Contracts II Outline

Contracts II Outline Ledwon Spring 2014

Threadgill v Peabody

The subconractor and general entered into oral K to do probe tests to locate coal; equipment was lost during the drilling. The court found that trade usage that driller bears risk of loss is applicable in this case because actions of the parties were consistent with that usage. Peabody drilled=>bore the risk.

Policy argument. Generally parties cannot contract away liability for negligence. Such Agreement is unenforceable unless parties had equal power and K is express and unequivocal.

To be binding the trade usage must be

– sufficiently general, constructive knowledge is assumed.

-party had actual knowledge.

· Unless carefully negated, trade usage is admissible to supplement the writing to supply a missing term.

· Implied terms can become part of K if K is silent!

Rogers(Promissory note) Partially integrated K.

Extrinsic evidence is admissible in partially integrated K if doesn’t contradict the writing.

Condition precedent/Subject to occurrence=>not fully integrated.

Partial integration=> oral statements that D will pay when he can are admissible b/c they do not contradict the written K.(additional terms are part of larger agreement)

Dissent: Part.integration but oral agreement does in fact contradict “ I will pay v I will pay if I can”

Nelson(car dealership) 4 corners test vs.circumstances. Merger clause enforceable.

Majority:

4 corners test. Does the K look complete/everything there?

Merger clause in sale K precluded consideration of extrinsic evidence of parties’ intent to include separate service agreement under which seller was to receive $50 for each vehicle sold during 7 y.period.

Dissent, modern view:

merger clause does not automatically bar the considerations of extrinsic evidence; we must look at everything, circumstances to figure out the intention of the parties.

Preventive Lawyering

· Put reference to other Ks if you want to include them as part of a deal!

· But in BOLD LETTERS!!!

· Initial/sign each page.

· Use MERGER CLAUSE “This is the entire K, K cannot be supplemented by trade usage/course of dealings or modified unless both signed”.

· Talk to your client, what he wants?

Merger Clause.

Ø limits the potential dispute to the terms expressly stated in writing.

Ø evidences of intent/finality. Prior negotiations merged into this K.

Usually they are enforceable and extrinsic evidence is inadmissible. But you still can argue exceptions to RER.

Ø Comment 3-202 EVEN IF THERE IS MERGER CLAUSE, extrinsic evidence may be admissible to ascertain the intent of the parties if:

– additional terms are such that if agreed upon they would certainly be included in K-> not admissible.

– additional terms are consistent with writing-> admissible.

Parol Evidence Rule.

Common Law

· Once an agreement has been reduced to a final and complete writing, the P.E.R. operates to exclude from judicial consideration extrinsic evidence offered to alter or vary unambiguous contractual language.

· But Parol Evidence of additional terms is admissible to supplement a partially integrated written agreement if the additional terms are consistent with the writing.

Exceptions to PER (when extrinsic evidence is not barred)

ü Separate agreement(separate consideration)

ü K defenses (fraud, duress, mistake, illegality, unconscionability)

ü Trade usage or prior dealing

ü Interpretation problem (ambiguous term)

ü Both parties did not intent writing to be final.

UCC

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 evidence of:

(a) course of performance, course of dealing, or usage of trade (Section 1-303); and

(b) 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.

The Code’s hierarchy. § 1-303(e):

The express terms of an agreement and 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 unreasonable:

(1) express terms;

(2) course of performance(history of performing this particular K, possibly multiple occasions)

(3) course of dealing (not this particular K, other past transactions)

(4) usage of trade.

Simmons.PetFoodcase. Not integrated K but evidence inadmissible.

The court didn’t allow evidence of course of dealing to prove that parties contracted for longer term will contradict the express term of the writing which states 1 year K.

Other issues: Requirement and Output K and best efforts/good faith.

CISG.

Ø applies if the governing law is not stipulated. But art.6: you can exclude application of CISG

Ø “international sales of goods”

– K for sale of goods;

– party whose places of business are different States;

– country is signatory of CISG

Ø Excluded: goods bought for personal use/household(consumer transactions).

MCC-Marble. CISG applies.Art.8 requires to consider all relevant circumstances to determine the intent of the parties.

The rep of Fl company orally agreed to buy titles from Italian comp. during a trade fair in Italy, later he signed seller’s standard pre-printed order form which was in Italian and had terms on the front and the back. The buyer disputed the fact that he is bound by the terms on the reverse side and offered affidavits from other employees to show their subjective intent not to be bound by these terms. The court allowed to introduce the affidavits to ascertain the subjective intent.

INTERPRETATION.

(exception to PER, so parties can bring extrinsic evidence to explain ambiguous terms)

Preventive Lawyering

– Draft it yourself!

– Put definition of the word/ Define key terms(by X parties mean that)

– Be specific

– Talk to the client what he expects

– Make fully integrated(merger clause)

Rest § 212 Interpretation of Integrated Agreement

(1) The interpretation of an integrated agreement is directed to the meaning of the terms of the writing or writings in the light of the circumstances.

Two approaches to use interpretation:

1. Plain Meaning/Four Corners

2. Reasonably Intelligent Person’s Interpretation considering context surrounding K

Chicken case by Judge Friendly. NOT PER problem b/c term chicken was already in their K.

Did the chicken supposed to be old fowl or young broiler? Judge looked at outside evidence to interpret the meaning of the word chicken: dictionary, Dep.of agriculture regulations, trade usage, cables, prices, expert testimony. Nothing was convincing.

The court found that P did not meet its burden of proof to show that chicken was used in narrower sense.

IF word is capable of more than 1 meaning for a reasonable person.

· Mutual Mistake.=>no K and no damages. You are not thinking about the same S-M. No mutual assent like in Peerless. Completely different things.

· In Chicken case. Argument only about quality. SM is the same.

Rosetta e-book case. New use problem.

Whether Random rights “to print, publish and sell the works in book form” included the e-book format. If the word capable of more than 1 meaning, extrinsic evidence is admissible. The court found that the format of “e-book” is a special format b/c of many additional features to the customers e.g. highlight, index, bookmark, electronically look for some words, use hyperlinks, use desirable style and font size. In addition, the medium of use is digital medium is different from the original printed book one.

Specify the form!

Interest rate case by Judge Kozinski

P (big company) borrowed $56mil for the project to build facilities for 15 years at 12,5% interest rate, which at that time was good rate, but later the interests rates dropped and P wanted to pre-pay this loan. K provided no pre-payment for 12 years and D had exclusive rights to determine the terms in case of default. P wanted to introduce extrinsic evidence (preliminary negotiations/e-mails/earlier draft) to show that they could prepay the loan.

CA law: 1) judge decides what is ambiguous and what is not and the decision can be affected by the linguistic background of the particular judge. 2) even unambiguous Ks are subject to modification by parol/extrinsic evidence.

Judge K.thinks that there is a plain meaning of the words and K is crystal clear in its terms but he was bound by CA law and had to allow extrinsic evidence to come in. Judge thought that CA approach is likely to divulge the original intent of the parties but it is the legal system’s fault to encourage this kind of lawsuit.

Modern Trend – contextual(look at circumstances). But some jurisdictions use different approaches.

Special interpretation for K of adhesion

K of adhesion. Take it or leave it, non-negotiable(cheaper for public not to negotiate,saves$)

Fire insurance case. Appraisal clause valid.

The parties (the owner of the burnt house and the insurance comp) disputed the clause in the insurance K that the amount of loss must be determined through the appraisal process in which both parties select an appraiser and his appraisal would be binding. The court found this clause to be valid.(not unconscionable/nothing ambiguous/no fraud/no formation problem).Appraisals are good for public b/c less litigation.

Collision damage waiver case. Reasonable expectations.

D (insurance comp)suing the driver who rented the car from them. The dispute is about the extent of insurance/what it covers. The driver bought collision damage waiver and paid extra $ for it. The driver was intoxicated when collision occurred. The insurance comp. claimed that the terms of the K had exclusions for coverage and one of them was intoxication. But court used reasonable person expectation approach which is what a reasonable person would think/ex