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Court of Appeal Explains Parol Evidence Rule

Today, I am picking up on my discussion of Kanno v. Marwit Capital, No. G052348, 2017 Cal. App. LEXIS 1150 (Ct. App. Dec. 22, 2017) in this post from last week and last year.  Kanno involved the application of the parol evidence rule under both California and Delaware law.

The Court's analysis of the California rule focused on Section 1856 of the Code of Civil Procedure.  The California legislature, however, has also codified the parol evidence rule in Section 1625 of the Civil Code and Section 2202 of the Commercial Code.  See Court Holds Evidence Rule Admissible.  According to the Court of Appeal, Section 1856 creates two levels of contract integration or finality:

  • The parties intended the writing to be the final expression of their agreement; and
  • the parties intended the writing to be the complete and exclusive statement of the terms of their agreement.

If a writing meets the first level (final expression), then a prior or contemporaneous oral agreement is admissible if it does not contradict the writing, and evidence of consistent additional terms may be used to explain or supplement the writing.  If the writing falls within the second level (complete and exclusive statement), then evidence of consistent additional terms may not be used to explain or supplement the writing.  

Although the Court of Appeal noted that the Contribution and Purchase Agreement appeared on its face to be the final expression of the parties' agreement, it found that it was not.  In reaching this agreement the Court of Appeal noted that the presence of three written agreements was "persuasive evidence" that the parties did not intend the Contribution and Purchase Agreement to be the "complete and exclusive statement" of the parties' agreement.  The Court also noted the circumstances of the negotiations.  

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