Select Page

Contracts
University of Iowa School of Law
Andersen, Eric G.

Eric G. Andersen Contracts I Fall 2013

FIVE GENERAL PRINCIPLES

1) Autonomy – empowers people to make enforceable promises when they communicate decisions to act

or not act in some way in the future

– Subject to other 4 principles

2) Security – law requires each party to respect other party’s reasonable expectations and reliance

3) Justification – law enforces promises when prima facie there are sufficient legal reasons to do so

4) Justice – law won’t enforce promises when prima facie justification for enforcing is over-ridden by justice considerations

5) Compensation – law enforces promises mainly by compensating non breaching parties for unavoidable, foreseeable, and

reasonably certain harms caused by breach

I. Identifying Express Contract Terms

~ Contract Terms – stated or stateable propositions from contract rights, duties, power flow

~ Express Terms – STATED and related to distinct element of enforcement or performance

a. U.C.C. Sections

* §2-202 Parole or Extrinsic Evidence

– Terms in a writing intended by parties to be final agreement can’t be contradicted by evidence or any

prior agreement or contemporaneous oral agreement, but they may be explain or supplemented by

a) course of performance, course of dealing, usage of trade

b) evidence of consistent additional terms UNLESS contract meant to be exclusive and complete

statement of terms

b. Restatement Sections

* §209 Integrated Agreements

1) a writing constituting a final expression of one more terms of an agreement

2) integration is a question preliminary to interpretation or application of parole evidence rule

3) if writing reasonably appear to be complete agreement, it is taken to be an integrated agreement unless

other evidence says it isn’t a final expression

* §210 Completely and Partially Integrated Agreements

1) Completely – intent fully expressed and parties prohibited from varying or supplementing terms through

parole evidence

2) Partially – intent not fully express so can be changed by admission of parole evidence

* §211 Standardized Agreements

* §212 Interpretation of Integrated Agreements

* §213 PAROLE EVIDENCE RULE (Effect of Integrated Agreements)

1) a binding integrated (partially or completely) agree discharges prior agree to extent that it is inconsistent

w/ them

2) a completely integrated agreement discharges prior agree to extent that they are w/in its scope

3) an integrated agree that is not binding or that is voidable does NOT discharge a prior agree. BUT even

though not binding, it may render inoperative a term which would have been part of agreement if it had

not been integrated

* §214 Evidence of Prior or Contemporaneous Agreements and Negotiations

– when evidence of prior agree or negotiations are admissible

* §215 Contradiction of Integrated Terms

* §216 Consistent Additional Terms

1) evidence of consistent additional term admissible to supplement an agree UNLESS court finds that the

agree was completely integrated

* §217 Integrated Agreement Subject to Oral Requirement of a Condition

c. Parole Evidence Rule

~ Parole Evidence – anything relevant to contract (statements, negotiations, oral or written) made prior to

formation of integrated contract

~ Parole Term – prior agreement

i. PAROLE EVIDENCE RULE

1) Prevents party from introducing evidence of negotiation that occurred before or while agreement was being reduced to its final form. A final writing CAN’T be modified by evidence that contradicts the writing

2) Excludes parole term (prior agree) if written contract is COMPLETE AND parole term (prior agree) is w/in the SCOPE of the written contract

a. Determination of scope is a matter of law

b. COMPLETENESS

– in order to exclude parole term, written contract MUST represent ENTIRE contract;

if not, then can include evidence of parole term

c. SCOPE = if parole term

– if parole term is outside scope, CAN allow

– if parole term is w/in scope of written contract, CAN’T allow

– Matter of LAW not of fact

– For Parol Evidence to be used you must ask two questions: These are

SUBJECT MATTER Qs

1) Is the parol agreement within the scope of the writing?

2) Does the writing represent the entire agreement on this subject?

· If either is YES then Parol Evidence may NOT be used

·

ii. INTEGRATION RULES

1) Graph

Writing

Parole Evidence Allowed?

To Supplement

To Contradict

Fully Integrated (all agree made are in writing)

NO

NO

Partial Integrated (other sources or agree exist)

YES

NO

Not Integrated (writing is just 1 source of

evidence of agreement)

YES

YES

iii. Cases

1) Gianni v. Russel & Co.

– a written contract will supersede a prior oral agreement which is not included in the contract if it

would be the natural thing to have included the oral promise

– Completeness decided by “feel” and whether looks complete on face

– Scope decided by if natural for parties to have included parole term in written contract. IF

NATURAL TO INCLUDE = W/IN SCOPE

(Tenant sues Landlord for breach of alleged exclusivity contract; contract said P will use premises only for sale of fruit, soda and sale of tobacco not allowed; P says there was an oral agree that he agreed to pay more rent and not sell tobacco in exchange for exclusive right to sell fruit, soda. D says no such agreement made and written contract is complete and final)

2) Masterson v. Sine

– In determining whether document is fully or partially integrated

1) 1st look to document for “MERGER CLAUSE” which states contract fully integrated

2) 2nd look to collateral agreement (parole term) to see if could have naturally been left

out

3) 3rd look to circumstances at time of agreement

* i.e. don’t look at just document for “feel” like Gianni

– Evidence of separate oral agreements excluded only if fact finder likely to be misled

1) Naturally Rule (Restatement) – allows sep oral agree if such agree might naturally be

made as separate agree by parties in situation (i.e. if naturally excluded)

2) Certainty Rule (U.C.C.) – if additional terms would certainly been included in written

contract but they aren’t, not allowed

– this court adopted the naturally rule and said that assignability term can be said to be naturally

excluded by parties under the circumstances, so evidence of that term is allowed

(p is bankruptcy trustee trying to exercise and option to buy land from D. D argues that the intent of

the original transaction creating the option was to keep the property in the possession of the family

and that this intent was expressed as an oral term of the agreement at the time the property was

transferred to D)

3) Moore v. Pennsylvania Castle Energy Co

– ALABAMA adopts 3 part test to det whether sep oral agree is admiss

1) oral agree must be a collateral one in form

2) if must not contradict the express or implied provisions of the written K

3) it must be one that parties would NOT be expected to include

* ct says that the written K was intended to be complete so oral agree is merged as matter of

law and parole evidence is not allowed – BUT if this is the case, not necessary to discuss 3

part test b/c fully integrated

(Surface owner sues subsurface owner for failing to abide by oral agreement not to build on party of

her property)

4) Lee v. Joseph Seagram & Sons, Inc.

– Collateral agreements, even if made contemporaneously w/ written agreement, are not w/in

prohibition of parole evidence rule b/c they are separate, independent, and complete contracts

although relating to same subject as written

– if parole term is COLLATERAL = admissible

– Ct allows the introduction of parol b/c it feels that

1) This oral agree is not w/in scope of written (i.e. natural that parties would have excluded

from written b/c it is a relocation agreement v. a sales agreement)

2) It did not contradict the written K (by saying contradict, ct is inferring a partially

integrated K

3) The parties had a long standing friendship that supported the creation of an informal/oral K

(P agreed to sell store to D via contract. P says oral agreement that D would relocated P’s sons)

d. Exceptions to Parol Evidence Rule

1) If the oral agreement determines if the entire (not just a conditional term) Written K is to be performed then PE rule doesn’t prohibit evidence of oral agree from being admitted to evidence (EX on death bed, I sign sale contract and orally say I agree to sell my house IF my lawyer approves)

2) PE rule will not preclude parties from modifying their contracts; so if a SUBSEQUENT agreement is reached, then PE is not barred

– “subsequently to signing contract, the parties orally agree…” = this language shows that oral agree came after signing. Significant b/c merger says there are no current outside agreements. MERGER clause has nothing to do w/ oral agree made AFTER signing

3) REFORMATION – certain circumstances in which court will reform contract; PE rule will not prevent admission of parole evidence which is offered for purpose of requesting reformation by the court

* does this when terms are left out b/c of fraud or mistake (EX. Contractor orally agrees to dump then

flatten dirt on owner’s land and does for a while. Then just dumps and doesn’t flatten)

4) If there is proof that the K is invalid due to fraud or illegality then PE is not barred.

5) If the K is voidable due to MISTAKE then PE is not barred

e. Parole Evidence Rule Summary

1) Not a rule of evidence

– Deals only with the provability of elements/terms of a K

2) Ascertain party’s intent w/ respect to the effect of their writing

a) If intent to be completely integrated = not allowed to supplement or contradict

b) If intent was that K was correct but not complete = partially integrated = allowed to supplement but not to contradict

c) Not integrated = allowed to both supplement and contradict

3) How to determine integration status

a) Merger clause (not dispositive, but a starting point)

b) Likely to be left out by parties?

4) If PE evidence is NOT w/in scope of written K (i.e. likely to be left out) = not relevant so parole evidence rule doesn’t apply

5) Collateral Agreements – BEWARE!

a) The CA might be a parol term within the scope of the K and the parol might be allowed if it supplements (clarifies or defines) a term

b) The term could be completely separate, on a completely separate topic, therefore the PE is allowed

6) FLOW CHART

II. Interpretation of Express Contract Terms

a. U.C.C. Sections

* §1-205 Course of Dealing and U

1) Shared Subjective Intent

2) Associate meaning of agreed language w/ what speaker had in mind

3) Associate meaning of agreed language w/ what listener had in mind

4) Associate meaning w/ what reasonable person, under circumstances of the parties, would understand the

language to mean

**§201 = subjective

**§201(2)(a) = subjective = “knows”

**§201(2)(b) = objective = “should have known

**if neither party knows or has reason to know other’s meaning = no contract via §20 – usually doesn’t

happen b/c cts don’t like undoing contracts

iii. Ambiguities

1) Vagueness

2) Syntactical Ambiguity

3) Term Ambiguity

iv. Preferences of Interpretation

1) Expressio Unius est Eclusio Alterius (expression of one thing is exclusion of another)

a. EX. “I sell my farm including cattle and hogs” (doesn’t include dog)

2) Ejusdem Generus (of the same kind, class, or nature)

a. EX. “I sell my farm including cattle and hogs” (doesn’t include tropical fish)

3) Contra Proferentem – if language is susceptible to 2 interp, it will be construed against the drafter

4) Result of negotiations presumably will have been a fair bargain; so interpretation creating fair result preferred over one resulting in unfairness (EX. Frigaliment – buyer should know that seller needs to profit not loose)

v. Cases

1) Brinderson-Newburg Joint Venture v. Pacific Erectors

a. K had integration clause so fully integrated so PE not allowed

(A general contractor is suing a sub-contractor for breach, failure to meet terms of the agreement.

Dispute is over the terms “Erect Complete” and “Make a complete installation”. Sub argues that it

normally doesn’t do this type of work. Oral agree at the time of signing stated that sub would

only “pick and set”)

vi. Always Ask: Is this a Parol Term? Or Is it attempting to clarify terms within the K?

f. Usage of Trade

i. U.C.C. Sections 1-205 and 1-303

ii. RULES

1) Parties’ acceptance of trade usage standard is by proving ACTUAL KNOWLEDGE of usage (usage must be very strong to infer that other party knew what it meant in situations where party is new to trade)

2) If buyer suing seller for non-conforming goods and trying to prove that a term means something narrower than what seller thinks it means, the buyer had burden to show that the term as used in the K means the narrower one

a. if seller’s subjective intent does coincide w/ objective meanings and at least some usage in trade, and buyer’s subjective intent doesn’t, Buyer looses (Frigaliment v. B.N.S.)

3) Parties can be bound by a usage common to the PLACE they are in business, even if it is not the usage of their particular vocation or trade as long as those usages are so regular that one party should have been aware of them

a. Persons who should be aware of trade usage include those who regularly deal w/ member of the relevant trade (Nanakuli)

4) Performances, usages, and prior dealings are important enough to be admitted ALWAYS, even for final and complete agreement.

a. Only if they cannot be reasonably reconciled w/ the express terms of the contract are they not binding on the parties (§1-205(4); Nanakuli)

b. Usages are consistent w/ express terms even if they seem contradictory if the usages modify or are an exception of the term (§1-303e)

5) The term “any reason” means for any reason the actor deems sufficient when there is no evidence that the parties understood otherwise (Subjective) (Corensweet)

6) Courses of conduct can override express terms when it is reasonable to construe them consistent w/ one another

7) The good faith requirement cannot override or strike express K terms (Corensweet)

iii. Cases

1) Nanakuli Paving and Rock v. Shell Oil

– the “regularly observed” practice of price protection of which D should have been aware is enough to constitute usage that P could have reason to believe was incorporated into K

– a trade usage to price protect pavers at tiems of price increases for work committed on non-escalating K could reasonably be construed as consisten w/ express term saying “posted price at delivery”

2) Corensweet, Inc. v. Amana

– whether “any reason” requires termination to be in good faith

– Courses of conduct can override express terms when it is reasonable to construe them consistent

w/ one another

— BUT HERE, it doesn’t override (conduct of not firing w/o cause) b/c these parties have never used the express term in this manner (relating to firing employees) before