I. Parol Evidence Rule
Parol Evidence and Common Law
· The parol evidence rule provides that parol evidence will not be admitted to vary, add to, or contradict the written contract that constitutes a total integration.
· Total Integration – a written contract which the parties intended to be the final and complete expression of their agreement
· If you have a total integration the writing wins and it excludes parol/outside evidence
· Partial Integration – written contract that is final but not complete
· If you have a partial integration parol is admissible
· The rule is a rule of evidence and a rule of law
· Also is a rule of substantive law and rule of procedure
· This rule is applicable to all types of contracts
· Merger Clause – clause/provision that says “this is the final and complete/exclusive deal”. “Nothing else can be added to this contract”
· This is some evidence that the writing is a total integration but it’s not complete on this issue
· Even if the agreement says it is final and complete it still may not be
· The rule excludes prior promises that contradict the writing
· Evidence of fraud, sham & mistake are still admissible
Parol Evidence and Sale of Goods
UCC § 2-202 Final Written Expression: Parol or Extrinsic Evidence
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
a. by course of dealing or usage of trade (1-205) or by course of performance (2-208) and
b. 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
· This provision is not very different from the parol rule. It Adds a few details needed to be included in a sale of goods contract
· Includes a provision for confirmatory memorandum
· Sometimes forms are going back and forth – can confer the deal from a document coming from one party
· A confirmation could be the writing for parol evidence
· The writing must be intended to be a final expression –cannot present oral evidence
· contemporaneous promise – same time
· In sale of goods certain types of evidence is admissible
· Course of dealing; usage of trade or by course of performance – always admissible unless the writing specifically negates this evidence
· Course of Dealing – sequence of previous conduct b/w the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct
· Usage of Trade — any practice or method of dealing having such regularity of observance in a place, vocation 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 is embodied in a written trade code or similar writing the interpretation of the writing is for the court
· Course of Performance — Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in w/o objected shall be relevant to determine the meaning of the agreement
· Admissible to explain what the parties intended
· Partiers must establish that is the type of evidence they have
· Evidence cannot contradict the writing.
· Evidence of consistent additional terms is also admissible unless writing is a total integration
· Integration Clauses
· Some indication that the writing is a total integration. Any promises that are different from what was expressed would contradict the writing.
· Evidence of Sham or Fraud is always admissible
Interpretation
· The rule allows parties to explain ambiguous language
· Reasonably Susceptible Test — If a party wants to present evidence that explains the meaning of the terms they can if the judge is convinced that the extrinsic evidence is relevant to prove a meaning to which the language of the instrument can be reasonably interpreted.
UCC § 2-208 Course of Performance or Practical Construction
1. Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in w/o objected shall be relevant to determine the meaning of the agreement.
2. The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonable as consistent with each other; but when such construction is unreasonable, express terms shall control course of performance and course of performance shall control both course of dealing and usage of trade (1-205).
3. Subject to the provisions of the next section on modification and waiver, such course of performance shall be relevant to show a waiver or modification of any term inconsistent with such course of performance
UCC § 1-205 Course of Dealing and Usage of Trade
1. A course of dealing is a sequence of previous conduct b/w the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct
2. A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation 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 is embodied in a written trade code or similar writing the interpretation of the writing is for the court.
3. A course of dealing b/c parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement
4. The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade
5. An applicable usage of trade in the place where any part of performance is to occur shall be used in interpreting the agreement as to that part of the performance.
6. Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise to the latter.
Cases that Analyze Whether the Writing was intended to be final
Paymaster v. Mitchell
(Farmer and Paymaster make an oral agreement for the delivery of 4000 soybeans. Written Agreement incorporates oral agreement. Drought occurs and Farmer delivers less. Paymaster sues for breach of contract. Farmer wants to introduce Course of performance. Evidence is admitted.)
· Under 2-202 the writing may take 2 forms – writing signed by both parties or a letter confirming the deal (confirmation) and a single memoranda may be sufficient.
· One writing/confirmation is sufficient as long as the other party does not object to it w/in a reasonable time. Under the code a single memoranda can be sufficient.
· A confirmatory memorandum is NOT a total integration if the contract expressly states that the oral agreement is also included even if the agreement has a precise price term. It is not complete (partial integration) and the evidence is admissible.
· If the agreement is a total agreement, usage of trade course of dealing and performance would still be admissible as long as it did not contradict the writing.
If the writing is comprehensive, complete, then ask whether the writing is a total integration
Final – partial integration
Final & complete – total integration
If you have a promise that is really an important element of the K it shoud be included and if the K is complete but there is another critical element not included in the total integration have to prove that promise was part of a collateral agreement.
§ Lee Case
Court showed collateral agreement was –
Subject matter of the 2 promises where different. A collateral agreement is a separate agreement that can be proven by parol
§ Betaco
K has a disclaimer provision and is very detailed
Court found writind was a total integration b/c the issue discussed was fully addressed in the K and is barred by the rule.
§ Pacific Gas
Under Ca the court does not accept the proposition that the writing is plain – accept proffer if it is reasonable – no such thing as plain, never exclude proffer unless not reasonable. Whether the proffer would relevantly prove the meanind – still cannot contradict
§ Trident
Writing is plain as to issue questioned
§ Raffles
Intent proffer – K has a term that each party disagrees as to the meaning. If you have a K that has an ambiguous provision, under PE rule you ought to be allowed to testify as to what a provision means.
§ Nanikuli
A sale of goods and parol evidence and evaluates usage of trade and course of performance – always admissible unless excluded by parties.
Problem –
– Usage of trade – have to establish that is actually the trade usage – regulatory used in the industry or trade.
– Course of Performance – if you have a conflict b/w language of K and course of performance – language should win – here they permitted it anyway b/c the language was extremely contradicting
Columbia Nitrogen v. Royster
(Parties enter into a contract for phosphate. Phosphate prices soon plunged dramatically. Columbia was unable to resell the phosphate at a competitive price and ordered only part of the scheduled tonnage. Columbia ordered less than a 10th of what was contracted for the first year. Columbia offered to take the phosphate at the current market price but Royster refused delivery. Royster sold the unaccepted goods at a substantially lower price than the contract price. Contract had a price provision that could be raised according to market conditions. Evidence of Course of Dealing and Usage of Trade was admitted even though writing was final)
· Under code one does not have to show that writing is ambiguous to introduce course of performance, dealing or usage of trade evidence unless you specifically state that outside evidence is excluded.
· Even if there is a Merger clause, the evidence is still admissible to explain or supplement the writing.
Southern Concrete v. Mableton
(The parties entered into a contract under which the seller agreed to supply the buyer with approximately 70,000 cubic yards of concrete over the course of 10 months for use in the construction of a building foundation. During the time period involved, the buyer ordered only 12,500 cubic yards of concrete. Seller filed suit and Buyer tries to introduce usage of trade evidence by using testifying witnesses and the evidence is not admitted.)
· For one to use evidence of usage of trade, one must first demonstrate that is a usage of trade by showing that it is typical and common in the business before submitting it.
· Producing evidence of several witnesses who are going to say what is common in the industry is not sufficient. The fact some people gave up a breach and renegotiated is not widespread enough to constitute usage of trade evidence
II. Capacity of Parties
– for parties to make a K they must have capacity or its is voidable
– you can avoid
– and can ratify if you continue
Petit v. Liston
(Minor buys motorcycle, uses it and attempts to return it after a month and recover his deposit)
· A minor is not stuck with the deal as long the seller is compensated for the use and destruction of the property (wear and tear).
· On the minor’s side the interest we seek to protect is the Presumption of minors that they are commercially unsophisticated. Not smart or informed and need to be protected.
· The Interests that we seek to protect for the merchant is that if he was not protected people would be sending minors to buy everything b/c they can get out of it.
· Contracts by minors are voidable.
· Minors have a lack of capacity and contracts made with parties that have lack of capacity are voidable
· If the merchant knows that the person has lack of capacity and assumes the risk of loss stemming from that contract The contract is void and he is not protected to recover for wear and tear.
· Age of majority varies in states and sometimes changes with marital status.
· Can a person take of advantage of the fact that he is protected as a minor? Does the law only protect uninformed minors or all minors? There is an absolute protection. If you are a minor you are protected. The contract is voidable – it is good but can be avoided. They can get out of it
· If a minor is advised by his parents to enter the deal the contract still voidable and the power of avoidance stays with the minor as long as he is a minor.
· Upon reaching the age of majority, the power of avoidance remains for a reasonable time. A minor or person that lacks capacity can disaffirm their contract up to including reaching age f majority and for a reasonable time of gaining majority or capacity.
· 2 months is a reasonable time – 2 years is an unreasonable time
· Necessities are distinguished from luxuries because parents are responsible for the minor’s necessities. If a minor needs money for necessities parents should pay because the parents should have been paying in the first place. Contractual relief is being given. Must pay for the value of the benefit conferred if the benefit conferred is a necessity.
·
– age of majority varies among the jurisdiction
–
Ortelere v. Teacher’s Retirement Board.
(Woman is mentally ill and is on work leave. She changes her retirement plan in order to recover all her earnings now and leave none for after she dies. Woman dies and her reserve caves in leaving nothing for her husband and child. The court gives the money to the family although there was evidence that the woman was of rational mind when she changed her retirement plan.)
· Mental Capacity Tests –
· Restatement Test — Did her mental illness prevent her from acting in a reasonable manner? Did the mental illness cause her to make an irrational, unreasonable decision
· Applied a psychosis test which is – Did she lose contact with reality because of the mental illness?
§ The key is that the decision is rational and not irrational
· Contracts of mental incompetence are voidable.
· If you have know, or have reason to know, the person is incompetent and you do business with them the contract is void and seller assumes risk of loss. (Some courts say voidable)
– if you lack mental competence K is voidable
– can ratify once mental competency is regained
– here even though she was making rational choices but it could be she was under mental influence
UCC 2-403 — Power to Transfer; Good Faith Purchase of Goods; “Entrusting”
UCC 2-403 –a person with voidable title (person that lacks capacity buys something) has power to transfer good title to a BFP bonafide purchaser (3rd party buyer). You c
stone. Δs are partners in the jewelry business. The Π thought the stone might be a Topaz but was ignorant as to its value. She went into the Δs store to get a little pin mended and asked showed the Δ the stone. The Δ offered to buy the stone for 1 dollar but the Π refused the offer. The Δ did not know what kind of stone it was or how much it was worth. A few months later, Π was in need for money and offered the stone to the Δ for 1.00. The Δ accepted her offer and purchased the stone. It was discovered by the Δ that the stone was an uncut diamond and worth 700. Π demanded the stone back and tendered 1 dollar and 10 cents in interest for the return of the stone and the Δs refused.)
Rule for Mutual Mistake
Both parties are mistaken and looking to see whether the parties will assume responsibility for mistake –
Only way a K can be voidable for mutual mistake is if (1) the vendee was guilty of some fraud in procuring the same; (2) that there was a mistake by the vendor in delivering an article which was not the article sold which be a mistake in fact as to the identity of the thing sold with the thing delivered upon the sale
o The court differentiates b/w executory and executed agreements. If she still had the stone in her possession when she discovered it was an uncut diamond (executory) can rescind
o If he knew before hand that the stone was an uncut diamond it would have been a unilateral mistake. Not allowed to take advantage if people you are contracting with.
o Both parties thought it was worthless when they made the deal. They assumed the risk that they did not know what they were buying and selling
o Even if the buyer would have paid a lot of money thinking it was a diamond it turned out to be a topaz he would have been stuck with the deal
o K can be voidable if both parties are mistaken, unless parties assume the risk of loss
Lenawee v. Messerly
(Pickles purchased from the Messerlys a 600-square-foot tract of land which contained a 3 unit apartment building. The Pickles purchased the property for income purposes. Their contract contained as “as is” clause which read, “Purchaser has examined this property & agrees to accept same in its present condition. There are no other or additional written or oral understandings. Shortly after the purchase the Pickles discovered raw sewage seeping out of the ground. The Lenawee County Board of Health condemned the property and obtained a permanent injunction which prohibited human habitation until the sewage system met the sanitation code.)
Rule
If you have a K made by mutual mistake it can be rescinded except of one of the parties is assuming the risk of loss. If this happens, the party assuming the risk cannot come back and claim a mistake. Mistake law cannot save you if you contractually assume the risk.
o When you buy as-is you assume the risk of loss associated with that provision
o When buying the property, the assumption that this was income producing property was material to the K., but if they agree to buy as is the risks are allocated in the K and they are stuck
White v. Berenda Mesa
(White, the low bidder submitted a bid of $ 427,900 to the water district to construct a regulating reservoir. Before the water district had accepted or rejected any of the other eight bids, the low bidder informed the water district that he had made an “error in judgment” by vastly under-calculating the amount of hard rock to be excavated and asked to be permitted to withdraw his bid.)
Unilateral Mistake Rule
· In the case of unilateral mistake if the nonmistaken party knew or should have known of the mistake then the K is voidable, and can rescind
· If your mistake is a product of ordinary negligence, you can still avoid. But cannot avoid if your mistake is a product of gross negligence
The rule has evolved into a more equitable analysis – look to see if harm would be done if the mistake is not enforced and there would be harm if the mistake was used against
o In this case they did not know or should have known the bid was a mistake given the variance of the bid but White was allowed to rescind
o The court used a rule of equity, They were balancing the interest – no harm would be done to the business if they did not enforce the mistake against White, and White would if they enforced the mistake against him. White was negligent, but not grossly negligent.
Notes:
o Mutual mistake of law (law or regulations regarding what you can put on the land) Mutual mistake of law is still voidable. But, “Ignorance of law is no excuse.
o Unilateral mistake — mistake of ordinary negligence. Rule to apply – White — new unilateral – know or should have
o Where the mistake in preparing a bid is due to clerical error, and all the other elements calling for rescission are present, the mistake is one of fact and released the bidder from any obligation under his bid. However, what started as a clerical error may now be a negligence of a legal duty. Start with a unilateral mistake where other party should have known and was warned about the mistake. If you know or should have known of a risk you must protect against it.
o Mistake of performance case — if mistake was known or should Have been known to the Δ, cannot take advantage of the mistaken party
e. Reformation
Bollinger
(The parties entered into a contract whereby the contractor would be permitted to deposit its construction waste as it engaged in work on the nearby turnpike. The landowners agreed and as long as the contractors sandwiched the waste between the soil and top soil. The construction company agreed but did not include the term in the written contract. The landowners signed the contract without reading it because they believed the term was included. The landowners filed the action. The construction company did as agreed but after a while stopped and claimed that the written contract did not obligate them to do so.)
o Reformation is a remedy available to parties when there is mutual mistake
o When the court reforms an agreement (conform the writing to what is actually proved to be the agreement) the court conforms to what the parties understood the agreement to be.
o Can still have a mistake if one party says they are not mistaken. The party’s characterization of the transaction is not controlled by the court.
