This is an extract of our The Process Of Contract Interpretation document, which we sell as part of our Contracts Outlines collection written by the top tier of University Of Virginia School Of Law students.
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The Process of Contract Interpretation A. The Parole Evidence Rule
1. When applicable, the parol evidence rule renders unenforceable oral agreements entered into prior to the adoption of a written contract.
2. Justifications for parol evidence rule
-Protects against fraud (parties can't simply claim that an agreement existed even if it didn't)
-If the clause wasn't in the contract, parties must not have intended for it to survive
-Incentivizes parties to memorialize all agreements made during the negotiation process
-Parties won't have to worry that everything said during the negotiation phase will be interpreted as a promise
3. Can parol evidence be admitted?
a. Is the contract integrated?
If no, the parol evidence rule does not apply. If yes, proceed to the next question. b. Is the contract fully or partially integrated?
If fully integrated, parol evidence cannot be admitted unless it's to prove fraud or to clarify the terms of a contract. If partially integrated, parol evidence can be admitted, but only if it would have naturally been excluded from the written agreement (natural omission test). Under no circumstances can parol evidence contradict the substance of the written agreement.
4. Natural Omission Test
-Sophistication of the Parties
-Complexity of the Transaction
-History of prior dealings
-Thickness of the market
4. Cannot be Admitted: Mitchill v. Lath (1928) - Mitchill agreed to buy a farm from Lath on the condition that an ice house across the street be removed. Lath agreed, but the condition was never put into the written contract. Subsequently, Mitchill moved in and made lots of improvements on the land, but Lath never removed the ice house. The court ruled in Lath's favor, holding that the contract appeared to show a full and complete agreement. If an agreement regarding the ice house was made, it is one that would have likely been included in the written agreement. It's an issue so closely related to the written agreement that its lack of inclusion in said agreement makes it hard to enforce.
5. Can be Admitted: Masterson v. Sine (1968) - Dallas and Rebecca Masterson (P) owned a ranch as tenants in common which they conveyed by grant deed to Dallas' sister and her husband (i.e. Sine, D). Masterson reserved an option to repurchase the
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