A. Doctrines
1. Definition: parol evidence is the evidence outside of the contract. An integration clause in a contract usually is a final expression of some terms of the contract.
2. Four ways for parol evidence to be introduced depending on the purpose sought by introduction of parol evidence (given integrated contract -K)
a. Enforcing oral contract
1) If the oral contract contradicts K, then no parol evidence is allowed.
2) If there is no contradiction, then:
¦ If the oral agreement is collateral to K and is expected to be included in K, no parol evidence is allowed.
¦ If the oral agreement is collateral to K and is not expected to be included in K, then parol evidence is admissible.
¦ If the oral agreement is not collateral to K, then parol evidence is admissible but not controlling.
b. Modifying written contract
1) If the parol evidence contradicts K, then it is not allowed.
2) If the parol evidence does not contradict K but K is complete, then the parol evidence is not allowed.
3) If the parol evidence does not contradict K and K is not complete, then:
¦ If the parol evidence is collateral to K and is expected to be included in K, no parol evidence is allowed.
¦ If the parol evidence is collateral to K and is not expected to be included in K, then parol evidence is admissible.
¦ If the parol evidence is not collateral to K, then parol evidence is admissible but not controlling.
c. Challenge K
Parol evidence may be introduced.
d. Interpretation of K
1) If K is susceptible to competing interpretation, then
¦ if parol evidence is relevant to K, it is admissible.
¦ if parol evidence is not relevant to K, it is not admissible.
2) If K is not susceptible to competing interpretation, then parol evidence is not allowed.

B. Cases

Mitchill v. Lath (Court of Appeals of New York, 1928) - p. 615

Takeaway: For an oral agreement to be introduced it has to be collateral and not independent (a quick test is whether it has a separate consideration); it has to be consistent with the existing written contract, and it is not naturally expected to be in written contract.

Facts: Mrs. Mitchill was to buy a farm from the Laths for $8,400. Before the contract was made, the Laths orally promised to remove an ice house across from the property which Mitchill found objectionable. After the transaction was completed, Mitchill found the ice house not removed and sued for damages.

Ruling: The lower courts found for the plaintiff. The court of appeals reversed.

Rationale: The written contract is a full and complete agreement, setting forth in detail the obligations of each party. Were the oral agreement to remove the icehouse made it would seem most natural that an inquirer should find it in the contract itself. Therefore, the plaintiff does not satisfy the third requirement for a parol evidence to be introduced: it is not naturally expected to be in written contract.

Class Notes: The majority thinks the contract is detailed; if the parties intended the icehouse agreement, they should have included it in the written contract. The majority may believe that there is an oral contract. But they are more concerned with Type II error. The dissent thinks the contract is not necessarily so broad to cover the oral agreement.

Masterson v. Sine (Supreme Court of California, 1968) - p. 619

Takeaway: This court used a more relaxed standard for the natural requirement. “We could not say it could be naturally included in the written contract, so we should allow the parol evidence.”
In determining the parties’ intention, a court should look at conduct, language, and all circumstances surrounding the negotiation. - That could be a problem when there is an integration clause or a merger clause.

Facts: Dallas and Rebecca Masterson conveyed a ranch which they owned as tenants in common to Medora and Lu Sine by a grant deed “Reserving unto the Grantors herein an option to purchase the above described property on or before February 25, 1968” for the “same consideration as being paid heretofore plus their depreciation value of any improvements Grantees may add to the property from and after two and half years from this date.” Medora is Dallas’ sister and Lu’s wife. Dallas later went bankruptcy. His trustee in bankruptcy and Rebecca brought this declaratory relief action to establish their right to enforce the option.
Issue: Whether the parol evidence that the parties wanted to keep the property in the Masterson family and that the option was therefore not exercisable by the trustee in bankruptcy should be allowed?
Ruling: The lower court did not allow the above parol evidence. The Supreme Court of California reversed the judgment.
Rationale: The crucial issue in determining whether there has been an integration that excludes parol evidence is whether the parties intended their writing to serve as the exclusive embodiment of their agreement. Collateral agreements and other circumstances at the time of the writing may be examined to determine the parties’ intention. In this case, the option clause does not explicitly provide that it contains the complete agreement, and the deed is silent on the question of assignability. Furthermore, the collateral agreement as to the assignability of the option might naturally be made as a separate agreement. Therefore, the parol evidence should be introduced to determine whether the parties intend to keep the property in the Masterson family.

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