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Nelson v. Elway | 908 P.2d 102 (1995)

Generally, if parties have a fully integrated agreement, or a contract containing all terms agreed upon, evidence of prior or contemporaneous communications that would add to the terms of the contract is inadmissible. However, if parties have a partially integrated agreement, or a contract that doesn’t contain all terms agreed upon, only evidence of prior or contemporaneous communications that are inconsistent with the written contract is inadmissible. In Nelson versus Elway, the Colorado Supreme Court considered whether parties had a fully integrated agreement when their written contract contained a merger clause.

Mel Nelson owned Metro Auto and Metro Toyota in Denver, Colorado. In addition, General Motors Acceptance Corporation, or G M A C, provided all the financing for both dealerships.

In nineteen ninety, the dealerships began going through financial difficulties. Consequently, Nelson hired John Pico to represent him in the sale or refinancing of the dealerships.

In early nineteen ninety-one, Pico, acting for Nelson, entered negotiations to sell Metro Toyota to John Elway and Rodney Buscher. The parties then reached an agreement and signed buy-and-sell agreements and real estate contracts containing merger clauses.

Afterward, Pico began negotiating the sale of both Metro Toyota and Metro Auto in a package deal to Elway and Buscher. However, through these negotiations, it became apparent that Elway and Buscher weren’t willing or were unable to meet the full purchase price that Nelson was seeking.

To get a deal done, Pico suggested the parties enter into a service agreement. Under the agreement, Elway and Buscher would reimburse Nelson for his interest in Metro Toyota by paying him fifty dollars per vehicle sold by both dealerships for seven years. In exchange, Elway and Buscher would purchase Metro Auto from Nelson at a reduced price. The parties then agreed to this arrangement and reduced it to writing, but the writing was never signed.

At the time, the dealerships owed G M A C more than three million dollars. When Elway and Buscher met to sign the service agreement, G M A C informed them it would pull all financing for the dealerships if Nelson received any proceeds from the sale. Elway and Buscher then informed Nelson that they wouldn’t sign the service agreement.

Subsequently, Elway and Buscher refused to honor the service agreement. Nelson then sued in state district court for, among other things, breach of contract. In response, Elway and Buscher moved for summary judgment, which the court granted. In so doing, the court found the merger clauses in the buy-and-sell agreements precluded it from considering evidence that the service agreement was a part of the overall contract between the parties. Nelson appealed to the court of appeals, which affirmed in part and reversed in part. The Colorado Supreme Court granted cert.

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