Parol Evidence Rule - Cha. 21 - Contracts

2 Types of Evidence - Parol Rule

1. Contradictory Evidence. 2. Consistent Additional Terms (supplementary evidence).

Exceptions Chart

1. Determine Integration - Is the writing a partial or total integration? 2. Determine admissibility of evidence - Is the evidence contradictory or a consistent additional term? 3. Consider Exceptions - If the evidence cannot be admitted, does one of the five exceptions apply?

Collateral Agreements with Separate Consideration

A collateral contract is one where the parties to a contract had also agreed to enter into a second related (i.e., collateral) contract for a separate consideration. The collateral agreement is typically one that is important to the overall transaction. The collateral agreement must be independent of the primary contract in terms of meeting all of the formation requirements of a contract, including a separate consideration. Additionally, the terms of the collateral contract must not conflict with the terms of the primary agreement. Finally, the collateral contract must be one that the parties would not ordinarily be expected to embody in the integrated writing.

Merger Clause

A merger clause (also called an "integration clause") is a statement in the written contract that explicitly states that the writing represents the entire agreement between the parties. Attorneys include a merger clause in most contracts in an attempt to show that the parties intended to create a totally integrated agreement.

Partial Expression

A partial expression of the parties' agreement is referred to as a partial integration, which means that the parties intended that document to reflect only part of their agreement. Similar to a total integration, the document must still be a final expression of the parties' agreement. Unlike a total integration, the writing for a partially integrated document is not a complete expression of their agreement. Some of the terms are missing from the document but can be explained through parol evidence.

Issue Spotting: Analytical Framework - The parol evidence rule arises as a legal issue in the following factual scenario:

At least two parties entered into a contract, and there is a writing that is evidence of the contract. One party asserts that the writing (and only the writing) contains all of the terms of their agreement. The other party asserts that there was an oral agreement (or some other writing) that reflects some of the terms of their agreement.

Evidence Offered to Interpret an Ambiguous Term

Evidence offered to interpret an ambiguous term is not precluded by the parol evidence rule. However, one issue that arises in a classic jurisdiction is what evidence can be considered to conclude that the term is ambiguous. In a classic jurisdiction, the term has to be ambiguous on its face in order to consult extrinsic evidence as to meaning.

Showing of Fraud, Mistake, Duress, Undue Influence, or Other Voidability

Extrinsic evidence (even if it contradicts the writing) is admissible if it goes to show that one party has a defense (e.g., incapacity, duress, or fraud) or if there is some other factor that makes the contract void, such as a lack of agreement during the bargaining process or lack of consideration.

Condition Precedent to the Formation of a Contract

In some situations, the parties have drafted a written agreement that is totally integrated; however, they have also agreed (orally or in a different writing) that there is a condition (i.e., some event) that must occur before the fully integrated agreement takes effect.

Parol Evidence Rule Exceptions

The parol evidence rule does not bar the introduction of: a. Evidence offered to interpret an ambiguous term. Subsequent agreements (oral or written). b. Showing of fraud, mistake, duress, undue influence, or other voidability. c. Collateral agreements with separate consideration. d. Condition precedents to the formation of a contract.

Parol Evidence Rule

The parol evidence rule is the method courts use to determine whether a jury can hear evidence other than the writing to determine the duties of the parties. The purpose behind the parol evidence rule is to "protect written contracts against perjured or otherwise unreliable testimony of oral terms. "When the parties to a written contract have agreed that the writing is a final and complete expression of their agreement, then a court shall not admit extrinsic evidence of prior or contemporaneous agreements that supplement or contradict the writing. If the writing is only a partial expression of the contractual terms, then the writing cannot be contradicted but can be supplemented by evidence of consistent additional terms."

Subsequent Agreements (Oral or Written)

The parol evidence rule only pertains to prior or contemporaneous agreements. Consequently, if the parties make an agreement after contract formation, it will be admissible since the evidence pertains to something that occurred after formation.

What is Parol Evidence?

The word "parol" literally means "oral"; however, the meaning of "parol evidence" has expanded to include any extrinsic evidence—either oral or another writing. Extrinsic evidence merely refers to any evidence of the agreement outside of the writing that is purported by one party to be the final and complete expression of their agreement.

Final

The writing must be final in order to exclude preliminary drafts of an agreement that were used in the negotiation process. As parties negotiate, terms may change, so it makes sense that the courts would not consider these preliminary drafts.

Consistent Additional Terms

To be a consistent additional term, the term must not conflict with existing terms. This supplementary evidence cannot be inconsistent with the rest of the contract. Consistency is determined by interpreting "the writing in the light of all the circumstances, including the evidence of the additional term." Inconsistency in terms has been defined as "the absence of reasonable harmony in terms of the language and respective obligations of the parties." Consider the following case.

Complete

To be complete merely means that no other terms were agreed upon other than those in the writing.

Outcomes: Three Possibilities - After applying the appropriate jurisdictional test for the first step, courts come to one of three possible conclusions:

Total Integration The document reflects both the final and complete agreement of the parties. This is also referred to as a "full integration" or "complete integration." Partial Integration The document reflects the final agreement of the parties as to only some of the terms, but it is not complete. No Integration The document does not reflect the final agreement of the parties.

Determining Integration

Traditionally, courts break the analysis of integration into two questions: Did the parties intend the writing to be a final expression of at least some terms of their agreement? The purpose of the first question is to exclude preliminary drafts of an agreement. If the answer is yes, then we know that at least part of the agreement was integrated. If the answer is no, then we know that there is no integration. If the writing is final, then did the parties intend the writing to be a complete expression of all of the terms of the agreement? The second question focuses on the degree to which this integrated writing is the complete expression of the agreement. This second question is important to determine whether the agreement is totally integrated or partially integrated. There is a jurisdictional split on how to determine whether a writing is a total or partial integration. The different approaches turn on whether a judge considers only the writing itself or all of the surrounding facts and circumstances to determine the intent of the parties.

UCC Parol Evidence or Extrinsic Evidence

UCC §2-202 does not use the term "integrated" and instead refers to a "final expression" to convey the same concept. If the agreement is a final expression, then contradictory evidence is excluded but consistent additional terms are allowed. This is the same result as in a partially integrated agreement under the common law.

Modern Jurisdiction (Majority Rule)

Under the modern jurisdiction, a judge may consider all of the surrounding facts and circumstances to determine whether a writing is integrated. The presence of a merger clause creates a strong presumption of integration but is not dispositive.

Classic Jurisdiction Approach (Minority Rule)

Under the restrictive view, if a writing appears to be complete and unambiguous on its face, then the terms can only be determined from the four corners of the writing and not from extrinsic evidence. The presence of a merger clause is dispositive, and an agreement with a merger clause is automatically deemed to be totally integrated in a classic jurisdiction. This is referred to as the "four corners" test because the judge can only consider what is written within the four corners of the writing. If the writing by itself appears to have all of the terms necessary to carry out the intentions of the parties, then it is considered completely integrated.

Total Integration

When a written document is the final and complete expression of the parties' terms, it is said to be a total integration. A total integration means that all terms of the contract have been combined (i.e., integrated) into one single written document. Courts sometimes refer to this type of integration as a "totally integrated agreement" or "fully integrated agreement."