Study of the Parole Evidence Rule

Key Focus: Collateral Matters

• Exploration of what constitutes a collateral matter in relation to the main contract.
• Reference to major cases:
  • Mitchell vs. Lathe
  • Masterson vs. Sign (California Supreme Court, 1968)

Masterson vs. Sign Case Overview

• Issue: Complete integration of a real estate deal and the intention behind the deed of conveyance.
• Background:
  • Dallas and Rebecca Masterson sold a ranch to Dallas’s sister and her husband, reserving an option to repurchase.
  • Dallas Masterson went bankrupt, and the option was considered as part of the bankruptcy estate.
  • Dispute over the option being personal to Dallas and not assignable.

California Supreme Court Decision

• Chief Justice Roger Traynor notes oral collateral agreements should be excluded only if likely to mislead the fact finder.
• Standard: Collateral agreements might naturally be separate if the written contract is not fully integrated.
• Burden: On the party seeking to exclude parole evidence to prove the contract is complete.

Dissenting View

• The dissent argued the non-assignability should have been in the deed.
• Concerns of collusion between family members to affect bankruptcy proceedings.

Larger Issue: Popularity of the Parole Evidence Rule

• Supporters: Long tradition in English and American common law.
• Critics:
  • Carl Llewellyn (UCC Article 2 drafter) opposed the rule.
  • Judges like Llewellyn and Traynor saw it as an obstacle to justice.
• Merchants: Favor predictability and certainty the rule provides.

UCC Section 2-202

• Terms: May not be contradicted by prior or contemporaneous oral agreements.
• Exceptions:
  • Course of performance
  • Course of dealing
  • Usage of trade
• Definitions:
  • Course of Performance: Conduct within the same contract.
  • Course of Dealing: Conduct in previous transactions.
  • Usage of Trade: Industry customs.

Conclusion

• Collateral matters can be exceptions to the parole evidence rule.
• Next topic will focus on merger clauses in written contracts.