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There are a great many matters that, in a general sense, may be considered collateral to the contract; for example, in the case of leases, covenants for repairs, improvements, payment of taxes, etc., are, in a sense, collateral to a demise of the premises. But parol evidence of these would not be admissible to add to the terms of a written lease. So, in a sense, a warranty is collateral to a contract of sale, for the title would pass without a warranty. It is also collateral in the sense that its breach is no ground for a rescission of the contract by the vendor, but that he must resort to his action o n the warranty for damages. But, when made, a warranty is a part of the contract of sale. The common sense of men would say, and correctly so, that when, o n a sale of personal property, a warranty is given, it is one of the terms of the sale, and not a separate and independent contract. To justify the admission of a parol promise by one of the parties to a written contract, on the ground that it is collateral, the promise must relate to a subject distinct from that to which the writing relates. Dutton v. Gerrish, 9 Cush. 89; Naumberg v. Young, supra: 2 Taylor, Ev. 1038. See Lindley v. Lacey, 34 Law J., C. P., 7. We have carefully examined all the cases cited in the quite exhaustive brief of counsel for defendant, and find but very few that are at all in conflict with the views already expressed, and these few d o not commend themselves to ourjudgment. Our conclusion therefore is that the court erred in admitting parol evidence of a warranty, and therefore the order refusing a new trial must be reversed.

Notes and Questions

1. Rationale for parol evidence rule. The court states that the parol evidence rule is "founded on the obvious inconvenience and injustice" that would result if extrinsic evidence were admissible to contradict or vary the terms o f a written agreement. What specific "inconvenience" and "injustice" can result from the introduction of extrinsic evidence? 2. Meaning of "integration."As the Thompson court indicates, at the core of the parol evidence rule is the concept that parties typically arrive at contract terms through a process of preliminary negotiations and then produce a writing containing the final terms that have been mutually adopted. (As you are well aware, however, adhesion conrractsdo not fit this pattern.) The final writing is then considered the best evidence of the contract and displaces any earlier agreement or proposals, whether oral or written. See E. Allan Farnsworth, Contracts 7.2, at 430 (3d ed. 1999) (the useful purpose of parol evidence rule is to replace negotiations and superseded understandings with a final authoritative statement of the agreement). Both classical and modern contract law use the term complete integration to refer to a writing that is intended to be a final and exclusive expression of the agreement of the parties. First Restatement 228; Restatement (Second) 210. Both classical and modern contract law also recognize the possibility of a partial integration, a writing that is intended to be final but not complete because it deals with some but not all aspects o f a transaction behveen the parties. The correct application of the parol evidence rule thus requires that the court first determine whether the writing in question is intended to be a final expression of the parties agreement and, if so, whether it is a complete or partial statement of the contract terms. How would you assess the writing in Thompson in light of these standards? 3. Determining integration. The Thompson court states that the written contract does not appear on its face to be either an "informal or incomplete" memorandum,

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and therefore the court concludes that the writing is a completely integrated agreement. The court's determination is based on an approach often identified with Professor Williston who argued that the question of integration must be determined from the "four corners" of the writing without resort to extrinsic evidence. 4 Williston Contracts 633, at 1015. Moreover, Williston asserted that the inclusion in the writing of a "merger clause" would conclusively establish that the writing was integrated. 4 Williston o n Contracts 633, at 1014. A merger clause states that the writing is intended to be final and complete; all prior understandings are deemed to have been 'merged" into or superseded by the final writing. The following is an exam ple of a typical merger clause:
Entire Agreement. This document constitutes the entire agreement of the parties and there are no representations. warranties, or agreements other than those conrained in this document.

A substantial number ofjurisdictions still generally adhere to the "four corners" approach to determining integration and accord conclusive or nearly conclusive weight to the presence of a merger clause. See, e.g., ADR North America, L.L.C. v. Agway, Inc., 303 F.3d 653 (6th Cir. 2002) (under Michigan law written integration clause is conclusive evidence that the parties intended the document to be the final and complete expression of their agreement); Kassebaum v. Kassebaum, 42 S.W.3d 685 (Mo. Ct. App. 2001) (contract that appears complete on its face is conclusively presumed to be final and complete): Fontbank, Inc. v. CompuServe, Inc., 742 N.E.2d 674 (Ohio Ct. App. 2000) (contract which appears complete and unambiguous on its face will be presumed final and complete expression of agreement; is strongest where writing contains merger or integration clause). What policy considerations could be used to justify the "four corners" approach to the parol evidence rule? Not surprisingly, perhaps, many other courts have adopted an alternative method to determining integration which more readily looks beyond the contents of the writing. The central precept for this contextual approach is reflected in Restatement (Second) 5210, Comment 6 : "[A] writing cannot of itself prove its own completeness, and wide latitude must be allowed for inquiry into circumstances bearing on the intention of the parties." This approach is also frequently identified with Professor Corbin. A finding of integration should always depend on the actual intent of the parties, according to Corbin, and a court should consider evidence of all the factsand circumstances surrounding the execution of the contract, as well as the writing, in uncovering that intent. 3 Corbin on Contracts 55578,582. at 411-412, 448-450. After hearing this evidence, the court should determine (in camera in jury cases) whether the agreement was integrated. 3 Corbin on Contracts 588, at 528530. In this approach, a merger clause will not be solely determinative of the issue of integration. See, e.g., Sierra Diesel Injection Service, Inc. v. Burroughs Corp., Inc. 890 F.2d 108 (9th Cir. 1989) (merger clause not dispositive of complete integration in contract between unsophisticated customer and merchant with pre-printed forms and multiple documents); Masurovsky v. Green, 687 A.2d 198 (D.C. 1996) (question of integration depends on intent of parties as found in conduct, language of the parties, and surrounding circumstances; the document alone will not suffice); I.C.C. Protective Coatings v. A.E. Staley Mfg. Co., 695 N.E.2d 1030 (Ind. Ct. App. 1998) (question of integration depends on all relevant evidence; weight given t o merger clause will depend on facts and circumstances of each particular case). See

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also Restatement (Second) 216, Comment e (merger clause does not control question of integration); UCC 2-202, Comment I (a) (rejects any assumption that writing that is final on some terms is exclusive). Professor Farnsworth reports that the trend among courts favors the Corbin-Restatement Second approach to determining integration. E. Allan Farnsworth, Contracts 57.3, at 435 (3d ed. 1999). Adherents of the "four corners" approach (like the Thompson court) argue that to permit consideration of extrinsic evidence on the threshold question of integration is to d o exactly what the parol evidence rule is designed to avoid; proponents of the other view argue that one cannot know the intent of the parties simply by looking at the document, and that even when applied in this more permissive fashion the rule can still perform its function of keeping extrinsic evidence from the jury if the judge rules that the writing is indeed an integration of their agreement. Thus, even under the contextual approach to integration, courts may find that a merger clause does accurately reflect the parties' intent that the writing constitute a complete integration. E.g., Globe Metallurgical, Inc. v. Hewlett-Packard Co., 953 F. Supp. 876 (S.D. Ohio 1994) (though not dispositive alone, merger clause in contract between sophisticated parties with relatively equal bargaining power held effective to bar parol evidence). For a comparison of the approaches of Professors Williston and Corbin, see John D. Calamari &Joseph M. Perillo, A Plea for a Uniform Parol Evidence Rule and Principles of Contract Interpretation. 42 Ind. L.J. 333 (1967).

The court in Thompson v. Libby indicated that not all extrinsic evidence would be subject to the parol evidence rule, even in the case of a fully integrated written agreement. Such evidence would he admissible, the court indicated, "if necessary . . . to apply the contract to its subject-matter, or in order to a more perfect understanding of its language." In addition, the Thompson court alluded in passing to the existence of certain exceptions to that rule. "No ground was laid for the reformation of the writteu contract, and any charge of fraud on part of plaintiff or his agent in making the sale was . . . expressly disclaimed." In order to understand and appreciate the effect of the parol evidence rule, i t is necessary nor only to understand the scope of the rule-what types of evidence it generally purports to exclude from consideration- hut also the numerous exceptions to itsoperation. Even during the classical period, courts recognized a number of exceptions to the parol evidence rule; those exceptions have if anything tended to expand in recent years. Although the various exceptions have not yet reached the point where they 'swallow up" the rule, they at least are so numerous and collectively so broad that the parol evidence rule has become-even more than the statute of frauds-a rule that can be understood only in light of its exceptions. The parol evidence r u l does e not apply lo evidenceoffered to explain the meaning of the agreementTo begin with, the parol evidence rule as we have seen applies only to written agreements that are in some sense "in tegrated," either "partially" or "completely." Restatement (Second) 210; UCC 2-202 (writing may be intended by parties 'as a final expression of their agreement with respect to such terms as are included therein" and may also be "intended. . . as a complete and exclusive statement of the terms of the agreement"). If found to be a partial integration, the writing may not be contradicted by extrinsic evidence. Restatement (Second) 213, Comment b ("inconsistent terms"); UCC 2-202 ("may not becontradicted"). It may, however, be sup-

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additional consistent terms. If thewritingisacomplete integration, then not only may it not be contradicted, it may not even be supplemented. Restatement (Second) 213(2), Comment c ("consistent additional terms are superseded"); UCC 2-202(b). Whatever the degree of integration, however-partial, complete, or not at all - a written agreement may, as the Thompson court suggested, always be explained by extrinsic evidence. Restatement (Second) 2 14(c). To illustrate these principles in application, let us return to the facts of Thompson v. Libby. Given the written agreement which existed in that case, extrinsic evidence would not have been admissible to prove that the agreed-on price for the wood was $8 a thousand feet, rather than $ 10, for this would have been regarded a s a "contradictory" term. Nor would it have been permissible to show by extrinsic evidence that the seller was obliged not only to deliver the logs but also to mill them into planks; even if this were seen as a "consistent additional term," rather than a contradictory one, the Thompson-Libby agreement was apparently regarded by the court as fully integrated, thus precluding the showing of additional terms (whether contradictory or not). It should, however, have been permissible to show by extrinsic evidence of the parties' agreement what periods of time were intended to be included in the phrase "winters of 1882 and 1883," or what was meant by the term 'boom scale," because such evidence would have served merely to "explain" the agreement. (On those points, evidence of trade usage might have been relevant as well.) Classical and modern courts might differ, however, on the scope of this latter exception. Classical courts generally admitted parol evidence for explanatory purposes only if the writing appeared on its face to be ambiguous, while modern courts are more likely to adniit parol evideuce to show that the language used in the agreement has a special meaning. even if that language does not appear unclear nierely from an inspection of the writing. Restatement (Second) 214. Comment b. (Recall case t above.) our discussion of patent and latent ambiguity after the F r i g a l i m e n Explanation of the agreement may be in practice the most important of the. reasons why extrinsic evidence may be admitted despite the parol evidence rule, but it only begins the catalog of that rule's exceptions. The following are some of the other commonly accepted ones: The parol evidencer u l edoes not apply to agreements, whetheroral or written, made after the execution of the w riting. Litman v. Massachusetts Mutual Life Insurance Co., 739 F.2d 1549, 1558 (1 1th Cir. 1984) (evidence of subsequent oral modification of plaintiff's written employment contract not barred by parol evidence rule; later written amendmeno not fully integrated so as to exclude proof of asserted oral agreement); 4 Williston on Contracts 692, at 978; 3 Corbin on Contracts 574, at 373. Suppose Thompson and Libby had orally agreed in August 1883 that payment for the logs would be made partly in cash and partly by promissory notes. In the event of subsequent litigation between them, the parol evidence rule would not bar testimony as to this later oral agreement. The parol evidence rule does not apply to evidence offered to s h o wthat effectiveness of the agreementw a ss u b j e c lo t a n oral condition precedent. Wickenheiser v. Ramm Vending Promotion, Inc., 560 So. 2d 350 (Fla. Dist. Ct. App. 1990) (despite execution of formal agreement for purchase of pizza distributorship, evidence that agreement was orally agreed to be conditional on approval by buyer's family within two weeks was admissible, precluding summaryjudgment in favor of seller); Restatement (Second) 217. Suppose Libby had told Thompson (or his agent) when the contract was signed that the agreement was contingent upon the local bank's approval of a loan for which

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Libby had applied, and about which he would hear within a week. If the bank had denied the loan, the parol evidence rule would not bar evidence of Libby's oral statement, even though the writing was absolute on its face, because the evidence would establish an oral condition to the effectiveness of the agreement. The parol evidence rule does not apply to evidence offered to show that the agreement is invalid for any reason, such as fraud, duress, undue influence, incapacity, mistake, or i l l e g a l ity. Restatement (Second) 214(d).This exception can be justified theoretically on the basis that such invalidating factors result in what is apparently a contract being in legal contemplation not a "contract" at all and thus not entitled to the benefit of the parol evidence rule. It also can bejustified on the practical ground that while a written agreement may in fact be 'a forgery, ajoke, a sham, o r an agreement without consideration, or it may be voidable for fraud, duress, mistake, o r the like, o r i t may he illegal," none of these things is likely to appear on the face of the document. Restatement (Second) 214, Comment c. To apply the parol evidence rule to exclude such evidence would in effect create a roadblock to the application of many important policies of the law. To continue our series of illustrations, suppose that Thompson and Libby had entered into their contract believing that 20,000 feet of logs had been cut when in fact the true number was closer to 5000. In that case, evideuce of their discussions about the quantity to be sold should be admissible as bearing on the possible defense of mistake of fact. The case of fraud is a little more problematic, however. Some courts would limit example, if the fraud exception to cases of "fraud in the execution"-for Thompson asks Libby to sign what he says is a receipt for logs delivered, but it's really a "contract" for the sale of more logs. See HCB Contractors v. Liberty Place Hotel Assoc., 652 A.2d 1278 (Pa. 1995) (parol evidence rule barred evidence offered by general contractor that it had been falsely induced to enter into construction contract and lieu waivers based on representations by owners that they would continue to own property; plaintiff failed to allege that owners fraudulently omitted provision from contract). Most courts, however, will extend the fraud exception also to instances of "fraud in the inducementm-misrepresentations of fact that induce the other party to enter into the contract. Miles Excavating, Inc. v. Rutledge Backhoe & Septic Tank Services,Inc., 927 P.2d 517 (Kan. Ct. App. 1996) (parol evidence admissible to show fraud in inducement of coutract even when it contains provision stating that parties have not relied on any oral representations). As yet afurther limitation, some courts will prohibit the introduction of parol evidence to support a claim of fraud in the inducement if the alleged misrepreseutation directly contradicts a term in the writiug. This limitation is discussed in the Sherrodd case later in this chapter and in the section on misrepresentation in Chapter 7. Suppose Libby sought to show that in order to induce hirn to sign the contract, Thompson had represented that to his own personal knowledge at least half of the cut logs were good quality hardwood, while it later appeared that only a quarter or less met that description. Many courts wouldview evidence of that statement by Thompson as admissible under the fraud exception, even though as you can see it comes very close to the claim that Libby tried unsuccessfullly to make in the actual case. The parol evidence rule does not apply to evidence that is offered to establish a right to a n "equitable" remedy, such as "reformation" of the contract. Restatement (Second) 214(e). If one party can establish that a part of the agreement was inadvertently ~ of a "scrivener," omitted from the writing due to some mistake (perhaps t h error

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a secretary, o r even a computer printer), that party may seek judicial reformation of the agreement- a court order declaring that the mistakenly omitted provision will be treated in law as part of the agreement. Generally, however, awriting may be reformed in this fashion only if it is shown by 'clear and convincing evidence" that the parties really did intend their written agreement to contain the term in question. Thompson v. Estate of Coffield, 894 P.2d 1065 (Okla. 1995) (parol evidence rule does not apply in action to reform deed to reflect oral agreement that sale of property was subject to unrecorded coal leases, but plaintiff must prove oral agreement by clear and convincing evidence). See generally George E. Palmer, Reformation and the Parol Evidence Rule, 65 Mich. L. Rev. 833 (1967). In Thompson, the defendant Libby might have sought to have the agreement reformed to include the warranty of quality, but he probably would have been unable to meet this higher standard of proof- indeed, the court's opinion suggests he did not even attempt to do so. Thr parol evidence ruledoes not apply L o evidence introduced to establish a "collateral" agreement between the parties. In Thompson v. Libby the court held that evidence of an oral warranty as to quality was not admissible under the collateral agreement exception because that exception only applied to an agreement about a 'subject distinct from that to which the writing relates." By the time the first Restatement was drafted in the 1930s, a growing number of courts were adopting a more flexible approach to the parol evidence rule than that illustrated by the court in Thompson v. Libby. 3 Corbin on Contracts 584, at 477. Frequently, these couro relied on the collateral agreement exception to justify the admission of parol evidence, even when the evidence did not relate to a separate o r distinct transaction. The revised Restatement continues the collateral agreement exception, but with a slightly different approach, in 216(2),which provides that an agreementwill not be regarded as fully integrated if the parties have made a consistent additional agreement which is either agreed to for separate consideration or is "such a term as in the circumstances might naturally be omitted from the writing." The Uniform Commercial Code Comments express a similar rule, but tilted somewhat more in the direction of admissibility: Comment 3 to 52-202 indicates that "consistent additional terms" should be excluded under 2-202(b) only where in the court's view they would if actually agreed upon "certainly have been included in the document." If the Thompson-Libby contract were made today it would as a sale of goods be subject to Article 2 of the Uniform Commercial Code; on the facts of Thompson v. Libby, would buyer Libby have fared better under 2-202? Suppose that Libby were also to allege that Thompson had promised at the time their written agreement was signed that if Libby would buy the logs, Thompson would mill them into planks for Libby at Thompson's sawmill for a discounted price (two-thirds of Thompson's usual charge for that service), and that Thompson had later refused to honor that promise. Libby might assert that breach by Thompson in an action for damages for breach of contract (based on the higher amount Libby had to pay to have the logs milled elsewhere), or even asjustification for a refusal by Libby to accept the logs at all. Would evidence of the oral milling agreement be barred by the parol evidence rule?