Business Law Section

Facts:

Systems West Computer Resources, Inc. (“Systems West”) obtained a one-million-dollar line of credit from KeyBank which was personally guaranteed by Halverson, the President and CEO of Systems West. The line of credit was supported by a loan agreement and corresponding promissory note. While the loan agreement did not identify a specific maturity date, the promissory note required repayment of principal and interest in just over six months. KeyBank agreed to extend the maturity date of the note some seventeen times. When the note finally became due, the borrower and guarantor defaulted. KeyBank brought an action to enforce the loan agreement and promissory note. In response Systems West and Halverson argued alternatively that: (1) the unambiguous terms of the loan obligated KeyBank to continue to extend the maturity date of the note as long as Systems West made timely interest payments; and (2) the loan documents were ambiguous and extrinsic parol evidence (primarily in the form of oral assurances from a KeyBank representative) established the bank’s obligation to continue extending the maturity date of the loan.

Procedural Posture:

Trial court granted summary judgment in favor of KeyBank, Systems West appeals.

Good Business Law Rules:

1. In a fully integrated agreement “parol evidence is admissible only to clarify ambiguous terms; it is not admissible to vary or contradict the clear and unambiguous terms of the contract.” ¶ 15.
2. “[B]efore permitting recourse to parol evidence, a court must make a determination of facial ambiguity.” ¶ 15
3. To determine facial ambiguity: “First, the court must consider any reliable evidence about whether the agreement is facially ambiguous. Second, if the court finds ambiguity, it must ensure that any contrary interpretations of the agreement are reasonably supported by the language of the contract.” ¶ 16.
4. “When determining whether the plain language is ambiguous, we attempt to harmonize all of the contract’s provisions and all of its terms. To harmonize the provisions of a contract, we examine the entire contract an all of its parts in relation to each other and give a reasonable construction of the contract as a whole to determine the parties’ intent. Also, when interpreting the plain language, we look for a reading that harmonizes the provisions and avoids rendering any provision meaningless.” ¶ 19.
5. Extrinsic evidence may be admissible to prove a claim for breach of the covenant of good faith and fair dealing. However, extrinsic evidence is not admissible to vary the explicit terms of an agreement. ¶ 32.

Holding:

The unambiguous language of the loan established that the bank did not have an obligation to continue extending the maturity date. Since the loan documents were not ambiguous, parol evidence regarding alleged bank representations to the contrary were not admissible.