Contracts II Outline – Bessler SPRING 2015 SEMESTER
1. UNCERTAINTY
I. INTERPRETATION (how to interpret uncertain terms) RS 200-204
** (RS 206) If you drafted the K the interpretation is against the draftsman [KEY RULE]
A. Discerning Agreement
It is the court’s job to enforce Ks, not to make them up simply bc the parties have engaged in negotiation.
· RS 33(2)/ UCC § 2.204(3) a K should be treated as reasonably certain if the language of the agreement, interpreted in context in light of applicable legal rules, proved enough content to establish an intent to K.
Note: the degree of certainty required may be diff depending on the nature of the controversy and the relief claimed. Crt does not have to establish the P’s obligation w/ as much certainty as it would have to do if that was the obligation at issue.
1. Unclear Meaning/Indefiniteness
Indefiniteness in an agreement could be caused by vagueness, ambiguity, omission or irresolution.
– Ambiguous Terms
A term is ambiguous if its “reasonably susceptible” to more than one meaning by a reasonable reader.
Psenicska v. 20th Century Fox. (Borat film; people felt set up and sued bc they were told they were assisting documentary-style motion picture) Held: Crt held dictionary definition is a work displaying the characteristics of a film that provides a factual record or report. The court held that Borat fit definition and dismissed the suits.
In re Katrina (Ps insurance policies did not cover “flood”; “Flood” is only natural disaster, whereas this is not) Held: Term only ambiguous if there is a reasonable chance there is more than one interpretation/definition.
EJUSDEM GENERIS – Belonging to the same class or type; rule of construction applied when general words follow a specified class of persons or items, then the words are not applied in their broad meaning but are to apply only to those persons or items listed
Reasonable Expectation Doctrine**
o Restatement 201 – neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.
Extrinsic evidence is admissible to “fix” ambiguity
o Can be “cured” or “discovered” by extrinsic evidence, ie, during discovery
Note: language that seems vague or ambiguous in isolation may become more certain if interpreted in the wider environment of the transaction.
– Vague Terms
A term is vague if it is stated so obscurely or in such general language that one cannot reasonably determine what it means.
Restatement 200 – interpretation as the ascertainment of the meaning of a promise or agreement. Evaluation of facts (evidence of what the parties said/did and the circumstances surrounding their communications)
Rules of Interpretation
1. Best source of information regarding the contract is the written contract itself “four corners”
2. What the contract naturally means; “plain and simple”
Note: look at dictionaries (law, medical, particular industry usage, UCC)
3. Look at Case Law
Is there a similar case, similar facts…
4. Course of dealing
Negotiations (exchanged letters, email and agreed to certain terms)
Express terms
5. Course of Performance
6. Trade Usage
o Restatement 202; UCC 1-205 – order of interpretation of vague terms, like what does word x mean
§ Frigaliment importing v. BNS International – what is “chicken” case
· the party who seeks to interpret terms of the contract in a sense narrower than their everyday use bears the burden of proof to so show, and if that party fails to support its burden, it faces dismissal of its claim;
· courts first turn to express language of contract, than to other evidence
Note: Some say Peerless Doctrine should have been used – neither party had the same ship in mind-therefore no meeting of the minds therefore no agreement or K to enforce. Also –good faith requirement of not eviscerating the agreement.
§ Lewis Productions, Inc. v. Angelou (exclusive right to represent her in placing work in greeting cards; two yrs later she terminated agreement; entered into a licensing agree w/ hallmark on her own)
· Crt’s role was not to make a K for the Ps, and it would not enforce an agreement whose terms are so indefinite that the Ps intentions cannot be ascertained with reasonable certainty.
· BUT Crt recognized that the Ps did intend to form a business relationship and felt that all the open-ended terms could be given adequate content by supplying a std. of reasonableness and good fatith to the Ps undertaking
o Restatement 203; the order of how to look at terms (pecking order)
§ Following standards of preference are applicable
· Interp. That gives a reasonable lawful, and effective meaning to all the terms is perfered
· Express terms are given greater weight > course of performance >course of dealing > and usage of trade.
· Specific terms and exact terms are given greater weight than general language
· Separately negotiated or added terms are given greater weight than std. terms…
Chart to determine interpretation of agreement
Restatements (Services & Land)
U.C.C. – Sale of Moveable Goods
Express Terms 203(b), 202
**(what does the conduct show)
1-303(e), 2-208
Negotiating
Course of Performance 203(b), 202***
1-303(e), 2-208
Course of Dealing 203(b), 202
1-303(e), 2-208
Usage of Trade 203(b), 202, 222
1-303(e), 2-208
Express Terms> Course Performance > Course Dealing> Useage of trade (RS 203)
Course of performance is to be given great weight *** RS 202(4)
Usage of Trade
· UCC test – whether the usage is “currently observed by the great majority of decent dealers”
· RS 222 – “usage of trade” to include any regular practice or method of dealing in a place, vocation or trade.
Standard of reasonableness in Contract interpretation
1. Depends on nature, circumstances, and purpose of action
2. Can be proved by industry custom, prior case law, expert testimony, grouping of evidence (as in chicken case)
3. In two cases below, courts look at different evidence to determine reasonableness
Omni v. Wells Fargo (WF loaned money, contract requiring hotels have certain coverage;
After 911, Wells Fargo requested terrorism insurance, which Omni thought was unreasonable) Held: Court found insurance reasonable; Cost had dropped and it was now industry custom; Would benefit both parties. Reasonable issue – Court found that it was a benefit and the cost is not so great; other hotel chains are buying the added on coverage, therefore its not really a harm but a benfit.
Palmer v. Fox (Palmer sold Fox a subdivision of houses, under the condition Palmer would finish streets in a reasonable period of time)
1. What is “reasonable”?
2. Palmer never completed improvements
3. Fox does not owe Palmer remaining debt because Palmer did not improve in a reasonable time period
OLD RULE: “Plain Meaning Rule”: Courts will give the words their ordinary, plain meaning. If the term has “plain meaning” then courts typically WILL NOT allow extrinsic evidence. [“4 corners rule”]
• Courts may also look to prior dealings, trade usage, and course of dealings to determine the true meaning of a certain term
• “Trade Usage” = Common understanding or belief within the industry
• “Course of Performance” = Common understanding between the parties in this contract
• “Course of Dealings” = Similar past contracts between the parties
MODERN RULE: “Special Meaning”: If a term or provision has some special meaning, then the judge WILL allow extrinsic evidence to determine the parties’ true intentions. However
to create ambiguity
i.e. Katrina Case
RS § 2-301. General Obligations of Parties
The obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract.
Doctrine of Reasonable Expectations – When members of the public purchase policies of insurance they are entitled to the broad measure of protection necessary to fulfill their reasonable expectation
B. Missing Terms/Omitted Terms
Omitted terms could mean that the Ps failed to reach an agreement or that the parties did not consider it necessary to include a term; the intent must be determined by looking at the language of the agreement as a whole in light of all the circumstances in the transaction.
– Gaps in Terms
o Sun Printing v. Remington Paper – company selling paper, then breaks contract because price or length of time of a price weren’t set
§ a contract will be deemed invalid due to incompleteness if the agreement does not establish the length of time the terms of the agreement, such as the price, shall apply
– Requirements Contracts – binding when there’s an operating business
o Eastern Airlines v. Gulf Oil – company supplies as much oil as airline needs
§ a contract that specifies amounts in terms of “requirements” is not vague when there is an operating business because the courts can look to objective historical evidence to determine what those requirements are and whether a party is conducting business in good faith;
· request must be in good faith and in line with past history
§ mutuality of obligation is shown by good faith actions over time by both parties
– Exclusive deals
o UCC 2-306 – exclusive contracts imply best efforts
§ Wood v. Lucy, Lady Duff-Gordon – contract to market socialite’s name in fashion
· an exclusive right contract in the context of a business implies that the party will make reasonable efforts to perform
· the court notes that the nature of the compensation scheme is one that obligates a party to performance if he is to earn anything; both people want to make a profit and therefore reasonable efforts are implied
II. INTEGRATION
(RS 209-212)
Restatement 209 – Integrated Agreements
· An integrated agreement-writing or writings constituting a final expression of one or more terms of an agreement
· Determination by the court as a question of preliminary determination of a question of interpretation
· Where the parties reduce an agreement to a writing wc in view of its completeness and specificity reasonably appear to be a complete agreement (integrated agreement ) UNLESS it is established by other evidence
·
Restatement 210- Completely and Partially Integrated Agreements
· Define : completely integrated – is an integrated agreement wc is complete and exclusive statement of the terms of the agreement
· Define: partially integrated – integrated agreement OTHER than completely integrated agreement
· Whether an agree is completely or partially integrated is to be determined by the court as a question preliminary to determination of a question of interp or application of the PER.
Note: If a document is found to be a final expression then the document is considered to be totally integrated.
