Contracts, Fall 2008

1. Contracts, Fall 2008 Class 16

2. Parol Evidence Rule • Parties’ agreement is to be found in the contract. • Writing supersedes prior/contemporaneous agreements • If contract is clear on its face can’t look beyond ‘4 corners’ of contract to parties’ words or other extrinsic evidence. • Some courts: no contract is ever completely clear on its face

3. Exceptions • Doesn’t apply to subsequent agreements • Doesn’t apply to collateral agreements • What is a collateral agreement? • Contrast with supplementation

4. Exceptions • Doesn’t apply to show agreement is invalid on grounds of fraud, duress, or otherwise • Scope of fraud exception may be controversial • Easy: fraud in the execution • Harder: fraud in inducement • Other controversies

5. Hypotheticals • Smith asks Jones to sign a birthday card for Zelda. Jones signs; what he doesn’t realize is that the document Smith handed him is really a contract for the sale of Jones’s car, a Maserati, in exchange for $10. Can Jones use parol evidence in a lawsuit challenging Smith’s attempts to enforce the contract? Why?

6. Hypotheticals • Amy has young children. Fred, to sell his house to Amy, tells her that a pre-school zoning application has just been approved for Best Kidz, a premier childcare provider, across the street. Based on this, Amy buys the house. Fred was lying, as it turns out. Can Amy use parol evidence in her lawsuit against Fred?

7. Exceptions • Doesn’t apply to exclude evidence offered to establish right to ‘equitable’ remedy such as reformation • Doesn’t apply to exclude evidence of oral condition precedent

8. Hypothetical • Contract recites that borrower gives lender a security interest in her piano, and that lender’s loan is for $900. In fact, the loan is for $9000. Will the parol evidence rule keep out evidence of the mistake and the correct number?

9. Exceptions • Doesn’t apply to exclude evidence ‘interpreting’ rather than supplementing or contradicting agreement • judge may, though, exclude such evidence saying contract is ‘clear on its face’ • Other exceptions relating to ‘integration’

10. Vocabulary • Completely Integrated • Agreement captures the parties’ entire understanding/deal • Partially Integrated • Agreement captures part of the parties’ understanding/deal • Not Integrated • There is an agreement; relationship between agreement and parties’ understanding is???

11. Exceptions Relating to Integration • If agreement is completely integrated • Can use parol evidence only to interpret • Some agreements: ‘this is a complete integration.’ BUT can be complete integration even if agreement doesn’t say so. • If agreement is partially integrated • Can use parol evidence to interpret or supplement • If agreement isn’t integrated at all • Can use parol evidence to interpret, supplement or contradict

12. Corbin vs. Williston • Differences: • Whether interpretation is needed • Whether agreement is completely integrated

13. Corbin v. Willliston • Williston: more apt to find agreement ‘clear on its face,’ not warranting interpretation, without looking at anything else • If contract says it’s a complete integration, Williston accepts • Corbin: always willing to look at parol evidence to determine whether agreement is clear on its face and potentially to interpret • Corbin is less likely to see agreements as complete integrations

14. Hypothetical Smith and Jones sign a 50 page agreement in which Smith is to sell Jones her piano; under the agreement, delivery is to occur on January 17th. The agreement is dated January 10th. The agreement looks like it was elaborately drafted. Jones says that the deal actually included the services of Smith’s brother, a piano tuner, to tune the piano once during the next six months. Smith says ‘parol evidence rule.’

15. Hypothetical Jones wants to introduce a witness who would testify to having heard Jones say on January 8th ‘I need a piano tuner to come by soon to make sure the piano tuning didn’t get disrupted when I move the piano to my house.’ And Smith responding ‘ok, I use my brother, I’ll send him over.’

16. Other Observations • Usage of trade, course of performance, course of dealing, other types of provisions: may be used to interpret contract on theory other than parol evidence. • Result is that they may be used even if “parol evidence” on the point wouldn’t be permitted

17. Other observations: UCC Article 2 • UCC Article 2 is more inclined to accept ‘explanation’ without finding of ambiguity, and ‘supplementation.’ • UCC conceptualizes ‘agreement’ as including more than contract

18. Hierarchy • Express terms governs over • Course of performance governs over • Course of dealing governs over • Usage of trade • BUT: UCC especially stresses finding consistency between express terms and the others