The parol evidence rule
generally provides that oral evidence cannot be admitted to vary the written
terms of an unambiguous contract. Goodwin,
Inc. v. Coe, 392 Mich. 195, 204, 220 N.W.2d 664, 668 (1974). Key questions are whether the proffered oral evidence
is inconsistent with the written agreement;
see Union Oil Co. of California v. Newton, 397 Mich. 486, 488, 245 N.W.2d
11, 12 (1976); and whether the parties intended the issues raised by the parol
evidence to be conclusively determined by the written agreement. See NAG
enterprises, Inc. v. All State Industries, Inc., 407 Mich. 407, 410, 285
N.W.2d 770, 771 (1979).
The parol evidence rule is
not only a rule of evidence, but it is also a substantive rule of contract law.
Thornton Construction Co. v. Mackinac
Aggregates Corp., 9 Mich.App. 467, 470, 157 N.W.2d 456, 458 (1968). It is designed for the prevention of
perjury. “The
purpose of the rule is to give stability to written agreements, and to remove
the temptation and possibility of perjury which would be afforded, if parol
evidence was admissible.” Barron G.
Collier, Inc., v. Stebbins, 236 Mich. 147, 156, 210 N.W. 264, 267 (1926). It also safeguards the value of written
agreements. “To permit a party, when
sued on a written contract, to admit that he signed it but to deny that it
expresses the agreement he made, or to allow him to admit that he signed it but
did not read it or know its stipulations, would absolutely destroy the value of
all contracts.” Id.
This article will argue that
Michigan’s parol evidence rule bars some
parol evidence where a contract is only partially integrated despite the fact
that partial integration is an exception to the parol evidence rule. Consider a contract that does not contain a
zipper clause—a provision that indicates the writing contains the complete
agreement between the parties—but that does contain a provision that indicates
a contract is partially integrated. For
example, imagine an agreement that states, “Buyer shall have no additional
obligations other than those stated in this Agreement”, but that does not have
a similar clause regarding the Seller’s obligations. Under this scenario, the parol evidence rule should
exclude evidence about unstated obligations of the Buyer and an exception to
the parol evidence rule—for partially integrated contracts—should allow parol
evidence regarding the unstated obligations of the Seller.
Numerous decisions from the
1970s form Michigan’s parol evidence rule which is a bit hard to decipher and
was then described as being in a state of “disarray”. See Michigan National Bank of
Detroit v. Holland-Dozier-Holland Sound Studios, 73 Mich.App. 12, 15, 250
N.W.2d 532, 533 (1977). In BRB Printing, Inc. v. Buchanan, 878 F.Supp.
1049, 1051-52 (E.D. Mich., 1995), the Court stated that “In Goodwin v. Coe Pontiac, 392 Mich. 195,
220 N.W.2d 664 (1974), the Michigan Supreme Court stated the parol evidence
rule as follows: It is well-established that where a contract is clear and
unambiguous, parol evidence of negotiations cannot be admitted to vary the
contract.” However, that quote from the Goodwin Court was quoting the lower
court, and was prefaced with “[t]he Court of Appeals unexceptionally stated the
basic Parol Evidence as follows.” Goodwin,
392 Mich. at 204, 220 N.W.2d at 668.
Although it is an accurate statement of the parol evidence rule, the Goodwin Court went on to derive the following
rules from the case law:
1) Where ambiguity may exist in a contract,
extrinsic evidence is admissible to prove the existence of ambiguity.
2) Where ambiguity may exist in a contract,
extrinsic evidence is admissible to indicate the actual intent of the parties.
3) Where ambiguity exists in a contract, extrinsic evidence is
admissible to indicate the actual intent of the parties as an aid in the
construction of the contract.
Goodwin, 392 Mich. at 209-10, 220 N.W.2d at 671.
Two
years after Goodwin, in Union Oil, 397 Mich. at 488, 245 N.W.2d at
12, the Court stated, “[t]he trial court and the
Court of Appeals based their decisions on the issue of ambiguity. The real
question is whether the proffered parol evidence is inconsistent with the
written language. If there is no inconsistency, the parol evidence is
admissible.”
Three years
after Union Oil, in NAG, 407 Mich. at 410, 285 N.W.2d at 771, the Court stated:
[The Court
of Appeals discussed Goodwin and Union Oil] and concluded that the test for applying the parol
evidence rule is whether the extrinsic evidence seeks to contradict the terms
of the written instrument. This analysis
overlooks the prerequisite to the application of the parol evidence rule: there
must be a finding that the parties intended the written instrument to be a
complete expression of their agreement as to the matters covered.
In Goodwin,
392 Mich. at 204, 220 N.W.2d at 668, and in NAG,
407 Mich. at 410-11, 285 N.W.2d at 771-72, the Court noted a number of “well-established exceptions to the parol evidence
rule” including: (1) “that the parties did not ‘integrate’ their agreement, or
assent to it as the final embodiment of their understanding”; and (2) “that the
agreement was only ‘partially integrated’ because essential elements were not
reduced to writing”.
These exceptions are
interrelated because they both involve integration—partial and complete. Regardless of whether integration is a
prerequisite to the parol evidence rule (as stated in NAG) or an exception to the parol evidence rule (as stated in Goodwin), “there must be a finding that
the parties intended the written instrument to be a complete expression of
their agreement as to the matters
covered.” NAG, 407 Mich. at 410, 285 N.W.2d at 771 (emphasis added).
In NAG, the Court found that “[e]xtrinsic evidence of prior or
contemporaneous agreements or negotiations is admissible as it bears on this
threshold question of whether the written instrument is such an ‘integrated’
agreement.” NAG, 407 Mich. at 410, 285
N.W.2d at 771. However,
later cases noted that NAG did not
involve a contract with an integration clause and narrowed this portion of NAG such that parol evidence is not
admissible to show a contract is not integrated where there is an integration
clause in the contract unless there is fraud that invalidates the integration
clause itself or circumstances in which the agreement is incomplete on its face
and for which parol evidence is necessary to fill in the gaps. UAW-GM Human Resource Center v. KSL
Recreation Corp., 228 Mich.App. 486, 493-502, 579 N.W.2d 411, 415-18
(1998); Hamade v. Sunoco, Inc., 271
Mich.App. 145, 167-69, 721 N.W.2d 233, 248-49 (2006).
While analyzing the issue of
whether parol evidence is admissible as it bears on the question of whether the
instrument was an integrated agreement, the UAW-GW
Court quoted from 4 Williston, Contracts, § 633, p. 1014 as follows:
Since it is only the intention of the parties to
adopt a writing as a memorial which makes that writing an integration of the
contract, and makes the parol evidence rule applicable, any expression of their
intention in the writing in regard to the matter will be given effect. If they
provide in terms that the writing shall be a complete integration of their
agreement ... the expressed intention will be effectuated.
UAW-GM, 228 Mich.App. at 493, 579
N.W.2d at 415. The UAW-GW
Court also quoted from 3 Corbin, Contracts, § 578, pp. 402-411 as follows:
If a written document, mutually assented to,
declares in express terms that it contains the entire agreement of the parties
... this declaration is conclusive as long as it has itself not been set aside
by a court on grounds of fraud or mistake, or on some ground that is sufficient
for setting aside other contracts.... It is just like a general release of all
antecedent claims.
* * * * * *
... An agreement that we do now discharge and
nullify all previous agreements and warranties is effective, so long as it is
not itself avoided....
* * * * * *
... By limiting the contract to the provisions
that are in writing, the parties are definitely expressing an intention to
nullify antecedent understandings or agreements. They are making the document a
complete integration. Therefore, even if there had in fact been an antecedent
warranty or other provision, it is discharged by the written agreement.
UAW-GM, 228 Mich.App. at 494, 579
N.W.2d at 415. The UAW-GW
Court explained its holding as follows:
The conclusion that parol evidence is not
admissible to show that a written agreement is not integrated when the
agreement itself includes an integration clause is consistent with the general
contract principles of honoring parties' agreements as expressed in their written
contracts and not creating ambiguities where none exist… This conclusion
accords respect to the rules that the parties themselves have set forth to
resolve controversies arising under the contract. The parties are bound by the
contract because they have chosen to be so bound.
Further, and most fundamentally, if parol
evidence were admissible with regard to the threshold issue whether the written
agreement was integrated despite the existence of an integration clause, there
would be little distinction between contracts that include an integration
clause and those that do not. When the parties choose to include an integration
clause, they clearly indicate that the written agreement is integrated;
accordingly, there is no longer any “threshold issue” whether the agreement is
integrated and, correspondingly, no need to resort to parol evidence to resolve
this issue. Thus NAG,
which allows resort to parol evidence to resolve this “threshold issue,” does not control
when a contract includes a valid merger clause.
In essence what the UAW-GW Court did is hold that parol evidence will not be allowed to
show a contract is not integrated where doing so would be inconsistent with the
written language of the contract.
Further while the UAW-GW
Court’s conclusion indicates that parol evidence is barred where a contract is
a completely integrated, the logic of the holding would also apply to bar parol
evidence where a contract is partial integrated to the extent that the
proffered parol evidence is inconsistent with the integrated terms of the
contract.
In Goodwin,
392 Mich. at 204, 220 N.W.2d at 668, and in NAG,
407 Mich. at 410-11, 285 N.W.2d at 771-72, the Court cites Brady v. Central Excavators, Inc., 316 Mich. 594, 25 N.W.2d 630
(1947), as the case for the partial integration exception to the parol evidence
rule. In Brady, the proffered parol evidence was not inconsistent with the
written agreement. The case involved
street construction. The plaintiff
claimed that the defendant orally agreed to provide a certain base grade and
sub-soil stability for the street the plaintiff was to construct. The plaintiff further claimed that it was
defendant’s failure to do the same that caused plaintiff not to be able to meet
his obligations under the contract, which was deduced from several
letters. The Court allowed parol
evidence and quoted Danielson v. Bank of
Scandinavia, 201 Wis. 392, 230 N.W. 83 (1930) for the proposition that,
“parol evidence may be received to establish that part of the transaction which
was permitted by the parties to remain in parol.”
However, the flip-side of that proposition is
that parol evidence may not be received to establish that part of a transaction
which was conclusively established by the integrated terms of a partially
integrated written agreement. In Danielson, the Court construed an
earlier Wisconsin case to reach that very same conclusion: “In Cliver v. Heil, supra, the contract was by its terms as written
payable upon demand. It was therefore an integration of the transaction so far as it related to the date of
payment, and could not for that reason be
contradicted; that is, a different time of payment could not be established by
parol evidence.” Danielson, 201 Wis. 392, 230 N.W.
at 85 (emphasis added). Moreover it has
to be that certain matters in a partially integrated contract can be
conclusively established such that the parol evidence rule bars oral evidence
that contradicts those integrated terms; otherwise, there would be only one
exception, for contracts not completely integrated, instead of two exceptions,
for contracts not integrated and for contracts partially integrated, to the
parol evidence rule. Two exceptions are
necessary because the analysis is slightly different.
Returning to our
hypothetical, the parol evidence rule should exclude evidence about unstated
obligations of the Buyer because allowing such evidence would expressly
contradict the contract provision that states, “Buyer shall have no additional
obligations other than those stated in this Agreement.” Further, parol evidence regarding the
unstated obligations of the Seller should be allowed because there is no
similar provision regarding the Seller’s obligations. The agreement does not conclusively establish
that the agreement was integrated with respect to the obligations of the Seller. Therefore, some parol evidence should be
barred when a contract is partially integrated and some parol evidence should
not be barred when a contract is partially integrated.
THAT’S MY
ARGUMENT.
© December 2013 Brandon J. Evans
