Romberg – Contracts II – Spring 2012
SUPPLEMENTING THE AGREEMENT – Applies k PERFORMANCE/ENFORCEMENT, not formation
Rational For Implied Terms – b/c fundamental to fair dealing and pub pol, mandatory irrespective of intent
– Outputs, requirements and exclusive dealings – UCC Governed (SOGs)
o Term Measures Quantity (UCC 2-306(1)) – no quantity unreasonably disproportionate to stated estimate or comparable prior amount may be tendered or demanded
§ Requirement Contract – “I will buy all your coal next year”
· Implicit that required to buy that amount in good faith
§ Output Contract – “I will sell you all pencils you need for $1”
· Implicit that required to output that amount in good faith
§ Output/Requirement contracts are not too indefinite in terms because held to mean the actual good faith output/requirements of the party
o Exclusive Dealings (UCC 2-306(2))
§ A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best effort to promote the sale
o Good Faith Consideration: from a contract w/o explicit return promise, it is reasonable to expect that party has certain obligations to perform in good faith, which is valid consideration
Wood v. Lady Duff-Gordon – W had exclusive rights to market LDG’s products for one year. LDG placed marketed products w/o W’s knowledge and claimed did not breach k b/c there was no return promise by W. Court disagrees, it can be inferred from contract that W had an implicit obligation to sell and endorse products. Bottom line: Consideration for exclusive right was in exchange to perform in good faith and fair dealing.
– Notice of Termination from SOGs contract (UCC 2-309)
o (1) When no specified time, all actions under k must be taken within a reasonable time
o (2) If successive performance, but indefinite duration, k valid for reasonable time
§ Can be terminated at-will, unless agreed to otherwise
o (3) Termination of a contract by one party, except on the happening of an agreed event, requires that reasonable notification be received by the other party
§ Unless notification would be unconscionable
o Reasonable time: consider GFFD with nature, purpose, circumstances of action taken
Leibel v. Raynor – P was an exclusive dealer of D with an at-will K for SOGs. Both parties had right to terminate, but reasonable notification was required in order to terminate contract, even if at-will.
Implied Obligation of Good Faith – implies honesty and fair dealing
– Every contract imposes upon each party a duty of good faith and fair dealing (GFFD) in its performance and its enforcement (R. 205 and UCC)
– Good Faith: (1) honesty in fact & observance of reas’ble comm’l stand. of (2) fair dealing in the trade
o Fair Dealing: behaving within scope of reasonable bounds
– Discretionary Powers: duty to exercise in GFFD, unless express right otherwise
o If party discretion between A or B and does not reserve right to unilaterally choose to its discretion, then party has an obligation to make the choice in good faith
o Discretion determined by objective reasonableness, and at minimum honest dissatisfaction
– Potential Breach – even if a party’s act does not literally breach what is stated on the contract, need to look at it through lens of good/faith and fair dealing to determine if breached contract
o Though implied GFFD CANNOT override express right to terminate, one of the parties can breach the good faith in its performance before exercising the right to terminate
Locke v. Warner Bros. – Clint Eastwood’s former girlfriend signed a contract with WB where would either pay her $750k or hire her as a director within 3 years (pay or play). Court said that WB needed to honestly exercise that choice, and breached by not acting in good faith. Making this choice in good faith is what she wanted from the contract – consideration was an honest assessment of her talent.
PRINCIPLES OF INTERPRETATION
The Parol Evidence Rule (PER) – prevents jury from considering certain evidence in determining terms of k
Step 1: Is there a Primary Writing (PW)?
– PW – Parties’ written agreement creating k or confirmatory memorandum stating the k terms
– NO à PER is inapplicable w/o PW
– YES à Step 2 – final expression?
Step 2: Is the PW integrated?
– Integrated – PW is intended as the final expression of the parties, at least as to the terms that PW encompasses (prior statement inadmissible b/c contradict parties’ final understanding)
– TRADITIONAL: IF common law (Williston) approach, then look to four corners.
o Four Corners – the face of a writing, only the PW, nothing beyond the document
§ Does the PW on its face appear final?
– MODERN: IF Restatement/UCC (Corbin) approach, then look at PW and PEV
o Court (not jury) should consider all potentially relevant evidence to decide if the terms of the PW are sufficiently detailed, specific, and definite to seem final, at least as to the terms contained in the PW
o Parol Evidence (PEV) – written agreements occurring before, and oral agreements occurring before or simultaneously with, the PW – introduced to affect jury’s interpretation of k
§ Usually includes contemporaneous writings unless they are collateral agreements
o Contradictory term – a PEV term that contradicts (different from) a term in PW
o Supplemental term – a PEV term that supplements (in addition to) a term in PW
o Explanatory term – a PEV term that explains a term in PW
– NO à PER is inapplicable w/o integrated PW
– YES à Step 3 – complete?
Step 3: Complete or Partial Integration? Was the final expression adopted by the parties intended to be a complete and exclusive statement of all terms of the agreement?
– Complete Integration – PW that is not only intended to be final, but is also intended by the parites to express the complete and exclusive scope of all terms of the agreement
o Final and complete expression of parties agreement about k
o Merger Clause – An explicit statement in a PW that the PW is intended to embody the final and complete agreement of the parties – final and complete integration
– Partial Integration – PW that is integrated but is NOT a complete integration
o NOT intended to completely and exclusively state all terms of the agreement, BUT rather is only intended to be final as to the terms that the PW does in fact encompass (supplemental PEV, but not contradictory PEV)
Step 3: Complete or Partial Integration?
– TRADITIONAL: IF common law (Williston) approach, then look to four corners.
o Four Corners – the face of a writing, only the PW, nothing beyond the document
§ Does the PW on its face appear to be final and complete?
o Complete Integration à PEV inadmi
ccepted; offer was joke or sham; agreement is unenforceable b/c pub pol
– (2) Modification – Introduce evidence of an agreement occurring after creation of PW
o This evidence is not considered PEV
– (3) Condition Precedent – PEV demonstrates that there was an oral condition prior to effectiveness of PW as k, thus it does not become effective until occurrence of condition precedent in PEV
– (4) Collateral Agreement – Supplemental PEV is actually a collateral agreement to PW:
o (A) B/c there is separate consideration; OR
o (B) B/c might naturally be omitted from PW, if the parties actually agreed to the term, notwithstanding existence of integrated PW (Thus no complete integration) (R.Approach); OR
o (C) Unless the terms would certainly have been included in PW (UCC 2-202(b)
o Use (A) for Classic Exceptions to SPEV, but (B), (C) under step 3 to supply definition for what PW is partially or completely integrated under modern approach
– (5) Equitable Remedy – PEV introduced for reformation (correcting writing to reflect what both parties actually intended to state in PW), rescission (cancel k for eq. reasons), or to support separate tort action
PER Analysis
– Determine which party wants to present PEV (needs PW and PEV for PER analysis)
o Then depending on approach decide if PER precludes PEV from being admissible to jury
o Even if admissible to jury, does not mean jury will believe it
– Missing Term: Party alleges that PW is missing a term
o Where PW has gap on an issues, PEV for a missing term is supplementary, UNLESS
§ SPEV would change an existing term, then very likely contradictory and not included
§ SPEV is contrary to normal function or legal implication of the term at issue, then SPEV likely to be contradictory and excluded
o Classical: Looking at 4 corners à
§ Final? Are any terms to be determined?
§ Complete? Are any essential terms missing?
§ If complete integration, SPEV irrelevant
§ If consideration for missing term, may argue collateral agreement exception
o Modern: court looks at SPEV to determine if PW completely integrated
§ Issue: was the PW completely integrated?
· Party agues that taking everything into account (SPEV), PW was not intended to be complete b/c (R.) term would naturally be omitted or (UCC) not necessarily certain that would be included
Thompson v. Libby – P sold logs to D, but D refused to pay. In court D claimed that did not pay b/c logs were substandard quality (quality warranty argument). P appealed b/c warranty was not mentioned in k, and thus D barred from bringing evidence through PER. Court uses classical approach and determines k was completely integrated, and thus PER barred SPEV (SPEV was prior oral communication – P has stated prime quality logs)
