Franchising and the Parol Evidence Rule

Date01 September 2013
Published date01 September 2013
DOIhttp://doi.org/10.1111/ablj.12016
AuthorRobert W. Emerson
Franchising and the Parol
Evidence Rule
Robert W. Emerson*
INTRODUCTION
The parol evidence rule, though a venerable concept in contract law,
remains a source of controversy.1This key tenet of contract interpretation
“bars extrinsic terms agreed upon prior to or at the same time as, a total
integration regardless of whether the term is written or oral.”2In other
words, if the parties intended the document to encompass the entire
agreement, evidence of prior or contemporaneous communications—in
other words, parol evidence—will not be permitted to alter the terms of
the contract, unless the language is ambiguous or some other exception is
present.3
*B.A., Sewanee: University of the South; J.D., Harvard Law School. Huber Hurst Professor
of Business Law, University of Florida.
1By consensus of legal historians (see, for example, Hila Keren, Textual Harassment: A New
Historicist Reappraisal of the Parol Evidence Rule with Gender in Mind,13AM.U.J.GENDER SOC.
POLY& L. 251, 264 (2005)), the parol evidence rule has been traced to The Countess of
Rutland’s Case, 77 Eng. Rep. 89 (1604), in which the great British jurist Sir Edward Coke’s
report of the case included this most influential passage:
[I]t would be inconvenient, that matters in writing made by advice and on consideration,
and which finally import the certain truth of the agreement of the parties should be
controlled by averment of the parties to be proved to the incertain [sic] testimony of
slippery memory. And it would be dangerous to purchasers and farmers, and all others
in such cases, if such nude averments against matter in writing should be admitted.
Id. at 90. Lord Coke preferred to avoid “obscurity, ambiguity, jeopardy, novelty, and prolix-
ity” in favor of a rigid interpretation of “bright-line rules.” ALLEN D. BOYER,SIR EDWARD COKE
AND THE ELIZABETHAN AGE 121 (2003).
2JOSEPH M. PERILLO,CALAMARI AND PERILLO ON CONTRACTS 108 (6th ed. 2009).
3See BLACKSLAW DICTIONARY 1227 (9th ed. 2009) (defining the parol evidence rule as “the
common-law principle that a writing intended by the parties to be a final embodiment of their
agreement cannot be modified by evidence of earlier or contemporaneous agreements that
might add to, vary, or contradict the writing”). The theories advanced to justify the rule are
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American Business Law Journal
Volume 50, Issue 3, 659–728, Fall 2013
© 2013 The Author
American Business Law Journal © 2013 Academy of Legal Studies in Business
659
The Restatement (Second) Contracts outlines the parol evidence rule as
generally recognized at common law:
(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 agree-
ments 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 inop-
erative a term which would have been part of the agreement if it had
not been integrated.4
The rule often presents practical challenges of contract interpreta-
tion.5On the one hand, presumably the vast majority of people who might
(1) “[i]f the parties intend[ed] the writing to be final and complete, they intend to supersede
their prior agreements[,]” (2) “sound policy requires that prior and contemporaneous oral
agreements are suspect” if not included in the writing, and (3) that “the writing deserves a
preferred status against potential perjury” regarding oral aspects of an alleged agreement.
JOHN D. CALAMARI &JOSEPH M. PERILLO,CONTRACTS 187 (3d ed. 1999). It should be noted that
Professor Corbin criticized this approach and any exclusion of extrinsic evidence offered to
prove the intent of the parties. According to Corbin, the dangers “of excluding all extrinsic
evidence on the ground that the express words are so ‘plain and clear’ that their meaning as
used by the parties must be determined solely by what is within the four corners of
the instrument” should be recognized by the courts. 5 ARTHUR LINTON CORBIN,CORBIN ON
CONTRACTS 34 (2012 Supp.).
4RESTATEMENT (SECOND)CONTRACTS § 213 (1981). For a recent summary of the parol evidence
rule, see Mark K. Glasser & Keith A. Rowley, On Parol: The Construction and Interpretation of
Written Agreements and the Roleof Extrinsic Evidence in Contract Litigation,49B
AYLOR L. REV. 657,
660 (1997), which states that
As a general rule, extrinsic evidence, whether written or oral, is not admissible to prove
either the intent of the parties to a contract or the meaning of contractual terms when
the parties have executed an unambiguous, fully-integrated (i.e., final and all-inclusive)
written agreement. The trial court may consider various types of extrinsic evidence,
however, in determining whether a particular agreement is fully integrated or ambigu-
ous, and even in choosing among rival interpretations of an agreement where ambiguity
is not present. If the trial court determines that an agreement is not fully integrated,
then the trier of fact may consider extrinsic proof that supplements it. If the trial court
determines that an agreement is ambiguous, then the trier of fact may consider extrinsic
proof of the parties’ contractual intent.
The fine distinctions here relate, in part, to “integration,” the superseding of other agree-
ments, and “merger,” the folding of previous agreements into the cur rent contract. See infra
note 11 (discussing integration and merger clauses).
5Professor Williston spoke of these challenges:
660 Vol. 50 / American Business Law Journal
voice an opinion on mendacity think that swindlers should not thrive. We
may be too cynical to believe in the truth of the childhood aphorism
“cheaters never prosper,” but we feel, often fervently, that it ought to be
so.6On the other hand, most people have learned, again at an early age,
that we should honor our promises; even if we make a foolish bargain, the
other side ordinarily has a right to its bargain from us.7These heuristics—
fraud is wrong; a “deal” is to be enforced—sometimes conflict, a problem
that often manifests in contract disputes involving franchises.8Repeatedly,
[A]s has been seen, the facially simple rule states that, absent fraud, mistake or other
invalidating cause, the parties’ final written integrating of their agreement may not be
varied, contradicted or supplemented by evidence of prior or contemporaneous oral
agreements, or prior written agreements. Beneath this facial simplicity, however, is, as
one federal court has declared, a “morass”: “[t]o even the most courageous Pickwickian,
the parol evidence rule must seem a treacherous bog in the field of contract law.
Interspersed in this quagmire are quicksand-like state court decisions, which appear
equitable in specific situations but remain perilous for legal precedent. Federal courts,
attempting to clarify, have sometimes but confused and compounded muddled inter-
pretation of the axiom.”
11 SAMUEL WILLISTON &RICHARD A. LORD,ATREATISE ON THE LAW OF CONTRACTS § 33:4 (4th ed.
1993 & Supp. 2011) (quoting Chase Manhattan Bank v. First Marion Bank, 437 F.2d 1040,
1045 (5th Cir. 1971)).
6As children’s author Dr.Seuss said in one of his early classics, where a highly improbable, but
morally satisfying outcome does occur for a 100 percent faithful elephant, “It should be, it
should be, it SHOULD be that way! Because Horton was faithful....Hemeant what he said
and said what he meant....”D
R.SEUSS (THEODOR SEUSS GEISEL), HORTON HATCHES THE EGG
(1940).
7Certainly, there are exceptions, such as mistake. See generally E. ALLAN FARNSWORTH,ALLEVI-
ATING MISTAKES:REVERSAL AND FORGIVENESS FOR FLAWED PERCEPTIONS (2004) (discussing how a
mistake may justify the reversal of a contract, and comparing to the role of mistakes in
forgiveness for crimes or torts). But, ordinarily the point holds: a contract binds the parties
to a bundle of rights and duties.
8In general, a franchise entails a continuing contractual relationship in which the franchisor
grants the franchisee a right to conduct business or sell products according to the franchisor’s
marketing plan and in conjunction with the franchisor’s trademark. See, e.g., N.J. STAT.ANN.
§ 56:10-3.a. (West 2013); WASH.REV.CODE ANN. § 19.100.010(6) (West 2013). Greater preci-
sion in defining the concept has proven to be a demanding challenge.
[T]he courts and commentators have had a great deal of difficulty in formulating
definitions for the terms “franchise” and “franchising”; a good deal of the problem
results from the fact that the term “franchise” has been used to designate an almost
infinite number of marketing systems. To a large extent, defining the term “franchise”
involves distinguishing between a “true franchise” and a mere distributorship arrange-
ment. As a general matter,it may be said that a franchise involves the licensing of a right
not only to market a particular service or product but to conduct all or most aspects of
a business under the tradename of the franchisor, while a distributorship merely
2013 / Franchising and the Parol Evidence Rule 661

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