law-parol-evidence-rule | ambiguous and unambiguous contractual provisions | contract formation | interpretation
of contracts |
AMBIGUITY OF CONTRACTS AND PAROL EVIDENCE RULE
Courts will enforce an unambiguous contract as written and will not receive parol evidence for the
purpose of creating an ambiguity to give the contract meaning different from that which its language
imports. Sacks v. Haden, 266 S.W.3d 447, 450 (Tex. 2008) (per curiam).
The parol evidence rule is a rule of substantive contract law, not evidence. 752*752 Hubacek v. Ennis
State Bank, 159 Tex. 166, 317 S.W.2d 30, 31 (1958); DeClaire v. G & B McIntosh Family Limited
Partnership, 260 S.W.3d 34, 45 (Tex.App.-Houston [1st Dist.] 2008, no pet. h.). We review parol
evidence questions de novo, as questions of law. DeClaire, 260 S.W.3d at 45.
The parol evidence rule is a rule of substantive law. Lewis v. Adams, 979 S.W.2d 831, 836 (Tex. App.-
Houston [14th Dist.] 1998, no pet.) (citations omitted).
When the parties have concluded a valid integrated agreement, this rule precludes enforcement of
inconsistent prior or contemporaneous agreements. Id. Parol evidence is, however, admissible to show
(1) the execution of a written agreement was procured by fraud, (2) an agreement was to become
effective only upon certain contingencies, or (3) the parties' true intentions if the writing is ambiguous.
Litton v. Hanley, 823 S.W.2d 428, 430 (Tex. App.- Houston [1st Dist.] 1992, no writ) (citations omitted).
When the parties have concluded a valid, integrated agreement, the parol evidence rule precludes enforcement
of a prior or contemporaneous inconsistent agreement. Edascio, L.L.C. v. NextiraOne L.L.C., 264 S.W.3d 786,
796 (Tex. App.-Houston [1st Dist.] 2008, pet. filed); ISG State Operations, Inc. v. National Heritage Insurance
Company, 234 S.W.3d 711, 719 (Tex.App.-Eastland 2007, pet. denied). The execution of a written contract
presumes that all prior negotiations and agreements relating to the transaction have been merged into the written
contract. Edascio, 264 S.W.3d at 796; ISG State Operations, 234 S.W.3d at 719. Consequently, the agreement
will be enforced as written and cannot be added to, varied, or contradicted by parol evidence. Edascio, 264 S.W.
3d at 796; ISG State Operations, 234 S.W.3d at 719. The parol evidence rule is particularly applicable when the
written contract contains a recital that it contains the entire agreement between the parties or a similarly-worded
merger provision. Edascio, 264 S.W.3d at 796. Evidence that violates the rule is incompetent and without
probative force, and cannot properly be given legal effect. Garner v. Fidelity Bank, N.A., 244 S.W.3d 855, 859
(Tex.App.-Dallas 2008, no pet.).
Parol evidence may be admissible to show collateral, contemporaneous agreements that are consistent with the
underlying agreement. Gary E. Patterson & Associates, P.C. v. Holub, 264 S.W.3d 180, 197 (Tex.App.-Houston
[1st Dist.] 2008, pet. denied); DeClaire, 260 S.W.3d at 45.But this exception does not permit parol evidence that
varies or contradicts either the express terms or the implied terms of the written agreement. Gary E. Patterson,
264 S.W.3d at 197;DeClaire, 260 S.W.3d at 45. A collateral agreement is one the parties might naturally make
separately, i.e., one not ordinarily expected to be embodied in, or integrated with the written agreement and not
so clearly connected with the principal transaction as to be part and parcel of it. Garner, 244 S.W.3d at 859.
An agreement is integrated if the parties intended a writing to be a final and complete expression of agreed terms.
Morgan Buildings and Spas, Inc. v. Humane Society of Southeast Texas, 249 S.W.3d 480, 486 (Tex.App.-
Beaumont 2008, no pet.). The inclusion of a merger or integration clause does not conclusively establish that the
written contract is fully integrated.Id. A fully integrated written agreement is a final and complete expression of all
the terms agreed upon by the parties. Id. A partially integrated agreement is a final and complete expression of all
the terms addressed in that written agreement, but is not a final and complete expression of all the terms the
parties have agreed upon. Id. A court considers the surrounding circumstances in determining whether, and to
what degree, an agreement is integrated. Id.
Whether the Consulting Agreement was Ambiguous, thus Warranting Admission of Parol Evidence
In issue one, Askari argues the consulting agreement was ambiguous as a matter of law. In issue two, Askari
argues the trial court's disallowance of parol evidence was therefore reversible error.
Courts will enforce an unambiguous contract as written and will not receive parol evidence for the purpose of
creating an ambiguity to give the contract meaning different from that which its language imports. Sacks v.
Haden, 266 S.W.3d 447, 450 (Tex. 2008) (per curiam). A court may consider the parties' interpretation and
“'admit extraneous evidence to determine the true meaning of the instrument'" only when a contract is
ambiguous. Id. (quoting Nat'l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995) (per
curiam)). “'Whether a contract is ambiguous is a question of law that must be decided by examining the contract
as a whole in light of the circumstances present when the contract was entered.'" Id. at 451 (quoting Columbia
Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996)).
A contract is not ambiguous if a court can give the contract a definite or certain meaning as a matter of law.
Columbia Gas, 940 S.W.2d at 589. Nevertheless, if after application of the pertinent rules of construction, the
contract is subject to two or more reasonable interpretations, the contract is ambiguous, and a fact issue exists
regarding the parties' intent. Id. An ambiguity does not arise, however, simply because the contract lacks clarity
or the parties advance conflicting interpretations of the contract. Universal Health Servs., Inc. v. Renaissance
Women's Group, P.A., 121 S.W.3d 742, 746 (Tex. 2003). For an ambiguity to exist, both interpretations must be
reasonable. Columbia Gas, 940 S.W.2d at 589. It is for the court to decide whether there is more than one
reasonable interpretation of a contract, thereby creating a fact issue concerning the parties' intent. Id.
Finally, an ambiguity in a contract may be patent or latent. Nat'l Union, 907 S.W.2d at 520. A patent ambiguity is
evident on the face of the contract. Id. In contrast, a latent ambiguity arises when a contract that is unambiguous
on its face is applied to the subject matter with which it deals and an ambiguity appears by reason of some
collateral matter. Id. If a latent ambiguity arises from this application, parol evidence is admissible for the purpose
of ascertaining the true intention of the parties as expressed in the agreement. Id.
Askari argues a latent ambiguity exists when one compares the conditions in Section 1 of the agreement with the
contents of the attached Exhibit B. He contends “this case is about money and stock already owed," and argues
the agreement merely memorializes his compensation for work already done as reflected by the August 1, 2001
date the agreement was “made" (set forth in the introductory paragraph of the agreement) and the “Value of
Certain Services Performed" from August 2001 through June 2002 (set forth in Exhibit B). Additionally, Askari
argues it is unreasonable to interpret the agreement as requiring him retroactively to satisfy the conditions
precedent, i.e., receipt of approval and provision of invoices, for work already performed.
The agreement, however, refers to consultants' providing “a written invoice detailing the services duly performed
and to be performed" (emphasis added). Thus, the agreement requires invoices not only for future, but also past,
services - services for which Exhibit B simply provides a value. There is nothing unreasonable in reading the
agreement and Exhibit B together as requiring Askari to provide, if he had not already done so, invoices for work
done from August 2001 through June 2002. There is also nothing unreasonable about reading the agreement
and Exhibit B together to require retroactive approval for work already performed before the company would
compensate Askari in the amounts listed in Exhibit B. Accordingly, we conclude the agreement is not ambiguous.
Askari's first issue is overruled.
Askari v. Endevco, Inc. (Tex.App.- Houston [14th Dist.] Jul. 2, 2009)(breach of contract for consulting services
claim, payment in stock, court sustained both parties' objections to parol evidence, applicability of parol evidence
rule, ambiguous and unambiguous contract provisions, preservation of error regarding evidentiary objections).
AFFIRMED: Opinion by Justice Seymore
Before Justice Seymore
14-08-00278-CV Farzad Askari v. Endevco, Inc.
Appeal from 11th District Court of Harris County
Trial Court Judge: Mark Davidson
PAROLE EVIDENCE RULE NOT APPLICABLE. When parties have made an unambiguous written agreement with
respect to a particular subject matter, the parol evidence rule prohibits the presentation of extrinsic evidence to
vary or contradict the terms of a written instrument. Silsbee Hosp., Inc. v. George, 163 S.W.3d 284, 293 (Tex.
App.- Beaumont 2005, pet. denied) (citing Friendswood Dev. Co. v. McDade + Co., 926 S.W.2d 280, 283 (Tex.
1996)). EnDevCo's evidence and argument of which Askari complains, however, were not directed at the
meaning of the agreement. Instead, they were directed at impeaching Adair's character and showing his bias as
a witness. Askari concedes as much, alleging, “These improper arguments unfairly discredited John Adair as a
witness." Thus, Askari's third issue also fails on the merits.
Having concluded the agreement is not ambiguous, we therefore conclude the trial court did not err in excluding
parol evidence. Askari's second issue is overruled.
However, because we have determined the Cross-License Agreement is not ambiguous, parol evidence is not
admissible "to vary the terms or to show the construction placed thereon by the parties at the time or subsequent
to the making thereof.” Murphy v. Dilworth, 137 Tex. 32, 35, 151 S.W.2d 1004, 1005 (1941); see also In re H. E.
Butt Grocery Co., 17 S.W.3d 360, 369 (Tex.App.- Houston [14th Dist.] 2000, orig. proceeding) ("The parol
evidence rule precludes consideration of extrinsic evidence to contradict, vary or add to the terms of an
unambiguous written agreement absent fraud, accident or mistake.”).
While it is true parol evidence may be admitted to explain technical or other terms as used in a particular business
or industry, there are no such terms found in the Cross-License Agreement. Accordingly, we need not consider
industry custom in our analysis. Royal Indemnity Co. v. Marshall, 388 S.W.2d 176, 180 (Tex. 1965). Cameron
International Corp. v. Vetco Cray, Inc. (Tex.App.- Houston [14th Dist.] Mar. 31, 2009)(Anderson)(contract
interpretation, confirmation of an arbitrator’s award, unambiguous contract)
DeClaire v. G&B McIntosh Family LP (Tex.App. - Houston [1st Dist.] Nov. 8, 2007)(Keyes)
(BoC, note, parol evidence rule) DeClaire v. G & B MCINTOSH FAMILY LTD., 260 SW 3d 34 01-06-00423-CV.-
Tex: Court of Appeals, Houston May 8, 2008
REVERSE TC JUDGMENT AND REMAND CASE TO TC FOR FURTHER PROCEEDINGS: Opinion by Justice
Before Chief Justice Radack, Justices Keyes and Higley
01-06-00423-CV Christopher G. DeClaire ("DeClaire") v. G&B McIntosh Family Limited Partnership
Appeal from 269th District Court of Harris County (Honorable John T. Wooldridge)
Parol Evidence Rule
We next determine whether the trial court could consider parol evidence. The parol evidence rule is a rule of
substantive law. Hubacek v. Ennis State Bank, 159 Tex. 166, 317 S.W.2d 30, 31 (1958); Gonzalez v. United Bd. of
Carpenters & Joiners, 93 S.W.3d 208, 211 (Tex. App.-Houston [14th Dist.] 2002, no pet.); Piper, Stiles & Ladd v.
Fid. & Deposit Co., 435 S.W.2d 934, 940 (Tex.Civ.App.-Houston [1st Dist.] 1968, writ ref'd n.r.e.). When parties
reduce an agreement to writing, the law of parol evidence presumes, in the absence of fraud, accident, or
mistake, that any prior or contemporaneous oral or written agreements merged into the written agreement and,
therefore, that any provisions not set out in the writing were either abandoned before execution of the agreement
or, alternatively, were never made and are thus excluded from consideration in interpreting the written agreement.
See Hubacek, 317 S.W.2d at 31; Smith v. Smith, 794 S.W.2d 823, 827 (Tex.App.-Dallas 1990, no writ); Muhm v.
Davis, 580 S.W.2d 98, 101 (Tex. Civ.App.-Houston [1st Dist.] 1979, writ ref'd n.r.e.). The terms of a promissory
note cannot be contradicted or varied by parol evidence of a manner of payment other than as expressed in the
note. Dameris v. Homestead Bank, 495 S.W.2d 52, 54 (Tex.Civ.App.-Houston [1st Dist.] 1973, no writ).
We review parol evidence questions de novo, as questions of law. City of Pasadena v. Gennedy, 125 S.W.3d
687, 691 (Tex.App.-Houston [1st Dist.] 2003, pet. denied). Evidence that violates the parol evidence rule has no
legal effect and "merely constitutes proof of facts that are immaterial and inoperative." Piper, Stiles & Ladd, 435 S.
W.2d at 940. Because all prior negotiations and agreements are presumed merged into the final agreement, parol
evidence is not admissible to vary, alter, or supplement the terms of an otherwise unambiguous contract except to
show (1) that the contract was induced by fraud, accident, or mistake; (2) that an agreement was to become
effective only upon certain contingencies; or (3) in the case of ambiguity, that the parties' true intentions differ
from those expressed in the agreement. See Messer v. Johnson, 422 S.W.2d 908, 912 (Tex.1968); Gonzalez, 93
S.W.3d at 211; Litton v. Hanley, 823 S.W.2d 428, 430 (Tex.App.-Houston [1st Dist.] 1992, no writ).
Parol evidence may also be admissible, under an additional exception, to show collateral, contemporaneous
agreements that are consistent with the underlying agreement to be construed. See Hubacek, 317 S.W.2d at 31;
see also Transit Enter., Inc. v. Addicks Tire & Auto Supply, Inc., 725 S.W.2d 459, 461 (Tex.App.-Houston [1st
Dist.] 1987, no writ) (applying exception for collateral, consistent, contemporaneous agreements); Sherrod v.
Bailey, 580 S.W.2d 24, 29 (Tex.Civ.App.-Houston [1st Dist.] 1979, writ ref'd n.r.e.) (same). But this latter exception
does not permit parol evidence that varies or contradicts either the express terms or the implied terms of the
written agreement. Hubacek, 317 S.W.2d at 31; Loe v. Murphy, 46 611 S.W.2d 449, 451-52 (Tex.Civ. App.-Dallas
1980, writ ref'd n.r.e.); NHA, Inc. v. Jones, 500 S.W.2d 940, 944-45 (Tex. Civ.App.-Fort Worth 1973, writ ref'd n.r.
e.) (both citing Hubacek).
Here, the trial court found that DeClaire and McIntosh entered into an oral agreement whereby DeClaire would
repay the Partnership $159,000.00 plus interest. The parties' written contract—the DeClaire Note—included the
same terms as the oral agreement, with the addition of the sole recourse language. Because the oral agreement
is inconsistent with the written contract, we conclude that the trial court was precluded from enforcing the prior
oral agreement. See Baroid Equip., 184 S.W.3d at 16; Simmons v. Compania Financiera Libano, S.A., 830 S.W.
2d 789, 791 (Tex.App.-Houston [1st Dist.] 1992, writ denied) (holding that the "clear terms of a negotiable
instrument, such as the ones in this case, cannot be varied by a parol agreement which purports to change the
obligor's responsibilities"); Texas Export Development Corp. v. Schleder, 519 S.W.2d 134, 137 (Tex.Civ.App.-
Dallas 1974, no writ) (holding that parol evidence tendered by maker of note is inadmissible because it "negates
the very obligation imposed upon him in the written instrument"). Because the trial court could not rely on parol
evidence, we also conclude that legally insufficient evidence supports the trial court's ninth and tenth conclusions
of law under the declaratory judgment sub-heading.
We sustain DeClaire's fourth and twelfth issues. Because we sustain DeClaire's fourth issue and twelfth issues, it
is not necessary to address DeClaire's fifth and sixth issues, concerning the validity of an oral agreement. See
TEX.R.APP. P. 47.1.
Edascio, LLC v. NextiraOne, LLC (Tex.App.- Houston [1st Dist.] May 22, 2008)(Jennings)
(commercial law, breach of contract, JNOV, parol evidence rule bars introduction of evidence to prove claim)
AFFIRM TC JUDGMENT: Opinion by Justice Jennings
Before Chief Justice Radack, Justices Jennings and Bland
01-07-00362-CV Edascio, L.L.C. v. NextiraOne, L.L.C.
Appeal from 281st District Court of Harris County
Trial Court Judge: Hon. David J. Bernal
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