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

Contracts II
Spring 2015
What is the Bargain?
Interpretation or Construction
Charles Tips Family Trust 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.
Canons of Construction
Pacific Gas and Electric Co. v. Thomas Drayage & Rigging Co. = If the court decides that the language of a contract is fairly susceptible of either one of the two interpretations contended for, extrinsic evidence relevant to prove either of such meanings is admissible.
-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.
Wesson v. Huntsman Corp. = If an offer is not clear and unequivocal, it is presumed that the employment contract is at-will and can be terminated by the employer with or without justification.
-Three elements to establish that an employment contract is not terminable at will: (1) that there was a clear and unequivocal offer of permanent employment, i.e., lifetime employment or employment of a definite duration; (2) that the hiring agent had the authority to bind the principal to a permanent employment contract; and (3) that the employee provided substantial consideration for the contract separate from the services to be rendered.
Usage, Custom, and Prior Practice
-The determination of a contract’s meaning is done in conjunction with evidence about Course of Dealing, Usage of Trade, and the parties’ Course of Performance SO LONG AS that extrinsic evidence does not contradict the contract’s language.
Fisher v. Congregation B’Nai Yitzhok = When a custom or usage is once established, in absence of express provision to the contrary it is considered a part of the contract and binding on the parties though not mentioned therein, the presumption being that they knew of and contracted with reference to it.
-Where there is no ambiguity in the terms of a contract and nothing was omitted from its terms by fraud, accident or mistake, the terms of the contract cannot be varied under the parol evidence rule.
Ralph’s Distributing Co. v. AMF, Inc. = Parol evidence is inadmissible to contradict the terms of a writing that is intended to be a “final expression” of the provisions in question. The test for admissibility of course of performance and usage of trade evidence is not whether the contractual terms on their face appear to be complete in every detail. Even a complete writing may be explained or supplemented by evidence of course of performance and usage of trade.
-The Parol Evidence Rule does not apply to evidence of subsequent modifications of a contract.
Lincoln Big Three v. Thomas = Course of Dealing is allowed to give particular meaning to and supplement or qualify terms of an agreement so that the true understanding of the parties may be reached.
-Under the UCC, it is possible to use custom to contradict the written agreement. Therefore, Usage of Trade may be used to “qualify” the agreement, which means to “cut down” express terms although not to negate them entirely.
Frigaliment Importing Co. v. BNS International = When one of the parties is not a member of the trade or other circle, his acceptance of the standard must be made to appear by proving either that he had actual knowledge of the usage or that the usage is so generally known in the community that his actual individual knowledge of it may be inferred.
-The making of a contract depends not on the agreement of two minds in one intention, but on the agreement of two sets of external signs — i.e., not on the parties’ having MEANT the same thing but on their having SAID the same thing.
Writing the Promise: Meaning and Effect
Mistake in Transmission
Great-West Investors v. Thomas H. Lee Partners = A court may reform a contract only when the contract does not represent the parties’ intent b/c of mistake in transmission, fraud, or a unilateral mistake coupled with the other parties’ knowing silence.
-To claim Mistake in Transmission, Plaintiff must allege: (1) that the parties reached a definite agreement before executing the final contract; (2) that the final contract failed to incorporate the terms of the agreement; (3) that the parties’ mutually mistaken belief reflected the true parties’ true agreement; and (4) the precise mistake the parties made.
-To prove Unilateral Mistake, the party asserting the claim must show that it was mistaken and that the other party knew of the mistake but remained silent.
-To claim Fraud, Plaintiff must allege: (1) a misrepresentation, which can take the form of a statement, omission, or active concealment of the truth; (2) the Defendant’s knowledge that the representation was false; (3) intent to induce the Plaintiff to act or refrain from acting; (4) justified reliance on the misrepresentation; and (5) damage as a result of such reliance.
Parol Evidence
Colliers, Dow and Condon v. Schwartz = The Parole Evidence Rule forbids only the use of such evidence to vary or contradict the terms of such a contract. Parol Evidence offered to vary or contradict the written terms of an integrated contract is, therefore, legally irrelevant; i.e., it is inadmissible.
Herring v. Prestwood = Whether the instrument is a final and complete expression of the agreement is to be determined from the conduct and language of the parties, the surrounding circumstances, and the instrument itself.
-When the writing is a final expression of the parties’ agreement, it is said to be Integrated.
-If the writing is final but NOT complete, it is Partially Integrated and consistent terms only can be supplied by extrinsic evidence.
-If the writing is final AND complete, it is Completely (Totally) Integrated and not even evidence of consistent terms can be admitted.
MHTC v. Maryville Land Partnership = The Parole Evidence Rule does NOT prohibit the presentation of parol evidence to determine IF the contract is integrated.
Snyder v. Herbert Greenbaum and Assocs. = The prerequisites for “additional terms” to be admissible: (1) the writing or contract

ey Bank of Southern Maine = There is no duty of good faith toward a third-party claimant, primarily b/c of the absence of a contractual relationship.
-Exemplary damages are not recoverable for a breach of contract.
Atlantic Track & Turnout Co. v. Perini Corp. = Trade usage will supplement the terms of a contract only when the parties know or should know of that usage.
-A contractor may seek an equitable adjustment to the contract when a large quantity of work is eliminated.
-A party who ceases performance under an output contract for independent business reasons acts in good faith.
Simcala, Inc. v. American Coal Trade, Inc. = If an estimate of output or requirements is included in the agreement, no quantity unreasonably disproportionate to it may be tendered or demanded. Any minimum or maximum set by the agreement shows a clear limit on the intended elasticity. In similar fashion, the agreed estimate is to be regarded as a center around which the parties intend the variation to occur. (§ 7-2-306, Comment 3)
-Both unreasonably disproportionate increases and reductions in estimates are forbidden.
-To demand less in the way of requirements is to breach the contract, but to demand nothing breaches nothing b/c “no quantity unreasonably disproportionate to any stated estimate” is “demanded.”
Larese v. Creamland Dairies, Inc. = The franchise relationship imposes a duty upon franchisors not to act unreasonably or arbitrarily in terminating the franchise.
-The franchisor-franchisee relationship is one which requires the parties to deal with one another in good faith and in a commercially reasonable manner.
-The franchisee should not be forced to choose between losing its investment or remaining in the relationship unwillingly when it has provided a reasonable alternative franchisee.
Express Conditions — those agreed to and imposed by the parties themselves.
Preferred Mortgage Brokers, Inc. v. Byfield = A condition precedent is an act or event which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises. Express conditions precedent, which are those agreed to and imposed by the parties themselves, must be literally performed.
Oppenheimer & Co., Inc. v. Oppenheim, Appel, Dixon & Co. = Express conditions are those agreed to and imposed by the parties themselves.
-Since an express condition depends for its validity on the manifested intention of the parties, it has the same sanctity as the promise itself.