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

A. Interpretation or Construction
Plain Meaning
Plain Meaning Rule (Tips): 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.
If an instrument contains contradictory terms, typewritten terms prevail over printed terms, handwritten terms prevail over both, and words prevail over numbers
Ambiguity: Ambiguity arises only after the application of established rules of construction leaves an agreement susceptible to more than one meaning.
For ambiguity to exist, both potential meanings must be reasonable.
Parol Evidence will not be allowed into evidence to create ambiguity.
Ambiguity must be found as a matter of law.
Only when ambiguity is found as a matter of law, will parol evidence be allowed to help resolve the ambiguous term.
Canons of Construction and Plain Meaning
(1) Unius exclusion alterius est: the expression of one, is the exclusion of the other.
EX-termination from sale of business not listed as exception, severance applies.
(2) Noscitur a sociis: “It is known from its associates.” “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.”
EX- boat, bay/horse, bay.
(3) Ejusdem generis: Meaning given to general term in a list (i.e. other things) 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.
EX- glove box not a container
(4) Omnia praesumunter contra preferentum: Ambiguous terms must be construed against the drafter of the contract.
If the ambiguity is in dispute, and both are reasonable, the drafting party will lose the argument because they had the duty to be more careful in constructing the document.
(5) 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.”
Operative Intention Presumed: We follow the established general rules that provisions of a contract must be so construed as to effectuate its spirit and purpose, that it must be considered as a whole and interpreted so as to harmonize and give meaning to all of its provisions, and that an interpretation which gives a reasonable meaning to all parts will be preferred to one which leaves a portion of it useless, inexplicable, inoperative, void, insignificant, meaningless, superfluous.”
(6) Specific terms control over conflicting general terms: We also have held that general terms and provisions in a contract yield to specific ones, if not reconcilable.Applying these rules, we find that the specific typewritten description of the collateral which the parties inserted into the printed form controls over the general description contained in the standard printed form.
(7) In contracts affecting the public interest, an interpretation favoring the public interest is preferred: The court is mindful that “contracts affecting the public's interest generally are liberally interpreted to favor the public.”
(8) Grammar and punctuation rules normally apply: Absent the presentation of other evidence, the trial court resolves ambiguity by interpreting the contract using accepted canons of construction and traditional rules of grammar and punctuation.
Commas matter!
Interpretation is not a matter of reaching some knowledge of the party’s intention.
These are ways to justify what you decide, but you must decide which is better.
You should always argue the Maxims.
Substantive Presumptions
Montgomery Hospital: For a K to exist, the employer must unequivocally indicate a definite intent to be bound not to terminate the employee except under clearly specified circumstances.
Always weigh out the power of written evidence v oral testimony.
We looked at employment K’s where we say the difference between how ambiguity was present within a presumption of one of the terms of a K.
“We will employ you as long as you do a good job.” While this oral promise is valid, it is not a valid presumption that means you cannot be fired.
An oral promise is only valid in a written agreement if the party justifiably relied on the promise.
Usage, Custom, and Prior Practice
From the Rabbi case: When a custom or usage is once established, in absence of express provision to the contrary it is considered a part of a contract and binding on the parties though not mentioned therein, the presumption being that they knew of and contracted with reference to it.
“I will conduct an Orthodox Jewish service in an appropriate temple.” This is ambiguous because it is a clear understanding of an expectation of performance, however, there was a substantive presumption that within the type of service, customs of the practice will be followed.
UCC §1-303: Course of Performance, Course of Dealing, & Usage of Trade.
(a) A “course of performance” is a sequence of conduct between the parties to a particular transaction that exists if
(1) The agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and
(2) The other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection.
(b) A “course of dealing” is a sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.
(c) A “usage of trade” is any practice or method of dealing having such regularity of observance in a place, vocations, or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage must be proved as facts. If it is established that such a usage is embodied in a trade code or similar record, the interpretation of the record is a question of law.
(d) A course of performance of course of dealing between the parties or usage of trade in the vocation of trade in which they are engaged or of which they are or should be aware is relevant in ascertaining, the meaning of the parties’ agreement, may give particular meaning to specific terms of the agreement, and may supplement or qualify the terms of the agreement. A usage of trade applicable in the place in which part of the performance under the agreement is to occur may be so utilized as to that part of the performance.
(e) Except as otherwise provided in the subsection (f), the express terms of an agreement and any applicable course of performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other. If such a construction is reasonable:
(1) Express terms prevail over course of performance, course of dealing, and usage of trade;
(2) Course of performance prevails over course of dealing and usage of trade; and
(3) Course of dealings prevails over usage of trade
UCC and Parol Evidence: 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.
Lincoln Big 3: A course of dealing is allowed to give particular meaning to, and supplement or qualify, terms of an agreement.
Fragilment: “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.”
B. Writing the Promise: Meaning & Effect
Mistake in Transmission
Mistake in Transmission: When using the Plain Meaning Rule to determine if the written agreement had reached the parties’ true intentions to K, but a mutual or unilateral mistake resulted in a contrary intention of the parties, there will be a mistake in transcription.
The court may only reform a K when the K doesn’t represent the parties’ intent because of fraud, mutual mistake or, in exceptional cases, a unilateral mistake coupled with the other parties’ knowing silence.
A claim for reformation based on a mutual mistake will survive a motion to dismiss only if it alleges:
that the parties reached a definite agreement before executing the final contract;
that the final contract failed to incorporate the terms of the agreement;
that the parties’ mutually mistaken belief reflected the true parties’ true agreement; and
the precise mistake the parties made.
To prove unilateral mistake “The party asserting this doctrine must show that it was mistaken and that the other party knew of the mistake but remained silent.” The plaintiff must also show that the parties had come to a definite agreement that differed materially from the written agreement.
Parol Evidence
Parol Evidence: Extrinsic evidence not written in the contract.
Parol Evidence Rule: If the parties have agreed that a written document will be the final expression of their agreement, then the document cannot be contradicted by evidence of prior or contemporaneous promise or agreement. If the parties have agreed that the document is complete, then it cannot be supplemented by prior or contemporaneous promise or agreement.
: A court may not consider extrinsic evidence about a contract’s meaning unless the contract is ambiguous.
The parol evidence rule doesn’t forbid the presentation of evidence outside the four corners of the K concerning matters covered by an integrated K, but forbids only the use of such evidence to vary or contradict the terms of such K. Parol evidence offered solely to vary or contradict the written terms of an integrated K is, therefore, legally irrelevant. When offered for that purpose, it is inadmissible not because it is parol evidence, but because it is irrelevant.
Where there exists doubt that the written agreement was ever intended to reflect the full agreement of the parties, the courts of this State have not hesitated to admit contradictory parol evidence.
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.
“Integrated” K’s: A written agreement is integrated if it represents a final expression of one or more terms of the agreement.
Williston’s Rule – The K must appear on its face to be incomplete in order to permit parol evidence of additional terms
Corbin’s Rule – The modern trend has been to reject this view on the ground that a “writing cannot p

on being waived is material, it’s a modification requiring consideration.
Under the UCC, neither modification or waiver require consideration.
Retractability of a Waiver: “An executory waiver being in the nature of a promise or a contract must be supported by consideration to be enforceable.  But a waiver … partaking of the principle of an election needs no consideration … and cannot be retracted.”
– That a thing is incomplete and that some part of it is yet to be done. Some contractual performance is executory before it has been completed.
A condition must be waved after formation of K and before failure of condition.
Material part of agreement may not be waived.
Immaterial part of agreement may be waived
Waiver may be withdrawn or modified if it is unfair.
Condition waived must be for benefit of party waiving it.
E. Implied in Law or Constructive Conditions
What are Implied in Law or Constructive conditions?
An Implied In Law or Constructive Condition is one that is imposed by law to do justice.
These conditions are read into the K in the interest of fairness
Constructive conditions are only available in bilateral K’s
Substantial performance is sufficient to comply with a constructive condition.
There are 3 types of convenants:
Mutual and Independent: where either party may recover damages from the other for the injury they may have received by a breach of the covenants in his favor, and where it is no excuse for the defendant to allege breach on the part of the plaintiff
Conditions and Dependent: Which the performance of one depends on the prior performance of another, and, therefore, till this prior condition is performed, the other party is not liable to an action in this covenant.
Mutual Conditions: To be performed at the same time;
Promise for a Promise: If they can be done concurrently, they will be.
If there is a promise for performance for a promise to pay, the performance must go first.
Promise for a Performance: A promise isn’t enforceable until performance is complete, but promisor cannot withdraw the promise once performance starts.
Concurrent Conditions are conditions precedent which are mutually dependent.
The only important difference between a concurrent condition and a condition precedent is that the condition precedent must be performed before another duty arises, whereas a tender of performance is sufficient in the case of a concurrent condition.
Where a K creates concurrent conditions and neither party tender’s timely performance, both parties are discharged from the condition.
Mutual promises are presumed to be dependent, and are regarded as such whenever possible.
While performance of work under a contract is a constructive condition to payment, it is subject to the general rule that payment is due when the promisee has substantially performed his obligations under the agreement.
Objectives of K’s are not constructive conditions.
Substantial Performance
Substantial performance occurs when the performance of a duty under a K has been mostly performed before breach has occurred.
An omission, both trivial and innocent, will sometimes be atoned for by allowance of the resulting damage, and will not always be the breach of a condition to be followed by forfeiture.
Factors of Substantial Compliance (can be avoided by express condition):
Purpose to be served
The desire to be gratified
The excuse of deviation from the letter
The cruelty of enforced adherence
Willful transgression (not tolerated)
Nowhere will change be tolerated, however, if the change is so dominant or pervasive as in any real or substantial measure to frustrate the purpose of the K.
The willful transgressor must accept the penalty of transgression
The owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attained. When this is true, the measure is the difference in value.
The cost of completion – cost of partially completed good = damages for substantial performance
For substantial performance, the person invoking must have fulfilled his whole duty.
Where a party, by his own contract, creates a duty or charge upon himself, he is bound to make it good, notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract. (no matter how harsh or unjust)
Substantial performance is met when the constructive condition is met.