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

Contracts II
Spring 2011


A.            The PE Rule and Further Problems of Interpretation:

1.             THE PAROLE EVIDENCE RULE (Only Relevant when there is an agreement in writing).

·         Intent: PERule is based on principle that when the parties reduce their agreement to writing, they often intend the written record to be the final version of what was agreed.  As a result, evidence of any earlier agreement is irrelevant and misleading and should be kept from the fact-finder.
·         Purpose = keeping prior agreements out of court. 
·         Efficiency:
o    Shield jury from apparently unreliable or irrelevant matter
o    Efficient use of ct time (if irrelevant evidence, no time spent on examination and cross)
o    Encourages more efficient transacting (put it in the writing)
·         Issue: Oral agreements add obligation OR restrict a right (i.e. a conditional obligation when writing is silent on the issue), as compared to implied meaning of silent writing.

v  RULE: To the extent that the parties execute a writing that is and is intended to be a final expression of their agreement, no parol evidence may be admitted to supplement, explain, or contradict it.  However, to the extent that a writing is not a final and complete expression of agreement, consistent, but not contradictory parol evidence may be admitted to supplement or explain those parts of it that have not been finally expressed. 

Obviously, the problem becomes determining the parties’ intent.
·         Williston thought that it automatically wiped out any prior agreement (MS; minority); we can look at the writing and determine their intent (4 corners approach); only if there are ambiguities do we look elsewhere.
·         He said the normal way of finding intent is to look at everything, but NOT HERE (i.e., not in the case of parol evidence).
·         Corbin thought to find out the intent of the parties you do what you always do: look at all the surrounding circumstances; all relevant evidence. (This has been more persuasive)
·         UCC and Restatement (Second) largely follow this version.
·         Another way of thinking about this problem is whether the writing is considered to be “holy” or “sanctified;” if it is, it supersedes any other agreement.

Dudek: If there is a binding agreement that is either completely or partially integrated (final), evidence of prior agreements or negotiations is NOT admissible to contradict a term of the writing.
·         R § 209 (2)-There is a preliminary question; whether or not the agreement is integrated; determined by the court.
PROCEDURE: PERule = Rule of Evidence. 

Five questions for court to ask as to whether evidence can be admitted (findings of fact): To decide if PE rule applies R § 213
1.       Is the written agreement a binding agreement? (If not, PE rule does not apply)
R § 214 (d): If it is illegal, fraudulent, duress, mistake, unconscionable, lack of consideration, or other invalidating cause is not binding.
2.       Is it integrated? (If no, PE does not apply).
R § 209: Integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.
R § 210 (1): Completely integrated agreement
R § 213 (2): Discharges any prior agreement w/in its scope.
R §210 (2): Partially integrated agreement
R § 213 (1): Wipes out only agreements that are inconsistent with them.
3.       If the judge decides they are inconsistent, PE rule applies, and evidence inadmissible; if the judge decides they are consistent, PE rule does not apply.
·         R § 215: Evidence of prior or contemporaneous agreement not admissible to contradict a term of the writing, if there is integration.
·         “To be inconsistent the term must contradict or negate a term of the writing. A term or condition which has a lesser effect is provable.”-pg. 601
o    The other view says if there is absence of reasonable harmony, the evidence cannot be admitted.
·         There is a difference between an inconsistent term and an inconsistent additional term.
·         Something such as a limitation would change the legal effect; but does that mean it is inconsistent, or contradicts?
·         It is admissible if is ambiguous; meaning you have to look outside of the document and add to get a full explanation.  (This does not really contradict PE rule).
o    But Masterson says if you have to look outside for any purpose, then it is not a complete integration.
4.       Is the written agreement a complete integration?* (Meaning intended to be their only agreement) (R §213(2), §210, and §209(3): complete/exclusive)
§  If so, a prior oral/written agreement, or a contemporaneous oral agreement is wiped out.
§  Is the first agreement one that ordinarily would have included in the writing, if they had such an agreement?
5.       Is the first agreement w/in the scope of the second agreement? R § 213
§  If w/in the scope, then it should be dismissed. 

o    “Evidence of oral collateral agreements should be excluded only when the fact finder is likely to be misled”-goes to credibility of the evidence.
o    Not going “to bow down and worship” merely b/c it is a written agreement.
o    Not limited to the document b/c there is a plausible explanation as to why it might naturally have been left out (pg. 597).
o    R § 216 (2) (b): If an additional agreed upon term which might naturally be left out due to the circumstances, the agreement is not completely integrated.
o    Quite simply, some courts favor allowing the evidence to be heard; others do not.
o    People have become more educated, and are thus presumably more likely to be able to sift through the evidence.

o    Some Ks say any changes can only be made in writing.
o    UCC §2-209: Modification refers to both sides in fact reaching a subsequent agreement
§  (2): A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded.
§  (4): Although attempted modification or rescission may not satisfy terms of (2) or (3), it can operate as a waiver,
§  (5): The waiver can be withdrawn unless there has been a material change in position.  
o    UCC § 2-202: Terms intended by parties as final expression of their agreement may NOT be contradicted by any prior agreement but may be explained or supplemented (a) by (1) course of perf, (2) course of dealing, or (3) usage of trade; and (b) evidence of consistent additional terms UNLESS the ct finds the writing to have been intended as a complete and exclusive statement of the terms of the agreement.
o    Comments: Writers intended to write a rule that was friendlier to let evidence in.  Look at what parties intended using contextual test, not just on face of writing.
o    Extrinsic evidence explains ambiguous terms.
o    R § 214: Agreements and negotiations prior to or contemporaneous w/ adoption of writing are admissible to establish (c) the meaning of the writing, whether or not integrated.
o    Saying you are clarifying an ambiguity is one way around the PE rule. 

o     R § 217: Where the parties to a written agreement agree orally that performance of the agreement is subject to the occurrence of a stated condition, the agreement is not integrated with respect to the oral condition.
o    Merger Clause: Somewhat of a private PE rule; express language in a K that says whatever we have been talking about before is not binding unless it made its way into the written document.
o    Again, there is a conflict about the effect of these. Sometimes are viewed as boiler-plate.
o    If boiler plate or unconscionable, not binding.

2.             EXTRINSIC EVIDENCE:

·         The PE Rule does not even come into play until the judge makes an interpretation of the contracts; cannot decide whether or not 1 contradicts the other until we decide what the Ks mean.
o    R § 209(2)
o    Gen RULE: If a writing appears to be plain and unambiguous on its face, its meaning MUST be determined from the “4 Corners” of the instrument, W/OUT resorting to extrinsic evidence. (Anybody reading it would know what it means).
o    Intent is embodied in written K itself.  If the express language is unambiguous, no need for extrinsic evidence. I.e., Ex ev. is only needed to explain the meaning the parties gave the words from the instrument alone. 
·         TREND: NOT to follow strict interpretation of plain meaning rule.  Look at extrinsic evidence.
o    Corbin: No K should ever be interpreted and enforced w/ a meaning that neither party gave it; there has to be context.  KNOW Corbin quote from book and use it!!!

yer writes a standard purchase order w/ protective provisions favorable to buyer.  Other company’s lawyer writes acknowledgement w/ provisions favorable to seller.  Some provisions will be the same, while some will differ.  Usually, both ignore the differences (and usually that’s ok).  But sometimes, there are probs. 

·         CL Mirror Image Rule: (Prior to 2-207): In order to exercise power of acceptance, reply must be an exact mirror image of offer.  If reply was NOT a mirror image, then it was NOT an acceptance, but a counter offer.  Then, as more and more form K’s were being formed, there began to be “battle of the forms.”
o    Can have implied acceptance if seller ships goods (performance), i.e. acceptance of counteroffer and seller’s form governs.
·         UCC’s change to § 2-207: says the old way is unacceptable.  Changes CL rule.  This only applies to sale of goods, however.
1.       A definite and seasonable expression of acceptance [i.e. reply/written confirmation/ acknowledgement/conduct/main message is “yes”]  operates as an acceptance to an offer EVEN THOUGH it states terms additional to or different from those originally offered or agreed upon, UNLESS acceptance is made expressly conditional upon assent of other party to the additional or different terms. 
a.       As a result, a K is formed, since it operates as an acceptance.
b.       It is not a mirror image, but even though it is not, it operates as an acceptance.
c.        There is often a controversy about whether or not the “unless” clause is strong enough to bring the exception into play.
2.       Between merchants, the ADDITIONAL terms of the offeree’s response become part of the K, UNLESS
a.       The offer expressly limits acceptance to the terms of offer
b.       the terms materially alter the K
c.        notification of objection to the terms is received w/in a reasonable time after they are received
d.       NOTICE that this only refers to additional terms, while part 1 refers to both additional and different terms.
·         Fall Out Rule (Comment 3) Offeror’s terms govern and diff terms = only proposals for change.  Thus, many cts would say Offeree’s differing provision “falls out”/does not survive/cannot become part of K.
1.       Policy: The real appeal of this rule to a ct is its neutrality.
·         Add v. Diff/disregard: “different” terms are disregarded and can never become part of K.
·         KNOCKOUT Rule: (Comment 6) Both “diff” terms fall away and are replaced by whatever term the law would supply in the absence of agreement.
1.       Basically says that the parties have not reached an agreement, and we know it.
2.       This has become the more persuasive rule.
3.       Therefore, such things as an implied warrant of marketability might be supplied.
3.       CONDUCT by both parties that recognizes the existence of a K is sufficient to establish a K, EVEN THOUGH the writings of the parties DO NOT establish a K.  When this happens, the terms of the K are those agreed upon in the writings, and other supplementary terms incorporated under the UCC. 
a.       This may arise when there is an “unless” clause; there is a K by conduct if the parties continue on as if there is a K.
b.       If there is no conduct, and no K formed in the writings, there is NO K.
·         In the case of non-form Ks and they negotiate the full provisions, 2-207 may not apply.
o    Although 2-207 does not say that it applies only to from Ks, there is an implication.
o    There are differences in interpretation in this regard.