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Contracts II
South Texas College of Law Houston
Page, Phillip E.

A. PAROL EVIDENCE RULE-court decides, substantive fact issue.
1. When applicable, it bars reliance on all prior oral or written evidence. If you have some writing, to what extent can you bring in other kinds of evidence to interpret what that contract is to mean.
2. Before-If you have a written contract, the PER bars everything that happens before that written contract. Keep what actually made it into the contract.
3. After-Anything added after can be admitted. Anything that occurs during the course of performance can be added to what the contract means.
4. Test: Is the document a completely integrated written document or not? -If so, PE bars reliance on all prior oral or written evidence.
-If no->Three elements to determine whether parole evidence rule applies, barring oral evidence (all three must be satisfied to allow PE): (Masterson Case)
1. Is the agreement in the form of a collateral agreement(different but related agreements)?
a. yes – court will not listen parol evidence about the contract prior to the written contract if there is a collateral agreement.
b. no (partial integration-different parts of same agreement) – may allow parol evidence.
2. It must not contradict express or implied provisions of the written contract.
a. parol evidence contradicts writing- PE excluded
b. parol evidence merely supplements or complements writing-
1. Trad- more likely to exclude the PE, looks at the writing.
2. Mod- may allow PE, looking at fairness.
c. Reasonable Harmony Test: is it reasonable that the PE and the writing are harmonious and can be read together?
1. Trad- more willing to say that they do not go together.
2. moderate mod- more willing to say that they will go together
3. extreme mod- must find direct contradiction to not allow PE.
3. Is this term one that the parties would not ordinarily embody in the K? (Mitchell case)
-. Look at industry standards.
a. parol evidence normally or naturally included in writing- PE excluded
b. not normally or naturally in writing-allow FE because it would not normally be in the writing.
b. How detailed is the writing?
c. Can it be easily inserted into the writing?
5. Note: there is always going to be some evidence of parole evidence.
6. Traditional-(Texas) favor the written contract. Traditional courts look only at writing itself.
7. Modern courts- seem to be more willing to allow parole evidence. Modern look at both the parol evidence and writing and consider all together.
8. Exceptions- to always include Parol Evidence-
1. Separate Contract- proof of K cannot be prevented by PE rule. But K can’t be something that would be required by the statute of frauds to be in writing.
2. problem with the negotiations-
a. trad (Texas)- fraud in the inducement of the contract.
b. mod- fraud, mistake, duress, misrepresentations.
3. Regrievences in contract-lack of consideration, illegal contract, condition precedent, no offer/acceptance, etc.
4. writing ambiguous-not sure what writing means, can bring in parol evidence to find what writing was intended to mean.
9. No parol evidence:
1. course of performance
2. course of dealing-look at earlier contracts between the parties. Never parol evidence because it does not deal with this specific contract.
3. usage of trade-standard commercial ways of using language.
10. Warranties and disclaimers- oral promise, but the writing does not have them in it or disclaims them.
1. Trad- customers should read K and PE would contradict, so not allowed.
2. Mod- bring in PE to deal with whether warranty/disclaim to protect weaker party.
3. If warranty and disclaimer conflict, warranty wins out.
11. Policy in support of PE
A. written evidence is more accurate than human memory.
B. fear that fraud or unintentional invention by witnesses interested in the outcome of the litigation will mislead the finder of facts.
11. collateral oral agreement cannot be closely related to subject of written K–Mitchill v. Lath: traditional court. Parol-oral agreement to remove ice house. Writing is for land sale only. Ice house is actually supplementing, but traditional court finds the additional terms to remove icehouse as contradictory to original contract. Court is not sure that this is a collateral agreement. Court is also not sure that this contradicts writing, court is certain that these facts fail the third test as land sale K is very detailed, complete, and it is natural and therefore should normally be included in the writing.
Dissent- more modern. Collateral terms are not always naturally included in writing.
HELD- this cannot be a second contract, because the agreement to remove the icehouse lacks consideration.
12. Partial integration–Masterson v. Sine: Complete v. partial. Modern approach used- There is a land sale with an option to repurchase by the seller. Seller goes bankrupt. Parol evidence is that the option to repurchase is only for the Masterson family. Trustee in bankruptcy claims that they have a right to repurchase as well. Held-The parol testimony as to the limitation of assignment should have been admitted since that term would not necessarily have been included.
-Dissent-traditional approach-only look to writing to determine if something is a complete integration. Option to repurchase does not limit it to just family members. This may contradict the writing.
13. Limitation on PE- Alaska Northern Development v. Alyeska Pipeline: A price was reached on a contract, but there was a clause that the agreement was subject to final approval of the owner committee. A.N.D. contended that the parties understood the subject to approval language to mean that the Alyeska owner committee would review the proposed agreement only to determine whether the price was fair and reasonable. Attempt to limit the writing to a narrower scope.
-writing must be integrated, or formal enough to reflect that the intent of the parties should be taken seriously. However, you can’t use this evidence if it contradicts the final contract.
-HELD-Absence of reasonable harmony between the terms may constitute

ontracted to replace part of P’s steam turbine, agreeing to perform all the work at its own risk and to indemnify P against all loss or liability arising from performance. D agreed to obtain an insurance policy covering liability for injury to property. The liability clause indicated that only third-party property was covered, but P argues that the intention was to cover its property as well. Held-look at both writing and parol evidence. May have turned out differently in Texas under traditional approach, since they are less likely to find ambiguity. Question as to whether certain terms are ambiguous. Court decides to look at parol evidence with contract.
3. Limitation on Pacific Gas-Ambiguity- Kemp Fisheries Inc. v. Castle: Contract for freezing system different than what P felt they had bargained for, but P signed it anyways. No ambiguity in this writing exists. To determine ambiguity-Ask if the writing is reasonably susceptible to more than one type of interpretation. Should be brought in that there was a collateral agreement beyond the ambiguity, and this supplements the writing, is normal and natural, etc…
4. Ambiguity resolved by incorporation by reference–Frigaliment Importing v. BNS: confusion over type of chicken to be exchanged in the contract.
-Terms of agreement- two weights of chickens, term “chickens” used in contract. Uses phrase “grade A” means they may be following terms of USDA. Question of fact. Extrinsic in that the price reveals that it was not about young broiling chickens.
-Course of performance-plaintiffs accepted the second shipment after the first supposed nonconforming shipment suggesting that they were content with the first shipment.
-Course of dealing-first time parties have done business.
-usage of trade-both parties put on witnesses. Defendant was new to the field and did not have reason to know of the usage of the word “chicken”.
However, if there had been a longer standing (ten years in the industry) by the D, then you may have proof that D should have known the usage of the term Chicken.
-Court says that looking at everything, there is nothing that establishes the Plaintiff’s meaning of the term “chicken”, therefore the P has not met its burden of proof.
Exam- given a range of facts some may suggest the factors above-organize the evidence, and then any context outside the contract(extrinsic), and then any course of performance, any course of dealing, any usage of trade.