Contracts II Overview
Finding the law of the contract
Goal: To find the intent of the parties when they entered into the contract. Three methods
Interpretation – what a term in a contract means (ie. Delivery date the discretion of the farmer)
Parol Evidence Rule – trying to add a term that is not included in the contract (ie. We really agreed to a term that wasn’t included in the k).
Note: Different Rules under the UCC and Common law
Filling in the gaps – terms neither specified in the contract, nor considered in its drafting (ie. Not discussed because it will blow the deal)
UCC presumes that people often leave out terms in a contract
Section 2 has every term you need to quantify with the exception of quantity.
Performance of the Contract
Good Faith – After a contract is formed, it is assumed that the parties will use good faith
Conditions – “I will sell you my house if you do a certain thing.”
Ex. Insurance – the promise to pay for your car is conditioned upon you wrecking your car (the condition).
To determine whether there is a condition for the K, you must find the law of the k.
Two types of Conditions
Breach – who breached first?
Ordinarily because someone breaks their part of the promise, that does not give you permission to break your promise. Must consider the type of breach.
Types of Breaches
ii. Minor –
Perfect Tender and the UCC
Anticipatory repudiation – you can tell ahead of time a party is going to breach
Excuse From Breach
Frustration of purpose
Figure out the important terms of the contract
Identify terms that would raise interpretation issue
is anyone trying to add a term (Parol Evidence Rule)
Terms the court should imply (Implication)
Parol Evidence Rule
– deals with agreements reached before the K was written (vs. agreements made after the formation of the k).
– Agreements may be written or oral.
Parol Evidence Rule analysis
Rules Statement: A party seeking to add a term agreed prior to the k’s signing may bring the term into evidence so long as the contract was a total integration and the proposed term supplements the text of the k.
1. Written Contract? Adding a term?
2. Was the proposed term agreed prior to the K’s signing
3. Integration: whether the agreement is a final expression of the terms
a. Written contracts carry a presumption that it is final
4. Total/Complete/Exclusive Integration or Partial Integration: To find whether the parties intended for this agreement to be a total integration of all their terms, the court may use either of the three test below.
a. Common Law: 4 Corner’s Test (Minority Rule)
i. Not helpful because you always need more information to determine whether it is complete
ii. Merger Clause – generally conclusive
iii. Note: Based on jurisdiction and not based upon the sale of goods
b. §216 Restatement Test: naturally; (Majority Rule)
i. Would this term have naturally been included in the agreement?
ii. Merger Clause – not totally conclusive (ie. a standard form agreement, where the parties don’t know what the merger clause means).
iii. If yes, then total and evidence inadmissible. If no, then partial.
c. UCC: Certainly Test (Sale of Goods)
i. Would this term have certainly been included in the document?
ii. UCC has presumption that the agreement is partial because the UCC always assumes that there is another agreement that is not in the K. Therefore, you must show conclusively that parties intended for the k to be a total integration
iii. Merger Clause – Not conclusive
5. If total, evidence barred. But if partial, court ask
a. Special Note: If you are under the UCC §2-202, COP, COD, and Trade Usage are exceptions. Even if total integration, these three may be used to supplement the contract.
6. Does the term contradict of supplement?
a. Contradicts – then it won’t be admitted into evidence
b. Supplements – then it will admitted into evidence.
c. Total negation test – unless he term you’re attempting to add, totally negates the express terms, its coming in. As long as they can stand side by side and is an exception.
Application of the Total Integration principle.
Did the lessor breach contract with Gianni when he violated Gianni’s “exclusive right” to sell soda and soft drinks.?
Here, the Gianni sought to add the term “exclusive right” to the contract that only said he wasn’t allowed to sell tobacco. Rather, only soda and soft drinks. Gianni claims the therm was orally agreed two weeks before and at the time of the K. Applying the Restatement naturally test, court finds that a person would naturally included such a material portion into the contract. Gianni claims that the consideration for his agre
rial and universal (more stringent than UCC)
– UCC – regularity of observance
– deals with the meaning a term in the contract
– Must first determine the terms in the contract before considering whether a term should be added to a contract
– You can’t talk about the terms of the K until you understand what the term means (ie. You can’t add goose to the K until you determine whether chicken includes geese)
Elements of the Interpretation Rule
Rules Statement: The court will allow evidence to interpret a contract term if the parties attach different meaning to an ambiguous term and neither party had actual or constructive knowledge of the terms meaning.
1. Is the term Ambiguous in that it may have more than one meaning attached to it?
a. Plain Meaning Rule (PA) – Four corners rule. The court finds the meaning of the contract by looking at the contract’s plain meaning. Here, judge applies his common sense understanding of the term.
b. all circumstances rule, Corbin Rule (CA) – Court doesn’t look at any one term of the contract. Rather, the court considers all the circumstances to determine whether the term is ambiguous.
i. This includes COD, COP, TU, etc.
2. Do parties attach the same meaning to the term?
i. Objective Test
3. Peerless Rule
a. If parties attached different meaning to the term, the court asks should the party had known or did they know.
i. Note: no contract on the term unless there was actual or constructive knowledge of that term.
b. As a result, the peerless rules only voids a term. Therefore, if it’s a minor term, then the contract will still continue. (If sell of goods, the UCC will fill in the missing term)
4. Evidence Hierarchy UCC 2-208(2):
a. Terms of the K
d. Trade Usage
Facts: Buyer (swiss group) want to buy chicken from the seller (NY) – make two contract for sell of chicken. Buyer gets the fowl chicken (stewing) but want the broiling chicken. Swiss corp says they used the English word chicken.