Contracts- Adhesion Contracts and parol evidence

Parol Evidence Rules

"When two parties have made a contract and have expressed it in a writing to which they have both assented as the complete and accurate integration of that contract, evidence, whether parol or otherwise, of antecedent understandings and negotiations will not be admitted for the purpose of varying or contradicting the writing." What might be kept out? Conversations about the signing of the contract Prior drafts and other writings that are not part of the written contract Comments from the defendant or plaintiff who are in a breach of contract case

All circumstances approach

A binding INTEGRATED AGREEMENT discharges prior agreements to the extent it is inconsistent with them. R.2d § 213(1) A binding COMPLETELY INTEGRATED AGREEMENT discharges prior agreements to the extent they are within its scope. R.2d § 213(2) Where there is a binding agreement, either partially or completely integrated, evidence of prior or contemporaneous agreements or negotiations is not admissible in evidence to contradict a term of the writing, EXCEPT AS PROVIDED IN R.2d 214. R.2d § 215

210

Completely and Partially Integrated Agreements 1) A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement. 2) A partially integrated agreement is an integrated agreement other than a completely integrated agreement. 3) Whether an agreement is completely or partially integrated is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule.

Taylor v State Farm

Court applies all circumstances approach Court should begin by looking at evidence alleged to determine extent of integration, illuminate meaning of contract, or show parties' intent. Parol evidence rule should not be applied in a way to substitute judge's perspective for parties' actual intent. While ambiguity may be relevant to admission of parol evidence, it is not the only linchpin of a court's decision. "The better rule is that the judge first considers offered parol evidence and, if he or she finds the contract language is 'reasonably susceptible' to the interpretation asserted by its proponent, the evidence is admissible to determine the meaning intended by the parties." Note, what are respective roles of judge and jury here? It is for the court to decide, as a question of law, whether the contract language is "reasonably susceptible" to more than one interpretation so that extrinsic evidence is admissible for fact-finding. The fact-finder, in this case the jury, then must consider all the admitted evidence and interpret the contract.

Thompson v Libby

Court determines we have a complete agreement by looking at the face of the agreement Parol evidence can be used to interpret the contract, just not to add to or vary the contract: "Parol evidence of extrinsic facts and circumstances would, if necessary, be admissible, as it always is, to apply the contract to its subject-matter, or in order to provide a more perfect understanding of its language. But in such a case such evidence is used, not to contradict or vary the written instrument, but to aid, uphold and enforce it as it stands."

Modern (all circumstances approach)

Determine extent of integration in light of all surrounding circumstances How can an agreement prove its own integration? (R2d § 210 comment b) Corbin Restatement (Second) of Contracts; many courts UCC Article 2

Merger Clause

Entire Agreement. This document constitutes the entire agreement of the parties and there are no representations, warranties, or agreements other than those contained in this document. "This agreement signed by both parties constitutes a final written expression of all the terms of this agreement and is a complete and exclusive statement of those terms, as confirmed by the parties' initials in the margin opposite this paragraph."

Fraud exception

Generally, there is a fraud exception to the parol evidence rule. However, if fraud directly relates to the subject of the contract: Some courts will apply the parol evidence rule and bar the evidence (majority ruling in Sherrodd) Some courts will recognize the exception and not apply the parol evidence rule, even where there is merger clause (dissent in Sherrodd) Restatement 2d § 214(d): Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish . . . illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause . . . .

Traditional Approach

Initial Q: Is there an INTEGRATION (a writing intended as the final expression of the parties' agreement)? Is it COMPLETE or PARTIAL? Is issue for COURTS as initial matter. Courts examine face of document (FOUR CORNERS) to ascertain whether it is an integration, and whether it is complete or partial. MERGER CLAUSE may well lead court to treat writing as a COMPLETE (FULL) integration. Even if there is an INTEGRATED AGREEMENT, extrinsic evidence may be admissible in some cases to determine the MEANING of terms/phrases, etc. Questions of INTERPRETATION should be handled by the COURT as a MATTER OF LAW unless there is an AMBIGUITY. If it adheres rigidly to the 4-corners approach, the COURT will determine whether there is an ambiguity based on the PLAIN MEANING of the document. [See note 3, p. 449 for relationship between 4 corners and plain meaning approaches.] If the court finds an ambiguity, the question of interpretation will be handled by the TRIER OF FACT (a jury in jury cases, the court in bench trials).

RST 213

Integrated Agreementon Prior Agreements 1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them. 2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope. Put differently... If a contract is partially integrated, then it cannot be contradicted by extrinsic evidence, but may be supplemented by additional consistent terms. If a contract is fully integrated, not only may it not be contradicted, but it also may not be supplemented.

209

Integrated Agreements (1) An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.

Promissory Estoppel v Parol Evidence Rule

Majority of courts will not allow claims of promissory estoppel in order to avoid the parol evidence rule. But there are a handful of cases that have allowed parties to proceed with claims of promissory estoppel notwithstanding the parol evidence rule.

Limits on exception to parol evidence rule

Parol evidence rule does NOT apply to extrinsic evidence offered to explain the MEANING of an agreement. (Standards on admission vary, however. Remember last reading.) R2d § 214(c), R2d § 212 (2), p.434 Parol evidence rule only applies to agreements, negotiations BEFORE or CONTEMPORANEOUS with the writing, NOT AFTER. See p.435. Rule does not apply to evidence offered to show that agreement was subject to an oral condition precedent. R2d § 217, p. 435 Rule does NOT apply to evidence offered to show agreement is INVALID for any reason (fraud, duress, undue influence, mistake, illegality). R2d § 214(d). See notes pp. 435-36. Rule does NOT apply to evidence offered to establish a right to an EQUITABLE remedy, such as reformation, specific performance, etc. R2d § 214(e). Rule does NOT apply to evidence introduced to establish a "COLLATERAL" agreement between parties. R2d § 216(2).

Question of interpretation is for who?

Question of interpretation is for TRIER OF FACT if it depends on the credibility of extrinsic evidence or a choice among reasonable inferences to be drawn from extrinsic evidence. R.2d § 212(2) PAROL EVIDENCE may be admitted to show the meaning of the language used. R.2d § 214(c)

R2d 211

Standardized Agreements (1) Except as stated in Subsection (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing. (2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing. (3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.

If there is only a partial integration

evidence of a CONSISTENT ADDITIONAL TERM is admissible to SUPPLEMENT the integrated agreement. R.2d § 216 All circumstances approach: the parol evidence rule UCC 2-202 Terms with respect to which the confirmatory memos of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression [INTEGRATION] of their agreement with respect to such terms as are included may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement. UCC 2-202. Even if there is integration, writing may be EXPLAINED by course of performance, course of dealing, usage of trade. UCC 2-202(a)

Rst view - use of parol evidence rule

To determine the level of integration To supplement a partially integrated contract To determine whether a contract term is ambiguous [or whether the language of the contract may be "reasonably susceptible" to a particular interpretation] To interpret a term in a contract

Restrictive View - use of parol evidence

To supplement a partially integrated contract To interpret an ambiguous contract

When looking at integration

Where parties make writing that looks like a complete agreement, it is taken to be integrated UNLESS IT IS ESTABLISHED BY OTHER EVIDENCE THAT THE WRITING DOES NOT CONSTITUTE A FINAL EXPRESSION. R.2d 209(3); R.2d 210 comment b; R.2d 214(a), (b); R.2d 216(2) Merger clause is NOT conclusive (R.2d 216 comment e) The INTERPRETATION of an integrated agreement is directed to the meaning of the terms of the writing(s) IN LIGHT OF THE CIRCUMSTANCES. R.2d § 212(1) Comment b: ...meaning can almost never be plain except in a context. Accordingly, (1) is not limited to cases where it is determined the language is ambiguous. Any determination of meaning or ambiguity should only be made in the light of the relevant evidence of the situation and the relations of the parties, the subject matter of the transaction, preliminary negotiations and statements made therein, usages of trade, and the course of dealing between the parties.

Adhesion Contract

a contract (also known as a contract of adhesion) between two parties, where the terms and conditions are drafted by the party with superior bargaining power (typically a business) and the other party (typically a consumer) has little or no ability to negotiate more favorable terms, and, as a result, the consumer is placed in a "take-it-or-leave it" position. The courts carefully scrutinize adhesion contracts and will sometimes void certain provisions on the basis that the provisions are unconscionable or the product of unequal bargaining power. --[Definition from the website of IRMI (Insurance and Risk Management Institute)]

Express terms of COP COD and UT

should wherever possible be read as CONSISTENT. UCC 1-205, 2-208 If such construction is unreasonable, express terms > COP > COD > UT. Courts vary in their willingness to admit COP, COD, UT if it appears to contradict express terms... See Nanakuli (next reading). If integration is only PARTIAL, the agreement may be SUPPLEMENTED by evidence of CONSISTENT ADDITIONAL TERMS. UCC 2-202(b). Comment 3: Consistent terms may be proved unless writing was intended to be complete and exclusive. If court finds that "if agreed upon, they would certainly have been included in the document . . . Then evidence of their alleged making must be kept from the trier of fact."

Completely Integrated Agreement

with EXTRINSIC evidence (written or oral) of prior (or contemporaneous) agreements or negotiations. When the writing is intended to be final only with respect to a part of their agreement (PARTIALLY INTEGRATED), the writing may not be contradicted, but may be SUPPLEMENTED with extrinsic evidence.

things to look for with ambiguity

· And or · Lacking information · Characteristics or classes · Conditions/criteria : cumulative or alternative · Placement of modifiers · Never include a provision in a contract which you do not understand! Consider possible alternative meanings. · "Company shall renegotiate the Agreement with Customer if its expenses are greater than predicted." When Revising formatting use outline formatting