Toward a prudential and credibility-centered parol evidence rule

University of Cincinnati Law Review

Volumn 68, Issue 2, 2000, Pages 269-321

  Cunningham, Lawrence A ^a  

^a NONE

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EID: 0034391007     PISSN: 00096881     EISSN: None     Source Type: Journal    
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References (254)

1. This pugilistic poetry should not be taken to mean that in the case of the Uniform Commercial Code (UCC) that equal parts of Williston and Corbin are reflected. Article Two of the UCC certainly has a strong Corbin flavor in the parol evidence rule context, using concepts such as the intentions of the parties and terms of a writing. Yet there remains enough of a Willistonian influence, particularly compared to that of the RESTATEMENT (SECOND) OF CONTRACTS, that the statement in the text remains reasonable.
2. See GRANT GILMORE, THE DEATH OF CONTRACT 39-47, 63-75 (1974).
3. Scholarly efforts have been made to promote a Traynor-Academy construct, see, e.g., W. Richard West, Jr., Note, Chief Justice Traynor and the Parol Evidence Rule, 22 STAN. L. REV. 547 (1970); Donald P. Barrett, Roger John Traynor: Master of Judicial Wisdom, 71 CAL. L. REV. 1060, 1063 (1983); G. EDWARD WHITE, THE AMERICAN JUDICIAL TRADITION 292-316 (1976), but without great success. See Olivia W. Karlin & Louis W. Karlin, The California Parol Evidence Rule, 21 SW. U. L. REV. 1361 (1992).
4. Scholarly efforts have been made to promote a Traynor-Academy construct, see, e.g., W. Richard West, Jr., Note, Chief Justice Traynor and the Parol Evidence Rule, 22 STAN. L. REV. 547 (1970); Donald P. Barrett, Roger John Traynor: Master of Judicial Wisdom, 71 CAL. L. REV. 1060, 1063 (1983); G. EDWARD WHITE, THE AMERICAN JUDICIAL TRADITION 292-316 (1976), but without great success. See Olivia W. Karlin & Louis W. Karlin, The California Parol Evidence Rule, 21 SW. U. L. REV. 1361 (1992).
5. Scholarly efforts have been made to promote a Traynor-Academy construct, see, e.g., W. Richard West, Jr., Note, Chief Justice Traynor and the Parol Evidence Rule, 22 STAN. L. REV. 547 (1970); Donald P. Barrett, Roger John Traynor: Master of Judicial Wisdom, 71 CAL. L. REV. 1060, 1063 (1983); G. EDWARD WHITE, THE AMERICAN JUDICIAL TRADITION 292-316 (1976), but without great success. See Olivia W. Karlin & Louis W. Karlin, The California Parol Evidence Rule, 21 SW. U. L. REV. 1361 (1992).
6. Scholarly efforts have been made to promote a Traynor-Academy construct, see, e.g., W. Richard West, Jr., Note, Chief Justice Traynor and the Parol Evidence Rule, 22 STAN. L. REV. 547 (1970); Donald P. Barrett, Roger John Traynor: Master of Judicial Wisdom, 71 CAL. L. REV. 1060, 1063 (1983); G. EDWARD WHITE, THE AMERICAN JUDICIAL TRADITION 292-316 (1976), but without great success. See Olivia W. Karlin & Louis W. Karlin, The California Parol Evidence Rule, 21 SW. U. L. REV. 1361 (1992).
7. See Lawrence A. Cunningham, Cardozo and Posner: A Study in Contracts, 36 WM. & MARY L. REV. 1379 (1995).
8. See E. ALLAN FARNSWORTH, CONTRACTS 464 (2d ed. 1990) (citing studies showing that disputes over paroi evidence rule, interpretation and other "law[s] of the contract represent a substantial and growing fraction of all contract disputes"). Based on the author's experience as editor of CORBIN ON CONTRACTS, moreover, approximately 30% of the reported contracts opinions in the past several years have involved issues arising under the parol evidence rule.
9. 841 F.2d 742 (7th Cir. 1988) (Posner, J.) (applying Indiana law).
10. 976 F.2d 1062 (7th Cir. 1992) (Posner, J.) (applying Indiana law).
11. 41 F.3d 345 (7th Cir. 1994) (Posner, C.J.) (applying Illinois law).
12. 877 F.2d 614 (7th Cir. 1989) (Posner, J.) (applying Illinois law).
13. 44 F.3d 572 (7th Cir. 1995) (Posner, C.J.).
14. These could be called transaction costs or lawyer costs or some other term that captures a bundle of similar ideas. I prefer writing costs to reflect that there are costs of contract specification even if lawyers are not involved and that transaction costs include the costs of oral negotiation and other non-writing costs.
15. The chief enduring justification for the parol evidence rule is to promote commercial certainty in the enforcement of bargains, a certainty sometimes put in jeopardy by the way the typical contract-to-bargaining situation proceeds. Other historical arguments for the rule - some of which are noted in the doctrinal analyses below - such as promoting judicial efficiency by favoring integrated writings over other evidence or controlling juries or protecting against fraud have diminished in importance. See Eric A. Posner, Essay, The Parol Evidence Rule, the Plain Meaning Rule, and the Principles of Contractual Interpretation, 146 U. PA. L. REV. 533, 566-568 (1998).
16. See Posner, supra note 12, at 546.
17. See id. at 553-54.
18. Professor Posner suggests such a matrix, while noting that it would be further complicated by accounting for the value of the contract. Additionally, he notes that it would not prescribe particular approaches to a wide range of contracts where the factors combine in competing ways. See id. at 553.
19. See id. at 548.
20. This Article does not discuss the difference, if there is any, between prior agreements and contemporaneous agreements. Corbin thought there was no difference and that agreements at stake in a parol evidence rule debate could only be either prior or subsequent and not something else. Williston thought there could be contemporaneous agreements. This is one of dozens of points of disagreement between these two contract titans but is of minor significance generally and in the context of this Article specifically.
21. 160 N.E. 646 (N.Y. 1928).
22. See id.
23. See id.
24. See id.
25. See infra Part IV.
26. See Mitchell, 160 N.E. at 648-50.
27. Id. at 647.
28. See id.
29. Id.
30. See id.
31. See id.
32. See id.
33. Id.
34. See id. at 648.
35. See id.
36. See id. at 649.
37. See id. at 649-50.
38. See, e.g., FARNSWORTH, supra note 5, at 474 (quoting Williston that "[i]t is generally held that the contract must appear on its face to be incomplete in order to permit parol evidence of additional terms.")
39. Williston's test has been called the "fictitious intentions" test to capture his approach of determining what reasonable parties in the positions of the actual parties would have expected their language to be understood to mean. See, e.g., John E. Murray, Jr., The Parol Evidence Process and Standardized Agreements Under the RESTATEMENT (SECOND) OF CONTRACTS, 123 U. PA. L. REV. 1342 (1975).
40. See FRIEDRICH KESSLER ET AL., CONTRACTS 827-30 (1986). Thompson v. Libby, 29 N.W. 150 (Minn. 1886) aff'd, 31 N.W. 52 (Minn. 1886) (this court took the approach of asking whether a written agreement is, on its face, complete, one that presupposes that the parties intended to have the terms of their complete agreement embraced in the writing, and then applied a weak test of intention of whether the writing contains language that imports a complete legal obligation - weak is a charitable description because just because parties did the minimum necessary to create a legal obligation is no guarantee that they put the total of that obligation in the writing).
41. In the terms set forth in Part I, K = W is rare. See Murray, supra note 36.
42. See Mitchell, 160 N.E.2d at 646.
43. See id. at 649-50.
44. 436 P.2d 561 (Cal. 1968) (en banc).
45. See id. at 562.
46. See id.
47. See id.
48. See id. They also complained that the trial court had incorrectly admitted evidence showing that "the same consideration as being paid heretofore" meant the sum of $50,000 and that the "depreciation value of any improvements" meant depreciation computed by deducting the total amount of any capital expenditures the buying couple had made from the amount of depreciation allowable to them under tax laws in effect at the time of exercise of the option. Id.
49. Id at 563.
50. Id.
51. Id.
52. Id.
53. Id. (quoting Ferguson v. Koch, 268 P.342, 344 (Cal. 1928).
54. See id. at 563-64.
55. See id. at 564.
56. See id.
57. See id. This is a weak rationale. The parol evidence rule also bars evidence of prior written agreements. See Patton v. Mid-Continent Systems, Inc., 841 F.2d 742, 745 (7th Cir. 1988) (Posner, J.); see also discussion infra Part II, C.
58. See Masterson, 436 P.2d at 564.
59. See Charles T. McCormick, The Parol Evidence Rule as a Procedural Device for Control of the Jury, 41 YALE L.J. 365 (1932). More will be said about this device in Part IV.
60. See Masterson, 436 P.2d at 564.
61. Id.
62. See id. at 565.
63. See id.
64. See id.
65. See id.
66. See id.
67. See id. at 567 (Burke, J., dissenting).
68. See id. (Burke, J., dissenting).
69. See id. at 568-69 (Burke, J., dissenting).
70. See id. at 569 (Burke, J., dissenting).
71. Id. at 571 (Burke, J., dissenting).
72. Cf. Susan J. Martin-Davidson, Yes, Judge Kozinksi, There Is a Parol Evidence Rule in California - The Lessons of a Pyrrhic Victory, 25 SW. L. REV. 1 (1995).
73. See MARVIN CHIRLESTEIN, CONCEPTS AND CASE ANALYSIS IN THE LAW OF CONTRACTS 88 (3d ed. 1998).
74. 841 F.2d 742 (Posner, J.) (applying Indiana law).
75. See id. at 744.
76. See id.
77. See id.
78. Id. at 745.
79. Id.
80. See id.
81. See id.
82. See id.
83. Id. at 744-45.
84. Id. at 745.
85. Id. Cf. supra note 48 and accompanying text.
86. See Patton, 841 F.2d at 745. Whether there is a four corners rule separate from the parol evidence rule is questionable, however, and Posner acknowledges this.
87. See id. (quoting FARNSWORTH, supra note 5, §7.2, at 451).
88. Id. For a discussion of this part of the parol evidence rule, governing interpretation, see discussion infra Part II.
89. Patton, 841 F.2d at 746 (quoting Franklin v. White, 493 N.E.2d at 166-67).
90. See id.
91. See id.
92. Id. at 746.
93. See id.
94. Id.
95. Id.
96. Id.
97. 976 F.2d 1062 (7th Cir. 1992) (Posner, J.) (applying Indiana law).
98. See id. at 1066.
99. See id.
100. See id.
101. Id. at 1067.
102. See id. The parties disputed the scope of the tighter rule for promissory notes, the seller alleging it only applied to bar evidence that a condition had not been met (not, as here, that the parties had no intention of entering into a binding obligation) whereas the buyer argued it excluded both. Posner adopted the latter position, although it did not matter for the evidence was admissible under either approach.
103. See id. It may, as Learned Hand had said, be that the putative contract was "a disguise to deceive others." Id. (citing In re Hicks & Son, Inc., 82 F.2d 277, 279 (2d Cir. 1936) (L. Hand, J.)). As to the admissibility of this evidence with respect to a sham agreement, there are two views. A minority view refuses to admit evidence of sham if the purpose of the sham violated public policy. This rule rewards the shammer and also requires inquiry into the sham's character. A majority view allows the evidence and avoids these issues. Posner adopted the majority view, no Indiana cases having decided which to choose.
104. Id. at 1068 (emphasis added).
105. 41 F.3d 345 (7th Cir. 1994) (Posner, C.J.) (applying Illinois law).
106. See id. at 348.
107. Id. at 350. The former provided: "If the Employee is terminated by Employer for any reason other than a conviction of illegal acts in connection with the performance of her duties under this Employment Agreement then such termination shall be deemed a breach of this Agreement;" the latter was "a standard integration clause, reciting that it is the complete agreement of the parties and supersedes all previous representations or agreements, written or oral." Id.
108. See id.
109. See id.
110. See id.
111. See id.
112. These include the procedural posture of the case, as in Herzog, where the seller had lost a motion for summary judgment so his claim about what happened had to be accepted not merely as credible but as true.
113. The argument as applied to Mitchell seems odd, but the distinction may matter in some cases, even in Mitchell. Whether something was said at all (S) and whether the parties intended what was said to be binding as part of their bargain (K) are different questions and in some cases the difference matters. Indeed, it is common for parties to make preliminary promises without then or later having any intention to bind themselves to them as a matter of law. Credible evidence about the former does not necessarily say anything about the latter and vice versa. (That is, just because it is credible that a discussion took place does not mean it is credible that it was intended to be legally binding. Conversely, just because it is credible that parties intended some bargain given the context, trade usage, and so on, does not mean they did so.) But credible evidence of either sort should be admitted as a preliminary matter, and used in the process of weighing whether something was said and whether it was intended to be part of the bargain. The difference would not matter in many cases, however, as the credibility of both claims may be the same (for example, both are unlikely in Bristow and both are likely in Herzog and in Patton).
114. See Morin Bldg. Prod. Co. v. Baystone Constr., Inc., 717 F.2d 413 (7th Cir. 1983).
115. For a discussion of the possibility of an even stronger link between credibility and the general doctrine of good faith, see discussion infra Part IV.
116. Bristow v. Drake St. Inc., 41 F.3d 345, 352 (7th Cir. 1994).
117. Id.
118. The guard must be up against evidence relating to both whether the parties said what is being alleged and whether, having said it or not, they intended for it to be binding. See infra note 121.
119. See JOHN D. CALAMARI & JOSEPH M. PERILLO, CONTRACTS §3-9, at 165-66 (3d ed. 1987).
120. Despite these truths, plenty of overworked courts invoke the plain meaning rule to resolve contract disputes without going through the burdensome chore of hearing evidence about the meaning of language that has at least a plain enough meaning. See CALAMARI & PERILLO, supra note 116, §3-10, at 167 n.22. In the post-modern world, the plain meaning rule becomes the plain enough meaning rule.
121. See Fidelity & Deposit Co. of Md. v. City of Sheboygan Falls, 713 F.2d 1261 (7th Cir. 1983) (applying Wisconsin law) (Posner, J.) (discussed infra notes 171-95 and accompanying text).
122. For an excellent historical analysis of the Peerless case, see A.W.B. Simpson, The Case of the Two Ships Peerless, 11 CARDOZO L. REV. 287 (1989).
123. CALAMARI & PERILLO, supra note 116, §3-11, at 168 (citing RESTATEMENT (FIRST) OF CONTRACTS §230).
124. See id. (citing RESTATEMENT (FIRST) OF CONTRACTS §231).
125. Id. (citing 4 WILLISTON ON CONTRACTS §605).
126. See 4 WILLISTON ON CONTRACTS §604.
127. 442 P.2d 641 (Cal. 1968) (Traynor, C.J.).
128. See id. at 643.
129. Id.
130. See id.
131. See id.
132. See id.
133. See id.
134. See id. at 641.
135. See id. at 644.
136. See id.
137. Id. at 643 (quoting CORBIN ON CONTRACTS §579, infra note 272). The prescient Corbin had anticipated by decades the fashionable struggle in contemporary literary theory elaborated by Jacques Derrida and popularized by Stanley Fish. See Arthur L. Corbin, The Interpretation of Words and the Parol Evidence Rule, 50 CORNELL L.Q. 161, 164 (1965). "[W]hen a judge refuses to consider relevant extrinsic evidence on the ground that the meaning of written words is to him plain and clear, his decision is formed by and wholly based upon the completely extrinsic evidence of his own personal education and experience." Id.
138. Pacific Gas & Electric, 442 P.2d at 644.
139. Traynor explained: A rule that would limit the determination of the meaning of a written instrument to its four-corners merely because it seems to the court to be clear and unambiguous, would either deny the relevance of the intention of the parties or presuppose a degree of verbal precision and stability our language has not attained. Id.
140. Trident Center v. Connecticut General Life Ins. Co., 847 F.2d 564 (9th Cir. 1988).
141. Id. at 565.
142. See supra note 107 and accompanying text.
143. Trident Center, 847 F.2d at 566.
144. See id.
145. Id.
146. See id.
147. Id.
148. See id.
149. See id. at 567.
150. See id.
151. Id at 568.
152. Id. at 569.
153. See id. at 569-70.
154. See, e.g., ACL Technologies, Inc. v. Northbrook Property & Casualty Ins. Co., 17 Cal.App.4th 1773, 22 Cal.Rptr.2d 206 (Cal. Ct. App. 1993); Banco Do Brasil, S.A. v. Latian, Inc., 234 Cal.App.3d 973, 285 Cal.Rptr. 870 (Cal. Ct. App. 1991).
155. See Susan J. Martin-Davidson, supra note 75, at 1; Dennis Patterson, The Pseudo-Debate Over Default Rules in Contract Law, 3 S. CAL. INTERDISC. L.J. 235, 270-78 (1993).
156. Trident Center, 847 F.2d at 569.
157. 713 F.2d 1261 (7th Cir. 1983) (Posner, J.).
158. 44 F.3d 572 (7th Cir. 1995) (Posner, C.J.) (applying Illinois law).
159. Fidelity, 713 F.2d at 1265.
160. See id.
161. See id. at 1269.
162. See id.
163. See id.
164. Id.
165. See id. at 1270.
166. See id.
167. See id.
168. See id.
169. See id. at 1271.
170. See id.
171. See id.
172. See id. See also Stevens Constr. Corp. v. Carolina Corp., 217 N.W.2d 291 (Wis. 1974).
173. See Fidelity, 713 F.2d at 1271.
174. See id.
175. See id.
176. See id.
177. See id.
178. See id.
179. Id.
180. Id.
181. See id.
182. Id.
183. See id. at 1271-72.
184. 877 F.2d 614 (7th Cir. 1989) (Posner, J.) (applying Illinois law).
185. See id. at 616.
186. Id. at 618.
187. See id.
188. See id.
189. See id.
190. See id.
191. See id.
192. Id. at 620.
193. See id.
194. See id.
195. See id.
196. Id. (citing Patton v. Mid-Continent Sys., Inc., discussed supra Part II.C).
197. See id.
198. Id. at 621.
199. Id. Not ridiculous for it serves to reduce litigation by reducing the jury's role and parties may prefer ex ante to avoid the expense and uncertainty of jury dispute resolution, and its attendant risk of error, see discussion supra Part I.
200. See id.
201. Id. at 622.
202. See id.
203. See id.
204. Id.
205. Id.
206. See id.
207. See id.
208. See id.
209. AM Int'l v. Graphic Management Inc., 44 F.3d 572 (7th Cir. 1995).
210. See id. at 574.
211. Id.
212. See id.
213. See id.
214. See id.
215. Id.
216. Id.
217. See id.
218. See id.
219. See id.
220. Id. at 575. While not even Posner's opinions are treatises, they often have the character of law review articles.
221. Id. 219. Raffles v. Wichelhaus, 159 Eng. Rep. 375 (Ex. 1864).
222. AM Int'l., 44 F.3d at 575.
223. Id.
224. Id. at 577.
225. See id.
226. See id.
227. See id.
228. See id.
229. It has, indeed, been increasingly articulated by courts around the country. See, e.g., Carey Canada, Inc. v. Columbia Casualty Company, 940 F.2d 1548, 1558 (D.C. Cir. 1991) (reversing and remanding to district court which had admitted "subjective" and "self-serving" evidence offered by insurance company that policy exclusion for "asbestosis" claims included all asbestos-related claims); Harris Bank Naperville vs. Morse Shoe, Inc., 716 F. Supp. 1109, 1113 (N.D. Ill.1989) (holding that extrinsic evidence intended to show lease clause was ambiguous amounted to a "self-serving statement" and so not admitted); Real Estate Value Co. v. Usair, Inc., 979 F. Supp. 731, 737 (N.D. Ill.1997) (refusing to admit evidence of oral negotiations on grounds that "a self-serving statement ... that a party did not understand [a] contract to mean what is says (or appears to say) will not suffice [to show an ambiguity]" (quoting FDIC v. W.R. Grace, 877 F.2d 614, 622 (7th Cir. 1989))).
230. 138 F.2d 641 (2d Cir. 1943) (applying Michigan law).
231. See id. at 642.
232. See id.
233. Id.
234. See id.
235. See id.
236. See id. at 643.
237. See id. at 644.
238. See American Seating Co. v. Zell, 322 U.S. 709 (1944). Another 3 of 9 disagreed with the Second Circuit by holding that the agreement the agent contended existed was void as against public policy.
239. See Posner, supra note 12.
240. See supra text accompanying notes 39-42 (reporting that Traynor noted competing strands of a weak and strong parol evidence rule in California cases on integration).
241. See supra text accompanying notes 191-95 (reporting that Posner noted disagreement among Illinois courts on the impact of the plain meaning rule in cases on interpretation).
242. See supra note 166.
243. 117 F. 99 (9th Cir. 1902).
244. 170 Eng. Rep. 1168 (K.B. 1809).
245. 11 N.W. 284 (Mich. 1882).
246. 131 N.E. 887 (N.Y. 1921) (enforcing employment agreement calling for higher wages than former agreement but imposing no additional employee duties where old employment agreement was revoked immediately prior to execution of new one).
247. 43 S.E. 7 32 (Ga. 1903) (refusing to enforce employment agreement calling for higher wages than former agreement but imposing no additional employee duties where no revocation of old agreement was made and expressing doubt about whether even such a revocation would be effective).
248. See, e.g., Austin Instrument Inc. v. Loral Corp., 272 N.E.2d 533 (N.Y. 1971) (stating that duress makes a contract modification voidable when a wrongful threat deprives a party of free will).
249. To be sure, some cases would turn out differently, but in ways that more nearly comport with the goals of the parol evidence rule in any event.
250. Judge Posner expresses a similar point in RICHARD A. POSNER, AN ECONOMIC APPROACH TO THE LAW OF EVIDENCE 21-22 John M. Olin Law & Economics Working Paper No. 66, 2d Series Feb. 1999) ("Gatekeeping is one way of combating cognitive illusions"). That piece is also notable for its other conclusions, which Posner points out refute the "widespread belief that economic analysis of law has an inherent tendency toward politically conservative reforms, [which is] clearly not true with regard to the law of evidence." Id. at 4.
251. See ARTHUR L. CORBIN, CORBIN ON CONTRACTS §595 (1952).
252. See generally Michael P. Van Alstine, Of Textualism, Party Autonomy, and Good Faith, 40 WM. & MARY L. REV. 1223 (1999).
253. Richard A. Posner, Law and Literature: A Relation Reargued, 72 VA. L. REV. 1351, 1371 n.69 (1986).
254. Id.