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.
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... An agreement that we do now discharge and nullify all previous agreements and warranties is effective, so long as it is not itself avoided....
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... 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