6. CONTRACTS: Determining the Terms of the Contract -- PAROLE EVIDENCE

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6. CONTRACTS: Determining the Terms of the Contract -- PAROLE EVIDENCE
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2012-04-23 16:57:38
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  1. GENERAL RULES OF CONSTRUCTION
    -- construed as a whole

    -- ordinary meaning of words

    -- if provisions appear to be inconsistent, written or typed provisions will prevail over printed provisions

    -- courts will generally look to see what custom and usage is in the particular business and in the particular locale where the contract is either made or to be performed

    -- preference is to construe contract as valid and enforceable

    -- ambiguities construed against party preparing contract
  2. PAROLE EVIDENCE RULE
    Where the parties to a contract express their agreement in a writing with the intent that it embody the full and final expression of their bargain, any other expressions -- written or oral -- made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing.

    Writings that evidence a purported contract are not necessarily the final expression of that contract -- it might be a preliminary draft. If so, the parol evidence rule will not bar introduction of further evidence. The more complete the agreement appears to be on its face, the more likely it is that it was intended as an integration.

    After establishing that the writing was final, one should determine if the integration was comple or only parial. If partial, it cannot be contradicted by parol evidence, but may be supplemented to prove additional consistent terms.

    If the judge decides that the writing was an integration of all agreements between the parties, he will exclude evidence of prior written or oral terms, or contemporaneous written terms, that seek to vary the terms of the integrated writing. Otherwise he may admit offered extrinsic evidence. Then, if there is a jury, it will make its own determination as to whether this extrinsic evidence is part of the agreement.
  3. CORBIN AND WILLISTON TESTS
    There are two competing tests for determining whther the parties intended the writing to be a complete and final integration:

    CORBIN TEST (used by majority): takes into account the specific circumstances of the transaction involved and asks wether the parties like these situated as they are would naturally and normally include in their writing the extrinsic matter that is sought to be introduced. If people like these under circumstances like this would normally include the extrinsic matter in their writing, it will be excluded under the parol evidence rule. Otherwise, it will be admissible.

    WILLISTON TEST: does not take into account the particular circumstances of the transaction; instead they look only at the face of the written agreement and decide whether contracting parties would include the term sought to be proved. If so, it will be excluded.
  4. EXTRINSIC EVIDENCE OUTSIDE THE SCOPE OF THE RULE
    The rule prohibits only extrinsic evidence that seeks to vary, contradict, or add to an integration. Other types of extrinsic evidence may be admitted where they do not bring about this result.

    A party to a written contract can attack the validity of the agreement. The party acknowledges that the writing reflects the agreement but asserts, most frequently, that the agreement never came into being because of any of the following:

    (1) formation defects such as fraud, duress, mistake, illegality;

    (2) conditions precedent -- where a party asserts that there was an oral agreement that the contract would not become effective until a condition occured, all evidence of the understanding may be offered and received. Parole evidence of such a condition precedent will not be admitted if it contradicts the express language of the written contract.

    If there is uncertainty or ambiguity in the written agreement's terms or a dispute as to the meaning of those terms, parol evidence can be received to aid the fact-finder. If the meaning of the agreement is plain, parol evidence is inadmissible.

    The parole evidence rule will not bar extrinsic evidence showing the true consideration paid.

    • Parol evidence is often said to be admissible if the alleged parol agreement is collateral to the written obligation and does not conflict with it. This collateral agreement doctrine is hard to apply because it is conclusory. The restatement of contracts approach is the naturally omitted terms doctine, which allows evidence of terms that would naturally be omitted from the written agreement. A term would naturally be omitted if:
    • (1) it does not conflict with the written integration; and
    • (2) it concerns a subject that similarly situated parties would not ordinarily be expected to include in the written instrument.

    Parol evidence can be used to show subsequent modifications of a written contract, because the parol evidence rule applies only to prior or contemporaneous negotiations.
  5. REFORMATION
    If a party to a written agreement alleges facts (mistake) entitling him to reformation of the agreement, the parol evidence rule is inapplicable. The plaintiff is asserting as a cause of action that despite the apparently unambiguous terms of the written agreement, those terms do not in fact constitute the agreement between the parties. For the plaintiff to obtain reformation, he must show:

    (1) there was an antecedent valid agreement that

    (2) is incorrectly reflected in the writing.

    The variance must be established by clear and convincing evidence rather than by merely a preponderance of the evidence.

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