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Contracts II
University of Mississippi School of Law
Bradley, John R.

Contracts II

I. PAROL EVIDENCE RULE

–          General Principle: VAC- varied, added, contradicted
o   A writing intended by the parties to be a final embodiment of their agreement cannot be modified by evidence that adds to, varies, or contradicts an integrated writing
o   Substantive part of Contract law; not a rule of evidence
Williston view:
Corbin View:
Formal approach
Keep evidence in
Written doc wipes out all previous agreements
Individualized approach
let evidence in
View of restatement & UCC

o   If the “integrated” contract (#2) is oral, any previous or contemporaneous evidence (oral or written) can be introduced to explain it
o   Must make sure the 2nd agreement was in writing before doing Parol Evidence Rule analysis

1) Integrated
§ Final, complete written expression of one or more terms
§ Parol Evidence Rule applies
2) Partially integrated
§ May be supplemented/explained by evidence of consistent additional terms
§ Inconsistent= absence of a reasonable harmony
3) Not integrated
§ Not final; still under negotiations
§ Parol evidence rule is not applicable, evidence allowed in


Process:
o   1) Did the parties intend for agreement #2 to be binding?
§ If not a binding agreement, PER not applicable (evidence let in)
·         Can put on evidence proving K not binding; show there was fraud, duress, mistake, lack of consideration
o   2) Did parties intend #2 to be integrated?
§ RS 209
·         This issue shall be determined by the judge
o   The K must be integrated for PER to apply
§ Can put on evidence proving not an integrated agreement; otherwise PER applies
o   3) Is #1 agreement inconsistent, or contradicts, with #2?
§ Judge hears the evidence to determine if #1 is inconsistent with #2
§ If inconsistent or contradicts, then PER applies and evidence is kept out
§ UCC 2-202 is modern trend of PER
·        Can even restrict or limit the #2 w/o canceling it
o   4) Is # 2 a completely integrated agreement?
§ RS 210: If the whole agreement is integrated, clear, and unambiguous, then there is a total integration:
o   If the term (of issue) is integrated, clear, and unambiguous, then no evidence admitted relating to that term (partial integration)
·         If agreement, or term at issue, is not totally integrated, let evidence in
o   5) Is #1 within the scope of #2?
§ RS 213: If all previous 4 steps are met, wipes out all prior or contemporaneous agreements within its scope
o   Evidence not within the scope of #2 is allowed
§ Jury still has to decide the credibility

B. Exceptions to the Parol Evidence Rule:
o   Separate consideration: parol agreement admitted if supported by separate consideration
o   Binding: Evidence usually allowed to show illegality, fraud, duress, mistake, lack of consideration
o   Evidence usually allowed to show #1 was a separate agreement
§ Collateral Contract Doctrine
·         Restatement & UCC view to generally let evidence in of a collateral contract unless it will mislead the judge or jury, or not credible
o   Condition Precedent: Evidence usually allowed to show the parties orally agreed to a condition precedent to the written agreement; the agreement not integrated in respect to the oral condition
§ RS 217 – integrated agreement subject to oral condition precedent
o   Modification: A subsequent agreement is not subject to the Parol Evidence Rule; but is a modification; evidence of modification is usually allowed; check for N.O.M. & possible waiver
o   Remedy: Evidence of grounds for granting or denying rescission, reformation, specific performance, or any other remedy
o   Interpretation: Evidence will be admitted to help clarify the meaning/intention of an ambiguous term
§ Have to make sure evidence won’t contradict #2, will only clarify
–          Did the parties intend for #2 written agreement to wipe out all prior and contemporaneous agreements?
o   Look at surrounding circumstances to determine intent

–          Merger Clauses
o   A provision in the agreement that states the written agreement contains the only agreements between the parties
o   Merger clauses are not completely controlling, but do create a presumption that the written agreement was intended to be a complete integration
o   Merger clause may be unconscionable;
o   The more specific & tailored merger clause is to situation, the more credibility given by court

–          No Oral Modification Clause (N.O.M.)
o   Provision that written contract cannot be modified orally; only in writing
§ Modification concerns subsequent agreements to written agreement
o   Common law stated that an oral modification was binding despite a NOM
o   UCC 2-209
§ (1) Modification of a contract for the sale of good needs no consideration to be binding
§ (2) If contract contains a NOM, than modification must be in writing
§ (4) An attempt at modification that does not satisfy (1) or (2) can operate as a waiver
§  (5) Waiver can be rejected with reasonable notification

C. Intent (Interpretation)
o   Plain Meaning Rule: (Four Corners Doctrine)
§ Traditional/minority rule
·         If appears plain and unambiguous on its face, meaning must be determined from within the “four corners” of the instrument, w/o use of extrinsic evidence
·         Rule rejected by the Restatement & UCC
o   Context Rule:
§ A court may consider surrounding circumstances leading to the execution of the agreement, including the subject matter of the contract as well as subsequent conduct of the parties
·         Generally, only exclude evidence that is not credible
§ Admit evidence to clarify any ambiguity; not to contradict
o   Modern trend:
§ If term is reas

conscionability

–          UCC 2-302 & RS 208
o   When a court finds as a matter of law and clause of a K to be unconscionable, the court may refuse to enforce the K, or enforce the remainder of the K without the unconscionable clause, or may limit the application of the clause
–          Procedural:
o   Unsophisticated party; take it or leave it
–          Substantive:
o   Term is bad public policy, overreaching, unreasonably harmful;

RS 211 (3):
When one party (offeror; merchant; etc.) has reason to believe that the other party (consumer) would NOT assent to the K if he knew the writing contained a particular term
–          Then, the term is not part of the agreement

IV. MISTAKE
–          RS 151: Belief not in accord w/facts, i.e., misunderstanding
o   Example: Raffles v. Wichelhaus
§ Misunderstood which boat – October boat/December boat
–          Mutual Mistake
o   RS 152: K is voidable by adversely affected party when both parties make a basic assumption about the K, having a material affect on the agreement, unless it falls under RS 154

–          RS 154: A party bears the risk of a mistake when:
a)      Allocated to him by agreement
b)      Is aware (at time of K is made) had only limited knowledge of facts which relates to the mistake but proceeded anyway; basically, knew there was the possibility the parties may be mistaken, but continues with agreement
Ø Can not repudiate a deal because of a bad bargain or poor judgment
c)      Risk is allocated to him by the court on grounds of reasonability  
Ø An “as is” provision may shift the risk to the buyer
o   Ex. Seller promises (honestly believes true) violin is made by X and worth $10,000; but later, buyer finds out it is a mere replica and worth $100; buyer has claim of breach of express warranty
–          RS 2-314: Implied Warranty of Merchantability:
Ø A warranty that the goods shall be merchantable is implied in the contract when sold IF seller is a merchant who deals in goods of that kind
Ø Merchantable = fit for sale in usual price & course of trade

–          RS 153: Unilateral Mistake
Ø Same as RS 152, just w/only one party, not two, AND
a)      Enforcement of the K would be unconscionable; or
The other party knew or had reason to know of the mistake