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Contracts II
South Texas College of Law Houston
Ricks, Val D.

Contracts 2

Ricks

Spring 2014

The Story of K2

What is the Bargain?

Interpretation or Construction?

Charles v. PB Commercial

If an instrument contains contradictory terms, typewritten terms prevail over printed terms, handwritten terms prevail over both, and words prevail over numbers. – This rule derives from the principle that “writing words more likely represents the parties’ true intentions than writing numbers.”

If a written instrument is worded in such a way that it can be given a definite or certain legal meaning, then the contract may be construed as a matter of law.

An unambiguous contract will be enforced as written, and parol evidence will not be received for the purpose of creating an ambiguity or to give the contract a meaning different from that which its language imports.

A simple lack of clarity or disagreement between parties does not render a term ambiguous.

Whether a contract is ambiguous is a question of law for the court to decide by looking at the contract as a whole in light of the circumstances present when the contract was entered.

If the contract is ambiguous as a matter of law, only then is parol evidence of the parties’ interpretation of the contract admissible.

It does not matter that the discrepancy between the words and numbers here is a large one.

Irrelevance of extrinsic evidence

A court may not consider extrinsic evidence about a contract’s meaning unless the contract is ambiguous.

A document is ambiguous only if it is susceptible to more than one reasonable interpretation after application of all relevant rules of construction.

Canons of Construction

Expression unius exclusion alterius est: The expression of one is the exclusion of the other.

Noscitur a sociis: “It is known from its associates.” Under the doctrine of noscitur a sociis, “the meaning of a word or phrase may be ascertained by reference to the meaning of other words and phrases with which it is associated.”

Ejusdem generis: In applying this maxim, meaning is given to a general term in the following manner: The general term is restricted to include only things of the same kind, class, character, or nature as those specifically enumerated”; that is, because the listed items have a commonality, the general term is taken as sharing it.

Omnia praesumunter contra preferentum: Ambiguous terms must be construed against the drafter of the contract.

Ut magis valeat quam pereat: “It is a fundamental rule that a contract must, if possible, be so construed as to effectuate the intention of the parties and to sustain the contract, ut res magis valeat quam pereat.” First, it is fundamental that an interpretation of a contract, which results in termination of the contract, is disfavored over one, which affirms the existence of the contract.

Specific terms control over conflicting general terms: We have held that a contract will be construed most strongly against the party who drafted it. AND we also have held that general terms and provisions in a contract yield to specific ones, if not reconcilable.

In contracts affecting the public interest, an interpretation favoring the public interest is preferred: contracts affecting the public’s interest generally are liberally interpreted to favor the public.

PAG V. Thomas

The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.

A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.

A rule that would limit the determination of the meaning of a written instrument to its four-corners merely because it seems to the court to be clear and unambiguous, would either deny the relevance of the intention of the parties or presuppose a degree of verbal precision and stability our language has not attained.

The exclusion of relevant, extrinsic, evidence to explain the meaning of a written instrument could be justified only if it were feasible to determine the meaning the parties gave to the words from the instrument alone.

If words had absolute and constant referents, it might be possible to discover contractual intention in the words themselves and in the manner in which they were arranged. Words, however, do not have absolute and constant referents. “A word is a symbol of thought but has no arbitrary and fixed meaning like a symbol of algebra or chemistry, . . .” The meaning of particular words or groups of words varies with the “. . . verbal context and surrounding circumstances and purposes in view of the linguistic education and experience of their users and their hearers or readers (not excluding judges). . . . A word has no meaning apart from these factors; much less does it have an objective meaning, one true meaning.”

Although extrinsic evidence is not admissible to add to, detract from, or vary the terms of a written contract, these terms must first be determined before it can be decided whether or not extrinsic evidence is being offered for a prohibited purpose. The fact that the terms of an instrument appear clear to a judge does not preclude the possibility that the parties chose the language of the instrument to express different terms. That possibility is not limited to contracts whose terms have acquired a particular meaning by trade usage,* but exists whenever the parties’ understanding of the words used may have differed from the judge’s understanding.

Theories of Meaning

Reference to Reality- The meaning of a word is the thing to which it refers.

Reference to a Concept – The meaning of a word is the concept to which the word refers

Mental Concept – The word refers to a mental concept existing in the mind of the person using the word

Metaphysical Concept – The word refers to a concept existing outside the mind of the person using the word

Reference to a Universal Mental Language – The meaning of a word is hardwired into us biologically

Meaning is Use – The meaning of a word is its use in a regular linguistic activity between at least two people

Presumptions

Wesson v. Huntsman Corporation

An employee claiming an oral contract for lifetime has a particularly heavy burden of proof as these contracts are extraordinary and not lightly to

ed to show that the legal effect of a term was misrepresented and that such misrepresentation was relied on by a party in signing the agreement.

Herring v. Prestwood

The parol evidence rule, therefore, does not apply to every contract of which there exists written evidence, but applies only when the parties to an agreement reduce it to writing, And agree or intend that the writing shall be their complete agreement.

The rule provides that when the parties reduce a contract to writing, no extrinsic evidence of prior or contemporaneous agreements will be admissible to change, alter, or contradict such writing.

Uniform Commercial Code § 2-202

Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented

By course of dealing or usage of trade (Section 1-205) or by course of performance (Section 2-208); and

By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.

Snyder v. Herbert

That to be inconsistent the “additional terms” must negate or contradict express terms of the agreement.

“Inconsistency” as used in § 2-202 (b) means the absence of reasonable harmony in terms of the language and respective obligations of the parties.

Williams v. Johnson

Furthermore, parol testimony to prove such a condition is admissible when the contract is silent on the matter, the testimony does not contradict nor is it inconsistent with the writing, and if under the circumstances it may properly be inferred that the parties did not intend the writing to be a complete statement of their transaction.

Riggs v. Harris

Where the parties’ intentions are “clear, unambiguous and not ‘reasonably or fairly susceptible of different constructions or interpretations, or of two or more different meanings,’ . . . no evidence may be introduced of prior agreements or terms, whether consistent or inconsistent, within the scope of the written agreement.

The very purpose of the parole evidence rule “to promote the stability of transactions by preventing disgruntled parties from avoiding obligations by alleging oral understandings that conflict with their written agreement when those agreements were reduced to writing in order to forestall just such contentions.