Session 13 - Parol Evidence Rule

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I. Overview and Core Principles

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A. Definition of Parol Evidence

• Parol evidence = any evidence contemporaneous to or prior to the written agreement
• Can be oral or written extrinsic evidence
• Rule determines what evidence is admissible to supplement or contradict written contracts

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B. The Basic Rule

Parol evidence is generally inadmissible to:

• Contradict
• Vary
• Add to
• Subtract from

…the terms of an integrated agreement

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C. Types of Integration

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1. Complete (Total) Integration

• Final AND complete expression of the parties’ agreement
• No extrinsic evidence admitted to contradict OR supplement
• Merger clauses create presumption of complete integration
• All terms intended to be included are in the writing

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2. Partial Integration

• Final expression but NOT complete
• Extrinsic evidence admissible to supplement (if consistent)
• Cannot contradict any terms in the writing
• Parties intended document as final but not exhaustive

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D. Intent of the Parties - Critical Principle

• Always analyze the intent of the parties
• Courts enforce what parties intended, not mechanical rules
• Key question: Did parties intend this document to be fully/partially integrated?
• Exam tip: Never go wrong mentioning “intent of the parties” in analysis

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E. The Natural Omission Test

• Would reasonable, competent parties naturally have included this term in the writing?
• If yes, and it’s omitted → suggests it wasn’t part of the deal OR partial integration
• If term would naturally be included but isn’t mentioned → may indicate it wasn’t agreed upon

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II. Major Cases

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A. Mitchell v. Lath (1923) - Traditional/Rigid Approach

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Facts

• Charles Lath agreed to sell farm to Catherine Mitchell (1923)
• Lath owned ice house across the road (Mitchell didn’t like it)
• Written agreement: Sale of farm
• Separate oral agreement: Lath would remove ice house
• After purchase, Lath refused to remove ice house
• Mitchell sued

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Issue

Whether a separate spoken agreement can be used in court if different from the final written agreement

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Holding

Oral agreement about ice house NOT admissible (reversed lower courts)

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Rule - Three Conditions for Admissibility

For an oral collateral agreement to be admissible, it must:

1. In form be a collateral one (separate agreement)
2. Not contradict express or implied provisions of written contract
3. Be one that parties would not ordinarily be expected to embody in the writing

Alternative test: Inspection of written contract in light of surrounding circumstances must not indicate that writing contains complete engagements of parties

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Application

Ice house removal failed the test because:

• Closely related to land sale (not truly collateral)
• Something buyer would naturally include in land purchase contract
• Contract appeared to be complete integration on its face

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Key Language (Bottom of page 337)

“Two entirely distinct contracts, each for a separate consideration, may be made at the same time, and will be distinct legally” BUT: “If one agreement is entered into, wholly or partly in consideration of the simultaneous agreement to enter into another, the transactions are necessarily bound together” Test: Is the bond sufficiently close to prevent proof of the oral agreement?

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Significance

• Represents older, more rigid approach
• Later cases adopt more flexible approach (UCC 2-202, Restatement Second § 216)

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B. Masterson v. Sine (1968) - Modern/Flexible Approach

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Citation

• California Supreme Court
• Justice Traynor
• In Banc (all justices participated)

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Facts

• Dallas Masterson and wife owned ranch, conveyed to Medora and Lu Sine (1958)
• Medora was Dallas’s sister
• Grant deed reserved option for grantors to repurchase property within 10 years
• Option exercisable by paying same consideration without depreciation
• Dallas later declared bankruptcy
• Bankruptcy trustee took over estate
• Trustee and Rebecca Masterson sued to enforce option

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Procedural History

• Trial court admitted: Evidence of $50,000 consideration and depreciation definition
• Trial court excluded: Parol evidence that option was personal to Mastersons (non-assignable, to keep property in family)
• Both parties appealed

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Issue

Is evidence of separate oral agreement admissible to prove terms of written contract if unclear whether writing intended by parties to be complete?

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Holding

• Trial court erred in excluding evidence
• Evidence that option was personal/non-assignable should have been admitted
• Writing appeared to be partial integration
• Oral term was consistent with writing (not contradictory)

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Rule - Justice Traynor’s Modern Approach

Even if unclear whether written contract intended to be complete, evidence of separate oral agreement may be admissible if:

• Oral agreement is something that would be naturally made as a separate agreement by parties
• Given their actual situation and circumstances when drafting written contract

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Reasoning

• Test of admissibility: Whether oral term might naturally be made as part of separate agreement by the parties
• Evidence of oral collateral agreements should be excluded only when fact finder likely to be misled
• Rule must be based on credibility of evidence
• Adopts Restatement of Contracts § 241B standard

In this case:

• Agreement that option was personal/non-assignable would naturally be separate
• Intent was to keep property within family
• Not inconsistent with written grant deed
• Partial integration allowed supplementation

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Significance

• Represents modern, flexible approach
• Emphasizes credibility and natural expectations over rigid formalism
• Still good law today (1968 case)
• Moving away from Mitchell v. Lath’s rigid rule

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C. Lee v. Joseph E. Seagram & Sons, Inc. (1977) - Different Parties

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Facts

• Lee family owned 50% of Capital City Liquor Company (Seagram distributor)
• Family decided to sell business
• Arnold Lee (age 36) had relationship with Seagram executives
• Initial oral offer: Sell Capital City to Seagram on condition they relocate Arnold and sons into new distributor
• One month later: Written sales agreement negotiated by different Seagram employees (John Barth)
• Written contract (September 1970):
  • Did NOT include promises about new distribution
  • Contained NO integration clause
• Seagram failed to provide new business
• Lees sued for breach of oral agreement

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Procedural History

• Trial court allowed evidence of oral promise
• Jury ruled for Lee
• Second Circuit affirmed

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Issue

Can evidence of oral agreement relating to later written contract be admitted when parties are not identical and written contract lacks integration clause?

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Holding

Oral agreement admissible - parol evidence rule did NOT bar evidence

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Reasoning

• Oral agreement admissible because circumstances showed it was not meant to be part of written sales contract
• Different parties involved:
  • Oral: Arnold Lee and Seagram executives
  • Written: Different Seagram representatives
• No evidence that those drafting written contract even knew of earlier oral promises
• Written agreement was not total integration
• Oral promise did not contradict written agreement
• Therefore admissible

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Rule Applied

• Court applied Corbin approach
• Emphasized intent of parties rather than reasonable interpretation
• Different parties = significant factor
• Absence of integration clause weighs against complete integration

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D. George v. Davoli (1977) - UCC 2-202 Application

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Facts

• George agreed to purchase jewelry from Davoli for $500
• Written memorandum: Can return jewelry if doesn’t like it, get refund
• NO time period specified in writing
• Oral discussion: No time period mentioned
• George returned jewelry following Wednesday
• Davoli refused refund, claiming oral agreement required return by Monday

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Issue

Is oral testimony about Monday deadline admissible under UCC 2-202?

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Holding

• Evidence of Monday deadline admissible
• George failed to meet deadline
• Davoli not required to provide refund
• Complaint dismissed

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Rule - UCC 2-202

UCC 2-202 compels court to allow oral testimony supplementing written agreement where:

1. Terms not inconsistent with written agreement, OR
2. Writing not intended as complete and exclusive statement of terms

Supplemental terms admissible if:

• Written agreement not full and exclusive expression
• Supplemental terms not inconsistent

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Application

• Memorandum was not full and exclusive (no time period included)
• Deadline agreement not inconsistent with written memorandum (merely supplemented)
• Appellate Division: Must contradict very existence of term to be inconsistent
• Oral Monday deadline did not contradict, only supplemented
• Therefore admissible

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Key Quote (Page 357)

“Section 2-202 of the UCC compels the court to allow oral testimony supplementing the written agreement were not inconsistent, or where the writing is not intended as complete and exclusive statement of the terms of the agreement”

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Significance

• Demonstrates UCC’s liberal approach to parol evidence
• Time period for performance can be supplemented by oral evidence
• “Inconsistent” narrowly construed

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E. Frigaliment Importing Co. v. B.N.S. International Sales (Chicken Case)

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Judge

Judge Friendly (noted for being “friendly to the chicken”)

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Facts

• Breach of warranty case - goods should correspond to description
• Two contracts: “U.S. fresh frozen chicken, grade A, government inspected”
  • Specification 1: 2.5 to 3 pounds each
  • Specification 2: 1.5 to 2 pounds each
• Plaintiff’s interpretation: “Chicken” = young chickens (broilers/fryers) only
• Defendant’s interpretation: “Chicken” = any chicken (including stewing hens)

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Issue

What is the meaning of the word “chicken” in the contract?

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Extrinsic Evidence Examined

1. Communications Between Parties

• Mostly cablegrams in German
• German word included both broiler and stewing types
• Inconclusive

2. Trade Usage

• Plaintiff’s witness (Strassner): “Chicken” means broiler
  • BUT his own contracts specified “broiler” separately
• Defendant’s witnesses:
  • Plant operator: “Chicken is everything except goose, duck, and turkey”
  • Must specify which category wanted
  • Food inspection service: Any bird within USDA classes = “chicken”

3. USDA Regulations

• § 70.301: “Chickens” includes broiler, fryer, roaster, capon, stag, hen, etc.
• Defendant: Contract incorporated these by “government inspected” language
• Court: Defendant’s argument has more force

4. Market Prices

• Defendant: Impossible to obtain broilers/fryers at 33-cent price offered
• Market price for broilers was 35-37 cents
• Plaintiff must have known market
• Defendant entitled to some profit

5. Course of Performance

• Plaintiff sent cables complaining larger birds were “foul”
• Defendant didn’t acknowledge complaint
• Mixed evidence

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Holding

• Defendant believed it was complying (broader interpretation)
• Defendant’s subjective intent coincided with objective meaning per USDA regulations
• Plaintiff had burden of showing “chicken” used in narrower sense
• Plaintiff failed to sustain burden
• Judgment for defendant

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Rule - Interpretation When Ambiguous

Extrinsic evidence admissible to interpret term when ambiguous Court examines successive interpretations:

1. Contract language itself
2. Communications between parties
3. Trade usage
4. Industry definitions (USDA regulations)
5. Market prices
6. Course of performance

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Significance

• Pre-UCC case demonstrating courts allow extrinsic evidence for interpretation
• Extensive analysis of ambiguous terms
• If cannot establish meaning of indispensable term → no remedy possible
• Malpractice warning: Don’t draft contracts with vague terms

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F. Pacific Gas & Electric Co. v. G.W. Thomas Drayage

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Facts

• PG&E hired Thomas to fix/repair turbines
• Contract included indemnification clause: Thomas liable for “any loss, damage, expense, and liability resulting from injury to property”
• While working, Thomas damaged PG&E’s turbine cover
• PG&E sued for $25,000 based on indemnification

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Procedural History

• Superior Court: Extrinsic evidence excluded
  • Looked at plain meaning within four corners
  • Plain meaning: Applied only to third party property, not PG&E’s
• Appellate Court: Reversed

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Issue

Can extrinsic evidence be introduced when there’s issue understanding plain meaning of language within four corners of contract?

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Holding

• Extrinsic evidence admissible
• If issue understanding plain meaning, court can look to extrinsic evidence to understand intent of parties
• Intent was to protect against third party claims, not PG&E’s property
• Not barred by parol evidence rule

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Rule - Language Susceptible to Multiple Meanings

Definition to memorize: “If there is language in the contract that is susceptible to two or more meanings [OR] reasonably susceptible to two or more meanings, the extrinsic evidence can come in to:

• Show the meaning intended by the parties, OR
• Prove a meaning to which the language is reasonably susceptible”

Extrinsic evidence can include:

• Emails regarding contract
• Oral testimony between parties
• Any evidence showing intended meaning

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Justice Traynor’s Limitations

• Preliminary consideration by court (not jury, not full trial)
• Judge makes preliminary determination
• Bring in all credible evidence
• Reviewed solely by judge
• Admission only if, considering all extrinsic evidence, contract susceptible to either interpretation

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Significance

• If issue understanding plain meaning, extrinsic evidence admissible
• Not violation of parol evidence rule - interpretation exception
• Different from consistent/inconsistent analysis

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G. Trident Center v. Connecticut General Life Insurance (1988)

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Court

• Ninth Circuit (federal appellate court)
• Applied California law
• Judge: Alex Kozinski

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Facts

• Plaintiff: Trident Center (partnership of insurance company and law firms)
• Borrowed $56.5 million from Connecticut General Life Insurance
• Promissory note stated: “Trident shall not have the right to prepay principal amount before January 1996”
• Separate clause: “In event of prepayment resulting from default prior to January 1996, prepayment fee will be 10%”
• When interest rates dropped, Trident wanted to refinance
• Trident’s argument: Second clause allowed prepayment if willing to pay 10% fee
• Lender’s position: Clear prohibition on prepayment during first 12 years

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Issue

Under California law, can extrinsic parol evidence be introduced to show contract means something different from its plain language, even when contract appears clear and unambiguous?

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Holding

• Affirmed dismissal (contract clearly barred prepayment before 1996)
• BUT reversed sanctions - claim not frivolous given California’s broad parol evidence doctrine
• Recognized under California law, parol evidence could theoretically be admissible

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Reasoning

• No genuine ambiguity in written terms
• Default clause only applied if lender chose to accelerate after default
• Did NOT apply if Trident voluntarily prepaid
• Nonetheless, California’s Pacific Gas precedent permits parties to offer parol evidence even when written contract seems unambiguous
• Court critical of this rule but bound to follow California law
• California law makes it impossible for even sophisticated parties to draft contract immune to parol evidence

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Court’s Criticism

• Contract had “extremely clear contractual provisions”
• Despite this, California law still potentially allows parol evidence
• Even sophisticated parties (insurance companies, law firms) with clear language cannot completely bar parol evidence

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Significance

• Shows California and Ninth Circuit taking very liberal approach to admissibility
• Even clear language may be subject to parol evidence if susceptible to multiple interpretations
• Current trend: Evidence may come in even when language clear on face
• Illustrates tension between plain meaning and liberal parol evidence rules

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H. Val-Ford Realty - Evidence Contract is No Contract at All

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Key Quote (Page 357)

“While parol evidence is generally inadmissible to contradict, vary, add to, or subtract from the terms of an integrated agreement (such as the instant lease and guarantee), it is admissible to show that a writing, although purporting to be a contract, is in fact no contract at all”

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Principle

Parol evidence rule does NOT bar evidence showing:

• Contract was fraudulent
• Contract was sham/fake
• No real contract existed (just appearance)
• Contract procured through fraud

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Example: Fraudulent “Gift” Contracts

Four women each paid $180K-200K to man who:

• Was dating all simultaneously
• Signed contracts showing money as “gifts” (not loans)
• Purpose: Deceive bank to secure large loan
• Actually were loans, not gifts

Parol evidence admissible to show:

• Contracts were phony/fraudulent
• True intent was loans
• Used to fraudulently obtain bank financing
• No real contract - just fraud

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Example: Fraudulent Conveyance

• Party gets sued, transfers property to spouse/family
• Witnesses heard: “This is to prevent us from losing the property”
• Evidence of sham transfer admissible
• Not subject to parol evidence rule

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Rule

Anytime evidence shows contract formation defect (fraud, duress, no meeting of minds), evidence comes in - not subject to parol evidence bar

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III. UCC 2-202 - Presumption of Partial Integration

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A. Text and Effect

UCC 2-202 Rule: Terms in writing intended by parties as final expression may not be contradicted by evidence of prior agreement or contemporaneous oral agreement BUT may be explained or supplemented:

• By course of dealing, usage of trade, or course of performance
• By evidence of consistent additional terms UNLESS court finds writing intended as complete and exclusive statement

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B. Critical Presumption

UCC 2-202 PRESUMES all contracts are PARTIALLY INTEGRATED

• This is rebuttable presumption
• Party can overcome by showing complete integration
• Default position: Partial integration
• UCC compels court to allow supplemental evidence

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C. Why UCC is Liberal

Policy Reasons:

1. Rigid rules don’t fully show intent of parties
2. UCC wants to promote contract formation
3. Recognition that most commercial contracts evolve
4. Reflects reality of commercial dealings

Practical Effect:

• Evidence that supplements (if consistent) generally admissible
• Burden on party claiming complete integration to prove it
• Unless party shows fully integrated agreement, supplemental consistent terms come in

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IV. Restatement Provisions

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A. Restatement (Second) § 209 - Is Writing an Integration?

• Writing not assented to by parties as final expression is not a final integration
• Even if labeled “draft” or “preliminary,” can become binding if parties assent
• Intent to finalize is key

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B. Restatement (Second) § 216 - Integrated Agreements

• More flexible approach than Mitchell v. Lath
• Referenced in modern cases as new approach
• Less formal than traditional rules
• Post-Mitchell modernization

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C. Restatement § 241B - Collateral Agreement Test

Cited in Masterson v. Sine Permits proof of collateral agreement if:

• “Such an agreement as might naturally be made as a separate agreement by the parties”
• Considering situation parties were in when creating written contract
• Natural omission test

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V. When Parol Evidence IS Admissible - Exceptions

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A. To Show Contract is No Contract at All

• Fraud
• Sham/fake contract
• No meeting of minds
• Illegality
• Contract formation defects
• See Val-Ford Realty

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B. To Interpret Ambiguous or Vague Terms

• Language susceptible to two or more reasonable meanings
• See Frigaliment (chicken case)
• See Pacific Gas & Electric
• NOT violation of parol evidence rule - interpretation
• Even in fully integrated contract, can interpret vague language

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C. To Show Modification (Post-Contract)

• Evidence of agreement made after contract signing
• Not parol evidence issue at all - modification question
• Requires consideration OR consideration substitute
• No parol evidence bar (not prior to/contemporaneous with contract)

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D. Collateral Agreements

• Must meet tests from Mitchell v. Lath or Masterson v. Sine
• “Naturally made as separate agreement” test
• Not so closely related that would naturally be in main contract
• See Lee v. Seagram (different parties factor)

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E. To Supplement Partially Integrated Agreement

• If contract is partial integration
• Evidence consistent with writing
• Cannot contradict
• UCC 2-202 presumes partial integration

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F. Course of Dealing, Course of Performance, Trade Usage

UCC allows evidence of:

• Prior dealings between parties
• How parties performed this contract
• Custom and practice in the trade
• Even if not in writing, helps interpret terms

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G. To Show Condition Precedent to Formation

• Evidence contract not effective until condition occurs
• Goes to formation, not terms
• Not barred by parol evidence rule

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H. To Show Agreement Was Never Final/Complete

• No integration occurred
• Still in draft/negotiation stage
• Parties didn’t assent as final expression (Restatement § 209)

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VI. Types of Terms and Consistency Analysis

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A. Consistent Additional Terms

• Admissible in partial integration
• Must not contradict anything in writing
• Supplements the agreement
• Example: Adding detail not mentioned in contract

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B. Contradictory Terms

• Never admissible (whether full or partial integration)
• Cannot contradict express or implied provisions
• Courts strictly enforce this
• Even under liberal California/UCC approach

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C. Terms That Would Naturally Be Included

• Strong evidence of complete integration if omitted
• If reasonable parties would include it, and they didn’t → probably not part of deal
• Natural omission test (determines if partial or complete integration)

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VII. Integration Clauses (Merger Clauses)

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A. Effect of Merger Clause

• Creates presumption of complete integration
• States contract is “entire agreement”
• Typical language: “This agreement constitutes the entire agreement between the parties”
• Raises red flag for party claiming partial integration
• Must overcome presumption

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B. Overcoming Merger Clause

• Not conclusive - rebuttable presumption
• Party can still argue:
  • Despite clause, particular matter not addressed
  • Parties didn’t intend clause to cover specific issue
  • Evidence shows intent otherwise
• But difficult to overcome

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C. Example from Lee v. Seagram

• Contract had NO integration clause
• Factor weighing toward partial integration
• Absence of merger clause significant in court’s analysis

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VIII. Problem Sets and Applications

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Problem 1 - Draft Not Final

Facts: A and B made oral agreement, signed writing incorporating terms. Not fully satisfied with writing. Agreed to have it redrafted. Question: Does writing constitute integration? Answer: NO

• Restatement Second § 209
• Writing not assented to as final expression is not final integration
• Even though signed, parties intended to redraft
• Intent controls

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Problem 3 - Construction Loan with Merger Clause

Facts:

• Construction loan to build house
• Written contract:
  • Merger clause present
  • Stated selection of contractor was “exclusive responsibility of borrower”
• Plaintiff offers evidence of oral agreement:
  • Defendant would help select contractor
  • Guarantee contractor’s competence
  • Supervise construction

Question: Should evidence be excluded? Answer: YES

1. Merger clause suggests complete integration
2. Oral evidence contradicts express written provision (borrower’s exclusive responsibility)
3. Cannot introduce contradictory evidence even in partial integration
4. If parties intended defendant’s responsibility, plaintiff wouldn’t have signed contract with contrary term

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Problem 6 - UCC Confirmation Memoranda

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Sub-Problem A

Facts: Buyer and seller exchanged correspondence, entered contract for goods. Terms: A (subject matter), B (quantity), C (warranty). Seller sends written confirmation stating terms A and B only. Question: Could buyer prove existence of term C? Answer: YES

• UCC 2-202 presumes partial integration
• Confirmation is partial integration
• Term C is consistent additional term
• Admissible to supplement

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Sub-Problem B

Facts: Seller’s confirmation states: “A, B, and not C” (disclaimer of warranties) Question: Could buyer prove term C? Answer: Complex two-part analysis

1. Parol evidence analysis:
   • Term C contradicts confirmation (“not C”)
   • If confirmation is integration, term C excluded (contradicts)
2. Substantive UCC warranty law:
   • Can you disclaim warranties via confirmation memo?
   • Likely NO - substantially limits party’s rights
   • Similar to arbitration clause
   • Disclaimer attacks substantive consumer rights
   • Courts won’t allow unilateral disclaimer of substantial rights via post-contract confirmation
   • Would be material alteration under UCC 2-207

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Sub-Problem C

Facts: Both buyer and seller sent confirmations with A and B, omitting C Question: Could buyer prove term C? Answer: YES

• Both omitted C (didn’t actively exclude it)
• UCC 2-202 presumes partial integration
• Can bring in original contract/agreement evidence
• Doesn’t contradict confirmations - supplements them
• Shows term was part of original deal

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Problem 7 - Sham Contract (Independent Contractor)

Facts:

• Plaintiff worked for defendant one year as employee with fixed salary
• Parties then signed document stating plaintiff was independent contractor
• New writing: Paid per work done, carry workers’ comp insurance
• Plaintiff sues on initial employment contract for unpaid salary
• Offers to testify second agreement not intended to be binding
• Purpose was to enable defendant to avoid workers’ compensation law

Question: Is evidence admissible? Answer: YES

• Can show contract was sham/fraudulent
• Evidence comes in to show no real contract at all
• Purpose was illegal (evade workers’ comp law)
• Not subject to parol evidence bar
• Knucklehead v. Lewis (1939)

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IX. Interpretation vs. Parol Evidence

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A. Critical Distinction

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When It’s Interpretation (Always Admissible)

• Language in contract is vague or ambiguous
• Term susceptible to two or more reasonable meanings
• Need to clarify what parties meant by specific term
• Example: “Porsche” - which car? model? year?
• Example: “Chicken” - broiler or any fowl?
• NOT parol evidence issue - interpretation issue

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Interpretation in Fully Integrated Contract

• Even if contract is complete integration
• Still can bring in evidence to interpret vague term
• Cannot bring in to supplement or contradict
• But CAN bring in to clarify meaning
• Not inconsistent with parol evidence rule

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B. Process for Vague Terms

1. Is there ambiguity/vagueness?
2. If yes, extrinsic evidence admissible
3. Court determines meaning
4. If cannot determine meaning of indispensable term → no remedy possible

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C. Interpretation Example

Contract says “Porsche” but nothing else:

• No model, year, VIN number
• Court would allow extrinsic evidence:
  • What did parties mean?
  • Which car?
  • SUV? Sports car?
• Must interpret before can apply parol evidence rule
• “Figure out what the thing is before we can figure out if it’s consistent or inconsistent”

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D. Successive Interpretive Tools (from Frigaliment)

Courts examine in order:

1. Contract language itself
2. Communications between parties
3. Trade usage/custom
4. Industry definitions and regulations
5. Market prices and commercial context
6. Course of dealing/performance
7. Dictionary definitions
8. Expert testimony

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X. Exam Strategy and Practice Tips

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A. Essay Writing Approach

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Always Discuss Intent

• Never go wrong mentioning “intent of the parties”
• Don’t say “I think” - say “parties intended”
• Safer to argue based on party intent than personal judgment
• Courts enforce what parties intended

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Standard IRAC Analysis Format

1. Is this parol evidence?

• Prior to or contemporaneous with written agreement?
• If after contract → modification, not parol evidence

2. Integration analysis:

• Complete or partial integration?
• Look for merger clause
• Apply natural omission test
• What did parties intend?

3. Consistency analysis:

• Does evidence contradict or supplement?
• If contradicts: Not admissible (whether full or partial)
• If supplements: Admissible only if partial integration

4. Exceptions:

• Is this interpretation of ambiguous term?
• Evidence of fraud/no contract?
• Collateral agreement naturally separate?
• Modification?

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Conclusion Doesn’t Matter

• “Did you state law correctly?”
• “Did you apply facts to law correctly?”
• “If you conclude incorrectly, we don’t care”
• “You still get full credit”
• “Your conclusions mean nothing”
• Just spot issue, state rule, apply to facts

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B. Under UCC vs. Common Law

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UCC Transactions

• Start with presumption: Partial integration
• Evidence that supplements (if consistent) likely admissible
• Liberal approach
• Burden on party claiming complete integration

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Common Law

• More restrictive historically
• Modern trend (Masterson, Traynor) moving toward flexibility
• Still less liberal than UCC
• No automatic presumption of partial integration

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C. Integration Determination

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If Merger Clause Present

• Presumption: Complete integration
• Must overcome presumption to get evidence in
• Difficult but not impossible
• Can argue specific matter not covered

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If No Merger Clause

• Look to intent of parties
• Natural omission test
• What would reasonable parties do?
• No presumption either way (except under UCC)

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D. Common Pitfalls

1. Don’t confuse interpretation with parol evidence
   • Vague terms → interpretation (always admissible)
   • Supplementing/contradicting → parol evidence analysis
2. Don’t forget modification
   • Post-contract agreements not parol evidence
   • Different analysis entirely
3. Remember UCC presumption
   • UCC 2-202 presumes partial integration
   • Big advantage for party trying to get evidence in
4. Contradictory evidence never comes in
   • Whether full or partial integration
   • Strictly enforced

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XI. Professor’s Three-Minute Summary

The Essential Parol Evidence Rule:

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1. What is parol evidence?

Any evidence contemporaneous to OR prior to written agreement

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2. Two questions to ask:

A. Integration?

• Complete or partial integration?
• Intent of parties?

B. Consistency?

• Does evidence contradict or supplement?

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3. Simple rules:

Complete integration: Nothing comes in (no supplement, no contradict) Partial integration:

• Supplemental consistent terms come in
• Contradictory terms do NOT come in

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4. Exceptions (evidence always comes in for):

• Fraud - show contract was sham
• No contract - show no agreement at all
• Interpretation - clarify vague/ambiguous term

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5. That’s it!

“Don’t read too much into parol evidence. That’s the whole crock of parol evidence. Watch this tape, 3 minutes, that’s all you need to know.”

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6. What graders look for:

• Did you state law correctly?
• Did you apply facts to law correctly?
• Don’t care about your conclusion
• Just IRAC it properly

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XII. Key Definitions

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Bolded Terms to Know

• Integration - Final written expression of agreement (complete or partial)
• Complete/Total Integration - Final AND complete expression; no supplementation or contradiction
• Partial Integration - Final but not complete; can supplement (if consistent), cannot contradict
• Parol Evidence - Evidence prior to or contemporaneous with written agreement (oral or written)
• Merger Clause (Integration Clause) - Clause stating contract is entire agreement; creates presumption of complete integration
• Collateral Agreement - Separate agreement related to main contract; may be admissible if “naturally made as separate”
• Natural Omission Test - Would reasonable parties naturally include this term? If yes and omitted → wasn’t part of deal
• Consistent Additional Terms - Terms that supplement without contradicting; admissible in partial integration
• Extrinsic Evidence - Evidence outside the “four corners” of written contract
• Four Corners Rule - Traditional approach: look only within document (weakened by modern cases)
• Plain Meaning Rule - If language has plain meaning, don’t look to extrinsic evidence (criticized by Trident)
• Contemporaneous - At same time as contract formation
• Course of Dealing - Pattern of previous conduct between parties
• Course of Performance - How parties have performed this particular contract
• Trade Usage - Custom and practice in particular industry
• Susceptible to Multiple Meanings - Language reasonably capable of more than one interpretation

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XIII. UCC and Restatement References

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UCC Sections

UCC 2-202 - Final Written Expression

• Terms in writing intended as final expression may not be contradicted
• BUT may be explained or supplemented by:
  • Course of dealing, usage of trade, course of performance
  • Consistent additional terms (unless writing intended as complete and exclusive)
• Compels court to allow supplemental evidence
• Presumes partial integration

UCC 2-207 - Battle of the Forms

• Material alterations don’t become part of contract
• Disclaimer of warranties likely material alteration

UCC 2-313 - Express Warranties

• Any affirmation of fact or promise by seller to buyer
• Becomes part of basis of bargain
• Creates warranty that goods conform

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Restatement Sections

Restatement (Second) § 209 - What Constitutes Integration

• Writing not assented to as final expression ≠ integration
• Intent to finalize is determinative

Restatement (Second) § 216 - Integrated Agreements

• More flexible, less formal approach
• Post-Mitchell v. Lath modern rule

Restatement § 241B (First Restatement) - Collateral Agreement Test

• Cited in Masterson v. Sine
• “Such agreement as might naturally be made as separate agreement by parties”
• Considering situation parties were in

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XIV. Practice Tips for Lawyers

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A. Drafting Contracts

Be Specific:

• Don’t use vague terms (like just “Porsche”)
• Define all key terms
• Specify quantities, dates, prices exactly
• Malpractice risk if ambiguous

Include Merger Clause:

• If want complete integration
• “This constitutes entire agreement”
• Helps prevent parol evidence

Specify Deadlines:

• When payment due
• Performance dates
• Time is of the essence (if applicable)

Settlement Agreements:

• Better: Settlement is $300K, discounted to$100K if paid by June 1
• NOT: Settlement is $100K, but$300K if don’t pay (illegal penalty)
• “Subject to fully executed release and settlement agreement”

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B. Litigation Strategy

Discovery Preparation:

• Box opponent in with written discovery
• Use opponent’s own answers against them
• Depositions critical for locking in testimony

Opposing Counsel Relations:

• Be professional and courteous
• Grant reasonable extensions (builds goodwill)
• Small world - reputation matters
• Being difficult = opponent will be difficult back

Safe Harbor Rule (CCP § 128.6):

• Letter demanding correction of false/misleading statements
• Give time to fix
• If don’t fix → sanctions, possible State Bar report
• Take very seriously

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C. Ethics

Trust Account:

• NEVER bounce trust account check
• Minimum suspension of many months
• Very serious ethical violation

Commingling Funds:

• Keep client funds separate
• Extremely serious violation
• Can lead to disbarment

ChatGPT/AI Warning:

• Absolute prohibition on exams (students expelled)
• Can use in practice BUT must verify everything
• False citations = State Bar discipline
• Never submit unverified AI work product