Sound Techniques v. Hoffman, 737 N.E.2d 920

Massachusetts Appeals Courts

2000

Chapter

16

Title

The Parol Evidence Rule

Page

605

Topic

Escape from the Parol Evidence Rule

Quick Notes

Noisy recording studio.   

Book Name

Contracts Cases, Discussions, and Problems.  Blum Bushaw, Second Edition.  ISBN:  978-0-7355-7069-6.

Issue

o         Whether Anderson's testimony was inadmissible by reason of the clause in the lease entitled "Waiver by landlord?  No.

o         Whether public policy concerns also preclude recovery on account of negligently made statements show to be false is a question of law spoken to but left undecided to the court?  No.

Procedure

Trial

o         Breach of K No, Deceit No, and Negligent misrepresentation - Yes

Appellant

o         Reversed, in favor of the Df.

Facts

Rules

Reason

o         Pl - Sound Techniques

o         Df - Hoffman

What happened?

o         Sound entered into a contract with Hoffman to lease the second floor of a building.

o         The first floor was occupied by Boston Ramrod.

o         Hoffman said Ramrods expansion would not affect Sounds recording studio..

o         The lease was conditioned on Sounds successfully completing an acoustical inspection of the premises.

o         However, the engineer did not visit Ramrod late at night or on the weekends.

o         Soon after relocating, Sound started to experience problems, which affected their recording studio and started losing business.

Action

o         Sound bought action for

1.       breach of K

2.       Deceit

3.       Negligent misrepresentation.

Jury Found

1.   breach of K - No

2.   Deceit - No

3.   Negligent misrepresentation - Yes

The Waiver

o         "Tenant acknowledges that Tenant has not been influenced to enter into this transaction nor has Tenant relied upon any warranties or representations not set forth in this instrument".

Analysis

1.         It appears that the lease was a fully integrated contact.

2.         The merger clause is not contended to be ambiguous.

Commercial Transaction Jurisdiction differences

o         Those that ignore the merger clause do so, essentially,  on the basis that the parol evidence rule applies only to contract claims and has no relevance to a plaintiff's tort action.

o         On the other side of the issue, in those jurisdictions where recovery has been denied, the courts have taken the view that, in the absence of a deliberate wrongdoing, the terms of the contract control.

Formento

o         Formento proceeds on the basis that because both categories of claim stand on the same policy ground.

Hill termite damage case

o         Where a misrepresentation is fraudulent or where a negligent misrepresentation is one of material fact, the policy of finality rightly gives way to the policy of promoting honest dealings between the parties."

Formento and Hill - declined

o         We decline to follow Formento and Hill because they fail to acknowledge and to take into account the significance of the intent of the misrepresenting party.

o         To ignore a merger clause and allow recovery for a negligent misrepresentation does little to promote honesty and fair dealing in business relationships.

o         An individual who makes negligent misrepresentations has honest intentions but has failed to exercise due care.

Reasoning

o         There is nothing in the evidence before us that shows or even suggests that the integrity of the bargaining process was tainted by illegality, fraud, duress, unconscionability, or any other invalidating cause.

o         The lease was not a contract of adhesion.

o         Nothing suggests that the bargaining powers of the parties were unequal.

o         Indeed, the evidence showed that Sound was represented by counsel throughout the negotiation process and its acceptance of the lease was conditioned upon an inspection by an acoustical engineer that was in fact conducted.

Outcome

o         Reversed.

Class Notes

Parole Evidence Rule

o         In interpreting and enforcing a contract, questions often arise as to whether the written instrument is the complete embodiment of the parties intention.

o         Where the parties to a contract express their agreement in a writing with the intent that it embody the full and final expression of their bargain (i.e. the writing is an integration), any other expressions written oral made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing.

Purpose

o         It is designed to carry out the apparent intention of the parties and to facilitate judicial interpretation by having a single clean source of proof (the writing) on the terms of the bargain.

How do we determine if the writing is an integration?

o         We break down into two questions whether a writing is an integration of all agreements between the parties.

1.   Is the writing intended as a final express?

2.   Is the writing a complete or partial integration?

1. Is the writing intended as a final expression?
   • Be careful, writings that purport a contract are not necessarily final.
   • It could be a rough draft.
   • The more complete the agreement appears to be on its face, the more likely it was intended as an integration.

RULE

• If it is not a final expression, then the parol evidence will NOT BAR the introduction of further evidence.

2.       Is the writing a complete or partial integration?

• After establish if the contract was FINAL, then you should determine if the writing was COMPLETE or PARTIAL.

Complete Rule

• If writing is COMPLETE, then the writing

                                                               i.      CANNOT contradict.

                                                             ii.      CANNOT supplement.

Partial Rule

• If the writing is PARTIAL, then the writing

                                                               i.      CANNOT contradict

                                                             ii.      CAN allow supplement

Who Decides if the writing is integration?

• This is a question of fact.
• This is decided by the judge and NOT the jury.

Decision Tree

• If the judge decides that the writing was an integration of ALL agreements between the parties, THEN he will EXCLUDE any offered evidence.
• If the judge decides that the writing was NOT an integration of ALL agreements between the parties, THEN he MAY admit the offered extrinsic evidence.

                                                               i.      If there is a jury, then the jury will make its own determination as to whether this extrinsic evidence was part of the agreement.

How is the Determination Made?

Williston Test (Question)

• Would parties situated as were these parties to the contract naturally and normally include extrinsic matter in writing?

Williston Rules

• If such reasonable parties would have included the matter in the writing, evidence of the extrinsic matter will NOT be admitted.
• If the judge determines as a matter of fact that the parties to this contract, would NOT have included the extrinsic matter in the writing, evidence of the matter MAY BE introduced.

Wigmore  Aid (Question)

• Whether the extrinsic matter was mentioned or dealt with at all in the writing?

Wigmore Rules

• If it was mentioned or dealt with in the writing, presumably the writing states all that the parties intended to say as to that matter and the evidence is excluded.

3.       Extrinsic Evidence Outside the Scope of the Rule

• The Parol evidence rule prohibits admissibility ONLY of extrinsic evidence that seeks to vary, contradict, or add to an integration.
• Other forms of extrinsic evidence MAY BE admitted where they will not bring about this result.

                                                               i.      They will fall outside the scope of the parol evidence rule.

Attacking the Validity

• A party to a written contract can attack the agreements validity.
• The party acknowledges that the writing reflects the agreement but asserts, that the agreement never came into being before of the following possibilities:

                                                              i.      Formation Defects

o         Formation defects that may be shown by extrinsic evidence include fraud, duress, mistake, and illegality.

                                                            ii.      Condition Precedent (Admissible if NO contradiction)

o         This occurs where a party asserts that there was an oral agreement that the written contract would NOT become effective UNTIL a condition occurred, ALL evidence of the understanding MAY BE offered and received.

o         The rationale is that you are NOT altering a written agreement by means of parol evidence if the written agreement never came into being.

o         However, the parol evidence contradicts the express language of the written contract, it will NOT be admitted.

                                                          iii.      Condition Subsequent (Not Admissible)

o         Parol evidence is inadmissible as to conditions subsequent.

o         An example would be an oral agreement that the party would NOT be obliged to perform UNTIL the happening of an event.

                                                           iv.      Interpretation

o         If there is uncertainty or ambiguity in the written agreements terms or a dispute as to the meaning of those terms, parol evidence can be received to aid the fact-finder in reaching a correct interpretation or the agreement.

o         If the meaning of the agreement is plain, then parol evidence is inadmissible.

                                                             v.      Showing of True Consideration

o         The parol evidence rule will not bar extrinsic evidence showing the true consideration paid.

Example

a.       A contract states the $10 has been given as full and complete consideration.

b.      Extrinsic evidence will be admitted, by way of a defense, to show that this sum has never been paid.

                                                           vi.      Reformation

o         This occurs where a party to a written agreement alleges facts (i.e. mistake) entitling him to reformation of the agreement, the parol evidence is inapplicable.

o         Why?

a.       Because the Pl is asserting as a cause of action that despite the apparently unambiguous terms of the written agreement, those terms do not in fact constitute the agreement between the parties.

For the Pl to obtain reformation, he must how

o         There was an antecedent [prior] valid agreement that

o         Is incorrectly reflected in the writing (i.e. by mistake).

Burden

o         The party must prove clear and convincing evidence.

4.       Collateral Agreements

• Courts have suggested that extrinsic evidence is admissible to show agreements between the parties that are collateral to the transaction otherwise evidenced by an apparent integrated writing.
• If the agreement is collateral, it MUST be an agreement that parties would naturally and normally NOT include in the apparently integrated writing.
• The Court will use the Williston Test to decide if the extrinsic evidence may be introduced.
• If it the extrinsic evidence would NOT naturally and normally be included, then the extrinsic evidence may be characterized as collateral.

Williston Rules

• If such reasonable parties would have included the matter in the writing, evidence of the extrinsic matter will NOT be admitted.
• If the judge determines as a matter of fact that the parties to this contract, would NOT have included the extrinsic matter in the writing, evidence of the matter MAY BE introduced.

5. Parol Evidence Rule Applicable Only to Prior or Contemporaneous Negotiations
   • Parol evidence can be offered to show subsequent modifications of a written contract, since parol evidence rules applies ONLY to prior or contemporaneous negations.
   • The parties MAY show that they have altered the integrated writing after its making.

6. UCC Rule
   • A party CANNOT contradict the writing but he MAY ADD consistent additional terms UNLESS:

                                                               i.      There is a merger clause, or

                                                             ii.      The courts find from ALL the circumstances that the writing was intended as a complete and exclusive statement of the terms of the agreement.

• UCC 2-202, also provides that a written contracts terms MAY BE explained or supplemented by:

                                                               i.      The course of dealing of usage in the trade, or

                                                             ii.      The course of performance to date, even if the terms appear to be unambiguous.