CONTRACTS - The Parol Evidence Rule

Integrated Writing/Merger Clause

A merger clause indicates that a written contract entails the final expression of an agreement, that integrates all aspects of the contract into a binding contract. A merger clause includes a statement such as, "this contract is specifically limited tot he terms herein." Such a contract may not be later supplemented or contradicted. Under the traditional or Four Corners Rule, a court would look only at the four corners of the document itself, and the information contained therein, in order to determine if a contract was fully integrated. Under the modern or Corbin view, all available evidence and testimony may be used to interpret the intent of the parties, even if there is a total integration.

Exceptions: Partial Integration

A partial integration is not intended as a total integration, and therefore extrinsic, or parol evidence, such as verbal terms and understandings, may be introduced to supplement consistent additional terms.

Course of Dealing

Course of dealing considers the manner in which the parties conducted themselves in previous contracts. Evidence is used from course of dealing, when the court did not garner enough information from which to fashion missing terms from a course of performance analysis.

Course of Performance

Course of performance considers the manner in which the parties conducted themselves in the current contract. Information gained from an analysis of the course of performance of the parties is considered the best evidence through which to clarify uncertainty.

MISSING TERMS

For a partially integrated contract, courts will generally supply missing terms if it is apparent that the parties wanted to bind themselves to certain components of a contract, and there is a reasonable way for the court to go about formulating the missing terms. The court will normally impose a duty of good faith on each party.

Usage of Trade

If needed, courts will consider evidence of the practices and methods that occur with regularity in a trade/profession, in order to fashion missing terms.

Common Law Methods of Interpretation

In interpretation of a common law contract, courts will normally give the primary purpose of the contract great weight. Ambiguous terms will be construed against the drafter of the contract, because the drafter had the power to use more specific language. Negotiated terms will rule over standardized/boilerplate terms contained in standard form printed agreements. Handwritten terms will rule over typed terms. Specific disclaimers will be honored, worded prices control over numeric prices, statutes control if no language is included about specific points, and oral agreements as to enforceability of a duty owed will generally be allowable as evidence.

Exceptions: Contract Defenses

Parol, or extrinsic, evidence may be used to show evidence of duress, ambiguity, mistake, fraud, subsequent modifications, oral condition precedent, illegality or lack of consideration.

UCC Customs of Interpretation

UCC contract are normally interpreted by customs with include:

PAROL EVIDENCE RULE

Under the parol evidence rule, evidence of other prior or contemporaneous agreements may not be introduced to vary or contradict the terms of a fully integrated writing. The purpose of the parol evidence rule is to prevent fraudulent claims.