Contracts II Outline– Spring 2011 – Prof. Richard Carlson
I. Construction & Interpretation of Contracts (Parties obligations)
*THIS IS A SYSTEM BY WHICH PARTIES CAN BRING IN OTHER EVIDENCE TO
SUPPORT THEIR ARGUMENT.
**Analyze the different interpretations of the parties first, and then analyze each under PER.
A. Analyzing a PER problem:
1. Questions to Ask on Essay:
a. Is the evidence admissible?
b. Is the K partially or completely integrated?
c. Is the evidence consistent (i.e. supplementary)?
d. Are there any applicable exceptions?
2. Identify Issue/Dispute.
a. Rule: The PER governs the effect of a written agreement on any prior oral or written agreements; it serves as a filter for which evidence can be admissible. Generally, there are 3 PER rules – a writing intended by parties to be a (1) full and final expression of their agreement may not be supplemented or contradicted by any oral or written agreements made prior to or contemporaneous with the writing; but may be (2) used to explain ambiguous terms; and can be used (3) to add terms UNLESS the writing is a complete integration.
i. Final expression is different than complete integration.
1. Ex: A 3 sentence agreement can be a final expression, however is not considered a complete integration and the court will allow addition of terms to it.
ii. PER does not prohibit subsequent oral agreements, only prior to or at the same time.
1. Written K may be subsequently modified orally unless it has:
a. No-oral modification clause,
i. Definition: Clause that NO extra work or changes to existing K will be recognized unless it is agreed to in writing before the extra work is started or changes made.
ii. Common Law – No oral modification clause cannot stop the formation of a new K; clauses were permitted.
iii. UCC 2-209(2) – Upholds a clause provided that:
1. K was signed AND clause was separately signed if between merchant and consumer.
iv. Texas: Unclear if clause is accepted.
b. Parties waived enforcement of the clause, AND
i. UCC 2-209(4) – An ineffective modification might be a waiver (an intentional relinquishment of a known contractual right).
c. One party has materially relied on waiver or no-oral modification.
i. Exception to waiver rule: Waiver can be retracted except to the extent that the other party has detrimentally relied on it.
1. Can waive right to reject or/and right to sue for DAS.
ii. Ripe for policy.
iii. Contemporaneous writing signed at the same time as formal document will be considered part of the agreement.
b. Exceptions to PER: [MILFS] – PE is admissible even with a complete integration IF:
i. Mistake – to show there was a mutual or unilateral mistake.
ii. Interpretation – to help interpret meaning of terms.
iii. Later promise – subsequent agreements are not barred.
iv. Fraud – to show fraud or any other fact making the K void or voidable. Includes failure of a condition precedent; false recitals of fact.
v. Separate transaction – agreement with separate consideration is not barred.
c. Operation of PER:
i. Summary Judgment – Party opposing evidence gains summary judgment if proponent would need PE to prevail.
ii. Basis to object at trial – Evidence that violate PER is inadmissible.
iii. Basis to appeal if judge/jury relied on PE
iv. PER is substantive law, so federal courts follow their own rules of evidence (procedural) BUT must apply the state’s PER Rule – it applies even if undisputed.
3. Is there a writing and is it integrated?
a. Rules under Common Law: (Integration clause is only a presumption of integration).
i. Total Integration – Parties intend that writing is a final expression of agreement and the K covers ALL details.
1. Include a merger clause as precautions in bypassing litigation.
2. NO evidence of prior to or contemporaneous agreements, that contradicts or adds to the writing.
ii. Partial integration – A document that is intended to be final, but is not intended to include all details of the agreement.
1. ARGUE that at a minimum the K in question is partially integrated.
2. Bars terms contradicting integration.
3. Does NOT bar terms that supplement.
4. If agreement needs an additional term (i.e. who gets receivables), the agreement is partially integrated.
i. Admissibility of terms may naturally have been omitted – K is not complete if it omits a term which was:
1. Agreed to for separate consideration OR
2. One which may naturally have been omitted. (When a term is sought to be proved by PE, but is omitted, the common law asks whether the term is such as might naturally be omitted from writing – if so, it is partially integrated.)
ii. Examples of Naturally Omitted:
1. Customs so strong that parties took them for granted and saw no reason to write them into the K. (Fat cow case).
2. Standardized forms which does not allow for the inclusion of additional terms.
3. Promises parties think belong in other documents. Gianni. (Exclusive soda dealing in building).
4. Uncertain propriety of including term in writing. Goetz.
5. Promissory note, additional terms omitted to preserve note’s negotiability. (Fat cow)
i. Inadmissibility of terms certainly would’ve been included.
1. K may be explained or supplemented by consistent additional terms UNLESS Parties would’ve certainly included the term in the K.
iii. Judges use 1 of 2 rules to decide whether a K is a partial or complete integration:
1. Four Corners Rule or Plain Meaning Approach: If the agreement looks integrated on its face, any alleged promise outside the 4 corners is NOT considered because the effect of the rule is to make the text sacred. Merger clause will probably be determinative.
a. Types of extrinsic evidence that might interpret the K:
i. Parties testimony about what they really meant.
ii. Things said and
uestions to Ask on Essay:
i. Who proposed the clause/term and why?
ii. What is each party’s interpretation?
iii. Are both interpretations reasonable?
iv. Is there evidence supporting both interpretations?
b. Rule: Generally, the PER does not bar evidence explaining uncertain or ambiguous K terms; but PE cannot contradict a writing, ONLY interpret it.
i. MUST follow these rules:
1. Other provisions – look at the context within the K.
2. K purpose – look for recital or stated purpose.
3. Correction of errors – correct spelling, grammar, and punctuation errors.
4. Handwriting over typed – handwriting has precedence
5. Ejusdem generis – where general words follow an enumeration list, those words are NOT to be construed in their widest extent, but apply only to persons or things of the same general kinds or class as those specifically mentioned.
6. Expression unius est exclusion alterius – when K states 1 thing, it excludes the other.
7. Contra proferentem – construe terms against the drafter.
8. Clear English – look at what each party reasonable understood
ii. Issues that require interpretation – IDENTIFY vague/ambiguous issues in fact pattern.
1. Ambiguity – Word that has either of 2 different meanings. Wide range of extrinsic evidence allowed, evaluated by jury.
a. Latent Ambiguity – K is clear on its face, but alternative meaning revealed only by extrinsic evidence.
i. Raffles. (Peerless ship – Can lead to no K if shown no
meeting of the minds.)
ii. Ex: Light (does it mean bulb or beer?)
b. Patent Ambiguity – Need for interpretation is obvious on
face of text.
i. Ex: Payment due a reasonable time after goods delivered. (Patently vague)
ii. Ex: K for autographed photo of Richard Carlson. (If fact finder knew that there were 2 Richard Carlson’s this would be patently; if they didn’t know, it would be latently – therefore, it depends on the circumstances). (Patently ambiguous)
c. Texas Rule: If the party pleads that the term is ambiguous, it
will not only bar the other’s evidence, but also the pleader’s
evidence as well.
2. Vagueness – When each party’s interpretation is reasonable, show preference for:
a. Broadest (most encompassing) meaning OR
i. Frigaliment Importing. (Term “chicken” was construed broadly).