITTEN AGREEMENT BETWEEN THE PARTIES

Defendant next argues that the trial court erred when it allowed parol evidence which varied the contract as amended. The specific parol evidence to which objection is taken is the statements in Leo Vergote and Kenneth Hale's depositions that, at the negotiations culminating in the amendment to paragraph 10, Schmidt stated that K mart would do whatever was necessary to get the roads dedicated, even if it took completion of the in-between road. These statements are emphatically denied in the deposition testimony of Schmidt and Fred Gordon.

Parol evidence of contract negotiations, or of prior or contemporaneous agreements that contradict or vary the written contract, is not admissible to vary the terms of a contract which is clear and unambiguous. Central Transport, Inc v Fruehauf Corp, 139 Mich.App. 536; 362 N.W.2d 823 (1984). One prerequisite for the application of the parole evidence rule is a finding that the parties intended the written instrument to be a complete expression of their agreement as to the matters covered; therefore, extrinsic evidence of prior or contemporaneous agreements or negotiations is admissible as it bears on the threshold question of whether the written instrument is such an integrated agreement. NAG Enterprises, Inc v All-State Industries, Inc, 407 Mich. 407; 285 N.W.2d 770 (1979). Indeed when this case was first before us we held that parole evidence could be admitted to determine whether the written contract was intended to be an entirely integrated agreement. Vergote, supra.

We find no error in the trial court's admission into evidence of the parole testimony. Defendant's alleged statement that it would do what was necessary even if it took completion of the in-between road added nothing to what was already required of defendant in paragraph 10 as amended. While that amendment abolished defendant's obligation to pave the entire loop road, defendant was still left with the obligation of securing dedication of the entire ring road. Implicit in the obligation to secure dedication is the duty to do whatever is necessary to secure the acceptance by Macomb County. Therefore, plaintiffs' parole evidence that defendant promised to do "whatever was necessary" to secure dedication did not alter or vary the agreement between the parties.

Assuming, arguendo, that the trial court erred in considering the testimony, the error would be harmless since the trial court did not use the parol evidence in its findings of fact. Instead, the trial court relied on the express language in paragraph 10 as amended that defendant would secure dedication of the entire ring road. Where it appears from the evidence disclosed by the record that the errors complained of could not have affected the result, an appellate court should not reverse. Knoper v Burton, 383 Mich. 62; 173 N.W.2d 202 (1970). Where the absence of alleged errors would not have changed the result, reversal should not be granted. Pelley v Peterbilt Motors Co, 133 Mich.App. 664,; 350 N.W.2d 787 (1984). In the present case, there was sufficient evidence, absent the parole evidence, to sustain the trial court's findings that defendant breached its promise to have the ring road dedicated. (See issue I, supra).

III

UPON WHICH PARTY DOES THE BURDEN OF PAVING THE "IN-BETWEEN ROAD" FALL?

Defendant's final argument is that, in view of what has transpired since the closing, this Court should rule that defendant has so substantially performed its duty under the written contract that Macomb County's unexpected refusal to accept the property does not create liability in the defendant. In support of this, defendant notes that defendant has constructed the side roads to acceptable standards, has installed all utilities, even those in the in-between area, and has put in a road bed for paving of the in-between road. Defendant then states that "since it was the arbitrary action of the Macomb County Road Commission that was not anticipated, and not some ignorance of legal requirements for dedication, a mistake of fact, not a mistake of law, has occurred." Citing Bissel v L W Edison Co, 9 Mich.App. 276, 285-287; 156 N.W.2d 623 (1967), defendant argues that in such circumstances,

The question whether a promisor's liability is extinguished in the event his contractual promise becomes objectively impossible to perform may depend upon whether the supervening event producing impossibility was or was not reasonably foreseeable when he entered into the contract. Risk of nonperformance of a contract should not fairly be thrown upon the promisor, if an unanticipated circumstance had made performance of the promise vitally different from what should reasonably have been within the contemplation of both parties when they entered into the contract. Bissell, supra. In the present case, the rejection by the road commission of defendant's roads should not have been an unanticipated circumstance. Plaintiff had told Schmidt that he did not think that Macomb County would accept the roads without the in-between section being paved. Therefore, the defense of impossibility is not available as grounds for placing the burden of paving on plaintiffs.

We turn now to the main question: Where governmental approval is required in a contract and the government subsequently refuses to give its approval, on which party does the burden of performance rest? We find no Michigan cases directly on point. However, other jurisdictions have addressed the issue. In Helms v B & L Investment Co, Inc, 19 N.C. App. 5; 198 S.E.2d 79 (1973), the North Carolina Court of Appeals held that, where a party enters into a contact knowing that permission of government officers will be required during the course of performance, the fact that such performance is not forthcoming from the government when required does not constitute an excuse for nonperformance.

In The Security Sewage Equipment Co v McFerren, 14 Ohio St.2d 251; 237 N.E.2d 898 (1968), the Ohio Supreme Court held that the risk that the Department of Health would reject plans for a central sewer treatment plant for a residential subdivision was on the construction contractor who had agreed to install and make the plant ready for use and operation. The court said that one who contracts to render a performance for which government approval is required assumes the duty of obtaining such approval, and the risk of its refusal is on him. In Hawkins v First Federal Savings & Loan Ass'n, 291 Ala 257; 280 So.2d 93 (1973), the Alabama Supreme Court held that illegality created by a change in the law subsequent to a contract, making performance impossible, serves as an excuse for nonperformance but illegality due to an unfavorable exercise of discretion by a government official acting under existing law is no excuse for nonperformance.

On the basis of the foregoing authority, we hold that in the instant case the burden of paving the in-between road rests with defendant. Defendant entered into the contract knowing that it would have to secure the approval of the Road Commission of Macomb County. The fact that that permission was not forthcoming is not an excuse for nonperformance. Helms, supra. It is clear from the deposition and stipulated evidence that Leo Vergote would not have signed the contract without adequate assurance regarding dedication of the entire ring road. That assurance was specifically given in the second from last sentence in paragraph 10 as amended that "dedication of the improved roads as well as the dedication of the land which is not required to be improved: shall be secured by the purchaser. It is also clear from the stipulated facts, and the trial court so found, that defendant made no effort to determine Macomb County's requirements for accepting land for public use.

Having found no error on any of the issues raised, the judgment of the trial court is affirmed. Costs to plaintiffs.

Affirmed.