Outline: Contracts - VI - Parol Evidence Rule

Contracts (Spring 2006, Hull)

VI. PAROL EVIDENCE RULE

1. The Rule – If two parties have made a contract and expressed it in a writing to which both have assented as the complete and accurate integration of that contract, evidence, parol or otherwise, of prior agreements and negotiations will not be admitted for the purpose of changing or denying the writing.
2. Analysis
   1. Is there a written contract?
   2. Is there evidence of prior agreement or contemporaneous oral agreement? Note: PER does not apply to modifications.
   3. Did parties intend writing to be final expression of terms in agreement (partial integration)?
   4. Did parties intend writing to be final expression of all terms of contract (complete integration)? [W.W.W. Associates v. Giancontieri – Extrinsic and parol evidence inadmissible to create ambiguity in written agreement which is complete and clear on its face]
3. Integrated Writing
   1. Detail of contract
   2. Sophistication of parties
   3. Merger clause
   4. Do parties in such circumstances frequently leave things out of written contract?
   5. Form contract
4. Exceptions to Rule
   1. Contracts not even partially integrated
   2. Condition precedent [Scott v. Wall – Contract conditional on obtaining acceptable 3-year lease not enforceable without lease]
   3. Consistent additional term (not completely integrated) [Masterson v. Sine – Where contract is not explicitly integrated (deeds don’t usually cover all details, especially when family involved) and does not address assignability of personal option on real property, PER does not apply]
      1. R.2d 216(2)(b) - Parol evidence is permissible if the unwritten term is such "as in the circumstances might naturally be omitted from the writing."
      2. UCC 2-202, comment 3 – "If the additional terms are such that, if agreed upon, they would certainly have been included in the document in the view of the court, then evidence of their alleged making must be kept from the trier of fact."
   4. Ambiguity – [Frigaliment Importing Co. v. B.N.S. International Sales Corp. – Buyer’s burden to prove narrower meaning of "chicken"]
   5. Course of performance, course of dealing, usage of trade [Columbia Nitrogen Corp. v. Royster Co. – Despite merger clause, evidence of trade usage of “gentlemen’s agreements” admissible where not specifically negated in contract]
   6. Misrepresentation [Keller v. A.O. Smith Harvestore Products, Inc. – Existence of disclaimer does not preclude finding of reliance; evidence of negligent misrepresentation admissible as tort]
      1. R.2d 164 - Misrepresentation
         1. Contracts induced by misrepresentation by one party are void.
         2. Contracts induced by misrepresentation by third party are void unless non-assenting party in good-faith did not know, and gives value for or relies on transaction.
      2. R.2d 196 – Consequences of Misrepresentation – A term unreasonably exempting a party from consequences of misrepresentation is unenforceable.
      3. R.2d 214 – Non-Fraudulent Misrepresentations – Evidence of prior or contemporaneous agreements admissible to establish
         1. Integration of writing
         2. Degree of integration
         3. Meaning (explanatory)
         4. Illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause
         5. Ground for granting or denying rescission, reformation, specific performance, or other remedy
   7. Mistake – "scrivener’s error" – Extrinsic evidence not allowed to contradict terms of contract, but to show contract was not final. [Thompson v. Estate of Coffield – To obtain reformation, seller must show (1) instrument representing prior agreement to be reformed, (2) mutual mistake or mistake by one and inequitable conduct by other, resulting in instrument not reflective of what either intended, and (3) proof of these by clear and convincing evidence.]