Great understanding is broad and unhurried;Trying to understand the rules that pertain to contract interpretation will not come through a cramped and busy effort to memorize the parol evidence rule and the rules regarding when extrinsic evidence is permitted to determine whether there is a latent ambiguity in a disputed contract.
Little understanding is cramped and busy.
Instead, understanding contract interpretation will come first from from a broad and unhurried consideration of what language the parties are disputing the interpretation of. Then you must understand why each party considers his interpretation the correct one. What evidence does each party have that his interpretation is correct? How persuasive is that evidence?
If one side's interpretation is more persuasive, that will be the controlling one. Then you can go back to the rules to show how the rules will lead to that more persuasive result. Thus, for example, in Thompson v. Lilly, 26 N.W. 1 (Minn. (1885)(pdf) (Casebook at 385), the buyer of logs marked as indicated in a 3 line written agreement with the brand "HCA" insisted the buyer did not supply logs of a quality as good as he had orally promised in an agreement separate from the 3 line writing. The court concluded that "[t]he written agreement in the case at bar, as it appears on its face, in connection with the law controlling its construction and operation, purports to be a complete expression of the whole agreement of the parties as to the sale and purchase of these logs, solemnly executed by both parties."
But if you merely start with the proposition that the parol evidence rule excludes the admission of extrinsic evidence to contradict a complete and final statement of the agreement between the parties and look at the 3 line agreement the parties wrote, you'd have a difficult time determining whether in fact the court was correct in concluding the writing was a "complete integration."
But look at the evidence regarding the dispute -- the buyer is claiming the agreement included a promise that the logs the seller was providing would be of a higher quality than the logs that were delivered. The writing in and of itself doesn't inherently exclude that possibility in any conclusive way I can fathom. But what evidence does the buyer have that the agreement included a promise of higher quality logs? Only the buyer's self-serving testimony. There is no corroborating testimony from others in the trade. There is no indication the price the buyer agreed to pay reflects a market price for logs of a higher quality than that which he received. There is no evidence of any sort that any such agreement had been reached. In the absence of any evidence other than the buyer's self-serving testimony in support of his position, the court is able to persuasively argue the three-line agreement contains all the material terms of the agreement. If, on the other hand, others in the trade suggested the quality of the logs would not have been included or that the price in the agreement reflected a price for higher quality logs, the court would have had a much more difficult time suggesting the three line agreement contained all the material terms of the agreement.
Thus, the parol evidence rule does its job in this case -- it prevents the dispute from ending up as a trial in which the buyer's sworn statements will be weighed by a jury against the writing and the seller's sworn statements. But if we merely considered the 3 line agreement without considering what other evidence the buyer had in support of his position it would have been impossible to determine solely by reference to the parol evidence rule whether the writing was a full and complete statement of the agreement between the parties (or, in the jargon of the parol evidence rule, whether evidence outside of the writing itself should be admitted in trial to determine what the parties really did intend to agree upon.
To engage in the extra effort of trial in Thompson v. Lilly would have been silly in that there seems no persuasive reason in the first place to believe the buyer has any persuasive case. And it prevents a jury from being persuaded by improper factors (such as preferring the buyer as a person to the seller). Thus, the court invokes the technical rule -- the parol evidence rule -- to produce an outcome that seems fair, just, and in accord with a common sense view of the evidence.
In other words, the legal rules and their proper application arise from the evidence the parties bring to bear. The rules do not predetermine disputes that are predictable before they arise.
So when you are trying to figure out on an exam how to answer a question, consider first: what question you are you trying to answer. Then consider what evidence you have from each side of the dispute that helps persuade one way or another in answering that question. Then weigh that evidence and consider what we are primarily trying to determine in contract law: what the parties intended to agree to.
Then, and only then, use the rules to structure the presentation of your understanding of the proper resolution to the dispute. That are likely being asked to present that personal and human understanding \as an intelligent adult being asked for the first time in your life -- not merely to repeat material your professor asked you to learn but to apply that learning to resolve new problems in a creative and original way no one other than you can be relied on to answer -- that's what you're going to be doing as a lawyer!
I do not mean to minimize the importance of knowing the rules. The rules are the language the law uses to structure the presentation of your persuasive explanation. Merely to give a recitation of your personal reaction to the evidence without reference to the rules is not to act as a lawyer. But the rules will only make sense to you if you use them to come to a result that makes sense to you as a human being.
You also have to keep in mind that rules sometimes serve purposes other than merely giving effect to what the parties intended. Rules such as the statute of frauds, for example, will in the absence of clear and convincing evidence of agreement avoid the administrative difficulties and expense of full-blown trial in certain types of important cases in which the parties have not supplied either the formal requirements evidencing such agreements or other evidenced as convincing as those formal requirements that those agreement have in fact been reached.
This approach to legal analysis also adds meaning to the "objective" theory of contracts pursuant to which we look to the manifestations of a conracting party's expressions of intent rather than, say, his post-hoc justifications that he really meant something other than what a reasonable person in the promisee's shoes would believe he meant. What more can we rely on in any efficient way (absent an infallible technological way of discerning internal intent) than what people say, do, and don't do to express their intent?
Again, this is not to discount the importance of the rules. You must know the rules to articulate your arguments in a manner that makes sense to lawyers, judges, and law professors. You are now a member of a profession, and you must communicate in the language of the profession. But you will never persuasively apply those profession-specific rules without first understanding the human disputes, the evidence, and the ways that evidence persuades human beings as to the merits of the disputes. Then, and only then, can you begin to structure your arguments in a manner that usefully employs the technical legal rules.