Contracts II Outline
I. Finding the Law of the Contract: Finding the Intent of the Parties
A. The first step in resolving any contract issue is to determine what the parties intended the terms of their contract to mean
1. Parol Evidence Rule – Used when a party wishes to add a term to a written contract
2. Interpretation – When the court must determine the meaning of a term based on the parties’ intent
3. Filling the Gaps – addresses situations that the parties never thought to address in the contract
B. The Parole Evidence Rule: Use when you want to add a term.
1. Only deals with extrinsic evidence from the time of the signing and prior.
2. Only Applies to Written Contracts
3. Go through analysis to determine whether to admit extrinsic evidence that will indicate whether the parties intended to add the disputed term to the contract
a) Note: A “NO” to any step = evidence barred
(1) Is there a written Contract?
(2) Is a party trying to add a term to the contract?
(a) Note: Allegations of fraud, accident, or mutual mistake will prevent the Parol Evidence Rule from being applied- does not bar this evidence
(i) Court’s of Equity can rewrite a contract to reflect the mistakenly omitted term(s)
(3) Is the contract integrated?
(a) is the agreement a final expression of one or more terms?
(i) If written, presumption is that it is integrated,unless evidence establishes otherwise. See Restatement §209
(ii) If the answer is no, there’s not a contract at all
(iii) Integrated means that the contract is the final embodiment of the parties agreement
(4) If integrated, is the integration total/complete or partial?
(a) If total, analysis stops
(b) Three Tests Used to Determine Whether Integration is Total or Partial
(i) 4 Corners Test – determine, strictly based upon the terms in the contract, whether it is a total integration of the terms that the parties agreed upon
(a) A merger clause, found under this test, is dispositive
(i) Total Integration
(ii) Naturally Test (Rest. §216) – Determine whether the term to be added would have naturally been included in the contract be the parties
(a) If it would have been included, the integration is total
(i) Evidence Barred
(b) Test favored by Restatement
(iii) Certainly Test- U.C.C. §202
(a) Determine the parties would have certainly included the term in the contract
(i) If they certainly would have included the term, the integration is total
(b) This test is favored by the UCC (sale of goods)
(i) Creates a rebuttable presumption of partial integration
(i) The UCC provides an exception for three types of evidence that is still admissible, though the contract may be found to be totally integrated (UCC §2-202 (1))
(ii) Trade Usage – argument that there is a widely accepted and understood meaning or practice that should be included in the contract terms
(iii) Course of Dealing – How the parties have performed on past contracts with one another
(iv) Course of Performance – How the parties have performed, to date, under the contract at issue
(5) If partial, do the terms supplement or contradict what is written in the contract?
(a) If they supplement, the extrinsic eviden
ed in Interpreting a Term
(1) Plain Meaning Test
(a) AKA The New York Rule
(b) Read the term of the contract and determine, based on the contract alone, whether the term could be ambiguous
(i) If ambiguous, extrinsic evidence admissible to show what the parties intended the term to mean
(c) Even under the UCC, the Plain Meaning Rule will not exclude evidence of trade usage, course of dealing, or course of performance that does not contradict the terms of the contract
(2) All Circumstances Test
(a) Allow parties to produce evidence that will demonstrate that the term is ambiguous
(i) If term is found to be ambiguous, the parties are then allowed to bring in more extrinsic evidence to show what they intended the term to mean
2. If there is no way to interpret the contract and choose one parties’ intended meaning over the other, the contract may have to be voided
a) Raffles v. Wichelhaus: the parties each referred to a different ship by the same name.The court ruled that there was not assent in this case as to the terms of the contract, so therefore no contract.
(1) Rule: When neither party can sustain its burden of proof (usually required of the plaintiff) of showing that its meaning should prevail or was understood, then there is no proof of assent.
(2) Where the court cannot choose between two conflicting meanings, it won’t choose at all