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Contracts II
South Texas College of Law Houston
Powers, Jean Fleming

CONTRACTS II – Powers FALL 2016
 
 
THE PAROL EVIDENCE RULE
DEFINITION
When two parties have made a K and have and have express in a writing to which they have both assented as the complete and accurate integration of that K, evidence whether parol or otherwise of prior understandings or negotiations will not be admitted for the purpose of varying or contradicting the writing
Operates in situations where there is a writing that represents the final embodiment of the K or some of its terms. The rule governs whether parties may introduce evidence of extrinsic agreements to prove the existence of additional or modified terms.
Bars the inclusion of terms that are contradictory or within the scope of the K and were created prior to or contemporaneous with the integrated written document (final expression)
Even if PER excludes evidence, may have a cause of action for fraud or other K action that may make the writing worthless
The person who is trying to exclude the evidence that is not in the writing will raise the parol evidence rule, he then must prove that the writing was created with mutual intention to be final and complete
The judge will then evaluate all relevant evidence to establish the intent of the parties and see if they intended the writing to be final and whether the evidence should came in or not
PER will not be accepted to vary/add/contradict the terms of written agreement
Does NOT bar extrinsic evidence for the following:
Interpretation of existing terms
Show that a writing is or is not an integration
Establish that an integration is complete or partial
Establish subsequent agreements or modifications by the parties
Show illegality, fraud, duress, mistake, lack of consideration or other invalidating                      
Inconsistent terms will not be allowed in via the parole evidence rule.
NOTE – IF YOU NEVER HAD A K OR DID INTEND TO CREATE A K THEN PER DOESN’T APPLY
QUESTIONS
Is the K written
YESà go to 2
NOà PRE does not apply
Is the K final
YESà go to 3
NOà parol does not apply
Does the outside agreement contradict the writing
YES à evidence out
NO à go to 4
Is the K complete- see approaches
YES à evidence out
NO à evidence in
**Actually complete OR complete as to subject of the agreement
w/in its scope/dealt with
naturally omitted
intent of the parties
if there is separate consideration à not a PER question
Contemporaneous Agreements-if another document is executed at the same time the formal document was signed then that document is treated as part of the K and will not be subject to the PER but if an oral agreement is made before or at the time the formal document is signed then the it must meet the elements of PRE in order to be admitted into evidence. Contemporaneous oral agreements are NEVER allowed in.
APPROACHES (to decide whether a K is complete)
Four corners- (agreement is complete if it appears to be on its face) look at the document in writing itself and see the intent of parties (rarely used)
Traditional (Majority) – looks at the parties objective intent- what would parties naturally do; if this outside term were generally agreed to – would the reasonable person have included it in written document? If so, then K is inadmissible
Modern (Minority) – subjective intent- more likely to allow evidence in
UCC 2-202-requires that the K be in writing, that it be final and that the evidence of the prior agreement does not contradict the written K but only explain or supplement it by:
by course of dealing /or usage of trade /or by course of performance
By evidence of consistent additional terms unless the K is complete- to decide whether the K is complete the UCC looks at whether the parties would certainly put it on writing. This lets a lot of stuff in, b/c we must be CERTAIN that they people would have put it on writing
APPLICATION of PER
Traudt v. Nebraska Public Power District – K dealt with consideration and any other statements that contradicts the consideration is barred by PER
Nebraska Test (looks only at writing)
Completeness of the writing – is the writing completely integrated
Evidence contradicting the terms of the writing
Intent (conduct and language) of the parties and the surrounding circumstances
Wigmore Test – Whether the writing was intended to cover a certain subject of negotiation, look at the conduct and the language of the parties and the surrounding circumstances
Gianni v. Russell – K dealt with the selling of soft drinks, but said nothing about exclusivity of selling sodas; evidence of oral agreement regarding exclusivity of sodas is inadmissible;
Mitchill v. Lath – unsightly ice house across the way from the property that Ms. Mitchill was going to buy; oral agreement between the parties but nothing in K about icehouse – the court seems to accept that there may have been an oral agreement but still determine that evidence of the oral agreement is inadmissible under PER. Sometimes there will be undesirable effects of the PER – limitations better than opening the gates to allow in everything. Some courts are strict on the PER and others are more lenient – K was for the property – contradictory if you try to say there is more – if you had more it would have been put in the K – not trustworthy COURT says inadmissible even though both parties agreed to it (but not in original K)
Court asks 3 questions:1) In form collateral; 2) Not contradicted; 3) Must be one that would not be ordinarily embodied
§213 (1) and (2)
A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them (do not bring in any contradictory issues)
A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope (writing has everything in K – then don’t come in and try to talk about outside agreements – not trustworthy) ex: completely cover consideration (no more consideration evidence)
INTEGRATION
Integrated – means final – there is a final agreement that is a K; if there is a final writing – you cannot contradict it. The courts do not trust it.
Integration Tests
Appearance Test – examined on appearance alone
Separate Consideration Test – if extrinsic agreement has separate consideration, evidence is admissible
Natural Omission Test – if extrinsic agreement might naturally or normally be made separately and not included in writing, the evidence is admissible.
Certain Inclusion Test – unless the extrinsic agreement would certainly have been included in the writing, the evidence is admissible
Writing Omission Test – extrinsic matter is mentioned, covered, or dealt with in the writing, presumably the writing was meant to represent all of the transaction on that element; if not the evidence is admissible.
Substantive Law – PER not really a rule of evidence but rule of law (changes outcome)
If the parties to a transaction express agreement and later express another agreement, intending the later agreement to prevail over their earlier expression of agreement, their later expression will prevail.
both expressions of agreement are oral
first expression is written and second is oral
both expression are written
first expression is oral and second is written
Policy – it prevents fraud, the inclusion of non-terms/negotiations, and is easier to substantiate a writing
when parties to a K embody the terms of their agreement in a writing, intending that writing to be the final expression of their agreement, the terms of the writing may not be contradicted by evidence of any prior agreement
problem w/ parol evidence rule – makes it difficult to bring in something that really was left out of the K but was agreed to by the parties
Appeal – when issue on appeal the court can decide as a matter of law – appellate court can take a fresh look (unlike not be able to question the

g in evidence of fraud in order to avoid K to begin with. / condition of wife’s approval – oral condition precedent – must happen first before the K can be effective – evidence must come in – if condition does not happen – then no K
Does the evidence contradict the writing
Is the writing complete?
Pym v. Campbell – patent on invention – engineers entering K – all besides one agree to sign condition on the last approving – the last did not approve – and they tried to get the evidence in
Condition – approval of engineer
Compare Condition – if a patent is obtained before the price is paid, the price will be increased to a specified amount. Not a condition on whether there is a K or not – it is a condition on how much money will be paid under the K. not a condition precedent.
§ (214) – evidence admissible to show:
Writing not integrated (final)
Writing is not complete
Meaning of writing
Ground for remedy
Rescission, reformation, specific performance, other
§214(d) – evidence of prior agreements/negotiations are admissible to show:
 Illegality, fraud, duress, mistake, lack of consideration, other invalid case (not K)
INTERPRETATION
If the plain meaning is of the K is ambiguous then evidence can be admitted
Read Kà No ambiguityà apply the plain meaning rule
Ambiguousà admit extrinsic evidence to determine parties intent in order to interpret the K
Why need interpretation?
Lack of precision, lack of care, different understandings, intended vagueness (flexibility, indecision)
Two Basic Types of Kual Interpretation
Plain Meaning [4 Corners](minority) – Outside evidence will be introduced only if there are facial ambiguities on the K that need to be cleared up.
Judge will look at what the K means – doesn’t need evidence to tell him
Problems – judges aren’t experienced with trade terms “a wall of a thousand bricks” – to a judge anything less than exactly 1,000 bricks is breach – to brick layers it refers to a set size (not amount of bricks)
Extrinsic evidence can be used for patent ambiguity (IE in the summer – what exactly does that mean?) and latent ambiguity (IE it will ship on flight 787, but there are 2 flight 787 on that day).
Patent ambiguityà apparent on the face of the K
Ex: A is making payment on behalf of B. All notices should be sent to his address (whose address?)
Latent ambiguityà cannot determine if the K is ambiguous until parties begin performing
Ex: Notices should be sent to the Houston office; however, there are 2 offices in Houston (when reading the K – doesn’t appear ambiguous – send to Houston office – outside evidence shows ambiguity of 2 offices
Ex: Raffles v. Wichelhaus – cotton to arrive on boat named “Peerless” – but there were 2 Peerless (one in Oct. and in Dec.) [misunderstanding issue] R (20) – effect of misunderstanding (deals with the formation)
R(201) – Whose Meaning Prevails (interpretation rule)
If the both meant the same thing – then that is what it means
Where parties mean something different
A did not know of B’s meaning, and b knew of A’s meaning
A had no reason to know B’s meaning and b had reason to know A’s meaning