Romberg Contracts II
Spring 2007
I. IMPLIED OBLIGATION OF GOOD FAITH AND FAIR DEALING & OTHER IMPLIED TERMS
A) RATIONALE FOR IMPLIED TERMS
IMPLIED OBLIGATION TO ACT REASONABLY UNDER K
1) Wood v Lucy, Lady Duff-Gordon
(i)Π had obligated himself to use reasonable efforts to market her endorsement of products, even though didn’t specifically say so, it was reasonable to imply that Π was making such a promise. Supporting this was his promises to account for monies and take out copyrights to protect the things he did on her behalf. Therefore, there was a binding K and she was also obligated to abide by the terms, written and implied.
2) Liebel v Raynow Mfg
(i)Dealing with UCC definition of a sale of goods. More importantly, if length of K is not specified, when is it ok to cancel K? Specific to situation of manufacturer/distributor
(ii) UCC 2-309 – Must use reasonable amount of time giving notice before terminating contract. Even if K does not specifically say it, there is an implied obligation of good faith to give a dealer a reasonable amount of time to sell his inventory before terminating an ongoing K.
ÞTime for shipment or delivery or any other action, if not stated in K, shall be Reasonable Time.
ÞWhere K provides for successive performances, but indefinite in duration…valid for Reasonable Time and unless otherwise agreed to, may be terminated at any time by either party
ÞTermination of K (except if at the happening of an agreed upon event) requires reasonable notification be received by other party.
B) IMPLIED OBLIGATION OF GOOD FAITH & FAIR DEALING-
1)K2d §205 every K imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.
2) Locke v Warner Bros (CA, 1997)
(i)Non-exclusive 1st look at anything she wants to do – 30 days for WB
Þ250k a yr for 3 yrs
(ii)“pay or play”
ÞHire SL as director
or
ÞPay 750k if they don’t hire her
(iii) Argument for WB- why no breach of K: just bc clint eastwood agreed to pay us money, we had contractual obligations with SL and complied with them. Business with eastwood is irrelevant. For court to make judgments
(iv)She argues that WB had to make a good faith decision to either pay or play her, and they didn’t do that
(v)WB argues that they had the absolute option to pick one, which is what they did
(vi)Holding: WB was obligated to make a good faith decision, and SJ was inappropriate
(vii)Cannot disclaim obligation of good faith, but bargained for terms might make it irrelevant—if WB had bargained for “an un-reviewable right to choose pay or play,” then they can effectively make the choice however they want
3) Good faith in requirement/output contracts—UCC §2-306
(i)UCC §2-306(1)—A term which measure the quantity by the output of the seller of the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded
(ii)UCC §2-306(2)—in exclusive dealing contracts, there is the implied obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale
(iii)See Empire Gas v. American Bakeries—the parties enter into a requirements contract, where American estimates it will require X thousand units—the market shift/new management comes in and says “we require zero units.”
ÞCourt says they can’t do this just because they would lose money, this is not good faith—maybe ok if there was some totally unforeseeable market disaster or some other extenuating circumstance, but not here
4)Good faith in employment contracts—Donahue v. Fed Ex
(i)At will employment usually not subjected to good faith
(ii)Exceptions
Þterm of years in contract—not at will
ÞRight to fair treatment practice—in Donahue, the employee handbook allowed employees to appeal their terminations—Donahue did this, but argues that Fed Ex just went through the motions, (i.e. didn’t use good faith)—this court overrules it because their was a clause in the handbook saying that it was not a contractual obligation—some courts might not accept this if the waiver is in boilerplate—also might have a PE (K2d §90) claim if there was reasonable reliance on the handbook
ÞPublic Policy
ÞAdditional consideration
ÞArguably promissory estoppel
(iii)Most of the time, however, if the battle is between good faith and at-will terminations, at-will terminations will win
II. PRINCIPLES OF INTERPRETATION
A)PAROLE EVIDENCE RULE
1) Parole Evidence Rule: rule that may exclude parole (other than PW) evidence from being heard by the jury in consideration of contents and meaning of terms of a k.
2) Best understood by its purpose- to give legal effect to whatever intention the parties may have had, to make their primary writing at least a final and perhaps a complete expression of their agreement.
3) Primary writing (PW): parties written agreement creating the k, or confirmatory memorandum stating the terms of the k (ROMBERG TERM)
4) Parole Evidence (PEV): anything outside the PW (written agreements occurring before and oral agreements occurring before or simultaneously with PW)
5)Court makes decision whether or not to exclude some parole evidence from the jury. Based on several different factors including approach (common law/k2d/ucc) used by court.
Categories of parole evidence:
Contradictory- term in PEV that contradicts (is different from) a term in PW
Supplemental- term in PEV that supplements (additional to) terms in PW
***Both classical and modern follow same approaches based on integration chart below for cont and supp PEV***
Explanatory- using PEV to help explain the intended meaning of term in the PW
***classical: exp PEV ok only if facial ambiguity in PW as to meaning of stated term (not dependent on integration, see chart below)
Modern: exp PEV always admissible to clarify meaning of stated term in PW (not dependent on integration, see chart below)
6) Partial integ
t fault. taylor reaches settlement with state farm for $15000 which seems intended to keep him from suing state farm for uninsured motorist who was involved and potentially caused damage to taylor. Taylor signs waiver after accepting $15k waiving right to sue state farm (PW). Other parties (ring and river) severely injured and have potential claim against taylor. Taylor tries to bring claim against state farm.
¨Taylor tries to introduce parole evidence to urge the jury to interpret the K he signed in a certain way.. Court follows the modern approach… looks at everything.. decides the evidence is explanatory rather than contradictory and therefore should be allowed
Þ Sherrodd, Inc. v Morrison-Knudsen Co.
ÞSup Ct of Montana (1991)
¨Excavation subcontractor brought action against general contractors and payment bond surety to set aside price provisions in contract and to recover quantum meruit plus tort damages for allegedly extra excavation. The Thirteenth Judicial District Court, Yellowstone County, Russell K. Fillner, J., entered summary judgment for defendants. Subcontractor appealed. The Supreme Court, Turnage, C.J., held that parol evidence rule barred admission of allegedly fraudulent statement of general contractor’s representative that there were 25,000 cubic yards of excavation.
Affirmed.
¨Holding: Ct ruled that it wont allow parole evidence in to show fraud when it contradicts the PW
8) Exceptions to PER—if the PEV would otherwise be inadmissible due to the PEV, is there a valid excuse to let the evidence in?
(i)Evidence showing a valid contract defense such as fraud/misrepresentation (note some courts only allow fraud in the inducement not in the execution (i.e. can’t show fraud contradicting terms in the PW)), duress, undue influence, etc.
(ii)Evidence showing that the contract is invalid—e.g. no acceptance, no/invalid consideration, sham, jest, etc.
(iii)Evidence that occurred after formation of the PW
(iv)Evidence demonstrating there was an oral condition precedent to the effectiveness of the contract/PW
(v)Supplemental Parol Evidence showing that an agreement was collateral to the PW
ÞK2d §216—an agreement is collateral if it was agreed to for separate consideration OR consistent additional (i.e. supplemental) term might naturally have been omitted from the PW
ÞUCC § 2-202(b), comment 3—a consistent additional term may supplement a PW unless that term would certainly have been included in the PW