"collateral." Because they should have been but were not included in the written contract, proving the oral agreement would be inconsistent with the integration clause. Thus the parol evidence rule prohibited their proof absent fraud.
The fact that the contract in this case does cover the subject matter of the alleged oral agreement only eliminates a step in the analysis that had been called for in Betz. The existence of an alleged oral agreement in this case is not only inconsistent with the integration clause, according to the defendant, but also it is inconsistent with a specific term of the contract. Thus, under defendant's theory, it is clear that the parol evidence rule applies in our case. It was not clear that it applied in Betz until the district court concluded that the oral representations about the floor were not collateral to the written contract. But once it is concluded that the parol evidence rule applies, the analysis is the same in Betz and in this case. In both cases, the question becomes whether the written contract is void or voidable. Proving fraud by clear and convincing evidence would vitiate the written contract, and as in Betz, overcome the parol evidence rule.
Secondly, the defendant argues that Betz is inapplicable because the plaintiff in Betz was seeking recovery for the tort of fraudulent misrepresentation while this plaintiff seeks a remedy for breach of contract and in the alternative, based on promissory estoppel. The difference in the underlying theories of recovery does not distinguish the cases for purposes of the parol evidence rule. The question is whether proof of a prior representation or agreement is barred in the first instance by the existence of an integrated, written agreement. If it is, the next question is whether there is cause to invalidate the written agreement. If there is, the written agreement falls, the parol evidence rule is rendered inapplicable in the absence of a written agreement, and the plaintiff can proceed to prove the oral representations. In Betz, as will frequently happen, the cause for invalidating the written agreement (fraud) was also part of the plaintiff's underlying claim for fraudulent misrepresentation, but this need not always be so.
Defendant's third argument is that Betz deals with an exception to the rule upon which this plaintiff does not rely. The defendant contends that the plaintiff is relying upon the "sham transaction" exception to the parol evidence rule. The plaintiff reports that it is not relying on the sham exception, however, I will consider the defendant's argument. According to the defendant, the leading Pennsylvania case on the sham exception is Sokoloff v. Strick, 404 Pa. 343, 172 A.2d 302 (1961). The defendant contends that in Sokoloff the Pennsylvania Supreme Court refused to recognize the "sham exception." The defendant argues that Betz left this holding intact.
Sokoloff appears to be concerned in large part with the plaintiff's failure to follow state court pleading rules requiring parties to plead facts with specificity. To the extent that Sokoloff does address the substantive law of the parol evidence rule, it discusses and relies upon the Pennsylvania cases dealing with fraud as an exception. In particular, it cites and quotes as controlling precedent Bardwell v. Willis Co., 375 Pa. 503, 100 A.2d 102, the same case our court of appeals has predicted in Betz that the Pennsylvania court would no longer follow.
Even before Betz, Sokoloff was not sturdy support for the position that the sham exception does not apply in Pennsylvania. Earlier the Pennsylvania Supreme Court had held that "the parol evidence rule has no application where parol testimony reveals that the instrument never had any legal existence or binding force." Smilow v. Dickerson, 357 Pa. 455, 54 A.2d 883, 886 (1947). Thus, Pennsylvania law was in conflict on the sham exception as well as the fraud issue discussed in Betz. The holding in Betz is helpful in resolving this conflict because Betz is a recognition of the principle generally recognized elsewhere that parol evidence is always admissible to show that no contract exists. 4 S. Williston, Contracts § 634, at 1017 (3d ed. Jeager 1961). In Betz, the court said that fraud can be shown because it would vitiate the contract. It is consistent with the holding to permit parol evidence to show that the parties never intended to form a contract.
Finally, there is specific support in Betz for recognition of the so-called sham exception. The Betz court quoted with approval and predicted that the Pennsylvania Supreme Court would follow this language from the Restatement Second of Contracts:
What appears to be a complete and binding integrated agreement may be a forgery, a joke, a sham, or an agreement without consideration, or it may be voidable for fraud, duress, mistake, or the like, or it may be illegal. Such invalidating clauses (sic) need not and commonly do not appear on the face of the writing. They are not affected even by a "merger' clause.
647 F.2d at 407-08, quoting Restatement (Second) of Contracts, Tent. Drafts Nos. 1-6, at 551 (1973) (footnote omitted; emphasis added). There is no reason to follow this language on the issue of fraud but not as it relates to sham transactions. Thus, it appears after Betz that Pennsylvania would recognize the sham exception to the parol evidence rule.
Accordingly I conclude that the plaintiff has shown that it is a question of fact whether the plaintiff is entitled to recover. Therefore, I shall deny the defendant's motion for summary judgment.