Contract _ Preliminary Outline / 18
1. What is the Term?
I. Parol Evidence
Ø The parol evidence rule triggers when there is a final written expression of the agreement and governs whether parties may introduce extrinsic evidence made prior to or at the same time of the formation of contract.
· [Final and Complete writing -> Total Integration -> cannot be contradicted nor supplemented]
· [Final and Incomplete writing -> Partial Integration -> cannot be contradicted, but can be supplemented by consistent additional terms]
1 I s there Final Written Expression of the agreed terms?
a. R.2d § 209 (integrated agreement)
b. UCC 2-202 (final written expression)
§ Parties’ intention on the writing as the final embodiment of their agreement
· No preliminary negotiation form is regarded as final embodiment
· Usually a memorandum in one party -> not likely, confirmation by the other party and no response -> likely
· the more complete and the formal it is, the more it is likely to be intended as final
§ Any relevant evidence is admissible to show that the writing was not to be final
§ it would require more formal style, therefore, writing in napkin might satisfy Statute of Fraud, but no integration (not final expression)
§ completeness is not required to be a final expression! (discuss in terms of degree)
2 Is there an EXTRINSIC Prior/Contemporaneous agreement?
§ if yes, triggers PER, subsequent evidence triggers Modification rule
3 Does the agreement CONTRADICT existing terms?
§ If yes -> inadmissible
1. R.2d §215 – Contradiction of Integrated Terms: either for complete or partial integration parol evidence is not admissible to contradict a term of the writing
2. UCC 2-202 – Final Written Expression may not be contradicted by parol or extrinsic Evidence
· Consistent v. Contradictory
Ø contradictory to expressly stated terms? -> might not be admissible
Ø contradictory to implied term in law or fact? -> might be admissible
§ general practice (reasonable time, etc) can be contradicted…
Ø consistent -> might be admissible
§ If not contradictory, but consistent additional terms -> admissible UNLESS
4 Did parties intend to the integration to be complete and exclusive in terms of agreement?
ü Test of completeness
o Majority – find actual manifestation of intention even if it appears to be complete on its face, rather than the final writing itself)
o Merger clause -> might be good evidence of completeness
1. R.2d §216
§ Omission of consistent additional terms which naturally be omitted from the writing -> might not be complete -> might not be complete => admissible
2. UCC 2-202(b)
§ Omission of consistent additional terms which certainly have been included in the writing if agreed upon -> might be complete =>inadmissible
§ But, maybe explained or supplemented by
UCC 2-202(a) – U/T & C/D: Exception of admissible terms to a total integration [complete and exclusive agreement even w/ a merger clause]
§ UCC 1-205(2) – Usage of Trade: industry practice which justifies an expectation on the customary understanding might not be articulated in the writing unless there is a clear expression to exclude it
§ UCC 1-205(3) – Course of Dealing: parities’ previous conduct under similar circumstance would supplement or qualify terms of an agreement
§ UCC 2-208(1) – Course of Performance: repeated occasion w/o objection shall be relevant to determine the agreement (interpretation)
ð why? the assumption that these elements were taken for granted when the document was phrased, therefore, are admissible to supplement the terms of any writing unless carefully negated,
ð admissible even if there is a complete integration with merger clause unless there is careful negation
Ø R.2d §214 – Big exception of PER: admissibility of extrinsic evidence even if there is merger clause or contradictory
1 to aid in the interpretation of existing terms
2 to show that a writing is or is not an integration
3 to establish that an integration is complete or partial
4 to show that terms were the product of illegality, fraud, duress, mistake, lack of consideration or other invalidating cause:
Ø Parol evidence rule only operates when there is a valid contract, which means that anything showing it is not valid would be admissible
· evidence to establish that the parties have no intention that the agreement would be legally binding, have legal consequences -> always admissible
Ø Intentional misrepresentation even with a clause excluding other argument. parol evidence admissible
· Hypo: used car seller orally confirmed there was no accident before so entered into a contract with a clause “B inspected the car to his full satisfaction and did not rely on any oral representation” => prior oral evidence is still admissible
II. MODIFICATION - oral modification subsequent to contract
1 Existence of agreement? (<= agreement on modification!!!!)
i) sales of goods? [UCC 2-102]
ii) movable? [UCC 2-105]
2 Validation device for modification of agreement ?
i) consideration OR
ii) unexpected circumstances OR
iii) material change of position (reliance) OR
iv) statute (no need for consideration) – [UCC 2-209(1)] (but should be in good faith)
3 Is there a Non-Oral Modification Clause? [UCC 2-209(2)]
· Should be signed
· If a consumer is to be held to such a clause on a form supplied by a merchant, it must be separately signed.
4 HOWEVER, can go to UCC 2-209(4)&(5)
· Admissible if oral modification satisfies WAIVER + RELIANCE [Majority Rule]
o Waiver – intentional relinquishment of a known right (attempt at oral modification can operate as a waiver of the term)
+ Reasonable Reliance – material change of position
ex) negotiation with third parties in reliance on the waiver
o Waiver can be retracted with reasonable notice, but reliance makes the waiver UNRETRACTABLE
5 Even if NOMC is waived, does this Fall within Statute of Fraud? [UCC 2-209(3)] => sale of good & more than $500?
o If yes, need a NEWLY signed writing [UCC 2-201](but if modification makes the original K outside of S/F, no need for writing)
ü While S/F requires only a sufficient record that the contract has been made, majority requires that all essential terms of a modification must be written
6 HOWEVER, can go to UCC 2-209(4)&(5)
· Admissible if oral modification satisfies WAIVER + RELIANCE [Majority Rule]
o Waiver – intentional relinquishment of a known right (attempt at oral modification can operate as a waiver of the term)
+ Reasonable Reliance – material change of position
· Hypo: is within one-year provision
o need a NEWLY signed writing UNLESS there a reasonable reliance (§ 139)
III. INTERPRETATION [R.2d §200]
Ø Issue of interpretation arises when the parties disagree over the meaning attached to the terms in the agreement
Ø Courts try to find the intention of the parties expressed in the contract beyond its face value
1 Does the term need to be interpreted?
a. Judge will decide after considering all relevant evidences based on the question
b. Is the term REASONABLY SUSCEPTIBLE of more than one meaning?
ð If yes: Should be interpreted – Go to 2!
ð If no: Stop here
2 Whose terms control?
a. Look at the all relevant evidences - extrinsic evidence, usage of trade, course of dealing, course of performance
b. Common Law [R.2d §200] to find what they knew or should have known when use the term (ex. price difference)
i. A did not know of any different meaning attached by B, and B knew the meaning attached to A à A’ term
ii. A had no reason to know different meaning attached by B, and B had reason to know the meaning attached by A à A’s term
a. Choose interpretation least favorable to the drafter
b. Do not interpret in the way leading to absurd results
c. Interpret as a whole -> in the context of the whole agreement, refer to other writings if related
d. Negotiated terms will control over a standardized portion such as the fine print “boilerplate”
c. UCC: Hierarchy of the Terms [When construction of term in consistent with express terms is unreasonable]
Ø UCC 2-208(2): Express terms > Course of Performance > Course of Dealing > Usage of Trade
1. Express terms - (equivalent to careful negation)
2. Course of performance
a. UCC 2-208(1): relevant to determine the meaning of the agreement
i. Parties’ own action subsequent to the contract supply evidence what they intended to mean
b. Counter-argument favoring express terms
· Express terms prevail
· Contradictory to express term
c. Counter-argument: not contradict, but EXPLAIN or SUPPLEMENT the terms UCC 2-202(a)
· Prior courses of performance was made by WAIVER of express terms
1. Counter-argument: no notice about retraction of waiver, and there was material change of position (reliance)
3. Course of dealing
a. UCC 1-205(3)
i. Prior conduct between the parties
ii. can give particular meaning (interpret) or supplement the terms
4. Usage of trade
a. UCC 1-205(2): practice so regularly observed in the same place, vocation or trade as to justify an expectation of parties
b. UCC 1-205(4): express terms prevails (careful negation)
c. UCC 2-202(a): may EXPLAIN or SUPPLEMENT the terms
5. Merger clause cannot do anything with C/D, U/T unless carefully negated
Ø Ambiguity and Meeting of Minds
o Raffles
§ Buyer says that it meant October ship
§ Seller says that it meant December ship
§ The court found NO CONTRACT b/c there is no meeting of minds on the material term
Ø No contract if
1. the misunderstanding/lack of a meeting of the minds concerns a material term; and
2. neither party know or should know of the misunderstanding.
Ø There is a contract if:
1. one party knows of the ambiguity, the contract is binding according to the interpretation of the innocent party that is unaware of the ambiguity;
2. both parties are aware of the ambiguity of the term but subjectively agree on the same interpretation.
3. one party knew or should have known other party’s meaning and the other party didn’t know and should not have known the first person’s meaning (CONTRACT on unknown person’s terms)
1. Hypo: Owner has previously “regular” ducks cheaper than “gourmet” quality and was well satisfied. Now ordered “regular” pheasant cheaper than “plump deluxe” but it was not edible. Bird supplier contends that “regular” pheasant usually intends for soup only. Chefs say that they usually cannot make distinction, whereas suppliers say they knew it’s only for soup.
Chef and Restaurant owner / Bird Supplier- Plain meaning of “regular” -> normal and edible ducks
- Prior dealing support this plain interpretation
- Trade Usage
- should be narrowly construed to include only supplier, chefs are not members of trade
- Was first time to order pheasant (not fair to expect the different meaning of “regular”) / - Price difference: reasonably buyer should have realized the significance of the lower price
- Trade Usage
- should be broadly construed to include chefs who are closely connected with bird suppliers in the industry
- Already a member of trade
- UCC does not distinguish experience member from inexperienced member (should have known the meaning of “regular” pheasant”)
On balance, plain language and prior dealing favor owner,
but can argue both ways depending on how trade usage should be construed
IV. How to deal with course of performance which appears to be different from express terms?
a. need to be interpreted since it is consistent
b. if found not consistent, but contradictory then, do not interpret, but go to waiver argument
2. Performance/Condition Occurred?
Ø CONDITION-general
ü [R.2d 224]: Condition defined – A condition is an event, not certain to occur, which must occur before performance becomes due
ü Three Kinds of Conditions
1. Precedent – creates duty must occur before duty to perform arises
2. Concurrent – exchange performances of duties at the same time
Ex. promise to pay arises if buyer tender goods
3. Subsequent – discharge an existing duty
I. Express Condition
§ Articulate the intent to make performance contingent upon the event
§ However, rarely applied (strict application)
1 Is there express condition?
A. Where do we find express condition?
1) In the writing – look to the agreement
2) Implied from circumstances (e.g., c/d, u/t, c/p)
3) Outside the writing. -> PER issue
a. Hicks v. Bush Argument on oral express condition precedent to legal effectiveness of agreement
§ Entire merger was conditioned upon oral agreement a certain amount should funded in advance
§ Plaintiff – the condition is contradictory to another written condition in the agreement
§ Court – Parol evidence is admissible to prove a condition precedent to the legal effectiveness of written K
- Does not contradict the written condition, both are separate conditions and can stand together
B. Distinguish between condition precedent to Legal Effectiveness v. condition attached to Duty of Existing Agreement
§ the court will look to the intent of the parties to be bounded by contract beyond apparent language, therefore,
§ even if the term is expressly stated that “the entire agreement is conditioned upon…”
§ court will find it the condition attached to duty of existing agreement once the parties’ intention of K is found
o condition precedent to Legal Effectiveness: if not occurred -> no contract exists
o condition attached to Duty of Existing Agreement: if not occurred -> breach, the other can waive condition, thus enforce K
ex) “This is contract is contingent upon buyer being able to obtain mortgage loan in the amount of ___”
- Might be condition attached to duty since parties is more likely to intend a binding contract
- The other party argument -> the contract is void because promise is illusory
- However, the Ct. might find a duty of reasonable effort to obtain the loan as agreed
C. Interpretation of Express Condition