Modification and Parol Evidence Rule

Question 1

Modification of Contracts–Common Law

Answer 1

Under Common Law, contract modifications MUST be supported by consideration. When modifying an agreement, past performance or performance of a preexisting duty owed to a party is NOT treated as adequate consideration.

o However, several exceptions exist:

(1) an addition or change in the performance or promise; OR
(2) a fair and equitable modification due to unanticipated changed circumstances and the contract is NOT yet fully performed by either party (usually the unanticipated circumstances must be severe or far beyond what was foreseen).

Question 2

Modification of Contracts–UCC

Answer 2

Under the UCC, there is NO consideration requirement for contract modifications made in good faith.

However, modifications must be in writing if: (a) they fall within the Statute of Frauds; OR (b) the original contract states that modifications must be made in writing. Good faith means honesty in fact and the observance of reasonable commercial
standards of fair dealing.

Question 3

Parol Evidence Rule–General Rule

Answer 3

In general, the common-law parol-evidence rule provides that courts may not consider evidence of prior or contemporaneous oral or written agreements (or other evidence outside the four corners of the contract) to vary or contradict the unambiguous terms of an integrated agreement.

Question 4

Parol Evidence Rule–Complete Integration vs. Partial Integration

Answer 4

In general, an agreement is integrated insofar as it (1) consists of a writing or a series of related writings forming one transaction and (2) embodies the final expression of the parties’ intent concerning the contract’s subject matter.

COMPLETELY INTEGRATED
A completely integrated agreement is the full and final expression of the parties’ intent regarding the contract’s subject matter. The parol-evidence rule excludes extrinsic evidence of prior or contemporaneous oral or written agreements or negotiations that are within the scope of the completely integrated agreement. In other words, the court may not use extrinsic evidence to contradict or supplement (i.e., add to) the contract. A merger clause is evidence that the writing is complete on its face (fully integrated) and cannot be supplemented with additional consistent terms.

PARTIALLY INTEGRATED
A partially integrated agreement is a final but incomplete statement of the parties’ intent regarding the contract’s subject matter. The parol-evidence rule excludes extrinsic evidence of prior or contemporaneous agreements or negotiations that are inconsistent with the partially integrated agreement. In other words, the court may use extrinsic evidence to add terms to the contract, but not to contradict it.

Question 5

Exceptions to the Parol-Evidence Rule

Answer 5

The court may admit extrinsic evidence to:

(1) establish the extent to which the agreement is integrated (or not),
(2) clarify the meaning of an ambiguous term,
(3) support a defense to enforceability or establish whether a valid contract was formed,
(4) grant or deny a remedy, or (5) establish a subsequent modification to the contract.

Question 6

UCC Parol-Evidence Rule

Answer 6

Under the UCC, if (1) the parties’ writings agree on a particular term, or (2) the term is set forth in a writing that the parties intend to be their agreement’s final expression concerning the terms in the writing, then evidence of any prior agreement or any contemporaneous oral agreement is inadmissible to contradict the term. However, specific evidence is admissible to explain or supplement the term, namely:

(1) course of performance;
(2) course of dealing;
(3) usage of trade; or
(4) evidence of consistent additional terms, unless the court finds that the agreement is completely integrated.