Parol Evidence Outline

I. The parol evidence rule fact pattern

A. The rule applies only when there are two contracts. You need:

1. A written contract, and

2. A prior oral or written agreement, or an oral agreement made at the same time as the written contract.

a. Use “side agreement” to mean a prior oral or written agreement, or an oral agreement made at the same time as the written contract.

II. The Rule

A. A side agreement that does not contradict the written agreement is enforceable unless:1. The written agreement is a complete integration; and 2. The side agreement is in its scope.

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Parol Evidence 2 Outline

I. Complete Integration

A. A complete integration is a written agreement the parties intend as the complete and exclusive statement of their obligations.

B. If a side agreement is in the scope of a complete integration, it is unenforceable.

II. Reconciliation of the UCC and the Common Law

A. The language differences between the UCC (detailed on the next screen) and the common law (also detailed on the next screen) can be reconciled in the following statement, which captures the meaning and effect of the Parol Evidence Rule:

A side agreement is enforceable unless:

(1) it contradicts the written agreement; or,

(2) the written agreement is a complete integration and the side agreement is in the scope of the complete integration.

B. UCC—According to § 2-202 of The Uniform Commercial Code (which governs the sale of goods),

“...a written agreement may not be contradicted by evidence of a [side agreement] but may be explained or supplemented . . . by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.

C. Common Law— According to § 217 of the Restatement of Contracts (Second): [We added the parentheticals to this definition to illustrate the closeness of the rule’s language under the UCC and the common law.]

A binding integrated agreement [i.e., a written agreement] renders a prior agreement unenforceable to the extent that the prior agreement is inconsistent with the integrated agreement, and a completely integrated agreement renders unenforceable any prior agreement in its scope.

The common law’s notion of a prior agreement includes the UCC’s notion of a contemporaneous agreement; a contemporaneous agreement is “prior” in the sense that it is made immediately before the signing of the written agreement.

III. Terminology—Two key terms of the common law are “integrated agreement” and “completely integrated agreement.”

A. “Completely Integrated Agreement” - A completely integrated agreement is a written agreement that is intended as the complete and exclusive statement of the terms of the agreement.

B. Notes:

(1) The phrase “completely integrated agreement” is usually shortened to “complete integration.”

(2) The UCC does not use the expression “complete integration,” but it uses the concept when it refers to a “written agreement intended as the complete and exclusive statement of the terms of the agreement.” It is much more convenient to use the phrase “complete integration,” and we will do so.

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Parol Evidence 3 OutlineI. Policy Overview – How to reconcile the tension between the following?

A. Desire to Support Business Planning and Dispute Resolution1. One goal of the Parol Evidence rule is to ensure that written contracts are, in certain situations, the primary basis for business planning and dispute resolution. The more we hold that a written agreement renders relevant side agreements unenforceable, the

more we make the written agreement the primary basis for business planning and dispute resolution.

B. Desire to Enforce Agreements To Which The Parties Intended to be Bound1. Alternatively, the more we hold that side agreements are enforceable, the more the side agreements take their place alongside the written agreement as a basis for business planning and dispute resolution; this complicates the task—both for contractual parties and for courts—of figuring out what the obligations are.

II. Tests for scopeA. There are four tests for whether a side agreement is in the scope of a complete integration.

1. The intent test.a. a side agreement is in the scope of a complete integration when (and only when) the parties intended to cancel the side agreement when executing the complete integration.

2. The “same subject” test.a. A side agreement is in the scope of a complete integration when (and only when) the two agreements deal with the same subject.

3. The “same consideration” test.a. A side agreement is in the scope of a complete integration when (and only when) the two agreements have the same consideration.

4. The normal inclusion test.a. If the parties would normally have written the side agreement into the compete integration, then the side agreement is presumptive in the scope of the complete integration.

1. The presumption is rebuttable.

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Parol Evidence 4 OutlineI. Entire Agreement Clauses

A. An entire agreement clauses states that the written agreement that contains it is the complete and exclusive statement of the parties’ obligations.

1. Such clauses are also called Merger clauses or Integration clauses.

II. Effect Of An Entire Agreement Clause

A. The cause is evidence that the written agreement is a complete integration.

1. An a written agreement is a complete integration if the parties intend it to be the complete and exclusive statement of the terms of their agreement, of their obligations to each other.

2. The entire agreement clause is evidence of the relevant intent.a. Jurisdictions differ in the strength they give to this evidence.

B. The cause is evidence that the written agreement is a complete integration even if the parties do not read the agreement.

1. The duty to read: if a party has an adequate opportunity to read and understand the agreement, then knowledge of the content of the agreement is imputed to the party even if he or she did not read the agreement.

III. Policy Considerations

A. The more evidential weight you give to the entire agreement clause, the easier you make it to hold that a written agreement is a complete integration.

1. This approach helps ensure that written contracts are a reliable basis for business planning and dispute resolution.

B. The less evidential weight you give to the entire agreement clause, the harder you make it to hold that a written agreement is a complete integration.

1. This approach helps ensure that courts enforce the agreements the parties actually intend to be enforceable.

IV. Contradiction

A. The same policy considerations arise in determining when a side agreement contradicts a written agreement.

B. Where a side agreement appears to contradict a written agreement, a court will not find a contradiction for purposes of the parol evidence rule if there is an adequate explanation of why there is really no contradiction.

C. Policy considerations

1. The easier it is to explain away a contradiction, the easier it is to enforce a side agreement; hence, the less weight we give to written contracts as a basis for business planning and dispute resolution, and the easier we make to enforce agreements the parties genuinely intended to be enforceable.

2. The harder it is to explain away a contradiction, the harder it is to enforce a side agreement; hence, the more weight we give to written contracts as a basis for business planning and dispute resolution, and the harder we make to enforce agreements the parties genuinely intended to be enforceable.

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Parol Evidence 5 Outline

I. Course of dealing

A. A course of dealing is a pattern of previous conduct between the parties to a transaction that establishes a common basis for interpreting their words and actions. UCC §1-205.

B. Under UCC §2-202, unless the written agreement carefully negates a course of dealing, it becomes an element of the meaning of the contract.

II. Trade usage

A. Trade usage is a sufficiently regular practice in a place or business that parties are justified in expecting that it will be followed in their transaction. UCC §1-205.

B. Under UCC §2-202, unless written agreement carefully negates the trade usage, relevant terms are interpreted in accord with the trade usage.

III. Course of performance

A. UCC §2-208 explains course of performance: “Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement.”

B. Under UCC §2-202, a course of performance is the best indication of what the parties mean.

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Parol Evidence 6 Outline

I. Prior Or Contemporaneous Agreements And Negotiations In The Common LawA. Prior or contemporaneous agreements and negotiations are admissible as evidence of the meaning of terms in a written agreement.

B. Two views

1. Non-contradiction required: You may introduce evidence of prior or contemporaneous agreements and negotiations unless they contradict the written agreement.

2. Ambiguity required: You may not introduce evidence of prior or contemporaneous agreements and negotiations to interpret the written agreement unless the written agreement is ambiguous and the side agreement is relevant to resolving the ambiguity.

a. Non-contradiction still required.i. If the written agreement contains an ambiguity to which the evidence of prior or contemporaneous agreements and negotiations is relevant, then there is no contradiction between the written agreement and the prior or contemporaneous agreements and negotiations.

3. Jurisdictions differ in whether they follow (1) or (2).

II. Misrepresentation And The Parol Evidence Rule

A. Misrepresentation is a tort cause of action and the parol evidence rule is simply irrelevant to introducing evidence to show fraud.

B. An entire agreement clause may say that a party is not relying on any representations oral or written in entering the contract.

1. An element of the misrepresentation cause of action is that the plaintiff relied on the misrepresentation.

2. Some jurisdictions construe the entire agreement clause as evidence in a misrepresentation cause of action that the plaintiff did not rely on the misrepresentation; other jurisdictions do not.

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