Parol Evidence Rule; Contract Modification

Authorautor
Pages118-134
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Chapter 9. Parol Evidence Rule; Contract Modification
9.1. The Common Law Parol Evidence Rule
9.1.1. Purpose. The parol evidence rule is based upon two foundational premises:
Parties who have reduced their agreement to a writing intended to be a final expression of
their understanding should not be allowed to introduce evidence of prior oral or written
terms or contemporaneous oral terms that contradict or supplement that writing.
The parol evidence rule gives more evidentiary weight to writings than to non-written
statements.
9.1.2. Meaning of “Parol” Evidence. Contrary to common misperceptions, “parol” when used
in the context of the parol evidence rule does not mean “oral.” The more accurate definition is
extrinsic,” meaning extrinsic to the written agreement between the parties. To be more precise,
the parol evidence rule may be used to exclude written or oral agreements made prior to the
written agreement, as well as oral (but not written) agreements that are contemporaneous with
the written agreement. Generally, contemporaneous written agreements are not excluded by the
parol evidence rule, even if they contain contradictory terms. See § 9.2.6.1.
Furthermore, the rule is not really a rule of “evidence” – it is a rule of substantive contract law.
For example, if objection to its introduction is not timely made, it can still be challenged. And
when the trial is in federal court on diversity grounds, the state law of parol evidence will govern.
9.1.3. Exceptions. The common law parol evidence rule does not exclude all types of extrinsic
evidence in all situations. Parol evidence is admissible for certain purposes, including (1) the
formation of the contract, (2) the existence of a separate enforceable agreement, (3) the
interpretation of the agreement, (4) the validity of the contract, and (5) a subsequent modification
of the agreement.
9.1.4. Final Written Expression. The common law parol evidence rule applies to written
agreements intended to be the final expression of the parties’ agreement.
9.1.4.1 The common law distinguishes between final agreements that are completely
integrated and partially integrated.” Some jurisdictions create a rebuttable
presumption that a contract reduced to writing is presumed to completely integrated. See,
e.g., Mont. Code Ann. § 28-2-905.
9.1.4.2 A “partially integrated agreement is a final expression of some of the terms but is
not complete or exclusive as to all of the terms. While a party cannot introduce evidence
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of a consistent additional term to a completely integrated agreement, evidence of a
consistent additional terms is admissible when an agreement is partially integrated.
Restatement (Second) of Contracts § 216(1) (1981).
9.1.5. Necessary Elements. Because the parol evidence rule entails several elements, all of
which must be satisfied before the rule is applied, you should always ask the following questions:
Is there a written agreement intended to be the final expression of the parties’ agreement?
If so, is the agreement “completely integrated” or “partially integrated”?
Does the extrinsic evidence offered fall within one of the categories of evidence excluded
by the parol evidence rule?
If so, is the extrinsic evidence being offered for an admissible purpose and thus is not
excluded by the parol evidence rule?
9.2. UCC Parol Evidence Rule. The UCC parol evidence rule is found at UCC § 2-202. Read it
carefully, keeping in mind the elements of the common law rule.
9.2.1. Under § 2-202, evidence of prior oral or written agreements, or contemporaneous
oral agreements, is not admissible to contradict either (1) agreed terms contained in
confirmatory memoranda or (2) a writing intended as the final expression of their
agreement. This is consistent with the common law.
9.2.2. UCC § 2-202(a) allows three types of evidence -- usage of trade, course of dealing,
and course of performance -- to explain or supplement a term contained in the writing
even if the parties intended the writing to be complete and exclusive. This is broader than
the common law rule, which would not allow evidence of usage of trade, course of
dealing, or course of performance to supplement a completely integrated agreement.
9.2.3. The common law allows parol evidence to be admitted for issues relating to the
formation, interpretation, or validity of the contract. UCC § 2-202 is silent in these
situations, and thus the common law supplements under UCC § 1-103(b). For example,
evidence of prior oral or written agreements, or contemporaneous oral agreements, may
be introduced to interpret an ambiguous term, or to prove mistake, fraud,
misrepresentation, or failure of a condition precedent that would invalidate the contract.
9.2.4. The UCC rules regarding the use of parol evidence regarding the modification of a
contract subsequent to its formation are found at UCC § 2-209, and are discussed at
Section 9.3.

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