Brief Fact Summary. Various corporate interests were to be merged into a single holding company. The parties entered into a written agreement containing one condition. Certain parties alleged that a second oral condition was also present.
Synopsis of Rule of Law. Parol evidence is admissible to "prove a condition precedent to the legal effectiveness of a written agreement…if the condition does not contradict the express terms of the written agreement."
Quite obviously, though, the parol evidence rule does not bar proof of every orally established condition precedent, but only of those which in a real sense contradict the terms of the written agreement.View Full Point of Law
Issue. Did the court's "receipt of testimony tending to establish that the parties had orally agreed that the legal effectiveness of the written agreement should be subject to a stated condition precedent" violate the parol evidence rule?
Held. No. Parol evidence is admissible to "prove a condition precedent to the legal effectiveness of a written agreement…if the condition does not contradict the express terms of the written agreement." The court recognizes that its responsibility was to determine whether there was a contradiction. The court observes "[t]here is here no direct or explicit contradiction between the oral condition and the writing; in fact, the parol agreement deals with a matter on which the written agreement, as in some of the cases cited … is silent." Further, that the oral condition was an independent condition added to the condition requiring "acceptance of stock subscriptions within 25 days", and not contradictory. The court concluded "it was the[ ] [parties'] desire and understanding that the merger was to be one of proposal only and that, even though the formal preliminary steps were to be taken, the writing was not to become operative as a contract or the merger effective until $672,500 was raised." Here, the President of Defendant No. 2 testified in a very colorful manner that "the writing was not to become operative as a binding contract until the specified equity expansion funds were obtained."
Discussion. This case offers a very interesting discussion about how the parol evidence rule is applied by courts to determine whether an agreement is valid.