SC Lawyer, March 2004, #1. Beyond the Bar March 2004 A primer on the parol evidence rule.

• Author: By Warren Mo\xEFse

South Carolina Lawyer

2004.

SC Lawyer, March 2004, #1.

Beyond the Bar March 2004 A primer on the parol evidence rule

South Carolina LawyerMarch 2004Beyond the Bar March 2004 A primer on the parol evidence ruleBy Warren MoïseMeet the parol evidence rule - an ancient, arthritic, sanctimonious precept of English substantive law masquerading as a rule of evidence. It haunts both the federal and state courts. See Figgie Int'l v. Destileria Serralles, Inc., 190 F.3d 252 (4th Cir. 1999) (Traxler, J.); Estate of Holden v. Holden, 343 S.C. 267, 539 S.E.2d 703 (2000) (Burnett, J.). Like its cousin the dead man's rule, the parol evidence rule is an ancestor from an era when the law was strict and unyielding, favoring blanket exclusionary rules. The rule's name is misleading. It bars not only "parol" (oral) evidence but also written evidence. The parol evidence rule applies to a wide range of writings, from a town council's minutes to settlement agreements. The common law provides that when agreements are complete and unambiguous, there is no need for extrinsic evidence to determine parties' intentions. The judge simply looks at the contract's plain meaning and decides the parties' rights and duties. Accordingly, the parol evidence rule makes incompetent any evidence that contradicts, explains or varies written contractual terms. Sounds simple. However, with the consistency of pluff mud, the parol evidence rule has been a pebble in the common law's shoe for centuries.

Public policy underlying the rule

The parol evidence rule favors the conclusiveness of writings: "Real and personal property rights . . . would be jeopardized were the terms and conditions of a written instrument, solemnly executed, dependent upon the slippery memories and the individual consciences of the parties to the transaction. Therefore the law has directed . . . certain well defined rules and exceptions [enforcing the contract pursuant to] its expressed terms . . . ." Knighton v. DesPortes Mercantile Co., 119 S.C. 340, 112 S.E. 343, 345 (1922). Usually a dispute about an object or tangible thing is handled by simply admitting it into evidence, then allowing both sides to testify about its significance. The common law, however, assumes that if the writing appears complete, the parties worked out all possible details. Well, possibly this is how corporate attorneys negotiate contracts but, it's not necessarily how lay people reach agreements.

How does it work?

The common law rule reads as follows: "[W]here the terms of [a] written . . . agreement are clear and complete, extrinsic evidence of agreements or understandings contemporaneous with or prior to its execution cannot be used to contradict, explain, or vary its terms . . . ." Pee Dee State Bank v. National Fiber Corp., 287 S.C. 640, 643, 340 S.E.2d 569, 57071 (Ct. App. 1986) (Bell, J.). The UCC version is found at § 36-2-202: "Terms [about] which . . . confirmatory memoranda of the parties agree or which are set forth in a writing intended by the parties as a final expression of their agreement [regarding] such terms may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented: (a) by course of dealing or usage of trade or by course of performance; and (b) by . . . consistent additional terms unless . . . the writing [was] intended also as a complete and exclusive statement of . . . the agreement."

Being substantive law, evidence barred by the parol evidence rule remains incompetent, even when introduced without objection.

A road map through the pluff mud.

Below is a road map of sorts to get you through this legal muck.

(1) Is the writing "integrated"?

Integrated just means "complete." If the writing is not integrated, the parol evidence rule is inapplicable, and any testimony is admissible about it - even to contradict it.

(2) Assuming the writing is integrated, is it totally or partially integrated?

If the writing is totally integrated, evidence is inadmissible to contradict, explain or vary its terms. If it is only partially integrated, parol evidence is admissible to explain the writing or to supplement it with missing terms, but never to contradict the original writing.

(3) How does the judge decide if integration is total, partial or not integrated at all?

This is the tough part. Early common law used the "appearance test" looking at the four corners of the document. A writing "appearing" complete was deemed totally integrated. "[M]odern court[s] should[n't] be guided by such a restrictive test," said Professor Murray, but most legal scholars agree that the appearance test is the first step in the analysis. The parties' care in drafting the document may show that it totally expresses their agreement. A merger clause may be conclusive in some cases. Cf. Redwend Ltd. P'ship v. Edwards, 354 S.C. 459, 581 S.E.2d 496 (Ct. App. 2003) (Anderson, J.).

If the appearance test does not conclusively establish integration, what is the judge's second step in deciding total or partial integration? There are five basic approaches:

(1) Professor Wigmore's test looks at whether the writing deals at all with the matter at issue. For example, if the writing "at all deals with" delivery, it is seen as completely integrated as to delivery terms.

(2) Under Professor Williston's approach, the court determines if reasonable and similarly situated parties would have "normally and naturally" included the extrinsic matter in the writing. If so, the writing is only partially integrated (i.e., not integrated as to that matter). The face of the document is critical, and if the writing is obviously incomplete (e.g., with blanks or major terms omitted), it is partially integrated. Even if the judge determines that the writing appears completely integrated, this only creates a rebuttable presumption.

(3) Professor Corbin's test emasculates the parol evidence rule. He believed that the judge may hear all respectable evidence to learn the meaning of the contract. Once the contract's meaning is clear, then the court can determine integration. Evidence of previous and contemporary negotiations and agreements is always admissible to decide the meaning of the contract. Subjective intent and any other relevant evidence are admissible. For example, under Corbin's rule, the judge may allow testimony that "buy" meant "sell." The real question for the judge is simply whether the contracting parties intended the oral provision to be part of the contract.

(4) The UCC uses an objective test and rejects the assumption that just because some matters have been agreed upon, the writing includes all matters agreed upon. When integration is partial, additional terms not written into the contract are admissible unless the judge finds the terms "would certainly" have been included in the document if agreed upon. S.C. Code Ann. § 36-2-202 Comment 3 (Law. Co-op. 1976).

(5) The Restatement appears to show Corbin's influence and the loosening of the rule's dead hand. The writing itself may be decisive on total integration "in the absence of credible contrary evidence." Restatement (Second) of Contracts § 236 Comment b (1973). Moreover, a writing cannot by itself prove its completeness, and the judge must be given wide latitude into examining circumstances bearing upon the parties' intentions.

(6) South Carolina's approach:

The UCC sets forth the rule in applicable sales transactions. Does the common law follow the UCC approach in other areas? The appellate courts have never expressly used the UCC approach in non-UCC cases. Nor have they specifically embraced Professors Wigmore, Williston or Corbin, or the Restatement analysis. South Carolina's courts have simply cited the common-law principles used since the 1800s without much guidance about the procedure to be used.

(4) Does the parol evidence concern subsequent writings?

Subsequent agreements revising, voiding, etc. the original writing are unaffected by the rule.

(5) Is the writing ambiguous?

Parol evidence is admissible if an agreement is uncertain or ambiguous in any respect. Ambiguity may arise when all or part of the agreement is "capable of being understood in more ways than one, an agreement obscure in meaning through indefiniteness of expression, or having a double meaning." Ebert v. Ebert, 320 S.C. 331, 338, 465 S.E.2d 121, 125 (Ct. App. 1995) (Cureton, J.). There is overlap here with the "partial integration" issue: an agreement might be silent about a particular matter and, because of the nature and character of the transaction, it causes ambiguity. If so, parol evidence is admissible to supply a deficiency in the contract's language. Revis v. Revis, 326 S.C. 470, 484 S.E.2d 112 (Ct. App. 1997) (Howard, J.).

(6) How does the parol evidence rule mesh with other (real) evidence rules?

Being substantive rather than procedural, it may override established evidence rules. For example, when a writing contains party admissions, the admissions nonetheless have been held to be incompetent when barred by the parol evidence rule. See Penton v. J.F. Cleckley & Co., 326 S.C. 275, 486 S.E.2d 742 (1997) (Waller, J.) (inadmissible under party-admission theory). But cf. S.C. R. Evid. 105 (rule of multiple admissibility). It is unclear how the parol evidence rule would mesh with the opened-door doctrine.

(7) What are the "exceptions"?

There are several situations where the rule will not bar extrinsic evidence:

* fraud, misrepresentation, mistake or accident invalidating the contract itself;

* collateral agreements (e.g., the contract is a "sub-agreement" that is part of a larger agreement);

* non-essential terms in the contract. (e.g., consideration in a deed, a date or a receipt);

* use by persons not a party to, or on the same side of, a contract; and

* agreements between the prosecutor and defendant (courts may not strictly apply the rule).

The future of the rule

USC Law Professor James Dreher observed in 1967 that no clear pattern had emerged in South Carolina or elsewhere: "It appears everywhere [that the] rule [is] to be applied when the court feels it should be applied and . . . rather easily avoided when that seems the course of justice. [I] would not have it any other way." When the English Law Commission considered reforming this area of the law, it first decided the parol evidence rule should be abolished then concluded that it was too feeble to do serious harm. The parol evidence rule is out of step with modern jurisprudence because even if parol evidence is true and material in a given case, it still may be barred by the rule's dead hand. Decided in a vacuum, the judge's unilateral pronouncement of parties' intentions may be dead wrong. Time will tell whether the rule is abolished or eviscerated. However, I believe that except as to realty deeds, it should be buried in the Star Chamber's dungeon beside the dead man's rule. Not that anyone asked me.

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