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Contracts II
South Texas College of Law Houston
Powers, Jean Fleming

Powers, j. contracts 2, spring 2011

Interpretation & Construction

Interpretation and Construction

– interpretation: trying to figure out what the k means to the people that entered into it; what did they decide

o finding their intent is difficult; there may not have been a meeting of the minds and the issue doesn’t become a part of the k

– construction: might be some stuff the parties didn’t talk about or think about; default rule helps. So in construing a k, we talk about else we supply into the k and figuring things out that the parties didn’t give indication about

I. Sources of Contract Meaning and Standards of Interpretation

– need for interpretation: lack of precision and care, different understandings, intended vagueness (flexibility, indecision)

Frigaliment Importing v. BNS International Sales Corp: BNS entered into two contracts to sell chicken to Frigaliment. When the initial shipment arrived in Switzerland, Frigaliment found that the heavier birds were stewing chickens or fowl, not young chickens suitable for broiling and frying. BNS International believed that any type of chicken would meet the contract specifications regarding weight and quantity, including “stewing chickens”. Frigaliment on the other hand believed that “chicken” meant a young chicken. Frigaliment brought this lawsuit for breach of warranty on the grounds that BNS International delivered goods that did not meet the specifications of the contract.

– a k depends on external signs, not the meeting of minds; its important that they said the same thing, not simply meant the same thing

– the word chicken was ambiguous; π needed smaller chicken for broiling; heavy chicken can only be used for frying

o π: they wanted Government inspected Grade A chicken; burden of proving chicken was used in narrower sense

o ∆: used regulations; k used dictionary definition; impossible to broil heavy birds for 33 cents (at that time heavy birds were 35-37 cents); ∆ conduct after shipment, which had “fowl,” and π confirmed an order saying we’re going to send it and charge you; if it was sincere in thinking it was going to get young chickens, they would not have permitted second k to go forward

Interpretation Rules/Guides

– consider circumstances/parties’ purpose

– interpret writing as a whole

– use general and technical meanings, unless a different intention manifested

– consider manifestations of intent, course of performance, course of dealing, usage of trade

– expression of one implies exclusion of others in its class

– general language followed by specific items is limited to things similar to the specific (can add, “including but not limited to…”

Interpretation Standards

– prefer reasonable, lawful, and effective meaning to all terms

– order: express terms, course of performance, course of dealing, usage of trade

– specific terms over general

– separately negotiated or added terms over standardized terms

– interpretation favoring public policy

– interpret against the draftsman (favoring the party that didn’t actually write it; person who writes it has advantage in putting something in)

Hierarchy (Established by UCC)

1. Express terms (The text) then…

2. Course of performance (prior dealings in same contract, like in a contract that has many performances… if you accept certain types of chicken over and over and then say “Woa, that’s not what I meant by chicken,” too bad) then…

3. Course of dealing (similar dealings in the past, like past contracts. If this is the 50th chicken contract by the same parties, there is pretty good evidence of what you meant by “chicken.” Not as strong as course of performance, but still pretty strong) then…

4. Usage of trade (what similar terms mean in the trade, like what does “chicken” mean in the “chicken industry”? This usually cannot be used unless BOTH parties are IN THE TRADE. Are they both in the chicken trade? BUT, if one person is not in the trade but he KNOWS the usage and lingo, then you can still go by this. Also, if the term is SO universal, you can’t say “Well, I’m not in the trade.” Example: “2 by 4” or 2×4. You can’t just say “Hey I am not in the wood business.” It is SO universal there should be no misunderstanding.)

Then…

– Reconcile if possible

o Use unless “carefully negotiated.”

o Assume taken for granted

R&P Enterprises v. LaGuarta: k for sale of land. Pl sold land to df; he defaulted on payment. “Deficiency” suit is for money owed to them. When LaGuarta tried to sell at auction, pl bought it back. Note says after 3 years if they don’t pay, they can take the land back and will keep the money, but wont be able to go after the other person for deficiency. But they defaulted in the first year.

Promissory Note:

– It is expressly agreed that the maker shall have personal liability for the payment for the first two years,

– After which time, all prior payments having been made, the maker shall have no personal liability, and the payee will look only to the enforcement of the liens,

– It being expressly agreed that the maker shall have no liability for any deficiency

– K says the maker is liable for the two years, its explicit and clear. So how does df say it was ambiguous? Df saying upon suit, that there was this issue (the two different things underlined in two different places).

o With an ambiguity, you interpret to find the meaning. Then you look at other things outside of k to figure it out, like course of performance/dealing.

How courts interpret a k:

– plain meaning approach: if the judge can read and say something is clear, he doesn’t need evidence and just decides it (faster and cheaper)

o downside is if the parties intended something else and there really is another meaning

o if we don’t hear evidence on it, could cause more damage

o plain meaning courts, if the k isn’t clear, …

– other times they talk about all the different things the ambiguity means

II. Interpretation of Written Arguments

– Court first tries to determine if language of written agreement is ambiguous on its face

– Then they try to interpret the language of the k

o If its unambiguous, the judge decides its meaning (plain language rule)

– Only the court determines language to be ambiguous, then permit extrinsic evidence (parol evidence)

o May consist of written or oral communications

o Ambiguous language is for jury to decide

Guilford Transportation v. Public Utilities Commission: PUC was Central Maine Power Co’s agent (CMP). They wanted to run fiber optic cable through Guilford’s property. The k called for wire. Guilford was not okay with the wire on their property.

– issue is the meaning of wire. Both parties thing the term is unambiguous and moves for summary judgment.

o Court first looks at k and context clues to determine if fiber optic cables are allowed. Because of the differences, they state the term is ambiguous

o Both first refer to dictionary definitions of the word wire to show fiber optic cables apply or don’t apply. Since there are sources that support both, they move on to other parts of the k

o Court moves on to the term “appurtenances”

§ ∆: communication wires and fiber optic cables (∆ wins this one)

§ π: paragraph 9 refers only to communication wires for control center and switch

o they look at other technical aspects: fee schedule

§ ∆: fee schedule can include zero volts

§ π: fees schedule demonstrates parties cannot intend to cover fiber optics, voltage carried between zero and 750 volts (fee of $75 annually) (π wins this one)

– k boils down to

o ∆: if they intended to exclude fiber optics they would have so explicitly and not mentioned appurtenances

o π: when they made the k, CMP was only an electric company and not engaged in telecommunications, so they only meant appurtenances to mean conduits with electricity

– previous dealings in fiber optics were consi

ing we know is there; the k talks about the term in question so we can determine what it means

§ what evidence outside of the k are we willing ot look at to figure out what it means, or will we stay within the four corners of k to figure out the meaning

o PER: there’s another agreement that isn’t anywhere in the written agreement; if the agreement outside of the k can be read as part of the k. what can we bring in that we clearly don’t see in the k

– Things are put in writing to memorialize the agreement. You want written evidence to the agreement. Relying on memory isn’t the best way. Sometimes you want to go back to the k and see what was agreed on; it can serve as protection

– generally in a k, most weight is given to written terms; we exclude anything that wasn’t written.

o Extrinsic evidence is used with the written terms are unclear/ambiguous/incomplete; parol evidence permitted if judge rules terms are any of those

o When the writing exists, parol evidence limits party’s ability to offer extrinsic evidence to supplement or contradict the written memorial (no matter written or oral)

– Parol evidence purpose: when parties record their agreement in writing and don’t put everything they wanted or discussed

Policy

– if you don’t need parol evidence, not allowing it will result in less money and time of litigation

– if the parol evidence is not critical, not allowing it will control the jury

– sometimes used to fill out terms of writing

– impact of admitting or excluding parol evidence depends on how central it is to the claim or defense of the party who seeks to rely on it

o if judge says evidence is admissible, fact finder hears the evidence and evaluates its credibility along with all other evidence presented at trial; if inadmissible, may make claim fail. Depends on if the evidence is supplementary or really necessary

o if its not relevant, not allowing it can save money and permits judge to control jury (this is his way of screening them)

– typically used for evidence in writing

o if the writing is final and complete (fully integrated) the evidence is not admissible. If its incomplete, evidence is admitted to fill out terms

o if the writing is final but doesn’t express entire agreement, its partially integrated and evidence may be integrated

II. Application of Parol Evidence Rule at Common Law

– the rule can be good or cause harm; it serves fairness by acting as a barrier to a party who tries to claim that the k included a term that was never there, but it can defeat the cause of fairness by excluding evidence of something that was truly agreed

– R2K §213 #1 and #2

o A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them

§ Concrete evidence. If you have a written agreement, you cannot contradict it

§ If something is contradictory (inconsistent evidence to supplement the k that is really trying to change it), its not permitted

o A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope

§ Completeness of agreement

§ Was the issue completely dealt with? If so, not extra evidence