THE PAROLE EVIDENCE RULE
TO KEEP PREVIOUS OUT PREVIOUS NEGOTIATIONS :any of the 3
IN ORDER TO GET PREVIOUS WRITING/ORAL STATEMENTS –
Must get all 3
1. The contract is a Complete integration OR
1. Partial/collateral agreement AND
2. If previous negotiations Contradict the writing
2. Complements/supplements agreement
3. Normally or naturally included
(note: UCC uses “certainly be included” – easier for PE to come in)
3. Not normally or naturally included
RULE: If there is writing where you have a contract, you will look to the writing to determine what that contract means (terms, parties, price, etc.). The written contract takes precedence over previous oral and written negotiations.
Excluded if ANY are satisfied (TRADITIONAL APPROACH/ TEXAS):
The agreement is complete,
The PE contradicts express or implied provisions of the written contract; “NO reasonable harmony”
The parties would normally/naturally be expected to embody the PE in the writing. (Mitchell v. Lath)
Exam tip: Discuss all three of these factors, although only one is needed to exclude.
Included if ALL are satisfied (MODERN APPROACH):
The agreement is partial in form (the parole evidence is collateral),
Determining Complete v. Partial Integration
· MODERN APPROACH: look to the writing and the PE to determine whether or not the agreement is complete. (Rest. 2d sec. 209(3); UCC 2-202)
· TRADITIONAL APPROACH/ TEXAS: look only to the writing, NOT the PE
The PE supplements express or implied provisions of the written contract; “reasonable harmony”
Does the PE contradict or supplement the writing (argue both sides)
o That it contradicts (inevitably different in some respects)
o That it complements (because new, not directly contradictory)
TRADITIONAL APPROACH/ TEXASàLook to the writing itself. Normally contradicts and will be typically excluded and stick w/ the writing
Extreme MODERN APPROACHàBasically if there is not a direct contradiction the ct will look to the PE to determine there is a collateral agreement along w/ the writing.
Moderate MODERN APPROACHàInconsistency in the terms, in the absence of reasonable harmony may contradict
o Dealing w/ business entities the cts will not go out of there way as much to find a reasonable harmony (as opposed to dealing w/ a weaker party)
The parties would NOT normally/naturally be expected to embody the PE in the writing.
Merger/Integration Clause – states that the writing is a complete integration of the contract terms. (An attempt to prevent PE) Courts today use the merger clause as evidence of complete integration (not conclusive evidence).
TRAD– really good evidence of complete integration
MODERN APPROACH– could possibly just be boiler plate language (because topic is not in the writing it is easier to get in)
Patent Ambiguity – ambiguous on its face so no need to look outside the k.
Latent Ambiguity – appears unambiguous on its face but when applied to case it is ambiguous so court must look outside of k.
Ambiguity – PE used to clarify ambiguity in the contract terms (previous negotiations discussed the meaning of terms, but was left out of the writing).
TRADITIONAL APPROACH/ TEXAS: look to the writing to determine ambiguity. If the writing is clear, then they do not even consider PE.
MODERN APPROACH/MAJORITY: look to the writing and the PE to determine if there is an ambiguity.
o MODERN APPROACH courts more concerned with fairness.
Interpreting Terms of the Contract/Agreement:
A. Intrinsic (four corners)
1. Literal Terms: plain meaning rule.
2. Liberal Rule (purposive) § 202(1) – party intentions. Look at the context the PE was given in.
a. Verbal Maxims: read in light of its industry/circumstances. Ex: rules of grammar construe technical words technically
i. Noscitur a sociis à a word may be affected by its immediate context (meaning of a word in a series may be affected by others in the same series)
ii.Ejusdem generic à a term joined w/ a specific one will be deemed to include only things that are alike (of the same genus as the specific one)Ex: S contracts w/ to sell B his farm together w/ the cattle, hogs and other animals (house dog will not be included but a sheep might)
relying on prior representations would prevent PE
MODERN APPROACH – fraud concerned with misrepresenting promises in the k itself is sufficient (Rest. 2d sec. 214). Merger clause is not always given the same effect if equitable considerations counsel otherwise. (PP)
o Deficiency in Formation – deficiency in the contract (i.e. PE suggests lack of consideration, sham bargain (consideration not paid), false recital, or shows illegality.
TRAD – only defenses outside the contract (fraud in the inducement, was recited consideration paid, did a condition exist)
MODERN APPROACH – can show any of the above and recited promise was fraudulent, the merger clause is false, the actual consideration differs from what was recited, the condition precedent varies the writing.
RESTATEMENT APPROACH TO INTERPRETATION: OBJECTIVE
Cts are more willing to strive to reach an interpretation once performance under a k has begun (prior to that it is easier to assume it means a lack of mutual assent and conclude that no k has been formed) The Rest sections below apply:
· § 201: Construe against the party who knows or has reason to know about the ambiguity and did not resolve it. If no one has reason to know of the ambiguity, this test does not apply. Most courts will apply this test as part of the policy maxim analysis of an entire contract interpretation test.
· § 20 – Misunderstanding (goes to misunderstanding at the offer/acceptance stage) – if neither party knew or had reason to know of the meaning, there is no valid contract. This applies if the contract can be untangled (unlike §201 where performance has begun). When a contract has been partially performed, this is very unlikely. This is a separate test and is NOT applied in addition to the Frigaliment test.
CISG & INTERNATIONAL REGULATIONS
· These courts consider all of the evidence, all the time. There is NO PE rule.
Foreign courts often begin with a subjective analysis, then objective.