Contracts Outline 6 - Parol Evidence Rule, PE Rule, Integrated Agreements | Study notes Law

Contracts Outline Professor Dawson

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Parol Evidence Rule

CRITICAL POINTS:

- (1) Cannot have PE problem unless you have a written contract. IF agreement is oral,

won’t have PE problems. PE focuses on the writing and events that led to it

- (2) PE is an issue only with regard to alleged prior to or contemporaneous agreements. If the

parties change the contract or attempt to do so after writing is entered into, not PE problem --

a modification problem.

- (3) Applies not only to prior or contemporaneous agreements, but also to oral agreements.

Parole is outside the scope of the writing, whether it is oral or written. (prior agreements can

be oral, but contract has to be in writing)

- (4) At least strictly speaking, PE is not a problem in interpretation. But if look at intro to ch,

courts and lawyers get confused. Looks like interpretive problem, but isn’t

- (5) when you have PE problem where there is a prior or contemporaneous agreement alleged,

the admissibility of that prior evidence is a question for the court, a question of law for the

judge. Not an evidence rule for juries to decide.

EXAMPLE: 1920s case in Penn. Π had operated a candy/snack/tobacco shop in Pittsburgh.

Had a lease with building, lease was about to terminate. Entered into negotiations over new

lease. Owner told store person didn’t want him to sell tobacco, but large part of profits came

from selling tobacco, so reluctant to agree to that. Finally said in exchange for giving up

right of selling tobacco, owner agreed not to rent to any competitors. Entered into lease that

provided that no tobacco was to be sold on premises, but didn’t say owner couldn’t rent to

competitor. Then he did rent to competitor. Store leasee sues saying we had agreement. In

that case, the allegation was that during the negotiations, we reached an agreement you

wouldn’t rent to competitor, that agreement was alleged to be oral (could have been in

writing). The lease was in writing and landlord relied on this writing. The alleged agreement

was prior to, but can also be contemporaneous (at same time) – both are covered by PE rule.

Could be a matter of interpretation, but probably not. Nothing really to interpret (maybe only

what tobacco meant). Π’s case rests on ability to prove the oral agreement. If Π can’t prove

oral agreement, then Δ has done nothing wrong. If oral agreement exists, the Δ is bound by

it.

- We don’t initially ask if it (the agreement) exists. We first ask if we will admit evidence

about the prior oral agreement. A matter of law for the judge to decide. If evidence is

allowed in, then the jury decides if there was an agreement or not. Judge decides if you can

even talk about it to begin with.

- PE rule is pretty narrow in UCC. Commentators are hostile about the rule, some question

whether it is a wise rule.

- Could possibly argue “mistake” but difficult to prove, doesn’t necessarily give a legal course

of action.

2 main reasons in support of PE Rule:

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Parol Evidence Rule CRITICAL POINTS:

(1) Cannot have PE problem unless you have a written contract. IF agreement is oral, won’t have PE problems. PE focuses on the writing and events that led to it
(2) PE is an issue only with regard to alleged prior to or contemporaneous agreements. If the parties change the contract or attempt to do so after writing is entered into, not PE problem -- a modification problem.
(3) Applies not only to prior or contemporaneous agreements, but also to oral agreements. Parole is outside the scope of the writing, whether it is oral or written. (prior agreements can be oral, but contract has to be in writing)
(4) At least strictly speaking, PE is not a problem in interpretation. But if look at intro to ch, courts and lawyers get confused. Looks like interpretive problem, but isn’t
(5) when you have PE problem where there is a prior or contemporaneous agreement alleged, the admissibility of that prior evidence is a question for the court, a question of law for the judge. Not an evidence rule for juries to decide. EXAMPLE: 1920s case in Penn. Π had operated a candy/snack/tobacco shop in Pittsburgh. Had a lease with building, lease was about to terminate. Entered into negotiations over new lease. Owner told store person didn’t want him to sell tobacco, but large part of profits came from selling tobacco, so reluctant to agree to that. Finally said in exchange for giving up right of selling tobacco, owner agreed not to rent to any competitors. Entered into lease that provided that no tobacco was to be sold on premises, but didn’t say owner couldn’t rent to competitor. Then he did rent to competitor. Store leasee sues saying we had agreement. In that case, the allegation was that during the negotiations, we reached an agreement you wouldn’t rent to competitor, that agreement was alleged to be oral (could have been in writing). The lease was in writing and landlord relied on this writing. The alleged agreement was prior to, but can also be contemporaneous (at same time) – both are covered by PE rule. Could be a matter of interpretation, but probably not. Nothing really to interpret (maybe only what tobacco meant). Π’s case rests on ability to prove the oral agreement. If Π can’t prove oral agreement, then Δ has done nothing wrong. If oral agreement exists, the Δ is bound by it.
We don’t initially ask if it (the agreement) exists. We first ask if we will admit evidence about the prior oral agreement. A matter of law for the judge to decide. If evidence is allowed in, then the jury decides if there was an agreement or not. Judge decides if you can even talk about it to begin with.
PE rule is pretty narrow in UCC. Commentators are hostile about the rule, some question whether it is a wise rule.
Could possibly argue “mistake” but difficult to prove, doesn’t necessarily give a legal course of action. 2 main reasons in support of PE Rule:

(1) if there is a writing, then ought to protect the integrity of the writing (D: this is nonsense b/c then all contracts would have to be in writing, and they do not; seems to miss the mark)
(2) assume that in negotiating over the lease they had discussed the options but both rejected the idea, year later competing company rents to competitor, and Π is unhappy, recalls discussions and says there was an agreement. People lie, or disremember facts, all the time. PE rule lets judge decide validity of agreement, don’t have to worry about contaminating juries. Juries are likely to be sympathetic to underdog, jury may side with injured party whether there was an agreement or not. Some suggest this is the basis for PE rule. A broad rule, applies to all cases if sympathetic or not. MITCHELL v LATH Good ex of PE problem M has entered into written contract to buy land. Nothing out of ordinary about agreement. A complete contract, no dispute about sell of land. Across road from the land, was an icehouse. When she considered buying the land, she didn’t like the icehouse. She says sellers agreed to move it and she wouldn’t have bought the parcel if they hadn’t agreed to move it. Sequence of what happens: in negotiations, an alleged prior oral agreement , no reference in written contract to its existence. What she is seeking to do is say, you breached!
- she can’t make the breach argument successfully if she can’t prove prior oral agreement à Parol Evidence!!
- Court decides whether to permit that evidence of prior agreement or not
- Real problem is: there will be cases in which cases where the evidence is admissible and cases in which it is not. Difference is confusing. 588 - 9: 3 conditions must exist: (3 TESTS) (1) Agreement must be a collateral one - separate in time, separate in subject matter, and with separate consideration. (not always easy) (2) Must not contradict express or implied provisions of the written contract (what is a contradiction is art) (3) Must be one that parties would not ordinarily be expected to embody in the writing (a much harder test)
- would you naturally expect it to be in writing? If so, will exclude evidence of agreement.
- could argue this test either way (strong dissent) – can imagine there being 2 separate contracts, or so much a part of the contract that would expect it to be in the agreement
  - if it doesn’t satisfy this test, evidence is inadmissible.
  - collateral agreement – must be suppo R § 209: Integrated Agreements (1) an integrated agreement is a writing(s) constituting a final expression of one or more terms of an agreement. (2) 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 parol evidence rule.

(3) Whether an agreement is completely or partially integrated is determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule.

sometimes accompanied by a merger clause , a statement written by parties as part of the writing saying it is a complete integration. They are not fool-proof. Some courts give them weight, but not absolute.
à have to first deal with problem of integration – partially or completely? Not an easy answerable question. The core of how R2nd approaches the problem! 213: Effect of Integrated Agreement on Prior Agreements [Parol Evidence Rule] (1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them. (2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope. (3) 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.
- last thing the parties decided upon controls! Last thing they put together as final expression of agreement controls previous agreements.
- 215, 216 are more operational, help you deal with the facts of the case § 215: Contradiction of Integrated Terms Except as stated in the preceding Section, where there is a binding agreement, either completely or partially integrated, evidence of prior or contemporaneous agreements or negotiations is not admissible in evidence to contradict a term of the writing. à if prior agreement is inconsistent to final writing, can’t introduce it! § 216: Consistent Additional Terms (1) Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated. (2) An agreement is not completely integrated if the writing omits a consistent additional agreed term which is (a) agreed to for separate consideration [icehouse] (b) such a term as in the circumstances might naturally be omitted from the writing.
- in some cases, evidence of a consistent additional term is admissible
- if court finds a partial integration, then evidence of a consistent additional term is admissible
- evidence of this other agreed term not in the writing:

(1) if it might naturally be omitted by writing, then it is not completely integrated (Masterson v Sine: court says it is cumbersome to include such a term, might not naturally include the clause, etc – so deed is not a complete integration) (2) if not completely integrated, is it consistent? If yes, can admit it. PG&E (p. 618) D making repairs to turbine, lifted off cover, it fell and damaged the turbine. In performance of the contract, they injured the property – but the injured property of other party in the contract. Problem: clause in contract usually interpreted to relate to a 3rd^ party, not always understood to relate to loss to damage to other party of contract (kinda like an insurance clause)

Relied on contract language – problem is whether language of contract covers damage to PG&E or to 3 rd parties (in interpretation issue, not PE!!)
START with interpretation!!! CANNOT figure out if have a conflict or scope of integration unless you know what the writing means!! Point is made in § 214 (c).
Whatever PE might suggest, can offer evidence of interpretation before ever get to PE. IF decision had been that clause covers all damage, then don’t have a PE problem.
Plain meaning rule: it says injury to property, this is injury to property so the clause applies
Court – you can’t do that. Trial judge cannot sit in chambers and read language of contract and decide for certainty what the language means, it is never that simple.
plain meaning – is only the plain meaning of the reader, cannot assign same meanings to all people. If purpose of contract is to give meaning to the parties’ intentions, then the judge’s meaning may not be an adequate answer at all. §201: Whose meaning prevails (p.288)
(1) gives primacy to the intention of the parties (not the judge or other reader)
conflicts – 202(3) where language has a generally prevailing meaning, it is interpreted in that way.
PE cannot contradict interpretation of a writing, but we don’t have to go there with this case – this is not prior agreement evidence, more like evidence of prior conduct
Interpretive issue has to be decided 1st^ before get to PE
plain meaning rule is out – no modern judge would tell you they are using that rule, but lots do (they will read it and tell you what it means) Solving PE Problems:
Must have agreement in writing.
Integration? Total or Partial? o Total integration – if includes all terms of agreement in writing o Partial – if some terms are missing
Is there an interpretation question? (ambiguous terms) o If so, can admit any type of evidence (prior agreements, express terms, course of performance, course of dealing, trade usage) o PE doesn’t bar admission of evidence if it is for interpretation issues

Court looked at this and said if going to use course of dealing to interpret contract, have to find that it is consistent with writing. [cannot contradict the writing, a parallel point to PE]. Court says, “it would contradict writing if said N could write its own price... this isn’t a contradiction” – talks around non-contradictory language.

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