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

Contracts II Outline
I.  Determining the Scope and Content of Obligation
A. Parol Evidence Rule (PER) & Integrated Writings
1. Where the parties to a contract express their agreement in a writing with the intent that it embody the full and final expression of their bargain (i.e. the writing is an “integration”), any other expressions – written or oral – made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing.
Questions for the Court
Excluded (TRAD)
Included (MOD)
1. Is the agreement collateral?
·         In other words, was this written k intended by both parties to be a complete agreement?
Complete Agreement/Integration
p. 616
Partial Agreement/Collateral
Mitchill v. Lath
2. Does the parol evidence contradict or complement the writing?
·         The issue is that one can argue in every case the p.e. always contradicts the k.
Parol Evidence Contradicts
Parol Evidence Supplements/Complements
3. Is the p.e. the type of stuff we would naturally expect to see in the writing?
·         Williston Rule
·         Look to the industry std. to see what is normal/natural to be in those type of industry contracts
Normally/naturally the type of term that court expect to see in the k
Not normally/naturally be in the writing
·         #3 relates to #1 in that if it is the type of provision that would normally be in the written k, then the court will view the written k as a complete document.
·         The attorney wanting to get the evidence included must meet all three question
·         The attorney trying to exclude has the easier case b/c only has to show one of the questions
2. Complete/Partial Integration – the more complete the agreement appears, the more likely that it was intended as an integration
(i) Complete Integration
(a) Ct. views written K as fully reflective of all of terms, therefore no need to introduce parol evidence – oral or written evidence
(ii) Partial Integration – ct. must consider whether parol evidence:
(a) Is in the form of a collateral agreement;
(b) Agreement must not contradict express or implied provisions in the k; AND
(c) The parol evidence must “normally or naturally” not be included in the writing (Mitchell v. Lath)
(i) UCC (more lenient) – parol evidence can be admitted unless the term “would certainly have been included in the [written] document.” (Masterson)
(d) A written K may express all of the terms of one agreement, but a separate additional K that was also made and parol evidence needs to be introduced to determine the meaning of that separate K. If you can prove that a partial or separate agreement exist, you can introduce Parol Evidence
(iii) R2 § 216, no distinction is drawn between partial integration and collateral agreements ADD in GREEN BOOK p. 294
(a) Both are NOT completely integrated documents
(b) Test is: are the terms such as “they would naturally be included in the integrated writing.”
(iv) Partial Integration and TRAD ct.: test appears different with partial integrations (diff. parts of same agreement) and collateral agreements (different, but related agreements) being distinguished. For these courts, whether something is a collateral agreement or partial integration depends on a common-sense judgment NOT on “would it be naturally included”, but whether or not “the written K was but part of the whole K.”
(a) Gianni – strong evidence that writing meant to be complete is when the subject is mentioned or covered in the written document.
3. Determining Complete vs. Partial Integration
(i) What constitutes “integration” is a question of fact for the ct. not jury
(ii) JRD views
(a) TRAD: Look to the four corners of the document itself. Intent under this test is essentially a matter of form i.e. the question is whether the writing has the form of a complete instrument. Texas probably still somewhat TRAD – although some authorities suggest MOD trend
(b) MOD: Writing is deemed to be complete integration only if the parties actually intended it to be integration. The ct. will consider any relevant evidence to determine the parties’ intent. Ct uses parol evidence to determine whether the agreement is complete, partial, or no integration [R2 § 209(3), 214; UCC 2-202
(c) Williston test – Would parties situated as were these parties to this contract naturally and normally include the extrinsic matter in the writing?
(iii) Merger (aka Integration) Clause: where the agreement contains a merger clause reciting the agreement is complete on it’s face, the clause strengthens the presumption that all negotiations were merged in the written document. R2 § 216(a) if made for separate consideration.
(a) Serves as evidence that the parties tried to make the writing a final statement of their intent; however not conclusive proof everything is included in the written K and no PE may be entered.
(b) Presumption can be rebutted by other evidence (Masterson)
(c) Parol Evidence not admitted
(i) Sophisticated parties merger clause
(ii) Commercial transactions
(d) Parol Evidence admitted
(i) Consumer cases
1) Consumers are generally not as sophisticated of a buyer as a commercial party, therefore it is easier for the commercial party to take advantage of the consumer
2) Declare merger clause as a boilerplate term
3) Restatement §211(3)
a) If a business knows that a consumer would not agree to terms of the K or a merger clause or the implication of those terms, then those terms are invalid and ignored by the court.
b) Exception: Act is much more likely to allow a term if the business had the consumer initial or sign separately that they assent to those particular terms. Rationale – terms are no longer considered hidden from the consumer.
4. Applying Test of Admissibility of Partial Integration
(i) For a partially integrated written document a party can use parol evidence to show agreements that are not inconsistent with the integrated document. Thus, what a court says is inconsistent depends on the court
(a) TRAD – more likely to find inconsistency
(b) MOD – less likely to find inconsistency
5. Exceptions: PER analysis focuses on

es to grammatical interpretation
(i) Noscitur a sociis – the meaning of a word in a series is affected by others in the same series. More generally, a word may be affected by its immediate context
(ii) Ejusdem generis – a term joined with a specific one will be deemed to include only things that are like (of the same genus as) the specific one. This usually leads to a restrictive interpretation.
(iii) Expressio unius est exclusio alterius – if one or more specific items are listed, w/o any more general or inclusive terms, other items although similar in kind are excluded
(b) Policy Maxims – guides to interpretation based upon PP considerations
(i) MOD/TRAD § 206 Interpretation Against the Drafter
(ii) MOD § 207 Interpretation Favoring the Public – meaning that serves the public interest is preferred
4. Resolving Problems of Interpretation
(i) As an attorney rewrite the document in favor of one party and then rewrite in favor of the other party. Helps to point out the exact problem, and brings forth arguments necessary to show that what was actually written favors your client
(ii) Conflict when a clause in modified, but where related clauses are not altered
(iii) Cts more willing to strive to reach an interpretation when performance has begun.
(a) Prior to performance ct. will conclude lack of mutual assent, thus no K formed
(b) If performance has begun rescission of K and restitution of benefits are more difficult to untangle
5. Specific Sources of Intent
(i) Sources named in order of preference
(a) Explicit terms of the agreement in light of background context
(b) PE of negotiations regarding parties’ intent
(c) Course of performance
(d) Course of dealing
(e) Usage of trade
(f) See R2 § 202, 203; UCC 2-208
(ii) Keep in mind when appealing to the following types of cts.
(a) TRAD: court can only look at the explicit terms of the agreement if they yield an unambiguous, non absurd result
(b) MOD: can always look to all sources of intent, without regard to whether the K appears on its face to be unambiguous, in order to determine whether the K is ambiguous (UCC 2-202)
(i) More concerned that the agreement as interpreted is fair then traditional courts are.
(ii) More willing to look to the price term and ask whether some interpretation alternative makes since in light of the price paid (Frigaliment – type of chicken meat for the price)
(c) Ultra MOD: can always look to all sources, w/o regard to ambiguity, in order to interpret the K (Pacific Gas)