CONTRACTS
NEUSTADTER
SPRING 2012
Contract Terms: what are the sources, meaning nature and effect of the terms in a contact?
Source of terms
Express terms: when an agreement is expressed orally or in writing, the words used by the parties in either their written or oral expression are the source of that least some if not all of the contract terms. Still may be hard to interpret express terms.
Implied in fact terms: Contract law permits a court to supply some of the missing terms by inferring them from the facts and circumstances attending formation of the contract (types include course of dealing, usage of trade and course of performance – see below)
Wood v. Lucy, Lady Duff Gordon: an implied in fact term to use best efforts to market products
Terms supplied by default rules R2d Contracts 204: implied warranty, etc.
When parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in circumstances in supplied by the court. SEE WARRANTIES BELOW
*in some cases a court may conclude that an expression of agreement between parties is insufficient to form a contract
Parol Evidence/Extrinsitc Evidence
May need to use Parol Evidence because the langue of the agreement is vague or ambiguous
Vague: if the boundaries of the concept expressed by the language are blurred, as in “send me a bushel of good apples”
Ambiguous: if it appears to express more than one possible meaning, as in “she sent the apples to the buyers before they were ready.”
Assume record was accepted by both parties
Define parol evidence: something is parol evidence if it is evidence of an agreement reached prior to the parties’ execution of the written contract.
What is the parol evidence? (oral agreement, phone conversation, etc.)
What is its purpose? Why is it here? To clarify (potentially) what dispute? Does the evidence contradict the terms of the contract, interpret or add and supplement?
C. I. A.
Contradict à Interpret à Add/supplement à
(Likely) Barred (4) Tools of interpretation (6) Masterson (5)
When parol evidence is being offered to contradict a writing, the court must exclude evidence if it concludes that the parties intended the agreement to be final with respect to the terms included in the agreement (at least partially integrated)
But if the parol evidence could add to the agreement, it will only be excluded if the court concludes that the parties intended the agreement to be both final and complete (see “add/supplement (5))
Integration? Partial or complete? Site Masterson
Define intention of parties (202)
i. What seems to have been naturally agreed upon? Would the P.E. have naturally been included or separate?
ii. Modern trend: calls for one to also consider the circumstances and the PE itself in attempting to ascertain parties’ intent.
1. A court applying the modern view will conclude that the document is not completely integrated if, considering all of the foregoing factors (the document, the circumstances, and the parol evidence) it concludes that the oral agreement naturally might have been separate from the agreement expressed in the document
2. Record à merger clause? Length? Detail? Hand written notes? All would imply complete
a. Merger clause – a clause indicating that the writing constitutes the sole agreement between the parties – indicates complete integration
i. The document may say it reflects the final expression of the parties’ agreement, but if it does not indicate the completeness or exclusivity of the document, PE may not have certainly been included in the document.
3. P.E. itself à impact of change (significance) – would it drastically have changed the parties’ positions during negotiations? (think ecoville – may not have been complete)
4. Circumstances à sophistication of parties? Lawyer? Location? Relation between parties? (complete)
**even if the judge decides to admits the P.E., the fact-finder still has discretion to take it or leave it
i. Matersine: When only part of an agreement is integrated parol evidence may be used to prove elements of the agreement not in the writing
Tools for interpretation
Subjective: R2d 201
i. Where the parties give the same meaning, interpret according to that meaning
ii. Where the parties have attached separate meanings, interpret in accordance with the meaning attached by one of them if at the time the agreement was made
1. The party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party
2. That party had no reason to know any different meaning attached by the other, and the other had reason to know the meaning attached by the first
iii. Neither party is bound by the meaning attached by the other, even though the result would be a failure of mutual assent
Objective:
i. Four corners – very conservative; nothing but what’s written on the “four corners” of the page (Bond contaminated land)
ii. In pari materia – literally – each provision in a contract must be interpreted in light of the other provision so that each is given the meaning suggested by the contract as a whole (Prytania Park Hotel furniture/insurance claim)
iii. Inclusio unius est exclusio alterius – the inclusion of one is the exclusion of the other meaning if two definitions/interpretations are contradictory, only one can be included (Prytania Park Hotel)
iv. Ejusdem generis – of the same kind or nature – the general language that follows a specific list should be construed as referring to things like those in the specific list (Prytania Park Hotel)
v. Extrinsic evidence (parol evidence is only what happened before the contact; extrinsic evidence can also be from after the contract. Extrinsic evidence is usage of trade, course of dealing and course of performance)
1. Language is susceptible to one interpretation v.
2. Language is not susceptible to one interpretation
a. Inadmissible (Bond four corners)
i. PGE/Trident
1. Provisionally admit
2. Admit or exclude
ii. Tahoe – narrow exception to PGE?
1. Ambiguous terms must be interpreted against bank (bank had superior bargaining power)
3. **PGE – if one side is willing to claim that the parties intended one thing but the agreement provides for another, the court must look at extrinsic evidence!
If evidence raises new ambiguity, then intention must be obtained from the parties
4. Course of performance – one party keeps performing with the other doesn’t object
5. Course of dealing – a clearly recognizable pattern of previous conduct between parties
6. Usage of trade – practice or method that is so common, it is expected to be observed with respect to the transaction in question (Frigaliment types of chicken)
a. Acts like an express warranty
Omitted terms
When the parties never thought of something and is therefore not addressed in the contract, the court supplied the default terms. The court interprets for the parties’ intent
i. Property is alienable if contract is silent (Materson)
Duty of good faith – party is required to behave in a way that is consistent with the other party’s reasonable expectations about how the contract will work
i. Can’t take advantage of other party in ways that could not have been contemplated at the time of drafting the contract and therefore was not resolved by the parties (Market Street Associates involving a failure of one party to remind the other of an important term in the contract)
Warranties (default terms)
In gen
ent would allow for compensatory money damages for breach of the promise and would discharge the obligation to pay
Warranties: they are for the most part promises concerning the future performance of something to be sold or leased.
i. Representations: statements of facts – generally treated as a warranty.
Condition: An event which must occur before a party’s performance is due.
Four interpretations of conditions:
i. Sometimes people refer to the “conditions of the contract” simply as another way of saying the “terms of the contract”
ii. Sometimes people refer to a condition to the contract by which they mean that a contract will not be formed absent the occurrence of an event that is beyond the control of the parties to the contract
1. It is important to distinguish a condition to formation from a condition to performance because the parol evidence rule may bar introduction of evidence offered to establish a condition to performance but NOT formation
iii. Sometimes people use the word condition to refer to the manner of accepting an offer to form a unilateral contract
iv. Sometimes the word is used to refer to an event, not certain to occur, the occurrence of which either triggers or discharges the duty of a party to a contract to perform the obligations created by her promises.
Express conditions: Events that condition performance of an obligation described by oral or written language of the parties.
Implied Conditions: events that condition performance of an obligation that are implied by the circumstances
i. The parties have agreed and strict compliance is ordinarily required before the performance will be due
1. Strict compliance avoided where disproportionate forfeiture would result (JNA reality NY rental)
ii.
ii. Avoiding the impact of express or implied conditions: if the conditioned event does not occur, the conditioned obligation is entirely discharged, even when the event seems minor (Dove v. Rose Acre bonus denied)
Condition precedent: an event that must occur before performance of an obligation becomes due
Example: Dove v. Rose Non-occurrence of an event that conditions an obligation in a contract is dramatic.
If the event does not occur, there is no remedy: the only consequence is discharge of the obligation that is conditioned on the event.
A condition subsequent is an event the occurrence of which discharges the obligation (230)
Less common. Usually the language If….then is used
i. The party is not discharged if the occurrence of the event is the result of a breach by the obligator of his duty of good faith and fair dealing; could not have been prevented because of impracticability and continuance of the duty does not subject the obligator to a materially increased burden
Constructive condition of exchange: The duty of one party to perform his or her promises under the contract may be dependent upon performance of promises made by the other.
Condition of satisfaction: A contract may make one party’s duty to perform expressing conditional on that party’s being satisfied with the other’s performance (Kennedy v. Fischer)
