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Contracts II
South Texas College of Law Houston
Kelso, R. Randall

Parol Evidence Rule
–          When a written document is present, interpretation of contract must be based on writings.
–          Bars reliance on all prior oral or written evidence – PER
–          Integration
o   Integration if the written document expresses the completion of the agreement and limits all terms to the current writings.
o   Complete Integration
§  If the written document if fully integrated then the parol evidence rule bars the reliance on all prior oral or written documents.
o   Partial Integration (Collateral Agreements)
o   If the written document is not fully integrated, consider the following factors:
                                                                    I.            Is it in the form of a collateral agreement?
                                                                  II.            The agreement must not contradict express or implied provisions in the written document.
                                                                III.            The parol evidence must “normally or naturally” not be included in the writings.
·         UCC 2-202 says parol evidence may be admitted unless the “term” would have certainly been included in the writings.
o   Traditional view makes it harder to admit parol evidence by considering most written documents as complete integration whereas, the modern view is more lenient in allowing parol evidence by looking for ways to admit parol evidence and letting the court determine the truth.
o   It is a question of fact for the court, not for the jury.
o   Merger/Integration Clause
§  Clause that expressly states the writing is the complete agreement and all prior agreements are unenforceable.
·         “These writings represent all terms of the agreement”
§  Is good evidence of complete integration.
o   Exceptions to Parol Evidence Rule
1.       Separate Contract
·         If the proposed parol evidence is actually a separate contract, proof of the contract can’t be prevented by relying on the parol evidence rule to interpret a different, but separate, contract.
2.       Fraud, Mutual Mistake, Accident, or Duress
·         These defenses can be admitted without regard to the Parol Evidence Rule to prove that the writing shouldn’t be enforced against you.
3.       Deficiencies in the Contract
·         Lack of Consideration
·         False Bargain
·         Illegal Contract
·         Condition Precedent
o   The condition is in Parol Evidence and that evidence is needed to prove the contract can’t be executed.
4.       Contract Interpretation
·         To help aid interpretation when language of written instrument is ambiguous
–          Ambiguity/Vagueness – Must prove the writing is ambiguous.
o   Traditional Courts will only look at writing to determine if ambiguous.
o   Modern Approach will look at parol evidence to help decide if writing is a

                 II.            Reasonable commercial standards of fair dealing
o   Bad Faith
                                                                    I.            Trying to recapture a forgone opportunity
–          Best Efforts – establishes a higher standard for performance which goes beyond good faith
o   Best Efforts is implied in certain contracts (Fiduciary and Confidential)
                                                                    I.            Best Efforts can be disclaimed (waived) in contract
o   Good faith cannot be disclaimed in a contract
–          Good faith cannot be waived with express language in K
–          Trier of fact/jury decides as a matter of law whether the facts support a finding of good/bad faith.
–          Special Cases – Satisfaction Clause – Subjective vs. Objective Intent
–          Dodd Franks Act – Lender liability for mortgages requires good faith determination that the lender will be able to repay the loan. (Prohibits Sub Prime loans, Usury)
–          UCC 2-307
o   Requirements and Output Contracts where selling and buying must be made in Good Faith
–          UCC 2-306
o   Types of contracts that require best efforts