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

Contracts II Outline
Prof. Powers Spring 2017
Parol Evidence Rule (also called extrinsic evidence)
Definition: any evidence of the parties’ expectations that is not reflected in the contract
Purpose: defines the limits of the contract to be construed
Parol Evidence is not admitted to contradict a partially integrated written contract, but may be admitted to supplement it. It is not admitted to contradict or supplement a fully integrated written contract
If an agreement is in writing and final, PER bars evidence of prior (or oral contemporaneous) agreements that contradict the writing, supplement a complete writing, or are within the scope of the writing
Two parts: contradiction and completeness
If contradictory, don’t want to admit PE because after written contract, PE not trustworthy
Restatement 213(1): a binding integrated agreement discharge prior agreements to the extent that it is inconsistent with them
Restatement 213(2): a binding completely integrated agreement discharges prior agreements to the extent that they are within its scope
Restatement 209: integrated means final
Two step process
Is the evidence admissible?
Does the fact finder believe it?
When to apply PER
Is the contract in writing?
No: parol evidence admissible
Yes: is it integrated?
no: parol evidence can be admitted to supplement it
yes: is it partially or fully integrated?
is evidence being offered to contradict it or to supplement it?
contradict: evidence not allowed
supplement: evidence allowed
fully integrated
evidence cannot be admitted to contradict or supplement it
if the contract is in writing and final, then parol evidence can never be admitted to contradict. If the writing is not completely integrated, then evidence can be admitted to supplement
Is the contract final?
Is it a contract?
Is the evidence offered of a prior (or contemporaneous oral) agreement?
Very rarely is it contemporaneous
Finality of writing
An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement
Terms set forth in a writing intended by the parties as a final expression of their agreement
Evidence of prior agreements and negotiations admissible to show (R2K 214)
Writing is not integrated (final)
Writing is not complete
Meaning of writing
Illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause
Ground for denying remedy: rescission, reformation, specific performance, other
Interpretation and Construction
Patent: apparent on the face of the document
Latent: not apparent until look at extrinsic evidence
Plain Meaning
If the contract is clear on its face, that is its meaning
Contract is interpreted as a matter of law
No extrinsic evidence is needed
If the contract is ambiguous on its face, extrinsic evidence is admitted
Fact issues resolved by fact finder
On its face = after application of relevant rules and standards
Courts choose this rule of interpretation because efficiency
modified plain meaning
as a sort of middle ground between strict and liberal
hear proffer of evidence rather than none or the evidence itself
if based on the proffer, the court thinks there is ambiguity, then the evidence is admitted to interpret the contract
if after the proffer, there is no ambiguity (if there is no other meaning the contract is reasonably susceptible to), then the evidence is not admitted
admit all evidence provisionally (to determine whether ambiguity)
contrast with a modified plain meaning court, which just hears the proffer of evidence
decide if the language in the contract is reasonably susceptible to the interpretation suggested

revails? (R2K § 201): similar to misunderstanding
if both parties had same meaning, then that’s the meaning of the contract
if different meanings
if one party knew or had reason to know of the other party’s meaning, but the other party didn’t have reason to know of the first party’s meaning, the second party’s meaning prevails
if neither party knew or had reason to know of the other party’s meaning, neither is bound by the others, even if it means there’s no contract
Construction: the methods and considerations that courts use to determine the full legal obligations resulting from the parties’ agreement (what the law tells us about the contract)
implied in law
even if the parties didn’t mention something, and perhaps didn’t even intend to agree something, the law may imply it nonetheless
involves balancing freedom of contract with other important public policy concerns
judicial overlay
Conditions: an event which must occur before a party’s performance is due
Condition (R2K § 224)
can be future or past, but not unknown
not certain to occur
which must occur
before performance is due
unless excused
Expressed or implied in fact: agreed by the parties
Express: stated clearly. Strictly enforced
Implied in fact: not clearly stated, but clearly meant from language of contract
Express conditions are clearly enforced
Implied in law: in contract as matter of law
Constructive conditions: do justice, presumed intent
Constructive conditions require substantial compliance