Liquidated Damages, Specific Performance and Contract Meaning (parol evidence) Flashcards
What is the purpose of the parol evidence rule?
To determine when a court can accept evidence about the meaning or promises within a contract beyond the written terms.
What does ‘parol evidence’ refer to?
External evidence from outside the written contract.
What is the primary concern of the parol evidence rule?
Understanding the intent of the parties regarding the contract.
What are the two main agreements considered under the parol evidence rule?
- The written contract
- The secondary agreement.
What must be established to consider the parol evidence rule applicable?
There must be two agreements: a primary written agreement and a secondary agreement.
What is the significance of the timing of the secondary agreement in relation to the primary agreement?
The admissibility of the secondary agreement depends on whether it was made before, after, or concurrently with the primary agreement.
True or False: The parol evidence rule applies when there is only one agreement.
False.
If a secondary agreement is made after the primary agreement, what is the expectation regarding its admissibility?
It is admissible as it is considered independent from the primary agreement.
Fill in the blank: The parol evidence rule is more of an ________ rule than a contract law rule.
evidentiary
What is the main question to consider when applying the parol evidence rule?
Did the parties intend to allow external evidence of intent, or did they intend for the contract to be the entirety of their agreement?
What happens if a secondary agreement is created before the primary agreement?
The courts will scrutinize its admissibility because it implies the parties intended to include it in the primary agreement.
What should the court consider when evaluating the admissibility of a secondary agreement?
The intent of the parties and the timing of the secondary agreement.
What is the first question to ask when analyzing a situation under the parol evidence rule?
Do we have two agreements?
Why might courts prefer to rely solely on the written contract?
It is cleaner and easier to interpret.
What is a potential complication when applying the parol evidence rule?
Determining how the rule actually applies and when it blocks or allows evidence.
In the context of the parol evidence rule, what does ‘extrinsic evidence’ refer to?
Evidence from outside the contract that helps to interpret its meaning.
What is the relationship between the parol evidence rule and contract interpretation?
The rule governs what external evidence is admissible for interpreting the contract.
What might a court conclude if a secondary agreement contradicts the primary agreement?
The secondary agreement may not be admissible.
What case is mentioned in the text as an example related to the parol evidence rule?
The case of Mitchell.
What happens if a secondary agreement is made before the primary agreement?
The parol evidence rule might block the evidence and more questions must be asked.
This implies that the courts may expect the earlier agreement to be included in the primary contract.
What does an arrow mean in the context of the parol evidence rule?
There are more questions to ask regarding admissibility of evidence.
An ‘X’ indicates admissibility, while an arrow indicates further inquiry is needed.
What is the significance of concurrent agreements in relation to the parol evidence rule?
If a secondary agreement is made concurrently with the primary contract, the parol evidence rule applies and evidence may not be admissible.
Courts expect concurrent oral agreements to be included in the written contract.
What happens if the secondary agreement is written and concurrent with the primary agreement?
The evidence is admissible.
Courts do not expect parties to redraft the entire contract for additional written agreements.
When does the parol evidence rule not apply?
When the secondary agreement is supported by its own consideration.
This indicates that the secondary agreement is effectively a separate contract.
What is integration in the context of contracts?
Integration refers to whether the primary contract includes all parts of the agreement or just some parts.
A fully integrated contract includes all important terms, while a partially integrated contract may allow for external evidence.
What is a merger clause?
A clause stating that the contract includes all agreements of the parties, indicating full integration.
This clause signifies that no other agreements exist outside the written contract.
What are the two levels of integration?
Fully integrated and partially integrated.
A fully integrated contract bars external evidence, while a partially integrated contract may allow it.
What must be determined if a contract is only partially integrated?
The analysis of the parol evidence rule continues.
This means that external evidence may still be considered.
What does it indicate if a contract does not include a merger clause?
It may be unclear whether the contract is fully integrated or partially integrated.
This requires further examination of the contract’s terms.
What is the primary concern of the parol evidence rule?
To determine the admissibility of evidence regarding agreements made before or concurrently with the primary contract.
This rule seeks to clarify the intent of the parties in the contract.
What is the parol evidence rule?
A rule about whether parties can bring in evidence of a secondary external agreement to prove something about a primary written agreement.
It governs the admissibility of external evidence in contract law.
What must be determined about the contract before applying the parol evidence rule?
Whether the contract is integrated and how integrated it is.
Integration refers to whether the written contract captures all agreed terms.
What is the significance of contradictions in the context of the parol evidence rule?
External evidence must not contradict the primary written contract.
If there is a contradiction, the evidence is not admissible.
What happens if there is a contradiction between the primary contract and parol evidence?
The evidence is not admissible.
Courts prioritize the primary written agreement over external evidence.
What is an example of a contradiction in contract terms?
A primary contract states a price of $200,000, while parol evidence claims a different price of $500,000.
This inconsistency leads to the rejection of the secondary evidence.
When is parol evidence admissible?
When the primary document leaves room for further details and those details do not contradict the primary agreement.
This allows for clarification without conflicting with the written terms.
What distinguishes a fully integrated contract from a partially integrated contract?
A fully integrated contract captures all agreed terms, while a partially integrated contract does not.
A merger clause often indicates full integration.
What should be assessed if the secondary agreement comes before the primary written agreement?
The courts will scrutinize the admissibility of the secondary agreement more closely.
They may be skeptical since the earlier agreement could have been included in the final contract.
What is the court’s stance on concurrent agreements?
If both agreements are written and occur at the same time, the secondary agreement is admissible.
The courts do not expect parties to rewrite their initial contracts for concurrent agreements.
What must be verified if two agreements are oral and occur at roughly the same time?
Further analysis is needed to determine admissibility under the parol evidence rule.
Oral agreements can complicate the analysis.
What indicates that a secondary agreement is its own contract?
If it has its own consideration and stands independently from the primary agreement.
This means it was negotiated separately with its own terms.
What is the outcome if the primary contract includes a merger clause?
The parol evidence rule blocks the admission of any secondary agreements.
A merger clause signifies that the written contract contains all terms agreed upon.
What must be asked regarding the integration of the primary contract?
Does the primary contract fully capture all terms agreed upon by the parties?
This assessment determines whether parol evidence can be considered.
True or False: Parol evidence is always admissible regardless of the circumstances.
False.
Parol evidence is only admissible if it does not contradict the primary contract.
Fill in the blank: If parol evidence contradicts the primary contract, it is _______.
not admissible.
What do courts use to determine the validity of liquidated damages clauses?
A set of specialized rules
Courts vary greatly in how they frame their tests for validity.
Are liquidated damages clauses generally enforceable?
Yes, they are generally enforceable.
Under what condition might a court strike down a liquidated damages clause?
If it is found to be a ‘penalty.’
What is the term ‘penalty’ in the context of liquidated damages clauses?
A label attached by a court when it concludes that a clause is unenforceable.
Does the ‘penalty’ label provide a rule for enforceability of clauses?
No, it does not provide a rule.
Common Contract Clauses and Goals
What is the first part of the two-part test to determine if a liquidated damages clause is valid?
Were the damages difficult to ascertain when the contract was made?
This assesses the complexity of estimating damages at the time of contract formation.
What is the second part of the two-part test for liquidated damages clauses?
Is the amount stated as liquidated damages reasonable in light of the actual and/or anticipated damages?
This evaluates the reasonableness of the liquidated damages amount compared to the expected damages.
How do the two prongs of the test for liquidated damages clauses relate to each other?
They tend to have an inverse relationship.
The more difficult damages are to ascertain, the more leeway courts give parties in estimating damages.
True or False: The terms ‘and/or’ reflect a consensus among courts regarding the liquidated damages test.
False
Courts are split in their articulations of the rule.
What do courts consider when evaluating the reasonableness of liquidated damages?
Actual and/or anticipated damages.
This consideration helps determine if the liquidated amount is justified.
Leeber v Deltona Corp
Here’s a FIRAC (Facts, Issue, Rule, Application, Conclusion) analysis for Leeber v. Deltona Corp., 546 A.2d 452 (1988):
F - Facts
- Plaintiffs (Leeber, Morton, and Drewry), residents of Maine, agreed to purchase a condominium in Florida from Deltona Corp. (via its subsidiary Marco Surfside, Inc.) for $150,200.
- They paid a 15% deposit ($22,530) under a Subscription and Purchase Agreement, which stated the deposit would be retained by Deltona as liquidated damages in case of buyer default.
- Plaintiffs failed to close by the final set deadline (July 20, 1982), and Deltona cancelled the agreement on July 27, 1982, retaining the deposit.
- Deltona resold the condo for $167,500 days later.
- Plaintiffs sued, arguing that the liquidated damages clause was unconscionable and thus unenforceable. The Superior Court agreed and awarded plaintiffs a refund of the deposit minus Deltona’s proven costs.
- Deltona appealed.
I - Issue
Was Deltona’s retention of the $22,530 deposit under the liquidated damages clause unconscionable and thus unenforceable under Florida law?
R - Rule
Under Florida law:
- A liquidated damages clause is enforceable if damages are not reasonably ascertainable at the time of contract formation.
- Even if valid on its face, a court can relieve against forfeiture if retention of the deposit is unconscionable, meaning it “shocks the conscience.”
- Courts consider four possible exceptions that may render retention unconscionable:
1. Fraud by the seller
2. Misfortune beyond buyer’s control
3. Mutual rescission
4. Seller’s benefit so excessive it shocks the conscience
A - Application
- The damages were not ascertainable at the time of contract formation, so the clause was not a penalty.
- The 15% deposit was standard and reasonable under Florida law.
- There was no evidence of fraud, misfortune, or mutual rescission.
- The court found that Deltona resold the condo at a profit and only incurred minimal losses.
- However, the trial court erred by treating the case as if damages needed to be recalculated post-breach—effectively ignoring the purpose of a liquidated damages clause.
- The Supreme Judicial Court found that the resale and reduced losses did not make the retention of the deposit unconscionable or “shock the conscience.”
C - Conclusion
The Supreme Judicial Court of Maine held that the trial court erred in finding the liquidated damages clause unconscionable. The appellate court vacated the judgment on Count I and ordered judgment in favor of Deltona and Marco Surfside. Counts II and III, already dismissed at trial, were affirmed.
United States v Hayes
Facts
Dr. Hayes received a National Health Service Corps (NHSC) scholarship for two years of medical school, totaling $29,545.
In return, she agreed to perform two years of service in an underserved area after completing her medical education.
Hayes was granted a deferment to complete a three-year internal medicine residency, but during her second year, she switched to dermatology, a specialty not approved by NHSC.
Her request to serve in NHSC as a dermatologist was denied, and she failed to participate in placement or fulfill her service obligation.
The government sued to recover treble damages as specified in the NHSC scholarship contract under 42 U.S.C. §254o.
Hayes admitted breach but challenged the treble damages, arguing they were punitive and therefore an unenforceable penalty.
Issue
Is the treble damages provision in the NHSC scholarship contract an unenforceable penalty, or is it a valid and enforceable liquidated damages clause?
Rule
Liquidated damages are enforceable if they are a fair and reasonable estimate of anticipated harm at the time of contract formation, especially where actual damages are uncertain or difficult to measure.
The treble damages provision under 42 U.S.C. §254o(b)(1) is written into the statute and contract: the government may recover three times the scholarship amount upon breach.
Application
The court noted that determining the actual damages from the breach (e.g., the specific value of a doctor’s service in an underserved area) is inherently speculative.
The treble damages were found to be a reasonable legislative and contractual mechanism to enforce performance and ensure the public policy goals of NHSC.
Courts have upheld similar damages in other government programs like military medical scholarships.
Hayes entered into the agreement knowingly and voluntarily, and was aware of the treble damages clause.
The court rejected Hayes’ argument that the damages were unconscionable or punitive.
Conclusion
The treble damages provision is a valid, enforceable liquidated damages clause, not a penalty. There was no genuine issue of material fact, and the court granted summary judgment in favor of the United States.
What is the definition of ‘coercive equitable relief’?
Any order by a court requiring a party to act or to refrain from acting.
What is ‘specific performance’?
A court order requiring a party to a contract to perform the contract.
What is an ‘injunction’?
A court order prohibiting a party from doing a particular act or activity.
In breach of contract cases, what is the most common form of coercive equitable relief?
Specific performance.
Historically, where did parties sue for equitable remedies?
In courts of equity.
What type of judges presided over courts of equity historically in England?
Ecclesiastics (not lawyers).
What is the significance of the merger of legal and equitable court systems in the U.S.?
One judge can provide either legal or equitable relief.
Under what circumstances will judges award equitable relief?
When damages would be inadequate to fully address the non-breaching parties’ injuries.
True or False: In damages cases, a judge can deny relief if the plaintiff proves a breach.
False.
What may cause a judge to deny equitable relief?
If the contract is deemed substantively unfair or if granting relief requires excessive court supervision.
What are the three main topics covered in Chapter 9?
- The fundamental requirement for obtaining specific performance of a contract
- The discretionary considerations courts weigh in deciding whether to grant specific performance
- The requirements for obtaining an injunction to enforce a covenant not to compete.
What must parties seeking equitable remedies show regarding their remedy at law?
That it is ‘inadequate’.
What are three ways to meet the inadequacy requirement in common law contract cases?
- Difficulty or impossibility of calculating damages
- Irreplaceability of the subject of the contract
- Insolvency of the defendant.
Provide an example of difficulty or impossibility of calculating damages.
A contract regarding a family heirloom.
What does the concept of ‘irreplaceability’ refer to in contract law?
Every piece of land is unique and non-fungible.
What does U.C.C. §2-716 state about the remedy at law for the sale of goods?
It is inadequate if the goods are unique or in other proper circumstances.
What is a strong evidence of ‘other proper circumstances’ in U.C.C. §2-716?
An ‘inability to cover’.
True or False: Courts take the inadequacy requirement seriously and rarely accept arguments against it.
False.
What might an effective lawyer argue regarding the inadequacy requirement?
That the facts of her particular case meet the inadequacy requirement.
Campbell Soup v Wentzes
Facts
In 1947, Campbell Soup Co. contracted with the Wentz brothers, Pennsylvania farmers, to purchase all Chantenay red cored carrots grown on 15 acres of their land at prices ranging from $23–$30 per ton.
By early 1948, the market price had risen to $90/ton, and the Wentzes refused to deliver the carrots at the contract price.
They sold ~62 tons to a third party, Lojeski, who resold about 58 tons—some even back to Campbell.
Campbell filed for specific performance and to enjoin further sales of the contracted carrots to others.
The trial court denied equitable relief.
Issue
Was Campbell Soup Co. entitled to specific performance of the carrot supply contract, or was the contract too unconscionable to be enforced by a court of equity?
Rule
Specific performance may be granted for sale of goods where legal remedies are inadequate.
A contract may be unenforceable in equity if it is found to be unconscionable, even if not illegal.
Application
The Chantenay carrots were unique in appearance, processing ease, and uniformity, making monetary damages inadequate—thus, normally warranting specific performance.
However, the contract terms were one-sided and overreaching:
Campbell could reject overages, reject produce based on its own determination, and was not held liable for damages in breach.
The grower couldn’t sell rejected carrots elsewhere without Campbell’s permission, nor store them offsite.
The grower was heavily restricted while Campbell retained broad discretion with minimal consequence.
The court described this as a “hard bargain”, written entirely in Campbell’s favor.
Even though the grower breached willfully, equity will not enforce a contract that offends the conscience of the court.
Conclusion
Although the product was unique enough to justify specific performance, the contract was too unconscionable for equitable enforcement. Therefore, the trial court’s denial of relief was affirmed.
What is the parol evidence rule?
A rule governing what types of evidence a jury may hear regarding contract terms
It defines the limits of the contract to be construed.
What are the four broad questions to focus on in contract law?
- What terms are part of the contract?
- What does the contract mean?
- Did the parties properly perform?
- What are the consequences of a breach?
What does contract interpretation refer to?
The process of identifying and understanding all express and implied terms of a contract
It involves determining which terms are part of the contract.
What does contract performance law involve?
Determining the proper order of performance of contract obligations and evaluating performances
It also includes assessing excuses for non-performance.
What is extrinsic evidence in the context of contract law?
An alleged contract term not reflected in the parties’ writing
It can be oral testimony or written evidence about unwritten terms.
True or False: The parol evidence rule allows all types of evidence regarding contract terms.
False
The rule prevents a jury from hearing about terms not contained in the written contract.
What happens if the parol evidence rule applies and bars evidence?
The jury is prevented from hearing about that particular term
The rule acts as a barrier to the admission of certain evidence.
Fill in the blank: The parties’ __________ are evaluated to determine if there was a breach.
[performances]
What is a material breach?
A significant failure to perform contractual obligations that affects the contract’s purpose
It has legal consequences that differ from a minor breach.
What is the significance of the term ‘good faith’ in contracts?
It implies an obligation of honesty and fairness in performance, even if not explicitly stated
Courts often imply this duty into contracts.
What might courts imply into contracts under the U.C.C.?
- Good faith
- Reasonable efforts
- Other terms not explicitly stated
What does it mean if a breach is considered minor?
It does not significantly affect the contract’s purpose and may not have severe legal consequences
Minor breaches may allow for some remedies but not full termination.
In determining the meaning of a contract, what do courts analyze?
The words of the contract and the intent of the parties
This analysis helps clarify obligations.
True or False: The written contract always contains all the terms agreed upon by the parties.
False
Sometimes, additional terms may be implied or evidenced by extrinsic evidence.
What should be assessed to determine if either party breached a contract?
Whether the parties fully performed their obligations as promised
What is the role of the jury in contract disputes influenced by the parol evidence rule?
To evaluate the weight and credibility of evidence presented regarding contract terms
The jury decides if the parties truly agreed to the contested terms.
What is the parol evidence rule based on?
The belief that parties have incorporated all terms of their agreement in a written document.
What is the primary purpose of the parol evidence rule?
To exclude evidence of agreements extrinsic to the written document.
What is an important element of any parol evidence analysis?
Determining whether the parties intended the written document to be the final and complete expression of their agreement.
What are the three classifications of integration in contract law?
- Completely integrated
- Partially integrated
- Not integrated at all
What does a completely integrated writing imply in terms of extrinsic evidence?
Extrinsic evidence is barred.
What does a partially integrated writing allow regarding extrinsic evidence?
Extrinsic evidence is admissible only if it is consistent with the terms in the writing.
What happens if a writing is not integrated at all?
Extrinsic evidence comes in automatically.
What are the two main operations of the parol evidence rule?
- Exclude all extrinsic evidence if the writing is completely integrated
- Exclude inconsistent evidence if the writing is partially integrated
Are there exceptions to the parol evidence rule?
Yes, such as evidence of fraud, mistake, undue influence, or duress.
What does the analysis of parol evidence aim to determine?
Whether parol evidence of contract terms not contained in the writing is admissible.
What is the first step in analyzing parol evidence admissibility?
Apply the threshold rules to determine if the parol evidence rule applies at all.
What is the second step in the analysis of parol evidence?
Determine whether the parties’ agreement is integrated at all.
What is the focus of Step 3 in the parol evidence analysis?
Determine the degree of integration: completely or partially integrated.
In Step 4, what must be assessed regarding parol terms?
Whether the parol term is consistent with or contradicts the writing.
True or False: A partially integrated writing allows for the admission of contradictory parol evidence.
False.
What visual aid is mentioned to help understand the parol evidence rule?
Diagram 10-2, the Contract Law Graphic Organizer.
What does evidence of terms consistent with a partially integrated agreement require?
It is subject to the main parol evidence rules but is admissible.
What is depicted by the black arrow in the practical application of the parol evidence rule?
Evidence that is barred by the parol evidence rule.
What does the gray arrow represent in relation to the parol evidence rule?
Evidence that is admissible under the threshold rules and bypasses the parol evidence rule.
What is the significance of understanding the terminology related to the parol evidence rule?
It is crucial for determining the admissibility of parol evidence.
Parole Evidence Rule Step 1: Types of Evidence it applies to
Here’s a concise flashcard-style revision summary for Step 1: Types of Evidence to Which the Parol Evidence Rule Applies:
📝 Parol Evidence Rule – Step 1: Gatekeeping Rules
Ask these 3 questions:
1. Is the extrinsic evidence oral or written?
2. Is it from a prior, contemporaneous, or subsequent agreement?
3. Is there separate consideration for the extrinsic term?
✅ Parol Evidence Rule Applies (Full analysis required):
- Prior oral/written terms with no extra consideration
- Contemporaneous oral terms with no extra consideration
❌ Parol Evidence Rule Does NOT Apply (Evidence is admissible):
- Subsequent oral/written terms
- Terms with separate consideration
- Contemporaneous written terms
Keep this flashcard in mind before moving to Steps 2–4 of the parol evidence rule analysis. Want a flashcard for Step 2 next?
Parol Evidence Steps 2-4: Integration and Consistency
Step 2: Is the Contract Integrated at All?
Not integrated if:
Agreement is oral, or
Writing has no final terms (e.g., draft, unsent/unsigned confirmation letter)
🔹 Step 3: Complete or Partial Integration? Two main approaches:
1️⃣ Williston (“Four Corners”) Approach:
Merger/Integration clause? ➡️ Complete integration
No clause? ➡️ Ask: Does it appear complete on its face?
If yes: Complete integration, unless term was one parties *“naturally would have omitted”
2️⃣ Corbin (“All Evidence”) Approach:
No presumption based on the writing alone
Admit all evidence to assess parties’ actual intent to fully integrate
🧠 Key Q: Does the court use Williston or Corbin?
🔹 Step 4: Is the Extrinsic Evidence Consistent with the Writing?
Two views:
Broad test (majority): Evidence must be “in harmony” with written terms
Narrow test (minority): Evidence allowed unless it “completely negates” a written term
Mitchill v Lath
Facts
Defendants (Laths) owned a farm and also had an icehouse on neighboring land.
Plaintiff (Mitchill) agreed to purchase the farm for $8,400 after defendants orally promised to remove the icehouse, which she found objectionable.
The written contract for sale did not mention the icehouse removal.
After the sale, the defendants refused to remove the icehouse.
Mitchill sued to enforce the oral promise.
The issue centers around whether this oral promise is enforceable under the parol evidence rule.
Issue
Can an oral agreement to remove an icehouse—made contemporaneously with a written contract for the sale of land but not included in the written agreement—be enforced in light of the parol evidence rule?
Rule
Under New York law, a contemporaneous oral agreement may only be admitted alongside a written contract if:
It is collateral in form;
It does not contradict the written agreement;
It is the sort of agreement that would not ordinarily be expected to be included in the written contract.
Courts following the Williston approach (like New York) generally interpret integration narrowly and presume that a detailed, formal contract represents the complete agreement.
Application
Collateral in Form? Yes. The oral promise involved different land (icehouse on adjacent property) and was separate from the purchase of the farm.
Contradiction? Maybe. It doesn’t directly contradict terms in the written contract but arguably adds to the obligations of the seller, which could be seen as inconsistent.
Ordinarily Included? Court held yes—such an agreement would ordinarily be expected to be included in the written contract because it directly related to the inducement for the purchase.
Judge Andrews (majority) concluded that since the written contract appeared complete and covered the sale comprehensively, any such side agreement should have been included if it was genuinely part of the bargain.
Judge Lehman (dissent) argued that the oral promise was collateral and affected a separate parcel of land, and thus, the written contract for the farm need not include it.
Conclusion
The Court of Appeals of New York refused to enforce the oral agreement. The court reversed the lower court’s ruling and dismissed the complaint, holding that the oral agreement was too closely connected to the written contract to be treated as a separate, collateral agreement under the parol evidence rule.
Masterson v Sine
Facts:
Dallas Masterson and his wife, Rebecca, owned a ranch as tenants in common and conveyed the property to Medora and Lu Sine by grant deed in 1958. The deed reserved an option for the grantors (Masterson and his wife) to repurchase the property on or before February 25, 1968, for the same consideration previously paid, plus depreciation for improvements made by the grantees. Masterson was later adjudged bankrupt, and his trustee in bankruptcy sought to enforce the option. The trial court admitted extrinsic evidence to explain certain ambiguous terms in the deed but excluded evidence that the option was personal to the grantors and non-assignable. The trial court ruled in favor of the plaintiffs (the Mastersons) and declared their right to exercise the option. The defendants (the Sines) appealed, arguing that the option was too uncertain to be enforced and that the trial court improperly admitted extrinsic evidence.
Issue:
Whether the trial court properly admitted extrinsic evidence to explain the terms of the option agreement, including the consideration and depreciation value.
Whether the trial court erred in excluding extrinsic evidence that the option was personal to the grantors and thus non-assignable.
Rule:
Parol evidence (extrinsic evidence) can be admitted to clarify ambiguous terms in a written contract, provided it does not contradict the written agreement.
Parol evidence may not be used to contradict clear and unambiguous terms of a written agreement, especially when it concerns a collateral agreement such as an option’s assignability.
Analysis:
The trial court properly admitted extrinsic evidence to clarify the meaning of the phrase “same consideration as being paid heretofore” and to define the “depreciation value” of improvements. These terms were ambiguous, and the extrinsic evidence helped provide a clear understanding of their intended meaning.
The trial court erred by excluding extrinsic evidence that the option was personal to the grantors and non-assignable. The deed itself did not explicitly mention whether the option was personal, and the family context of the transaction suggested that the option might have been intended as non-assignable to keep the property within the Masterson family. The majority concluded that such an agreement could have been made separately and would naturally be expected in a family transaction.
Conclusion:
The Supreme Court of California ruled that the trial court was correct in admitting extrinsic evidence to clarify certain terms of the deed but erred in excluding evidence regarding the personal nature of the option. The case was reversed, and the trial court’s judgment was not upheld. The dissenting judge believed the trial court correctly adhered to the parol evidence rule and would have affirmed the judgment.
Lee v Joseph E Seagram and Sons, Inc
Here’s a FIRAC analysis of Lee v. Joseph E. Seagram & Sons, Inc., 552 F.2d 447 (2d Cir. 1977):
FIRAC Format
Facts
Harold Lee and his sons (the Lees) owned 50% of Capitol City Liquor Co., a wholesale liquor distributor in Washington, D.C., with the other half owned by relatives. In 1970, they negotiated with Seagram, a major supplier and former employer of Harold Lee, to sell Capitol City’s assets. As a condition of the sale, Harold Lee orally secured a promise from Jack Yogman, an executive at Seagram and longtime friend, that Seagram would relocate his sons to a new distributorship of their own in a different city. This agreement was not written into the formal sales contract, which was executed with Seagram on September 30, 1970.
Fifteen months later, after Seagram failed to relocate the sons, the Lees sued for breach of the oral contract. The jury found in favor of the Lees, and Seagram appealed, arguing that the oral agreement was inadmissible under the parol evidence rule and too vague to enforce.
Issue
Is an oral agreement made prior to or contemporaneously with a written contract enforceable when it was not included in the written contract, or is it barred by the parol evidence rule?
Rule
Under the parol evidence rule, prior or contemporaneous oral agreements are generally inadmissible to vary or contradict a fully integrated written agreement. However, a separate and collateral oral agreement may be admissible if:
1. It is independent and not inconsistent with the written agreement,
2. It is not something that the parties would ordinarily be expected to include in the written contract, and
3. The written contract is not a complete integration of all the mutual promises.
Application
The court found that:
- The written sales agreement was ambiguous and lacked an integration clause, leaving open the possibility that it was not a full integration.
- The oral promise concerned the relocation of the Lees personally—not part of the corporate asset sale—making it a separate, collateral agreement.
- Given the Lees only owned 50% of Capitol City and were not the only shareholders, the personal promise was not necessarily something that would be expected in the corporate sale contract.
- The long-standing relationship between Harold Lee and Yogman and the informality of their agreement suggested a different type of trust-based business practice, which supports the likelihood of a collateral oral agreement.
- There was no contradiction between the oral agreement and the written contract; the former dealt with future employment/distribution arrangements, the latter with the sale of business assets.
Conclusion
The court affirmed the trial court’s judgment, holding that the oral agreement was not barred by the parol evidence rule and was sufficiently definite to be enforceable.
Parol Evidence Structure (Based upon Mitchill)
Are there 2 agreements?
The timing:
- was it before, after or contemporaneous.
- was it written or oral?
Did the second agreement have it’s own consideration?
- Is it integrated fully or partially?
- Is there a contradiction?
If the parol evidence is going to be admitted, the original contract MUST NOT be fully integrated.
Consider using the phrase “this is the entirety of the agreement” which is a merger clause/integration clause. This would mean that PER would not be allowed.
