Contracts II- Eric Chaffee-Spring 2012
I. FINDING TERMS TO CONTRACT
1. Parol Evidence
1. Parol Evidence
Common Law Parol Evidence
Parol Evidence construed very narrowly, prohibits introduction of other contemporaneous or prior agreements.
To Determine if Parol Evidence Applies
1) Is the written agreement an integration (final embodiment of agreement)
2) Is it a full or partial integration
2 Types of Integration:
1. Complete Final Integration: Can’t be supplemented by any type of evidence Hayden v. Hoadley (D not allowed to introduce evidence).
2. Partial Integration: Can be supplemented by consistent additional terms using Mitchill v. Lath rule.
Mitchill v. Lath Rule To Supplement Partial Integration:
1. The oral agreement must be collateral in form
2. The oral agreement must not contradict any express or implied provisions of the written contract
3. The oral agreement must not be of the type the parties would ordinarily/naturally expect to put into writing i.e. it was contemplated by the parties
Exceptions to Parol Evidence:
1. Condition precedent
6. Lack of Consideration
2 Approaches to Determine if Contract is Fully Integrated:
1. Objective v. Subjective
2. Rest 2nd Judge Traynor surrounding evidence v. 4 corners Judge Kaye
UCC 2-202 Parol Evidence
Missing terms not the type that certainly would have been included
Allowed to explain contract by:
a) Course of dealing or usage of trade or course of performance
b) By evidence of consistent additional terms unless the court finds the writing to have been intended as a complete and exclusive statement of the terms of the agreement
Merger/Integration Clause: Presumptive Not Conclusive
Is the best evidence of an integrated agreement but some courts won’t allow when clause very specific Lafazia v. Howe (P bought a bad business merger clause prohibited recovery)
There are State statutes that govern evidence and some states have tried to prohibit evidence completely.
2. Contract Interpretation
A contract will not be interpreted literally if doing so would produce absurd results and must be interpreted as a whole.
Standards for Contract Interpretation:
1. Judge Traynor/2nd Restatement: language is never concrete look at all surrounding facts if ambiguity in contract. Pacific Gas & Elect v. G.W. Thomas Drayage. (Indemnity clause was clearly intended for 3rd party)
2. Plain Meaning Judge Kaye: looks at 4 corners only in w.w.w. Associates (for sale of land both parties can cxl anytime)
Other standards Used for interpretation:
1. Course of dealings: Columbia Nitrogen Corp v. Royster (contract for nitrogen looked at prior dealings)
2. Industry practice: Columbia Nitrogen Corp v. Royster & Frigaliment (chicken as explained in industry)
3. Reasonable person standard: Has benefits don’t have to try to read the parties mind but can result in a different interpretation than what parties intended. Spaulding v. Morse (trust fund for son’s education)
4. Dictionaries, Government agencies, professional definitions Frigaliment Importing. (Chicken)
UCC 2-202 § 3
Allows evidence of course of dealing or usage of trade to explain or supplement terms intended by the parties as a final expression of their agreement.
A party who seeks to interpret a contract’s ordinary terms in a narrower sense than is used in everyday trade has the burden of proof to establish that meaning. Frigaliment Importing (chicken).
Discuss split in interpretation authority Justice Kaye 4 corners only or Justice Traynor look at all the evidence. Some courts are split in-between.
II. DEFENSES ON ENFORCEABILITY
1. Statute of Fraud
3. Mistake: Mutual or Unilateral
4. Incapacity: Minor or Mental
8. Undue Influence
9. Unconsionability: Procedural or substantive
10. Illegality/Public policy
1. Statute of Fraud= No K
1. K can’t be performed within a year
2. K for the sale of land
3. For sale of goods $500 or >
4. Answering for debt of another
5. In consideration of marriage
6. By executor or administrator to answer for duty of decedents
2. Misunderstanding/Ambiguity: No mutual assent= No K
1. Parties attach different meaning to understanding
2. Must be material
3. If one party knows of mistake terms fall in favor of other party
Raffles (which peerless ship)
3. Mistake: No K or Voidable
1. Relates to a fact at time of K
2. Was material to K
3. Party did not assume the risk
Sherwood v. Walker (Case of the barren cow both parties made mistakes
gross inadequacy of the price paid
4. Offer to restore the purchase price and rescind the transactions &
5. Rejection of the offer.
Some degree of bargaining disparity is permissible when making contracts Laidlaw (didn’t disclose increase to tobacco rates ok) but there are instances where a court will rescind a contract based on disparities e.g. Jackson v. Seymour. (brother & sister). Von Hake v. Thomas (Relying on a friend on real estate advice not constructive fraud no special relationship.
General rule is if parties are at arms length i.e. don’t share a special relationship you do not have to reveal everything.
Can be false assertion, inference or concealing, half-truth. Word or Conduct
3 Types of Misrepresentations:
Intentional (deceit at common law)
Negligent: P has to show D knew or should have known of problem
Innocent: Liable if results in reasonable reliance by P, can be actual or constructive innocence
Johnson v. Healy (buyer told quality of home good still liable)
Must induce reasonable reliance Eythan v. Bach (P sued to recover thinking paintings were antique unreasonable when paid so little)
Physical or Economic No mutual assent= K voidable
1. Improper threat
2. Overcoming a persons free will
3. Inducing victim’s assent
4. Leaving no reasonable alternative thereby depriving free will.
Does not have to be illegal some courts consider legal but bad faith threat as improper. Wolfe v. Marlton (refusal to sell home based on threat of selling to undesirable owner)
Free will malleable. See Smithwick v. Whitley increased payment on a land you already have possession does not remove free will b/c you could sue in court for specific performance BUT see Alaska Pacific unable to get new fishermen removed free will.
1. Unable to get new military parts in time left no reasonable alternative. Austin Instrument v. Loral