The Parol Evidence Rule (2-202)
Prof. Bill Long 2/10/05
Just as it is helpful to know the commercial context behind 2-207 (where buyers and sellers have their respective forms that may clash with one another), so it is useful to know the two kinds of situations which 2-202 is meant to address. The Parol Evidence Rule ("PER") is a common law doctrine modified by the Code that tries to deal with: (a) contract negotiations where there were several drafts of the contract before a final form was agreed upon or (b) single-sheet or "bare bones" contracts where one is not sure whether all the relevant terms for the contract are included. The PER gives rules on how to evaluate and whether to include prior oral or written OR contemporaneous oral "additions" to the written contract as part of the final contract.
Getting our Bearings on the PER
The PER is a remarkably brief section and is meant to deal with two kinds of writings. One is what is referred to as a "complete and exclusive statement of the terms of the agreement." 2-202(b). In considering a contract under the PER a court will first ask what kind of document is before it. Is it a "complete and exclusive statment" of the agreement? If so, and courts usually call this an "integration," the writing does not permit the addition or supplementation of any other terms to the contract. Courts might allow testimony as to the meaning of the terms, but no new terms can be included.
The other kind of contract envisioned by 2-202 is one which is a "final agreement...with respect to terms that are included therein..." That is, the terms included are meant to be "final" terms, but there is no assumption that the contract as a whole meant that finality on these terms implied finality on every issue of the contract. If a court decides that the contract is final with respect only to specified terms, the statute permits two kinds of explanation or supplementation of the terms: trade terms (2-202(a)) or "by evidence of consistent additional terms." 2-202(b).
The Framework at Work
I wanted you to read the ARB case (p.165) because the court's treatment of the PER provides a good illustration of how a court will construe the statute. At issue in the case was whether a prior written statement in negotiations between ARB and E-Systems which declared liability of the seller (E-Systems) for "cover" charges under 2-712 if reprocurement by ARB was necessary could be introduced at trial or was precluded by the PER. At trial the trier of fact used the earlier provision, which was removed in the final version, as an indication that ARB had "bargained away" its rights for E to pay its cover charges in the event of reprocurement. Hence, ARB was denied "cover" damages at trial.
On appeal the court conculded that ARB had a point--that in fact the contract was a "complete and exclusive statement" (i.e. an integration) and that therefore evidence of the prior statement of ARB was inadmissible. Note the factors that the court points to to establish whether a contract is "complete and exclusive." A court
tends to look at three things: (a) whether there is an integration clause in the contract; (b) whether the contract appears so thorough and so detailed that "everything is here" and (c) whether both parties signed the document. Any one of the three would be sufficient for a court to conclude that it is an integration. In this case the appellate court emphasized (a) and (b).
However, even if it wasn't a "complete and exclusive statement," the appeals court concluded that the PER would bar evidence of deletion of the reprocurement provision on the grounds that it is not a "consistent additional term." The court then concluded with a discussion on what a consistent additional term actually is (see the next essay) before remanding the case for calculation of ARBs cover damages.
The Wording of the Statute
Now we are ready not for the complete wording of the PER (you can read it yourself!), but for the "flow" of the statute. Here is how it "flows."
"Terms" that are either in (a) confirmatory memoranda or (b) in a writing intended to be a final expression of the parties' agreement with respect to those terms
MAY NOT BE CONTRADICTED
either by evidence of a prior written or oral agreement OR a contemporaneous oral agreement but
MAY BE EXPLAINED OR SUPPLEMENTED
either by (a) trade terms or (b) "consistent additional terms"
the court finds that you already have a "complete and exclusive" agreement in the document before you.
With this background established, let's turn in the next essay to a few examples of how to interpret the PER.
Copyright © 2004-2007 William R. Long