Restat 2d of Contracts, § 214

• Restatement of the Law, Second, Contracts
• Chapter 9- The Scope of Contractual Obligations
• Topic 3- Effect of Adoption of a Writing
• § 214 Evidence of Prior or Contemporaneous Agreements and Negotiations

Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish

(a)  that the writing is or is not an integrated agreement;

(b)  that the integrated agreement, if any, is completely or partially integrated;

(c)  the meaning of the writing, whether or not integrated;

(d)  illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause;

(e)  ground for granting or denying rescission, reformation, specific performance, or other remedy.

Comment:

a.  Integrated agreement and completely integrated agreement.  Whether a writing has been adopted as an integrated agreement and, if so, whether the agreement is completely or partially integrated are questions determined by the court preliminary to determination of a question of interpretation or to application of the parol evidence rule. See §§ 209-13. Writings do not prove themselves; ordinarily, if there is dispute, there must be testimony that there was a signature or other manifestation of assent. The preliminary determination is made in accordance with all relevant evidence, including the circumstances in which the writing was made or adopted. It may require preliminary interpretation of the writing; the court must then consider the evidence which is relevant to the question of interpretation.

b.  Interpretation.  Words, written or oral, cannot apply themselves to the subject matter. The expressions and general tenor of speech used in negotiations are admissible to show the conditions existing when the writing was made, the application of the words, and the meaning or meanings of the parties. Even though words seem on their face to have only a single possible meaning, other meanings often appear when the circumstances are disclosed. In cases of misunderstanding, there must be inquiry into the meaning attached to the words by each party and into what each knew or had reason to know. See § 201.

Illustrations:

1. A and B in an integrated contract agree that A shall serve as captain of B's ship, and shall have a certain rate of pay instead of "privilege and primage." Previous negotiations showing that the meaning to the parties of the quoted words when used was the privilege of transporting goods in the captain's cabin establish that as the meaning in the contract.

2. In an integrated contract with A, B promises to buy "your wool." Previous negotiations of the parties related to both wool from A's sheep and wool that A had contracted to buy from other persons. The negotiations are admissible to establish both classes as the meaning of the words "your wool" in the contract.

3. A, in an integrated contract with B, promises B to sell certain goods to be manufactured by A, and B promises to pay the "total cost." Previous negotiations may establish the meaning of "total cost."

4. A and B make an integrated contract by which A promises to sell and B to buy goods "ex Peerless." Evidence is admissible to show that there are two ships of that name, which one each party meant, and, in case of misunderstanding, whether either had knowledge or reason to know of the other's meaning.

c.  Invalidating cause.  What appears to be a complete and binding integrated agreement may be a forgery, a joke, a sham, or an agreement without consideration, or it may be voidable for fraud, duress, mistake, or the like, or it may be illegal. Such invalidating causes need not and commonly do not appear on the face of the writing. They are not affected even by a "merger" clause. See Comment e to § 216.

Illustrations:

5. A and B make an integrated agreement by which A promises to complete an unfinished building according to certain plans and specifications, and B promises to pay A $ 2,000 for so doing. It may be shown that, by a contract made previously with B, A had promised to erect and complete the building for $ 10,000; that he had not fully completed it though paid the whole price. This evidence is admissible to show that there is no consideration for B's new promise, since A is promising no more than he is bound by his original contract to perform.

6. A and B make an integrated agreement by which A promises to sell and B promises to buy a large quantity of rifles. It may be shown that A and B had previously agreed that the rifles when bought by B should be used in fomenting a rebellion in violation of law.

d.  Remedies.  A contract which is fully enforceable in an action for damages may be subject to equitable remedies such as rescission or reformation by reason of fraud, mistake or the like. Specific performance may be denied by reason of oppression or unfairness, or other remedies may be withheld or limited where the contract or a term is unconscionable. See § 208. Evidence of the circumstances in which the contract was made may be relevant to such remedial issues, even though it also shows an agreement or proposal superseded by a later integrated contract.

Illustration:

7. A and B make an integrated agreement by which A promises to sell and B promises to buy a tract of land described in the agreement. Owing to a mutual mistake the description is not an accurate one of the tract in regard to which both A and B were bargaining. Prior oral agreements may be shown to establish the right to reformation of the integration so that it shall accurately describe the tract intended.

Paragraphs (a) and (b) are new and are designed to accord with new §§ 209 and 210. Paragraph (c) is revised to accord with new § 201. Compare former §§ 230, 231 and 242. The balance of the Section carries forward the substance of former § 238. See 3 Corbin, Contracts §§ 543, 573, 583 (1960 & Supp. 1980); 4 Williston, Contracts §§ 630, 637 (3d ed. 1961).

Comment a.  That parol evidence is admissible to prove non-integration, see Federal Deposit Ins. Co. v. First Mortgage Inv., 76 Wis.2d 151, 250 N.W.2d 362 (1977); Rempel v. Nationwide Life Ins. Co., 471 Pa. 404, 370 A.2d 366 (1977).

Comment b.  For the proposition that there need not be a finding of ambiguity before parol evidence is admitted to interpret an integrated agreement, see Anderson v. Kammeier, 262 N.W.2d 366 (Minn. 1978), citing this Section. The view that ambiguity is a prerequisite is exemplified by League v. Giffin, 347 So.2d 1332 (Ala. 1977); Kreis v. Venture Out in America, Inc., 375 F. Supp. 482 (E.D. Tenn. 1973); and Quenzer v. Quenzer, 225 Kan. 83, 587 P.2d 880 (1978). Illustrations 1-3 are based on Illustrations 1-3 to former § 242; see Olds v. Jamison, 195 Neb. 388, 238 N.W.2d 459 (1976). Illustration 4 is based on Illustration 1 to former § 238.

Comment c.  That fraud, mistake, voidness or lack of consideration may be shown by extrinsic evidence see the discussions in League v. Giffin, 347 So.2d 1332 (Ala. 1977); Iafolla v. Douglas Pocahontas Coal Corp.,     W. Va.    , 250 S.E.2d 128 (1978); Miller v. Bare, 457 F. Supp. 1359 (W.D. Pa. 1978); and Reimann v. Saturday Eve. Post Co., 464 F. Supp. 214 (S.D.N.Y. 1979). Compare the majority and dissenting opinions in Magi Comms., Inc., v. Jac-Lu Assoc., 65 A.D.2d 727, 410 N.Y.S.2d 297 (1978). Illustrations 5 and 6 are based on Illustrations 2 and 3 to former § 238.

Comment d.  Illustration 7 is based on Illustration 4 to former § 238.

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.
Validity and construction of preincorporation agreement between promoters as to future employment. 66 A.L.R.3d 1138.
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.
Revocation, prior to execution of formal written contract, of vote or decision of public body awarding contract to bidder. 3 A.L.R.3d 864.
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:

Evidence 439-444