Hield v. Thyberg
1984 Minn. LEXIS 1333, 347 N.W.2d 503 (1984)
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Rule of Law:
When a party claims that the consideration in a complete and unambiguous written contract was intentionally misstated to mislead or deceive a third party, parol evidence is admissible to prove the actual agreement, but the proponent of the oral agreement bears the burden of proving their claim by clear and convincing evidence.
Facts:
- Willard R. Hield and Edwin R. Thyberg were co-owners of a corporation, Beauticians Supply, Inc.
- In the spring of 1977, Hield, who was experiencing financial difficulties and had personally guaranteed a corporate loan, negotiated the sale of his half-interest in the company to Thyberg.
- On June 10, 1977, the parties met to finalize the deal. Thyberg presented a typed 'Assignment' document with a blank space for the consideration.
- Hield alleged they orally agreed on a total price of $50,000, consisting of $15,000 in cash and a subsequent $35,000 promissory note.
- Hield claimed the written contract was made to show only $15,000 because Thyberg did not want the larger debt to appear on his balance sheet when applying for an SBA loan.
- The corporation's attorney warned Hield that misrepresenting the sale price for the loan application could be viewed as complicity in fraud.
- Hield signed the 'Assignment' document, which stated the consideration was $15,000, and accepted a check for that amount.
- Thyberg paid the $15,000 but denied any agreement for an additional payment, claiming the written document represented the entire deal.
Procedural Posture:
- Willard R. Hield sued Edwin R. Thyberg in a state trial court for breach of contract and fraud.
- At trial, the court denied Thyberg's motion to exclude Hield's parol evidence regarding the alleged oral agreement for additional payment.
- The trial court dismissed the fraud count but allowed the contract claim to go to the jury.
- The jury found in favor of Hield, awarding him $35,000 plus interest.
- The trial court entered judgment for Hield pursuant to the jury's verdict.
- Edwin R. Thyberg, the defendant, appealed the judgment to the Minnesota Supreme Court.
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Issue:
Does the parol evidence rule prevent a party from introducing evidence of an oral agreement that contradicts the written contract's stated consideration, when it is alleged the written amount was used to mislead a third party?
Opinions:
Majority - Simonett, J.
No. When a party alleges a written contract was created with a false term to deceive a third party, the parol evidence rule does not bar evidence of the true agreement, but the party seeking to vary the written contract must prove their claim by a heightened standard of clear and convincing evidence. The general parol evidence rule bars outside evidence from being used to contradict the terms of a complete written contract. However, an exception exists where a contract is alleged to be a 'sham' created to mislead others. Citing precedent like Summit Mercantile Co. v. Daigle, the court reasoned that to prevent written contracts from being 'lightly set aside,' a party making such a serious claim must meet a higher evidentiary burden than the typical 'preponderance of the evidence.' Because the trial court allowed Hield's parol evidence but instructed the jury using the lower standard of proof, the verdict cannot stand and the case must be retried with the correct jury instruction.
Analysis:
This decision establishes a significant exception to the parol evidence rule in cases involving alleged deception of a third party. It balances the strong policy of enforcing written contracts as final expressions of an agreement against the need to uncover potential fraud. By requiring a 'clear and convincing evidence' standard, the court creates a high bar for parties seeking to contradict a clear written term, thus deterring frivolous claims while still permitting valid ones to proceed. This ruling provides a pathway for courts to look beyond the four corners of a document in specific, quasi-fraudulent circumstances, shaping how future cases involving sham or misleading contracts are litigated.
