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Contracts II
University of Mississippi School of Law
Bradley, John R.

 
CONTRACTS OUTLINE
Professor Bradley, Spring 2013

III.             Assent

A.  The Parol Evidence Rule

·         PER – Prior oral and written agreements cannot be used to vary, add to, or contradict the terms of a written agreement, unless mistake or fraud exists. 
o   The parol evidence rule does not determine whether an oral agreement actually existed, rather, it determines if it should be applied. 
§  If the oral argument is applicable, the jury decides if in fact the agreement exists.
o   If there is a binding agreement that is either completely or partially integrated, evidence of prior agreements or negotiations is NOT admissible to contradict a term of the writing.       
§  Parol evidence is always admissible to show that the written agreement is voidable.
o   Parol Evidence Rule is used only to EXCLUDE evidence.

·         § 209 Integrated Agreement: Integration – A written agreement that is a final and complete expression of the parties’ intentions.
o   2 Types of Integration:
§  § 210: Complete – cannot be contradicted or supplemented; or
§  Partial – cannot be contradicted, but may be supplemented by evidence of consistent additional terms.

·         The PER prevents an oral agreement from varying the terms of a written contract unless at least 3 conditions exist: (1) the agreement must, in form, be a collateral one; (2) It must not contradict express or implied provisions of the written contract; and (3) it must be one that the parties would not ordinarily be expected to embody in the writing. 
o   Collateral Agreement- an agreement that is made prior to or contemporaneous with a written agreement, which is admissible in evidence as long as it is consistent with the written document

Restatements:
·         § 209. Integrated Agreements
o   An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.
o   Whether there is an integrated agreement is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parole evidence rule.
o   Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression.
·         § 210.  Completely and Partially Integrated Agreements
o   A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement.
o   A partially integrated agreement is an integrated agreement other than a completely integrated agreement.
§  Partial v. complete integration is to be determined by the court–it's a question of intent.
·         Masterson, the question is would a family agreement naturally be left out of the writing?  Looks at intent through all relevant evidence.
·         § 213.  Effect of Integrated Agreement on Prior Agreements (PER)
o   A binding integrated agreement discharges prior inconsistent agreements.
o   A binding completely integrated agreement discharges/wipes out prior agreements w/in its scope.
o   An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. 
§  But an integrated agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not been integrated.
·         § 215.  Contradiction of Integrated Terms
o   Evidence of a prior / contemporaneous agreement is not admissible in evidence to contradict a term of a binding agreement (completely or partially integrated).
·         § 216.  Consistent Additional Terms
o   Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated.
§  An agreement is not completely integrated if the writing omits a consistent additional agreed term which is (a) agreed to for separate consideration, or (b) such a term as in the circumstances might naturally be omitted from the writing.

·         5 Questions to Determine if PER applies:
1.  Is #2 (the contract) a binding agreement?
§  If NO, PER does NOT apply
·         Evidence is admissible to show that an agreement is NOT binding b/c of lack of consideration, fraud, mistake, unconscionability, etc.
§  If YES, go to question two!
2.  Is #2 an integrated agreement?
§  If NO, PER does NOT apply
·         PER only applies to integrated agreements!
§  If YES, go to question three!
3.  Is #2 a COMPLETELY integrated agreement?
§  If YES, PER wipes out all prior agreements within its scope (so move to the last question).
§  If NO, then PER doesn’t apply.
4.  Is #1 inconsistent with #2? (partially integrated agreement)
§  If NO (meaning 1 and 2 are consistent), then PER does NOT apply.
§  If yes, then #1 is nullified (wiped out); therefore the PER excludes testimony concerning #1. 
·         §213(1) says a binding partially integrated agreement discharge prior inconsistent agreements!
·         Hunt defines inconsistent as contradicting or negating a provision.
5.  Is #1 within the scope of #2?
§  If NO then PER does not apply.
§  If yes, then PER applies and the evidence is not admissible.
·         §213(2) says a binding completely integrated agreement discharges prior agreements w/in its scope!

·         Corbin v. Williston: Various Approaches to PER
o   Corbin: The Actual Intent Test (Majority Approach) – All relevant evidence should be taken into account in determining the intent of the parties on the issue of total integration (the parties’ intentions cannot be discerned completely from the writing).  Parol evidence may be admissible even if total integration appears to exist. 
§  A court when considering a disputed contract may consider evidence of a collateral agreement if it of a sort that would naturally be made separately from the disputed contract. 
§  This leads to a narrower application of the parol evidence rule, and consequently leads to the more frequent admission of parol evidence.
§  This approach is reflected in the UCC and 2nd Restatement.

o   Williston: The Formal Intent Test – If the writing is a final and complete expression of the parties’ intentions, then the written agreement is totally integrated and the PER will apply to the additional terms, unless they were such as might naturally be made as a separate agreement.
§  The PER will bar enforcement of a prior oral agreement that varies the terms of an integrated written agreement where the terms of the prior agreement are so closely connected with the integrated written agreement as to be part and parcel of it. 
§  This leads to a b

§  2-209(2) If contract has a NOM, modifications must be written.
§  2-209(4) Subsequent oral modification can operate as a waiver of NOM clause. Ex. reliance, unjust enrichment, Quantum meruit, customary to make changes after written agreement, etc.

·         Trade Usage – habits of custom in practice will normally be incorporated into the contract, unless the parties have made it clear that they intend a different rule to govern the transaction
o   UCC 2-02(a) permits an otherwise integrated agreement to be supplemented by evidence of course of dealing, trade usage, and course of performance.
§  Generally these 3 are always admissible to explain or supplement a writing even if it is intended as a final expression of the agreement. 
§  Admissibility will depend on if “4-corners” court or more flexible court.
o   An agreement is interpreted in accordance with relevant usage if:
§  Each party knew or had reason to know of the usage and
§  Neither party knew or had reason to know that meaning attached by other was NOT consistent with the usage.

B.  Extrinsic Evidence

Four cases in the text regarding the dispute of intent of parties with the meaning of their words:
1.      Pacific Gas- “indemnify”-trial judge doesn't know everything, what he thinks a word means might not be actual meaning; why judge should hear parties take on the K.
2.      Steuart-“value on tax assessment roll”-only case where plain meaning doctrine strictly applied; arguable case where plain meaning should have been followed.  Sellers argument, the language does not mean price that equals actual figure of tax.
3.      Trident Center- “no prepay”-borrower of $ claims 2 provisions in K are contradictory although contract says can't prepay, default clause means he can; court must answer if the language of the contract is susceptible to the borrowers interpretation.
4.      Nanakuli Paving- “asphalt price at time of delivery”-price is posted in contract; buyers argument is that the meaning of price determined from side agreement.
a.        

·         The Plain Meaning Rule
o   The intent of the parties to a written contract is embodied in the writing itself, and when the words are clear and unambiguous, the intent is to be discovered only from the express language of the agreement, without resort to extrinsic evidence. 
o   Modern trend is NOT to follow strict interpretation of plain meaning rule.
§  Most follow Corbin’s view: No contract should ever be interpreted and enforced with a meaning that neither party gave it.
o   Difference between PER and plain meaning rule: plain meaning rule is a principle of interpretation, but PER is not (rule of evidence).
§  Extrinsic evidence is broader than parole evidence.