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Contracts II
SUNY Buffalo Law School
Taussig-Rubbo, Mateo

Contract Outline



[1] Parol Evidence Rule

It is a substantive rule, not a procedural rule.

The threshold question: Did the parties intend their writing to be final at least as to the matters expressed therein (partially integrated), or did they intend their writing to be both final and complete (fully integrated) so that no prior expression of agreement of any kind will be operative?

The parol evidence rule does not come into play whenever a party claims that the written expression is not a manifestation of intention (it only comes into play whenever the parties suggest that it is or is not a complete manifestation of intent)

Generally – “parol or extrinsic evidence will not be received to vary or add to the terms of a written agreement. The rule is designed to preserve the integrity and certainty of written documents against disputes arising from fraudulent claims or faulty recollections of the parties’ intent as expressed in the final writing.” – Traudt, 350

PER only applies to prior or contemporaneous utterances

Prior oral evidence (parol evidence), which is not supported by a separate consideration, can only be introduced under three conditions:

(1) the agreement must in form be a collateral one;

(2) it must not contradict express or implied provisions of the “written contract”;

(3) it must be one which the parties would not ordinarily be expected to embody in the writing.




Summary: If court determines final writing to be:

Not integrated – extrinsic terms that are consistent and inconsistent may be admissible

Partially integrated – extrinsic terms that are not inconsistent may be admissible

Fully integrated – extrinsic terms that are consistent or inconsistent may not be admissible.

– Does not apply to preliminary question of integration (i.e. whether or not the parties intended the writing to be a final and/or complete interpretation of their agreement)

– Does not apply to interpretation

– Does not apply to evidence of fraud, misrepresentation, duress, mistake, or other invalidating causes (e.g. lack of consideration)

– Does not apply to evidence that the writing of parties is mistaken (mistaken expression) (i.e. fails to state true intentions of parties) àseeks reformation of the writing (see Davenport v. Beck – miscalculated interest in deed)

– Does not apply to evidence that parties did not intend their writing to operate as a contract until a condition precedent[1] occurred (see Smith v. Rosenthal Toyota, Inc.; see also Pym v. Campbell; Jansen v. Herman)

– Make sure to distinguish a “mistaken expression” (for which the equitable remedy of reformation is available) from a “mutual mistake” as to a material fact (for which reformation is not available, though the contract may be voided)

– “Gross negligence” in the plaintiff failing to read the document (and catch the scrivener’s error) may deny the plaintiff the right to reform the contract

UCC & Parol Evidence Rule: Even a complete writing may be explained or supplemented by evidence of course of performance and usage of trade (see Ralph’s Distributin Co. v. AMF, Inc.- evidence determining whether agreement granted plaintiff exclusivity is selling Ski-Daddlers; see also Columbia Nitrogen Company v. Royster Co. – UCC allows use of UOT/COD to “explain or supplement a contract”)

– UCC s 2-202 & 2-208(2) (p.794) – creates a hierarchy of sources to look to

– Express terms àcourse of performance (how parties have treated contract in question)àcourse of dealing (how parties have treated prior contracts with party)àusage of trade (how the industry treats such contracts) – moving from specific to general

Parol evidence rule does not preclude evidence of subsequent modification (see Ralph’s Distributing Co.; UCC 2-209)

Condition Precedent –

Is the agreement integrated?

– No

– Yes à does parol evidence contradict?

· Yes X

· No

[2] Subsequent Modifications

UCC 2-209 – Modification, Rescission and Waiver

– UCC 2-209(3) – controversy regarding modifications within Section 2-201 (statute of frauds)

[3] Interpretation

Interpreting contracts (see Mellon Bank v. Aetna Business Credit Corp.):

Words – if unambiguous, then the words prevail as are; if ambiguous:

Give the terms “reasonable” construction that is in accord with the intentions of the parties; to ascertain the intentions of the parties:

The court must look to the circumstances under which the contract was made, the situation of the parties, the objects they have in mind and the nature of the subject matter


– Patent ambiguity (i.e. on its face) – each party assumes the risk of the error (plaintiff bears burden of showing that defendant knew or should have known of his meaning)

o Frigaliment Importing Co. v. B.N.S. International Sales Corp. (what is “chicken”?)

– Latent ambiguity – parties are allowed to abandon without liability (b/c there is no nonarbitrary way of determing meaning)

o Raffles v. Wichelhaus (“Peerless”)

[4] Conditions

In contract law, “condition” is an event, other than the mere lapse of time, that is not certain to occur but must occur to activate an existing contractual duty, unless the condition is excused. R2d § 224

R2d § 225(1) Performance of a duty subject to a condition cannot become due unless the condition occurs or its non-occurrence is excused.

R2d § 227

The face or event properly called a condition occurs during the performance stage of a contract, i.e., after the contract is formed and prior to its discharge. [Contrast this with condition precedent to formation of contract]

Which party has burden of proof? Person trying to enforce duty, has burden of proving that condition precedent has been met

Promissory Condition – Where the same event is both a promise and a condition (e.g. buyer promises to notify seller when to ship goods, which conditions seller’s obligation to ship goods) it has been labeled a promissory condition. That is same event may be a promised duty of one party and a condition

breach the agreement since the Plaintiff had not yet performed his obligation.

Jacob & Youngs v. Kent

Citation. 230 N.Y. 239, 129 N.E. 889, 1921 N.Y. 828, 23 A.L.R. 1429

Replacement of the pipe would have been hugely and wastefully expensive.

A person is entitled to damages that will permit him to complete that which he contracted for as he intended it to be completed. However, where the cost of completion is grossly and unfairly disproportionate to the good to be attained, the measure of damages is the difference in value.

– R2d § 241 whether the breach is material

O.W. Grun Roofing and Construction Co. v. Cope

Citation. 529 S.W.2d 258, 1975 Tex. App. 3128

Multiple contracts? Must consider the actual bargain of the parties rather than the form of the agreement; the test is whether the parties exchanged promises contemplating an exchange of performances in which each promise and each performance was contemplated as at least part of the consideration for the other.

Divisible contract? Does performance on one side have an “intended” equivalent agreed exchange counterpart on the other side?

– Unless each performance on each side is intended agreed equivalent for the other, the contract is not divisible.

– Remember: a material breach of an “indivisible” contract will discharge the aggrieved party, whereas a material breach of a “divisible” contract will not discharge the duty of the aggrieved party to other “divisible” parts.

– R2d § 183

– Thunderstik Lodge, Inc. v. Reuer

– Regarding intention of parties: as long as the severability of the contract does not thwart the intention of the parties, it can be divided, despite the parties’ intention as to whether the contract may be divided or not.

– John v. United Advertising, Inc. (if there would have been no bargain without one of the promises, it is a single contract)

Installment Contracts – if a non-conformity in one or more installments “substantially impairs” the whole contract, there is a breach of the whole contract

– UCC 2-612

Where there is no express indication as to the order of performances in a bilateral contract, the “law implies a covenant and condition that the related obligations to be performed concurrently.” Bell v. Elder.

[1] If it is a question as to the formation of the contractàno parol evidence rule. If it is a question as to whether an existing contract contains a condition precedent to a duty to performàparol evidence rule applies.