MASTER OUTLINE – Spring 2003
a) Course will cover:
i) Contracts that exist – contract enforcement.
iv) Getting out of Contract
v) Third party beneficiaries
b) Ongoing Tension of Contract Law: enforcing the rule of contract (bringing life to what parties have done to bring about the agreement) vs. a fair result.
i) As written: Increase predictability, certainty, decrease litigation.
ii) Fairness: While all else is good, an unjust result is contrary to what US is about.
1) Parol Evidence Rule [Additional Terms]
a) Parol Evidence Rule (PER) Generally
i) Total and Partial Integrations
ii) Statement of rule: The “parol evidence rule” is in fact two sub-rules:
(1) Summary: Putting the two sub-parts together, the parol evidence rule provides that evidence of a prior agreement may never be admitted to contradict an integrated writing, and may furthermore not even supplement an integration which is intended to be complete.
(2) Contradictory Terms: Can never use PE to contradict a writing. More traditional courts would say can’t contradict implied or express terms, whereas more modern courts (Masterson) would say contradiction rule only applies to written, not implied, terms of written contract.
b) Older/Stricter/Objective view of PER
i) To properly function, PER is essentially an objective rule.
ii) Writing is the best evidence of agreements (“4-corners” approach)
(1) Exceptions: Fraud, Accident or Mistake are allegations that can undermine the bar
iii) Where the written contract embraces the field of the alleged oral contract (and an objective, reasonable person would have would naturally and normally have included the oral terms) and no issue of fraud, accident or mistake is involved, evidence of prior or contemporaneous agreements or negotiations is inadmissible under the parol evidence rule.
(1) Gianni v. R. Russell (Pa. 1924) (p. 556)
(2) Mitchill v. Lath (NY 1928) (notes, p. 565) – Ice house case
iv) Question of Law: PER is a JUDGE, not jury, question.
v) UCC Response to PER
(1) UCC § 2-202 Final integration may not be contradicted; final agreement may be supplemented or explained, unless court finds it to be a complete integration.
(a) “Unless court finds it to be complete” leaves open that courts will use traditional method (4 corners) to make that determination.
(b) However, notes to 2-202 state that its only a complete integration if the disputed terms “certainly” would have been included – much more liberal than “naturally”
vi) POLICY: Why the rule?
c) EXCEPTIONS to the Parol Evidence Rule
i) Collateral Agreement Exception
(a) Parol evidence may be admitted to support collateral agreements.
(b) Requirements for admitting parol evidence to support a collateral agreement:
(i) The agreement must be a collateral agreement (have the same consideration as the original agreement.)
(ii) The agreement must not contradict express or implied provisions of the written contract.
(iii) The agreement must be one that is not ordinarily reduced to writing. 2 different tests for this, depending on jurisdiction:
1. Objective Subject matter test: (PA) (Gianni)
2. Subjective Natural and Normal test: (Cal) (Masterson).
a. RS View (Most Liberal): In the most liberal jurisdictions, who apply the restatement view (RS2d §214), the court won’t even ask if its natural for those parties. Instead, oral/prior negotiations must be admitted to determine if the K is a complete integration.
3. Under either test, the more unrelated the subject matter of the collateral agreement, the more likely PE will be admitted.
(c) Crucial issue in d
rupt, & executor tries to enforce the option. Ds want to admit evidence that parties had oral understanding that property was to remain in the family (wants to add “option was not assignable”)). Held: Parol evidence admissible b/c intent of P was to keep property within the family and oral agreement clarifies that intent.
1. Subjective: It would be “natural” in a family deal to have an oral understanding. However, since the repurchase option is specifically mentioned in the deed, can also argue that it would have been “natural” to have mentioned that the option was not assignable. But one person’s “natural” is another person’s “unnatural.”
(d) POLICY: Exclusion of oral testimony whenever there is a writing often defeats true intent of parties – this holding supports intent.
ii) Fraud, Mistake or Other Voidability Generally. Even if a writing is a total integration, a party may always introduce evidence of earlier oral agreements to show illegality, fraud, duress, mistake, lack of consideration, or any other fact that would make the contract void or voidable. In other words, the parol evidence rule never prevents the introduction of evidence that would show that no valid contract exists or that the contract is voidable.
e.g. if in Mitchell, the seller never intended to honor the promise to take the icehouse down, and only made it b/c he knew it wouldn’t be enforced. If used fraud, it is an exception, and it can be admitted. But fraud is very hard to prove.