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

Contracts Class Lecture
I. Introduction
A. Sources of law in contracts – restatement and common law (CL). More emphasis on the CL. Restatement is just a compilation of the CL.
B. Statutes – UCC Article 2 – Sales of Goods (in every jurisdiction except La). Also DTPA – deceptive trade practices act. Article 2a – Leases of Goods. Ignore the revised article 2.
C. Must know which law is controlling CL or UCC (movable goods – pencils to mobile homes and don’t forget manufactured goods). CL will deal with real estate and services. Buying good and service (carpet and installation) UCC will govern – look at essence of the transaction. UCC applies to sales of goods period NOT just sales between merchants.
II. Parol (means oral) Evidence Rule (PER) – rule is not very complicated but it is difficult trying to determine how the courts will deal with it. It is not really a evidentiary rule, it is a substantive rule of your state
A. Mitchell v. Lath – the Laths are going to sell real property to Ms. Mitchell for $8,400 and supposedly the Laths promised to remove the icehouse across the street from the land. The agreement was not in the contract. Ms. Mitchell is suing for specific performance for the removal of the icehouse. The defendant raises the PER. Only applies to prior and contemporaneous (not as likely to happen) agreements and for the most part it is prior agreements. Whether the agreement is oral or written is not the question in PER. No question that it is a final contract because it has already been performed (and it was written) so we have coverage under PER. Now what? Have a three prong test:
1. Collateral in form, something separate, disconnected but related in nature. If it is its own contract with its own consideration, you cannot attach it to the contract at hand. It has to kind of look like it is a part of the original agreement. If is truly collateral it would be its own contract. Example is the purchase of a farm implement from the same people selling the land, a separate contract. If it is a collateral contract with its own consideration the PER doesn’t apply. However, removal of the icehouse may have been a part of the same contract (part of the consideration) –just a smell test but if only one contract and not collateral must look at next two tests
2. Does the oral agreement contradict something in the contract? If you have a final written agreement you cannot contradict it (or if it does the evidence won’t be admissible, the court won’t believe it) If the agreement is complete the evidence is inadmissible and if it is a partial agreement/incomplete writing you can supplement it and the evidence will be admissible as long as it does not contradict the writing. Majority wasn’t sure whether or not it was a contradiction, so moved on to the third test. Minority said it was a contradiction because the idea that the consideration is complete. No head on contradiction.
3. Would you be expected to put it in writing? May even have a clause that states that PER won’t be allowed. Court asked if the Lath/Mitchell contract was complete relative to consideration. Doesn’t make sense for the parties not to have included it in contract if it was that important/significant and therefore won’t allow the icehouse evidence to be admitted.
B. Definition (page 586) – when two parties have made a contract and have expressed it in a writing to which they have both assented as the complete and accurate integration of that contract, evidence, whether parol or otherwise, of antecedent (prior) understandings and negotiations will not be admitted for the purpose of varying or contradicting the writing. Applies both to prior oral and written evidence (may have dropped by the wayside and a conscious decision made not to put it in the final contract).
C. When do we need to even look at the PER?
1. First you must look at whether you have a written contract? If it is an oral contract, the PER does not apply (statute of frauds may come into play).
2. Then ask is the contract final, is it a final contract, is it a contract is the real question as opposed to negotiations. Also called an integrated contract.
3. If yes to #1 and 2, the we look at PER
D. Integrated agreement is a final agreement. Completely integrated agreement tells you everything has been agreed to. A partially integrated agreement does not have everything that has been agreed to in it. NOTE: we are talking about the WRITING not the contract itself. So if not completely integrated why not allow outside evidence?
E. Restatement 213 – Effect of Integrated Agreement on Prior Agreements (PER)
1. A binding integrated agreement discharge prior agreements

t sometimes. If we decide the writing and the agreement can’t stand side by side, then we won’t allow the evidence. Don’t want to put evidence in play that would sway the jury. Evidence is untrustworthy and unreliable if it contradicts the writing. Get different approaches between courts that follow the rule rigidly to avoid swaying juries and courts that will allow the evidence to get a more fair result. Judge always hears the evidence to determine whether or not to admit the evidence. A legal question: IS IT ADMISSIBLE AS EVIDENCE? On the legal question, the judge doesn’t decide whether the agreement really happened, so party hasn’t won just because the evidence is admissible, it is still a question of fact whether the agreement was actually made for the judge (if a bench trial) or jury to make.
H. Review – May 31, 2001
1. For per must first have a final, written agreement
2. Then ask if the evidence contradicts the writing? If yes, the evidence will not be allowed. If no, the evidence will be allowed.
3. Then ask is the writing is complete? If yes, the evidence will not be allowed. If no, the evidence will be admissible.
a) Is it really complete, put in everything and even add a merger clause that states that nothing else is a part of the agreement.
(1) Integrated – final and complete
(2) Partially integrated – final but not complete
b) Sometimes it is not quite so clear and then we ask is it something that should have been included in the writing
(1) Traditional approach – objective, if it was so important wouldn’t have been included in the contract because a reasonable person would have and we won’t trust your evidence
(2) Modern Approach – more subjective and will look at a little more evidence and may allow more evidence in
(3) Strict four corners approach usually won’t be used except perhaps in the case of a merger clause