7. If the shareholder sues the buyer for breach of contract and seeks to exclude any evidence of the oral condition requiring the parent company's approval, the court will probably

The parol evidence rule bars evidence of all prior or contemporaneous agreements that contradict a written agreement. Essentially, the law operates to exclude evidence intended to show that the parties had agreed to something different from what was included in the written agreement. If a court determines that a contract contains all of the terms regarding the parties' agreement, the parol evidence rule bars evidence of all prior or contemporaneous evidence that contradicts or modifies the written agreement. Courts often look to whether there is a merger clause as evidence that a written agreement is intended to be a completely integrated contract. Merger clauses, however, are not conclusive evidence that a writing is completely integrated. If the agreement is completely integrated, no outside evidence will be permitted to modify the terms of the agreement, even if the modification is in addition to an existing term, rather than a contradiction of the term. On the other hand, if a written agreement contains only partial information, or certain terms are missing, courts will allow certain extrinsic evidence to supplement or explain terms and provisions of the written agreement. The parol evidence rule, however, will still bar outside evidence of prior or contemporaneous agreements that contradict the written contract. In short, if a contract is partially integrated, prior consistent additional terms may be shown.

There are exceptions to the parol evidence rule when evidence is offered for the following purposes: to aid in the interpretation of existing terms; to show that a writing is or is not an integration; to establish that an integration is complete or partial; to establish subsequent agreements or modifications; to show that the terms were the product of illegality, fraud, duress, or mistake; and to show a written agreement is contingent on a condition precedent. When parties orally agree that a written contract is contingent on a condition precedent (the occurrence of an event or some other condition), the oral agreement may be introduced as evidence of the condition, as long as the oral agreement does not directly contradict the final written agreement.

B is correct. Here, there is a final written agreement. Ordinarily, the parol evidence rule would bar the introduction of evidence that contradicts or supplements the written agreement. However, several exceptions to the parol evidence rule exist. In this case, the condition exception to the parol evidence rule applies because the evidence the shareholder seeks to introduce (that the shareholder's commitment to buy the shares is conditioned on obtaining approval from the parent company) is proof of a condition to the enforceable contract to sell the shares. Since the buyer-shareholder agreement will only take effect upon approval by the parent company, extrinsic evidence of this oral understanding is admissible as an exception to the parol evidence rule.

A is incorrect. A collateral agreement is a separate agreement that is independent and separate from the primary contract. The collateral agreement exception to the parol evidence rule states that evidence of a collateral contract can be used to exclude the operation of the parol evidence rule, as long as evidence of the collateral contract does not contradict the final written agreement. In this case, however, the condition is an integral and fundamental part of the buyer-shareholder. As such, the collateral agreement exception to the parol evidence rule does not apply. Rather, the condition exception applies and evidence that the shareholder's commitment to buy the shares was conditioned on obtaining approval from the parent company is admissible on this basis.

C is incorrect. As discussed above, the parol evidence rule bars the introduction of contradictory terms to a written contract. If a court finds an agreement to be completely integrated, the parol evidence rule will bar evidence that contradicts and supplements the written agreement. If a court finds that an agreement is partially integrated, only evidence that contradicts the written terms are inadmissible; supplementary terms that do not contradict the written agreement are admissible. In this case, however, regardless of whether the buyer-shareholder agreement is completely or partially integrated, the condition exception to the parol evidence rule applies.

D is incorrect. The parol evidence rule's bar on extrinsic evidence does not apply when a written agreement is contingent on a condition precedent. When parties orally agree that a written contract is contingent on a condition precedent (the occurrence of an event or some other condition), the oral agreement may be introduced as evidence of the condition, as long as the oral agreement does not directly contradict the final written agreement. This answer is incorrect because parol evidence of a condition precedent will not be admitted if it contradicts the express language of the written contract. In this case, parol evidence that the shareholder's commitment to buy the shares is conditioned on obtaining approval from the parent company is not contradictory to the written agreement.