CONTRACTS
NEUSTADTER
FALL 2012
1. CONTRACT TERMS
1. Source of terms
1. Terms: Derived from express agreement of the parties, from implication generated by facts and circumstances, from a course of dealing between the parties or a usage of the trade, or from default rules.
1. Parties must indicate an intention to be bound by the agreement or it may not be enforceable. Also, if the agreement is too indefinite, it is not enforceable. The UCC has provisions to fill in several missing terms, but if in addition to this the contract is indefinite, it is not enforceable.
2. R.2d 33: some cases, court will declare expression of agreement between parties is insufficient to form a contract, because agreement still fails to supply a reasonably sufficient basis for giving an appropriate remedy even after resort to implied in fact terms, course of dealing, usage of the trade, or default terms.
3. R.2d §34: part performance or reliance may remove uncertainty in contract
2. Parol Evidence: Evidence of the parties’ oral agreement prior to or contemporaneous with execution of a record, to a term or terms that are not included in the record, and evidence of the parties written agreement, prior to execution of a record, to a term or terms that are not included in the record. (UCC 2-202)
R.2d §213: a written agreement that is found to be ‘completely integrated’ that represents a full and final embodiment of the parties’ udnerstnaidng, effectively discharges any prior agreement that falls within is scope.
Record: information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceived form (UCC9-102(a)(69))
1. FINAL RECORD: is a partially integrated agreement. When parties have put in the record some but not all of the terms as to which they have finally agreed.
2. COMPLETE RECORD: if one concludes in addition that the record contains all of the terms to which the parties agreed, it is an integrated agreement.
3. Merger clause: term in a record by which the parties purport to express their intention regarding the finality or completeness, or both of the record.
4. PE RULE: Question of integration is for the judge. trier of fact may not hear PE that adds to or contradicts a complete integration and may not hear PE that contradicts a partial integration.
i. Does the parol evidence in question add to or contradict the integration?
ii. How does a court decide whether a record is a partial or a complete integration?
1. Traditionally: Judge decided the parties’ intent to integrate their agreement in the writing purely on the basis of the four corners of the written document, without extrinsic evidence. If document appeared complete this intent was establish.
2. Modern trend: most courts now recognize that even when a writing appears at face to be comprehensive, inquiry into the context in which it was written may dispel this impression. To determine integration, court look at writing and also extrinsic evidence to determine apparently integrated writing was in fact not intended as such.
a. R.2d §216(2)(b) asks whether the term is such as might naturally be omitted form the writing.
b. UCC 2-202 Comment 3, would the term certainly have been included in the document had it been agreed to?
Masterson v. Sine: parties orally agreed at the time of the sale of the house that option of repurchase was person to the Mastersons family and could not be transferred to or exercised by anyone else. The court found that such an agreement might naturally be made outside of the writing in a family transaction. Court rejected idea that admissibility depends on whether the written contract appears complete on its face. Used the “might naturally be omitted” test from R.2d §216. If under the circumstances the oral agreement could, or might naturally, have been entered into separately from the written agreement, then proof of such oral agreement should be permitted so as to avoid frustrating the parties’ real intent.
Federal Deposit Insurance Corp. v. Hadid: Whether an agreement is integrated is a factual question that depends on the intent of the parties (as revealed by the writing itself), the conduct and language of the parties and the surrounding circumstances. Application of the parol evidence rule, is a question for the court not the jury.
-No evidence suggests that any understanding prior to the agreement was governed by oral agreements
-Sophisticated businessmen, also had attorneys to draft all documents.
-Even if not fully integrated, the oral agreement argued for conflicted with the terms of the agreement.
-Intention of the parties: record itself, parol evidence itself, circumstances.
3. Implied in Fact: Consider facts, fairness, usage, intent and efficiency. Terms can be inferred from the facts and circumstances attending formation of the contract such as prior course of dealing between the parties or from a relevant usage of the trade. (R.2d 222, 223, UCC 1-303)
1. Wood v. Lucy, Lady Duff-Gordon
i. Implied in fact term- to use best efforts to market products, supplied consideration for a promise of an exclusive right to market designs.
2. R.2d. § 222 (1) A usage of trade is a usage having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to a particular agreement. It may include a system of rules regularly observed even though particular rules are changed from time to time. (2) The existence and scope of a usage of trade are to be determined as questions of fact. If a usage is embodied in a written trade code or similar writing the interpretation of the writing is to be determined by the court as a question of law. (3) Unless otherwise agreed, a usage of trade in the vocation or trade in which the parties are engaged or a usage of trade of which they know or have reason to know gives meaning to or supplements or qualifies their agreement.
3. § 223 COURSE OF DEALING (1) A course of dealing is a sequence of previous conduct between the parties to an agreement which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. (2) Unless otherwise agreed, a course of dealing between the parties gives meaning to or supplements or qualifies their agreement.
4. Default rules: absent express terms, terms implied in fact, or terms supplied by a course of dealing or usage of the trade, default rules applied ot fill gaps left in a
3. Various tools to interpretation should not be applied as absolutes
4. Bond Drugs Co. of Illinois v. Amoco Oil Co.
i. Any zoning, building, fire or health code violations found to exist on the Premises prior to Bond taking title and possession, Amoco was to correct them. There was environmental contamination of the Premise. Agreement, which is clear and unambiguous, applies to environmental contamination as well. When clear and unambiguous, contract terms are given their ordinary and natural meaning, and no parol or extrinsic evidence may be considered to vary the meaning of the terms.
ii. No question of unconscionability, where the parties to an instrument are competent to contract with each other, and there is no question of fraud, enter can be relieved form his agreement on the ground that he did not use good business judgment in entered into the contract.
5. Prytania Park hotel, Ltd. v. General Star Indemnity Co.
i. Hotel insured under the Policy, provided coverage for loss or damage to the building, as including, permanently installed fixtures, machinery and equipment, compensable at replacement value. Loss or damage to the insured property defined as furniture and fixtures compensable at actual cash value and loss.
ii. Inclusio unius est exclusio alterius: inclusion of one thing is the exclusion of another.
1. Inclusion of “X” in definition of “A” and the exclusion of “Y” from the definition, “A” can never include “Y”.
iii. Interpretation of terms
1. in the context of the contract as a whole, not in isolation or in a vacuum.
2. Nature of the contract? (Commercial, residential?)
3. Parties? Sophisticated businessmen? Educated?
4. Commercial usage?
6. Ambiguous terms: terms to which opposing parties give totally different meanings
i. Where a term is ambiguous, interpret its meaning using
1. Meaning in the trade (If defendant knew of ought to have known this meaning)
2. Meaning to customers if applicable
3. Relevant extrinsic evidence
4. Fairness
5. Policy
Raffles v. Wichelhaus – contract for sale of goods delivered on a ship named “peerless” parties meant different ships named peerless, so material mistakeà no meeting of the mind and no contract.
7. Vague Terms: terms to which parties disagree about how far beyond their core meaning they go.
i. When vague, court must determine meaning each side attached to term and determine reasonableness,
1. Common usage
2. Trade usage
3. Prior dealings
4. Technical definition
