Contracts II – Class Notes – Spring 2006
I. Parol Evidence Rule
a. § 234 Order of Performances: Where all or part of the performances to be exchanged under an exchange of promises can be rendered simultaneously, they are to that extent due simultaneously, unless the language or the circumstances indicate the contrary.
b. § 241 Circumstances Significant in Determining Whether a Failure Is Material
i. In determining whether a failure to render or to offer performance is material, the following circumstances are significant:
ii. (a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;
iii. (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;
iv. (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
v. (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;
vi. (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.
c. How do we get out of Parol Evidence Analysis
i. Ask, “Is the term prior (written or oral) or contemporaneous (oral); if so, potential PER problem. (Ie., potentially inadmissible per PER.) See Restatement 213.
1. If the term is after the contract is made, then it is an oral modification and does not pose a PER problem.
ii. If so, is it an integration (intended to be final on one or more terms)?
1. No parol evidence will be allowed to contradict the written document.
2. If no contradiction, parol evidence may be added to supplement or explain as long as the written agreement is not complete. If the written doc is complete, then no parol evidence may be used.
iii. If so, is it complete? Test for Judge:
“Final” refers to partial integration and NOT a totally completed contract. It is simply an agreement on SOME terms.
“Complete” refers to a contract which has all terms agreed upon.
Traditional: 4 Corners (Look at the document only)
a. Was it prior and contemporaneous?
b. Agreement must be in form a collateral one;
c. It must not contradict express or implied provisions of the written contract;
d. It must be one that parties would not ordinarily be expected to embody in the writing;
e. Unless there is an ambiguity, the document itself is said to be complete.
f. Some courts say that they use the traditional method, but get around it by creating “latent ambiguities”.
a. Have to look at the intent of the parties and whether they intended for the oral agreement to be collateral or as a part of the written document.
b. Read the writing in relation to the surrounding circumstances.
iv. What do we have to consider?
1. Writing: Is there a merger clause, other language that would suggest that the writing is a complete and final agreement? A merger clause prohibits a court/judge from looking outside of the agreement.
2. Usage of Trade, Course of Dealing, Course of Performance: Is there some customary practice within the particular industry, or between the parties, that would suggest that a separate, oral agreement is not something out of the ordinary?
3. Nature of transaction: Is it expected that the items at issue would be contained in a single contract, or is it expected that the items at issue would be contained in a separate, collateral contract.
4. Negotiations: § 214(b) – look at all circumstances to determine if parol should be admitted.
v. Does the term contradict the writing?
1. Majority of courts – use one or the other; it either contradicts or is not consistent.
2. Minority of courts – it may not be contradictory, but it must be more than consistent; perhaps in harmony w/ terms and language;
vi. Do any exceptions apply?
1. Sham/Fraud – Parol can be admitted to show that contract was fraudulent.
2. Mistake – mutual mistake and must be actions showing the term mistakenly left out.
3. Course of Performance to Contract – If certain conditions are required prior to contract becoming effective, parol evidence can be admitted to show that conditions were not met and that contract then did not exist.
4. Collateral – if there is a separate agreement that does not embrace the same subject matter, even if the document is complete, parol evidence can be admitted. Separate agreement must be sufficiently separate to considered two distinct contracts.
vii. Parol Evidence Under the UCC § 2-202
1. Nearly identical to Common Law PER. Only difference is the combination of “explain and supplement” for Parole Evidence instead of just explain.
2. Simplified version: If terms are final, the PER may not contradict, but it may explain or supplement. If writing is complete, may not contract and may not explain or supplement with additional terms; however, may explain or supplement with cp, cd, or ut unless carefully negated.
a. Is agreement complete? – Look at the intention and the language of the contract (merger clause usually equals completeness); However, UCC allows for a contract to be complete, but still not exclusive of Usage of Trade and Course of Dealing; If this is the case, the go to “ii.”
i. If not, is term consistent? (if yes – in; if no – out);
1. Consistent usually just means that it is not contradictory. However, a minority of courts believe ‘consistent’ means that the term must be more than just not contradictory.
ii. If yes, is it cp, cd, or ut
rence of shall discharge them both from further liability.
vi. Conditions Concurrent: conditions occur at same time (E.g., payment at delivery of goods.)
vii. The terms are too vague to have any meaning within a contract. In one sense the terms are all subsequent to the ones preceding and are at the same time precedent to all those after. Without some point of reference in the contract, the terms have no meaning
b. Express Conditions: All about Intent
i. Ask Four Questions
1. Is it a condition? (or just a promise)
2. Effect of Failure? – duty does not arise if condition has not been met;
3. Has condition been met?
a. Standard is that express conditions must be strictly met;
b. Not difficult to determine if it has been met, Except:
1. Satisfaction clause must normally be specifically included otherwise satisfaction cannot be used to render a contract unenforceable.
2. Contracts which involve taste, fancy, or personal judgment (example is of a personal portrait being painted);
3. Proof of satisfaction is a question of fact; all there needs to be is honest dissatisfaction with the product or thing contracted for in order for the K to fail.
4. Contracts that involve utility, fitness or value, which can be measured against a more or less objective standard require performance to be only reasonably satisfactory.
ii. 3rd Party Certificates:
1. Majority Rule is that subjective measurement is required; was there reasonable justification for failure of 3rd party to certify;
4. Is nonoccurrence excused?
ii. There is no parallel UCC section for this and the UCC says that when there is no UCC section, the common law applies.
c. Constructive Conditions of Exchange – Any time a promise is made a constructive condition is created.
i. Is it a Condition? If generally yes. § 232: presumption that performances are to be exchanged unless contrary intention is clearly manifested.
1. § 224: a duty to perform will not arise unless there is an exchange of performance by the other.
2. § 234(1): Performance is to be considered to be performed simultaneously unless otherwise stated; (land and goods à § 2-507 and § 2-511)
3. § 234(2): If performance of only one party takes time, performance due at earlier time than the other party.