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University of California, Hastings School of Law
Leib, Ethan J.

Contracts – Spring 2008
3 possibilities under Parol Evidence:
                        1.            Agreement is integrated, you’re trying to explain the agreement
                        2.            Agreement is not completely integrated, because it omits a term that was agreed to
                        3.            Going to fall into one of the many excepted circumstances
II.      Interpreting the Agreement
A.      Principles of Interpretation
                        1.            General Principles
·         Intention is the key – if you can find that out, you don’t have to go any further
·         The process by which a court gives meaning to contractual language when the parties attach materially different meanings to that language
a.       Historically, American courts adopted a subjective approach
                                                                     i.            If the parties attributed different meanings to contractual language, no contract formed
                                                                   ii.            Under the idea that there was no “meeting of the minds”
b.      Objective Theory: words and conduct should be interpreted in accordance with standard of reasonable person familiar with the circumstances
                                                                     i.            Can lead to the conclusion that the contractual language could be given a meaning which neither party intended
                                                                   ii.            Almost no courts use extreme objectivist approach
c.       Now rely on the “modified objective approach”
–          Answers 2 questions:
                                                                     i.            Whose meaning controls the interpretation of the contract?
                                                                   ii.            What was that party’s meaning?
d.      If parties agree in the meaning of a provision, that meaning will govern
e.      If parties disagree, the agreement is to be interpreted in accordance with the meaning of one party if the other party either knew or had reason to know of the meaning attached by the former
                                                                     i.            R2d §201
f.        If there are different meanings attached, and neither party knew or had reason to know of the meaning of the other?
                                                                     i.            No contract exists because of lack of mutual assent
                        2.            One Order of Contract Interpretation
·         Plain language is given great weight. §202(3)
a.       A word is known by the company it keeps
                                                                     i.            “cattle, hogs, and other animals” might include sheep, but not house pets
b.      Expressing one excludes the others
                                                                     i.            “cattle and hogs” excludes sheep
·         Generally – aimed at intent.
a.       Purpose of the parties. §202(1)
b.      Interpret the K as a whole. §202(2)
c.       Interpret K to make it valid. §203(a)
d.      Specific trumps general. §203(c)
e.      Handwritten trumps printed. §203(d)
·         Extrinsic evidence of intent – even if express terms appear clear, there may be a latent ambiguity
a.       Course of Performance. §202(4); UCC §2-208
b.      Course of Dealing. §223; UCC §1-205
c.       Trade Usage. §222; UCC §1-205
·         Principles not related to intent
a.       Interpret ambiguities against the drafter. §206
b.      Interpret K to favor the public. §207
                        3.            Hierarchy of Contract Terms:
·         Express terms
a.       Best evidence is the words they actually used
·         Course of performance
a.       Deals with the transaction at hand
·         Course of dealing
a.       Deals with past transactions, so not as persuasive as course of performance
·         Usage of trade
a.       Covers what everyone normally does, so not as specific as course of dealing
b.      The way people in a trade act
c.       Leads to a reasonable expectation that those usages will govern in an agreement
                        4.            Trade usage v. course of dealing:
·         If parties have used terms or items in a different way than trade norms in previous dealings, that establishes a course of dealing
                        5.            Course of performance v. course of dealing:
·         Course of performance deals with the specific contract at hand, whereas course of dealing refers to previous agreements
·         If the contract called for multiple deliveries, the course of performance deals with how the party acted in the first part of the contract as to whether it agreed/acquiesced
B.      Contracts of Adhesion
                        1.            R2d § 211: Standardized Agreements DOCTRINE OF REASONABLE EXPECTATION
·         Where a party to an agreement signs or assents to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing
·         Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, with

something was omitted due to mistake (dropping a “0” or the like), party may seek judicial reformation of the agreement
·         Parol evidence rule does not apply to evidence introduced to establish a “collateral” agreement between the parties R2d §216
a.       An agreement will not be regarded as fully integrated if the parties have made a consistent additional agreement which is either agreed to for separate consideration or is “such a term as in the circumstances might naturally be omitted from the writing”
b.      Warranties never collateral agreements
                        4.            Parol Evidence in Restatement:
·         § 209: Integrated Agreements
a.       An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement
b.      Court determines if there is an integrated agreement
c.       Where parties reduce an agreement to a writing which appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression
·         § 210: Completely and Partially Integrated Agreements
a.       A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement
b.      Partially integrated agreement is anything other than a complete integrated agreement
c.       Court determines whether it is a completely or partially integrated agreement
·         §213: Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule)
a.       A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them
b.      A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope
c.       Integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement.
                                                                     i.            Even if not binding, may still be effective to render inoperative a term which would have been part of the agreement if it had not been integrated