Restat 2d of Contracts, § 213

• Restatement of the Law, Second, Contracts
• Chapter 9- The Scope of Contractual Obligations
• Topic 3- Effect of Adoption of a Writing
• § 213 Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule)

(1)  A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them.
(2)  A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope.
(3)  An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not been integrated.

Comment:

a.  Parol evidence rule.  This Section states what is commonly known as the parol evidence rule. It is not a rule of evidence but a rule of substantive law. Nor is it a rule of interpretation; it defines the subject matter of interpretation. It renders inoperative prior written agreements as well as prior oral agreements. Where writings relating to the same subject matter are assented to as parts of one transaction, both form part of the integrated agreement. Where an agreement is partly oral and partly written, the writing is at most a partially integrated agreement. See § 209.

b.  Inconsistent terms.  Whether a binding agreement is completely integrated or partially integrated, it supersedes inconsistent terms of prior agreements. To apply this rule, the court must make preliminary determinations that there is an integrated agreement and that it is inconsistent with the term in question. See § 209. Those determinations are made in accordance with all relevant evidence, and require interpretation both of the integrated agreement and of the prior agreement. The existence of the prior agreement may be a circumstance which sheds light on the meaning of the integrated agreement, but the integrated agreement must be given a meaning to which its language is reasonably susceptible when read in the light of all the circumstances. See §§ 212, 214.

Illustrations:

1. D Corporation regularly borrows money from C Bank. S, the principal stockholder in D, offers to guarantee payment if C will increase the amounts lent. There is a bank custom to make such loans only on adequate collateral supplied by the borrower, and C promises S to follow the custom. S then executes a written agreement with C guaranteeing payment of future loans to D "with or without security." If the written agreement is a binding integrated agreement, C's prior promise is discharged.

2. A orally agrees to sell a city lot to B. The city is installing a sidewalk in front of the lot, and A orally agrees to pay the cost to be assessed by the city in an amount not exceeding $ 45. B then retains a lawyer to draw up a written agreement, and A and B execute it, A without reading it. The agreement provides that A will pay all costs of the installation of the sidewalk, but does not mention any dollar limit. If the written agreement is a binding integrated agreement, any agreement for a $ 45 limit is discharged.

c.  Scope of a completely integrated agreement.  Where the parties have adopted a writing as a complete and exclusive statement of the terms of the agreement, even consistent additional terms are superseded. See § 216. But there may still be a separate agreement between the same parties which is not affected. To apply the rule of Subsection (2) the court in addition to determining that there is an integrated agreement and that it is completely integrated, must determine that the asserted prior agreement is within the scope of the integrated agreement. Those determinations are made in accordancewith all relevant evidence, and require interpretation both of the integrated agreement and of the prior agreement.

Illustrations:

3. In May A and B exchange properties and agree orally that A will make certain repairs on the property to be conveyed by A to B, the repairs to be finished by October 1. A and B then draw up and sign a memorandum of the repair agreement, specifying all the terms except that the memorandum is silent as to time of performance. If the memorandum is a binding completely integrated agreement, the agreement to finish by October 1 is discharged, and the repairs are to be finished within a reasonable time. The oral agreement as to October 1 may be relevant evidence as to what is a reasonable time.

4. A and B make an oral agreement for the sale of land and a hotel thereon, together with the hotel furniture. They employ a lawyer to prepare a written contract. He does so, and they sign it. It contains no mention of personal property. The agreement as to furniture is discharged if there is a binding completely integrated agreement covering the entire transaction, but not if only the part of the agreement relating to real property is integrated.

d.  Effect of non-binding integration.  An integrated agreement does not supersede prior agreements if it is not binding, for example, by reason of lack of consideration, or if it is voidable and avoided. The circumstances may, however, show an agreement to discharge a prior agreement without regard to whether the integrated agreement is binding, and such an agreement may be effective. Moreover, an integrated agreement may be effective to render inoperative an oral term which would have been part of the agreement if it had not been integrated. The integrated agreement may then be without consideration, even though the inoperative oral term would have furnished consideration.

Illustrations:

5. A and B enter into a contract that B will build a house on A's land for a price. Later they enter into an oral contract by which B promises to add a porch and A promises to pay an extra $ 2,000. Still later they enter into an integrated agreement in which B promises to build according to the original plans and A promises to pay the extra $ 2,000. The integrated agreement is not binding for lack of consideration, and the oral intermediate agreement is not discharged.

6. A and B enter into a contract that B will build a house on A's land for a price. Later B offers to add a porch if A will sign a new contract. They then enter into an integrated agreement in which B promises to build according to the original plans and A promises to pay an extra $ 2,000. If the integrated agreement is inconsistent with the porch offer, or if it is a completely integrated agreement and the matter of the porch is within its scope, the integrated agreement is effective to discharge the porch offer but is not binding for lack of consideration.

This Section carries forward part of former § 237, but leaves to §§ 214-16 the effect of an integration on contemporaneous oral agreements.

As to the parol evidence rule generally, see 3 Corbin, Contracts §§ 573-96 (1960 & Supp. 1980); McCormick, Evidence § 233 (2d ed. 1972); Wigmore, Evidence §§ 2429-49 (3d ed. 1940 & Supp. 1979); 4 Williston, Contracts §§ 631-47 (3d ed. 1961); Calamari & Perillo, A Plea for a Uniform Parol Evidence Rule and Principles of Contract Interpretation, 42 Ind. L.J. 333 (1967); Corbin, The Interpretation of Words and the Parol Evidence Rule, 50 Cornell L. Q. 161 (1965); Farnsworth, "Meaning" in the Law of Contracts, 76 Yale L.J. 939 (1967); Murray, The Parol Evidence Rule: A Clarification, 4 Duquesne L. Rev. 337 (1966); Sweet, Contract Making and Parol Evidence: Diagnosis and Treatment of a Sick Rule, 53 Cornell L. Rev. 1036 (1968).

Comment a.  That the parol evidence rule is a rule of substantive law and not one of evidence or interpretation, see Doyle v. Northrop Corp., 455 F. Supp. 1318, 1332-33 (D.N.J. 1978); David Nassif Assoc. v. United States, 214 Ct. Cl. 407, 557 F.2d 249 (1977) (citing this Section in Tentative Draft). Both opinions emphasize that integration must be found for the rule to apply.

Comment b.  As to the basic rule that an integrated binding agreement discharges a prior inconsistent one, see, e.g., Conn Organ Corp. v. Walt Whitman Music Studios, 67 A.D.2d 995, 413 N.Y.S.2d 725 (1979). Illustration 1 is based on Chase Manhattan Bank v. May, 311 F.2d 117 (3d Cir. 1962), cert. denied, 372 U.S. 930 (1963). Illustration 2 is based on Hanes v. Mitchell, 78 N.D. 341, 49 N.W.2d 606 (1951); cf. Joseph v. Mahoney Corp., 367 S.W.2d 213 (Tex. Civ. App. 1963).

Comment c.  Illustration 3 is based on Hayden v. Hoadley, 94 Vt. 345, 111 A. 343 (1920). Illustration 4 is based on Brown v. Oliver, 123 Kan. 711, 256 P. 1008 (1927); cf. Bretto v. Levine, 50 Minn. 168, 52 N.W. 525 (1892). But cf. Mitchill v. Lath, 247 N.Y. 377, 160 N.E. 646 (1928) (prior oral agreement discharged if parties would "ordinarily be expected to embody" it in the writing).

ALR Annotations:

Modern status as to duration of employment where contract specifies no term but fixes daily or longer compensation. 93 A.L.R.3d 659.
Parol exception of fixtures from conveyance or lease. 29 A.L.R.3d 1441.
What 12-month period constitutes "year" or "calendar year" as used in public enactment, contract, or other written instrument. 5 A.L.R.3d 584.
Person who signs contract but is not named in body thereof as party to contract and liable thereunder. 94 A.L.R.2d 691.
Admissibility of oral agreement as to specific time for performance where written contract is silent. 85 A.L.R.2d 1269.
Admissibility of parol evidence as to limitation on cost of structure in builder's action on written cost-plus-fee construction contract. 84 A.L.R.2d 1324.
Admissibility of parol evidence to connect signed and unsigned documents relied upon as memorandum to satisfy statute of frauds. 81 A.L.R.2d 991.
Admissibility of extrinsic evidence to identify person or persons intended to be designated by the name in which a contract is made. 80 A.L.R.2d 1137.
What constitutes "accounts receivable" under contract selling, assigning, pledging, or reserving such items. 41 A.L.R.2d 1395.
Meaning of term "radius" employed in contract, statute, or ordinance as descriptive of area, location, or distance. 10 A.L.R.2d 605.

Digest System Key Numbers:

Contracts 245
Evidence 442