I. Finding the Law of the Contract
– interpretation (a dispute about a specific word in the contract)
– PER (first thing you have to have is a written contract. Next you are trying to add a specific term into the contract)
– Filling the gaps
(everything is intent driven)
A. Determining the subject matter to be interpreted
– parol evidence rule: typically called into play where a contract has been reduced to
writing after oral or written negotiations during which the parties have given
assurances, made promises, or reached understandings.
– where the parties have embodied their agreement into writing, it may preclude
reliance on such evidence as negotiations.
– a rule of sunstantive law that precludes any showing of the ultimate matter of fact
itself, that is, any showing that the terms of the contract are other than as expressed in
– when you have a written contract and someone is trying to add a term, you have to
apply the PER. Only applies from the time the contract is made and everything that
happens prior to.
– PER is decided by the court not the jury.
1. Is the contract integrated? (if it is in writing, there is a presumption that it is
2. Is that integration complete or partial? (if its complete, then you stop. If partial,
then on to step three)
3. Does the term contradict the written contract?
– 3 tests for determining step 2.
1. 4 corners test: only consider what is written
2. restatement test: (naturally test): look at the term and say would the parties
have naturally included it in the contract?
3. UCC test: (certainly test) would the parties have certainly included it in the
Merger clause: a clause that says that the contract is a complete integration. It is not conclusive with the UCC. It def. works with the four corners test.
Gianni v. R. Russell & Co.
– Russell bought the building where Gianni had his shop. When he bought it, a lease for 3 years was signed for Gianni to continue running his store, however it was stipulated that “it is expressly understood that the tenant is not allowed to sell tobacco in any form, under penalty of instant forfeiture of is lease.” Plaintiff (Gianni) claims that there was an oral agreement that as consideration for his inability to sell tobacco, he was to have exclusive right to sell soft drinks in the building. A drug company later moved in and was selling soft drinks. P sued alleging that his profits had been reduced b/c of it.
– Defendant appealed. “where parties, without fraud or mistake, have deliberately put their engagements in writing, the law declares the writing to be not only the best, but the only evidence to their agreement.”
– Ct. uses the parol evidence rule to reverse and hold for the defendant. “since his promise to refrain was included in the writing, it would be the natural thing to have included the promise of exclusive rights.” “if the alleged extrinsic negotiation is mentioned, covered, or dealt with in the writing, then presumably the writing was meant to represent all of the transaction on that element.”
– Was it integrated? Yes. Because it was in writing and it had everything in it we need for a contract.
– Was it complete or partial? Using the restatement test, would the term have naturally been included in the contract.
– The court decided that the term would have been included and thus it is complete integration.
Masterson v. Sine
– part of this case is talking about interpretation and part is talking about PER.
– Mastersons conveyed their ranch to Sine reserving an option to purchase it back within 10 years for the same price they were sold it for plus the depreciable value of any improvements the Sine’s may add. Mrs. Sine is Mr. Masterson’s sister. Mr. Masterson goes bankrupt and his wife and his trustee in bankruptcy are trying to enforce the option. The Sine’s argue that there was an oral agreement that the option was not assignable in order to keep the property in the Masterson family.
– Two different plaintiffs (The trustee and Mrs. Masterson) who both want to exercise the option.
– Both plaintiff and defendant are trying to offer 3 pieces of extrinsic evidence. (1) the agreement that it was suppose to stay in the family. (2) depreciation value meant… (3) same consideration meant…
– (2) and (3) above are talking about interpretation therefore we don’t have to go through the parol evidence rule. (1) is adding something to the agreement and has to go through the parol evidence rule.
– 3 terms in dispute: option clause, depreciation clause, and price.
– Mrs. Masterson won at trial and it was overturned at appellate. The ct. used the “naturally” rule.
– Policies/reasons for the parol evidence rule: (1) written evidence is more accurate than human memory. (2) concern for fraud and perjury.
– The question is was there complete integration. This case established that more than just the written agreement should be looked at when deciding this.
– The old rule in California was the four corners rule. This court changes it by choosing the naturally test.
– The dissent says that the new term contradicts and satisfies step three.
MCC v. Ceramica Nuova D’Agostino
– MCC is a retailer of tiles and D’Agastino is a manufacturer of tiles. They signed a contract while it Italy. MCC said that the tile shipped was not of the quality required by the contract, and it reduced it’s payments. Then D’agostino replied by not filling MCC’s orders. MCC sued. D’Agastino claimed that two clauses on the back of the contract allowed them to do what they did. MCC claimed that they had agreed not to apply the terms on the back to their agreement.
– The court rejects the parol evidence rule.
Bollinger v. Central Pennsylvania Quarry Stripping and Construction Co.
– The Bollingers signed a contract with Pensylvania co. that allowed them to deposit waste on their property. The Bollinger’s claimed that there had been a mutual understanding between them that the waste was to be placed under the topsoil and then the topsoil place back over it. They did this for a while but then stopped. The contract did not have this language in it. The trial ct. held for the P and D appealed.
– In an equity ct. b/c they want the court to rewrite the contract and then enforce it.
– Appellate affirmed saying it was proven that there was in fact a mutual mistake evidenced by the fact that they did do for a while what was alleged to have been agreed to do.
– There are exceptions to the parol evidence rule: (1) mutual mistake (2) fraud
-no-oral modification clauses: clauses that prevent future oral modification to the contract. Usually not enforced. Is enforced under the UCC.
B. Interpreting Contract Language
Vague: a word is vague when its applicability in marginal situations is uncertain. (green)
Ambiguous: a word is ambiguous when it has two entirely different connotations so that it may be at the same time both appropriate and inappropriate. (“light” when applied to dark feathers.)
Frigaliment Importing Co. v. B.N.S. International Sales Corp.
– What is Chicken?
– The buyer wants a narrow interpretation of chicken and the seller wants a broad interpretation of chicken.
– The courts used an objective standard of interpretation.
– Evidence the Ct. looks a
– The appellate ct. says that the exclusion of relevant extrinsic evidence to explain the meaning of a written instrument could be justified only if it were feasible to determine the meaning the parties gave to the words from the instrument alone. They looked at the extrinsic evidence and reversed.
Delta Dynamics, Inc. v. Arioto
– Delta agreed to supply trigger locks to Pixey and Pixey promised to sell a minimum of 50,000 units during the first year and 100,000 during the second year. The agreement was subject to termination if Pixey failed to meet the min. Pixey only sold 10,000 locks in the first year and Delta terminated and sued.
– If one side wins a suit they will get the attorney’s fees.
– It is an exclusive distributorship contract. Pixy has the exclusive right to sell the products on the market.
– The trial refuses to allow extrinsic evidence.
– Under the all circumstances rule, you have to first let the extrinsic evidence I and then you can determine that it is irrelevant. California is an all circumstances jurisdiction.
– On the test: if we are in an all circumstances jurisdiction we do not need to talk about plain meaning.
3. Rules in Aid of Interpretation
a. The statutory analogy: policy for and against the use of legislative history as
compared to policies for and against the use of negotiations (‘transactional history”)
b. Purpose Interpretation: purpose interpretation for statutes compared to contract
c. Public Interest: public interest may also affect the interpretation of contracts.
d. Maxims: ejusdem generic (of the same kind), expression unius est exclusion
alterius (the expression of one thing is the exclusion of another), and noscitur a
sociis (It is known from its associates) are all used in contract interpretation too.
Contra proferentem (against its author or profferer) is not used in statutory
Hurst v. W.J. Lake & Co.
– Hurst contracted to sell Lake horse meat scraps at $50 a ton for “minimum 50% protein” and if any of the scraps “analyzes less than 50% protein” Lake only had to pay $45 a ton. 140 tons of the meat contained 49.53-49.96% protein. Lake only paid $45 per ton and Hurst sued.
– Hurst said that they both were members of a group of traders in horse meat scraps and that Lake knew that the group used the term “minimum 50% protein” to mean 49.5% protein or more. Trial ct. held for Lake and Hurst appealed.
– Appellate ct. reversed saying that you should look at the industry standards and not assume that the words are always used in their orthodox sense.
C. Filling Gaps
– when the contract has a omitted term which the parties never thought about.
– this is not the parties adding to the contract but the court adding to the contract.
(1) Expectation: (a) shared expectation of the parties; or (b) reasonable person’s