Robert Downs Contracts II Spring 2012
Complete Outline
· Gianni v. R. Russell & Co.
o Exclusive rights to sell soda. Written contract embraces the field of the alleged oral contract, evidence of the latter is inadmissible.
· Masterson v. Sine
o Option to purchase ranch back in a deed. The option to repurchase was not complete and outside agreements could be testified about. An assignability agreement could be added to the contract because the contract says nothing about it and would not contradict the final agreement.
· Modern Rule:
o Test of Complete Integration: Comment b Restatement § 210 is the modern rule, stating “a writing cannot of itself prove its own completeness, and wide latitude must be allowed for inquiry into circumstances bearing on the intention of the parties.”
· Bollinger v. Central Penn. Quarry Stripping and Construction Co.
o Omitted description of process of dumping waste on the property (bury under topsoil). Course or performance was considered: has to do with how parties behave under the agreement. How did the parties act after the agreement was signed?
Parol Evidence and the Sale of Goods: UCC 2-202.
No-Oral-Modification Clauses:
· Typically not enforceable to add a clause that says that additional work will not be paid for without written documentation before extra work is started.
The Use of Extrinsic Evidence of the Parties’ Intent:
The Plain Meaning Rule:
– Often regarded as a corollary of the parol evidence rule.
– Generally used only for completely integrated agreements.
– Process for deciding the admissibility of extrinsic evidence
Stages:
1. The judge determines whether the language in the written agreement, with respect to the dispute in question, admits of only one plausible meaning, or, rather, is ambiguous. If the language is not ambiguous, extrinsic evidence as to its meaning will be excluded.
2. The court determines the meaning of the contract language. If, in the first stage, the language was found to be “ambiguous,” extrinsic evidence as to its meaning will be admitted to inform the court’s determination of the meaning of the contract language.
New York argues “four corners” rule and excludes extrinsic (outside) evidence.
California allows extrinsic evidence
“Four corners” rule assumes everybody has the same meaning for words. This is the vast majority in courts now.
· Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co.
· Delta Dynamics, Inc. v. Arioto
· Greenfield v. Philles Records, Inc.
· Position Most Courts Take:
o W.W.W. Associates, Inc. v. Gioncontieri
· Trident Center v. Connecticut General Life Ins. Co.
o Office building partnership. California allows seemingly unambiguous contracts to be modified by patrol or extrinsic evidence.
Methods of Interpreting Ambiguous Contracts:
Rules in Aid of Interpretation:
The Use of Extrinsic Evidence from Commercial Context:
· Frigaliment Importing Co. v. B.N.S. International Sales Corp.
o What is Chicken? Parol Evidence is admissible to know the meaning of an ambiguous term and its usage in the contract.
· Hurst v. W.J. Lake & Co.
o Horse Meat. Trade usage can govern the interpretation of a nonambiguous term.
The Use of Extrinsic Evidence to Supplement or Qualify the Agreement: Course of Dealing, Usage of Trade, and Course of Performance:
UCC 1-303(d) provides that course of dealing, usage of trade, and course of performance may not only give particular meaning to terms of an agreement but may also supplement or qualify those terms.
· Nanakuli Paving & Rock Co. v. Shell Oil Co.
o Asphalt in Hawaii. Trade usage and course of performance will be implied into contracts if there is evidence that it is not inconsistent with the terms of the contract, and they are so prevalent that the parties would have intended to incorporate them.
· Columbia Nitrogen Corp. v. Royster Co.
o Course of performance, usage of trade, course of dealings can be used to explain or supplement even if contract is unambiguous.
Objective Interpretation and Its Limits
· Raffles v. Wichelhaus
o Cotton coming from India. Two ships named Peerless. No consensus between the parties therefore no binding contract.
§ Latent ambiguity: hidden: when you read term it seems clear (Ex. “Peerless” seemed clear but turned out ambiguous)
§ Patent ambiguity: term obviously ambiguous
§ Courts more likely to grant rescission for latent ambiguity.
· Oswald v. Allen
o Coin collections. Oswald thought they’d made deal to buy whole collection. Allen thought deal was to buy only ½ of collection. No contract. When any terms of agreement are ambiguous and parties understand them differently, contract is rescinded unless one party should have been aware of other’s understanding.
· Colfax Envelope Corp. v. Local No. 458-3M
o “4C 60 Press- 3 Men.” Colfax thought it meant 3 men were required to operate press larger than 60 inches. Union meant 3 men required to operate press up to 60 inches. For greater than 60 inches, 4 men required.
§ For patent ambiguities (like this one), parties are gambling on how term will be interpreted.
Gap Fillers:
· Gap Fillers Generally:
· What happens when a dispute arises about which there has been no agreement between the parties. The court may need to supply a term to deal with the dispute. This process if referred to as “implication.”
· Implication basis:
o Actual expectation of the parties. If the court is persuaded that the parties shared common expectation with respect to the omitted case, the court will give effect to that expectation, even though the parties did not reduce it to words (include it in the contract).
o When there is no common expectation:
§ Bentham argued the court should implement the bargain the parties would have made had they considered the matter.
§ Others argue that the court should implement what a fair and reasonable man would.
· Gap Fillers by Statute:
o Article 2 of the Uniform Commercial Code establishes the default terms that courts imply in the absence of agreement between the parties.
· Gap Fillers (Implied Warrantied in UCC):
o One way of dealing with omissions of whether the goods must meet any particular standard of quality is caveat emptor or “buyer beware.” If a buyer wishes to contract only for goods that meet a particular standard, he or she must contract for that result.
o More recently, the law has taken a different path. In certain circumstances, the law supplies a default term with respects to the standards a contracting party’s performance must fulfill but they’re not “gap fillers” because the agreement could be understood and applied without them. The added terms are usually referred to
wers of court to grant injunction.
· Tuckwiller v. Tuckwiller
o Promised to give her the farm in return for care. Would have be unfair to deny specific performance. The contract was fair. They didn’t know death was imminent. Fairness of contract examined at time made, and not thru lens of what happened afterward. The Aunt could have survived for a very long time and required care.
· Black Industries v. Bush
o Black was buying parts from Bush and selling them to Hoover for a much higher price. Bush sued stating that the markup was unfair. Courts don’t like to set prices and validity of contract isn’t affected by businessmen dealing at arm’s length without fraud.
Standard Form and Adhesion Contracts
Standard form deals. Where they just give you a contract and you sign it or you don’t. They’re efficient for business: however, average people don’t understand what the contract fully contains. They give a huge difference in the power between the parties. There is typically no negotiating. There is often, almost always fine print and complex technical language.
Boilerplate Language: Adhesion contracts have a lot of boiler plate language. Often the print you are least likely to read (small print on the back for form). Courts often wouldn’t uphold it if it is contrary to what the other person believes. If you wouldn’t have signed the contract if you knew it was in there, the courts wouldn’t uphold it. Restatement 211.
The Duty to Read and the Duty to Disclose: Common law rule: “in the absence of fraud, one who signs a written agreement is bound by its terms whether he read and understood it or not, or whether he can read or not.” A number of states have enacted “plain language statutes” that requires agreements to be written in clear and coherent manner using words with common and every day meanings.
· Movement to make contracts more understandable by Professor Fleisch
Sources of Policing: Courts, Legislatures, and Agencies
Judicial Measures:
Statutory Measures: Legislation has been the traditional means of constraining the use of economic power in the imposition of contract terms. Congress has addressed imbalances in bargaining power.
Administrative Measures: Statutory mandate for many administrative agencies often has more to do with setting the price that a given firm may charge than with the language in the firm’s contracts.
· O’Callaghan v. Waller & Beckwith Realty Co.
o T sued LL after sidewalk injury. Exculpatory clause.
§ Exculpatory clause enforceable unless against public policy or unequal bargaining power.
§ Because tenant could have lived somewhere else, landlord won.
§ Today, exculpatory clauses are unenforceable because landlords can get insurance for that kind of thing.
