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Contracts II
University of Dayton School of Law
Chaffee, Eric C.

I. THE EFFECTS OF ADOPTING A WRITING

a. Parol evidence rule (PER): when an agreement has been reduced to writing that the parties intend as the final and complete expression of their agreement evidence of any earlier agreement is not admissible to vary the terms of the writing.

i. What the rule does: The parol evidence rule limits the extent to which a party may establish that discussions or writings prior to the signed written contract should be taken as part of the agreement. In some circumstances, the rule bars the fact-finder from considering any evidence of certain preliminary agreements that are not contained in the final writing, even though this evidence might show that the preliminary agreement did in fact take place and that the parties intended it to remain part of their deal despite its absence from the writing.

b. Mitchell v. Lath (387)

i. Would a reasonable person have naturally omitted the oral negotiations from the writing?

1. Ex. → The Mitchills and the Laths entered into a written agreement under which the Mitchills agreed to purchase the Laths’ farm, which the Mitchills planned to make into a summer home. The Laths also agreed, orally, that in consideration, they would tear down an unsightly structure across the road from the farm. The court adopted the Williston approach and held that the evidence of the oral agreement was inadmissible because reasonable persons who made a written contract of the kind entered into by the Mitchills and the Laths, and who made an oral agreement of the kind made by the Mitchills and the Laths, would not have naturally omitted the oral agreement from the writing.

2. Take away: PER will be excluded in instances when you have a complete written contract

a. Questions of when to apply this (3 Prong Test)

i. The agreement must in form be a collateral one (related but not intimately so)

ii. It must not contradict express or implied provisions of the written contract; AND

iii. It must be one that the parties would not ordinarily be expected to embody in the writing; or, an inspection of the written contract, read in the light of the surrounding circumstances must not indicate that the writing appears “to contain the engagements of the parties, and to define the object and measure the extent of such engagement.”

b. Not a bright line test (Factually specific – Balancing)

c. Subjective: Corbin Individualized Approach—takes account of all the circumstances of the individual case to determine whether the actual parties might have omitted the parol agreement from the writing.

d. Attacking the agreement’s validity

1. Formation defects—fraud, duress, mistake, illegality, may be shown by extrinsic evidence

a. Lipsit v. Leonard (413)- Employment arrangement = series of annual letter agreements. P claims specific oral promises accompanied writings, e.g., P would be given equity interest in the business.

b. PER does not bar the admissibility of PE when attempting to prove fraud (policy/promotes justice)

2. Conditions precedent (as long as the condition does not contradict the express language of the written K)—oral agreement that the written K would not become effective until a condition occurred.

a. Long Island Trust v. Int. Inst. For Packaging Education

b. P agreed to lend $25K to D in which a promissory note was exchanged, in order to renew it, condition was that all 5 re-sign the new note (oral statement upon delivery)

c. Bank agreed to lend another $10K w/ only 4/5 guarantors

d. Can PE be admitted to help determine the terms of delivery when they are not stated in contract?

i. Two Steps

ii. If complete; test ends, No PE

iii. If partial:

1. Mitchill Test

iv. Exception if it is a complete integration and promotes justice when it comes to a pre-condition due to the unjust harsh results of the PER

e. Look to UCC §2-202 (final written expression) and § 2-309 (time provisions)

f. Hatley v. Stafford (394)- Court held not complete integration. PE is allowed because it is collateral agreement.

i. Evidence of the oral agreement was allowed even though there was a written agreement covering the transaction b/c the oral agreement was not inconsistent and was naturally made as a separate agreement.

ii. PER applies only to the terms parties intended to include in the writing

iii. Court not the jury decides whether the writing was intended as a complete integration

1. “Integration”: A document is said to be an “integration” of the parties’ agreement if it is intended as the final expression of the agreement. (The parol evidence rule applies only to documents which are “integrations,” i.e., final expressions of agreement.)

g. Hayden v. Hoadley (400)- agreed to exchanged properties; Ds promised in writing to make certain repairs as part of consideration for P’s conveyance.

i. Held: When PE is in contradiction of the K, it will not be admissible

ii. Oral evidence will be excluded in most circumstances when you have a writing (partial v. completely integrated agreement)

h. Luria Bros & Co. v. Pielet Bros Scrap Iron & Metal, Inc. (405)- Court held that PE eas properly excluded as inadmissible under UCC 2-202. Can’t admit PE that contradicts k.

i. Partial v. Complete integration and the PER that follow: Courts get to answer whether there was complete or partial integration by using 1 of 2 methods:

1. Objective Approach-

a. Reasonable person / 3rd Party

2. Subjective Approach-

a. Look at the intent of the specific parties

3. ARGUE BOTH ON EXAM

i. Restatement § 209. Integrated Agreements.

i. An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.

ii. Whether there is an integrated agreement is to be determined by the court.

iii. Where the part

seller both had conflicting indemnity clauses in their contracts. Neither side objected to the language.

i. 3 approaches for dealing with conflicting clauses:

1. Majority view: Knock-out rule: the conflicting terms knock each other out and, if necessary, are replaced by suitable UCC gap-filler provisions.

2. Minority view: offeror’s terms control because the offeree’s different terms cannot be saved by 2-207(2), because that section applies only to additional terms.

3. Least-adopted view: assimilates “different” to “additional” so that the terms of the offer prevail over the different terms in the acceptance only if the later are materially different.

ii. Court adopts the knock-out rule.

b. ProCD (458)- shrinkwrap licensing- piece of software w/ in box w/ additional terms on the inside of box.

i. Acceptance based on retention of products.

c. Hill v. Gateway (463)- P purchased computer over phone and wasn’t told of terms.

i. Agreement is retention of the product.

ii. Would be impractical to have person read terms over phone.

d. Shrinkwarp License- must have reasonable amount of time to return product (Klocek v. Gateway) à 5 days is not reasonable.

b. U.C.C. § 2-207:

i. A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

ii. The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

1. The offer expressly limits acceptance to the terms of the offer;

2. they materially alter it; or

3. notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

c. 2-207 was enacted to reform common law mirror-image rule and reject the last-shot doctrine which accorded undue advantage to the mere order in which forms were sent.

i. Mirror-Image Rule: offer must be accepted exactly without modification.

d. Restatement 69 (1)(c)à previous dealings or otherwise. Silence or mere retention can lead to a k (Hobbs v. Massasoit Whip Co. eel skins)