Select Page

Contracts II
University of Toledo School of Law
Pizzimenti, Lee Ann

Interpretation
Parole Evidence Rule (PER)

When it applies:

Parties have formed a K
One party is seeking to bring in evidence of extra promises prior to formation

i. External/extrinsic evidence
ii. Not on the face of the document

Goals:

Protect the “deal”
Limit what can be brought in
Promote predictability
Discourage fraud and deceit

Common Law

UCC § 2-202

Rules:

Partial Integration = The writing is final on at least one term § 209(1)
a. New term CANNOT contradict § 215
b. Term CAN supplement the writing § 216(1)
Complete Integration = The writing is intended to be final on every term and PE is inadmissible § 210(1)
a. New term CANNOT contradict § 215b. Term CANNOT supplement § 216(1)

Rules:

If the terms are final (i.e. “Partial”)…then:
a. Term CANNOT contradict § 2-202(1)
b. Term can be explained or supplemented by:
1. The Triplets (CP, CD, UT)
2. Any other “consistent” terms
If the writing is complete:
a. Term CANNOT contradict
b. Term CANNOT explain or supplement
with other “consistent” terms
c. Term CAN be explained by the Triplets
1. Unless they have been “carefully negated”
2. Careful negation is hard to do

Important Points:

A party can always enter evidence to show there was NO DEAL § 214(a)
A statement or writing subsequent to the K is NOT prohibited by PER (Modification ≠ PER)
Parties = negotiating? NOT a PER Problem
Last Shot Rule = Valid
Typically condition precedent ≠ deal
UNLESS it violates the writing

Important Points:

The terms the parties “agreed” to and those in “writing” are the deal
UCC Gap fillers are allowed for missing terms
What is “consistent”?
a. Majority = A term that is NOT
contradictory
b. Minority = Term must be more than NOT
contradictory, must be in reasonable
harmony

“Complete” or “Partial” Tests

Traditional Test (A.K.A. Four Corners Test)

Modern Test (A.K.A. Restatement § 214(b))

Where the writing “on its face” appears to be the completed expression of the right and obligations of both parties, it is a “Complete Integration”
Courts only look at the document itself NOT the parties’ intentions
Exception – Where the term would have naturally been included and is thus implied

Look to the intention of the parties in light of the writing AND the surrounding circumstances
NOT limited to the document itself
UCC rejects the Traditional Test
Thus, this test has both subjective AND objective elements

NOTE: There are many Common Law jurisdictions that have adopted the Modern Test, but all UCC case reject
the Four Corners Rule

Analyzing a PER Problem: Five Questions

Is the term prior (written or oral) or contemporaneous (oral only)?

i. Yes = Potential PER problem
ii. No = Stop, this is NOT a PER problem!
1. This may still be a NOM problem

If there is prior or contemporaneous evidence, is the document an integration?

i. Yes, the document is final on at least one term = Potential PER problem
ii. No = Stop, this is NOT a PER problem!
1. Parties are likely still negotiating

If the document is an integration, is it complete?

i. Yes = No additional terms can come in, the agreement is complete and final
ii. No =
1. Traditional Test:
a. New terms CANNOT contradict or explain, BUT
b. New terms CAN supplement the agreement
2. Modern Test:
a. New terms CANNOT contradict, BUT
b. The agreement CAN be explained by the Triplets, AND
c. Consistent new terms CAN supplement it
3. Other Factors to Consider:
a. Merger Language –
i. A clause that specifies the writing is intended to be a final expression of the agreement (Betaco v. Cessna)
ii. Must be K specific, “boiler plate” language will not suffice
b. See the “Tool Belt” section for other important factors
4. UCC ONLY:
a. Is the additional term one of the Triplets?
i. If so, was it “carefully negated”
1. Must be very explicit
2. Boiler plate language WILL NOT WORK
3. If not carefully negated, the Triplets are in
ii. If not, the term is out

If the integration is partial, does the additional term CONTRADICT?

i. Yes = PER bars admission
ii. No = Term is in
iii. UCC ONLY:
1. Oral terms v. Gap fillers?
2. Oral term wins

Do any of the exceptions apply? (These only mean the term gets in despite being contradictory)

i. Sham K – Party can show that the deal was not real
ii. Bilateral Mistake – Demonstrated by their actions
iii. Condition Precedent to Formation – If admissible will show no intention to K
iv. Collateral Agreement – The term is not a term at all, it is an independent but related K
No Oral Modification (NOM)

When it applies:

Parties have formed a K
One party seeks to bring in evidence of oral promises after formation

Goals – Same as PER

Common Law

UCC § 2-209(2)

Oral Modifications:

Unenforceable, unless you can show Consideration and Reliance
Merger clauses don’t matter
Prohibition requires a separate clause

Oral Modifications:

NOM clause = NO ORAL MODIFICATION ALLOWED
NOM clause must be signed by both parties to be enforceable
If parties contract for oral modification, they will be allowed

Evading a NOM Clause

Argue the term is NOT a modification, but that it’s CP – § 2-208
a. “This is part of our original agreement, NOT a change to it.” (Nanakuli)
Argue that both parties are merchants – § 2-209(2)
a. Merchant NOM form must be separately signed by non-merchants
b. This is for the protection of non-merchants
Argue there was Waiver with reliance – § 2-209(4)
a. Party intentionally relinquished a known righ

and should be used to determine the context of the term
iii. When the choice is between CP and Waiver – Courts prefer Waiver (Nanakuli)
1. If a term is CP it must be used for the remainder of the dealings, BUT
2. If it is just waiver, then the party can revoke within a reasonable time period

CD – § 1-205(4)

i. Deals with past Ks and performances between identical parties
ii. The conduct of the parties will be construed as establishing a common basis for understanding

UT – § 1-205(4)

i. Usage or practice or such regularity of observance in a place, vocation, or trade, that it justifies and expectation of understanding and observance
ii. This is especially applicable to Merchants!
1. Actual knowledge is NOT required – Charged with what you should have known
2. No excuses for “new” merchants
iii. Examples: Industry experts, Trade Journals, Government Regulations

Course of Negotiations
The Market & Surrounding Circumstances
The Maxims –

i. Contra Proferentum → Against the drafter
ii. Expressio Unius Est Exclusio Alterius → The expression of one excludes others
iii. Ejusdem Generis → Of the same kind or nature
1. Where words follow the enumeration of specifics, they must be interpreted similarly
a. General terms = leave broad interpretation open
b. Specific terms = leave no room for discussion
2. The best way to achieve a desired result is to enumerate
iv. Interpretation will be most consistent with public policy and fairness

The Effect of Misunderstanding on Interpretation

There is NO UCC section on misunderstanding, so use Restatement §§ 20, 201
Parties may agree to a specific interpretation:

If both parties have specified, they shall both be bound
Parties’ subjective intentions will trump a judge’s objective interpretation

Situations:

NO “meeting of the minds”:

i. The party has materially different meanings, AND
ii. Neither party knows or has reason to know the attached to the term by the other (§ 20(1)(a)), OR
iii. Either party knows or has reason to know the meaning attached to the term by the other (§ 20(1)(b))

Ignorant Party – §§ 20(2)(a), 201(2)(a)

i. One party knows the meaning of a term, AND
ii. The other party has no knowledge of the term, THEN
iii. The interpretation of the ignorant party will be used

Guilty Knowledge – §§ 20(2)(b), 201(2)(b)

i. If one party knows or has reason to know, AND
ii. The other party has no reason to know, THEN
iii. The interpretation of party with no reason to know will be used

When there is NO sensible basis for determining whose interpretation is correct, the court will usually find there has been NO Assent AND thus NO K (This kicks it back to last semester)