Contracts B, Winter 2011, Findlater
Determining the Parties’ Obligations Under the Contract: Ascertaining, Interpreting, and Supplementing the Agreement
· Who is trying to introduce what kind of evidence to do what?
· Is someone trying to introduce evidence of an agreement made after the writing? Then we’re talking about a modification
o Have to worry about consideration, NOME clauses, etc.
· If it’s prior, are they trying to introduce evidence to add a term that’s not in the writing? That’s PER.
· If they’re using term from a preliminary negotiation to interpret the meaning of the terms in the writing, that’s a plain meaning rule issue.
o Sometimes used to try to backdoor PER.
The Parol Evidence Rule
· You worry about PER when someone seeks to add a term from preliminary negotiations and it’s not included in the writing.
I. When to Apply: when they are trying to add terms to their agreement.
· If there is a party that asserts that there is a term agreed to during negotiation that does not appear in the writing and that term is part of the agreement, the issue isn’t whether you believe they agreed but whether at the end of the day they intended for the term to be part of the deal.
· The PER does not preclude proof of a conversation between parties after the contract was made. RST 213.
· If a sale of goods, apply the UCC.
o What kind of evidence is being introduced and for what?
o UCC 1-304: obligation of GF in performance and enforcement of contract
§ GF in contract b/c law puts it there not b/c parties agreed to it.
§ GF not in agreement
§ Not a parol evidence rule problem when GF at issue in contract
o Uses “certainly”
· If not a sale of goods, apply the RST 209, 210
o Uses “naturally”
§ Both RST and UCC are concerned about what the parties intended. Essentially the same but the Code goes further to discuss CD, UT, or CP to add additional terms even when there is a complete integration. RST is silent on the issue and only mentions that you can’t contradict or add consistent additional terms.
· The rule to use for whether you have an integration is whether you have a formal document.
II. The law will treat the issue by hearing the evidence and ascertaining the facts.
· Do we have an integration or not? RST 209
o (1) Integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement. E.g. real estate contract or any formal document.
o (2) Whether there is an integrated agreement is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parole evidence rule.
o (3) Where the parties reduce an agreement to a writing, which in the view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression.
· Who makes the decision?
o Majority view is that whether term is admitted is a question of fact decided by judge, not jury b/c
§ Not sophisticated, may be too sympathetic
o If judge determines that a writing is an integration of all agreements of the parties, he will exclude evidence of prior written or oral terms that seek to vary the terms of the integrated writing.
o Then if there is a jury, it will determine if the extrinsic evidence was part of the agreement in fact.
· Parole evidence rule is a substantive rule of law.
o Can’t prove fact if term not admitted; it precludes any proof that the terms of K are other than as expressed in writing.
· If we have an integration, is it a complete integration or partial integration? RST 210
o Final agreement supersedes prior oral agreements. RST 213.
§ RST 210 (1) A completely integrated agreement is an agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement.
· Formal documents usually considered complete
o Courts focus on what parties ultimately agreed to.
§ Gianni – final so couldn’t add.
o If it’s a partial integration, can add to but not contradict. RST 216
o Where there is a binding agreement, either completely or partially integrated, evidence of prior or contemporaneous agreements or negotiations is not admissible to contradict a term in writing. RST 215.
o If court looks at subject matter covered in writing, then the Court is looking at the issue based on what’s in the writing and what they think hypothetical parties would do.
o 2 tests that Courts apply to determine if complete or partial.
§ Williston 4-corners test: look at 4 corners of document
· Court in Gianni applied Williston view. (Very restrictive)
§ Corbin view – look at what the parties’ intended by looking at what they said and did; followed by most courts
· Specific circumstances of the transaction as they would naturally and normally include in their writing.
· RST 212 (1): interpretation is directed to the meaning of there term in light of the circumstances.
· If people like these under circumstances like this would normally include the extrinsic matter in their writing à exclude under PER
o Court in Masterson applied Corbin view.
· What is the effect of an integrated agreement on prior agreements (PER)?
o RST 213 (1) A binding integrated agreement discharges prior agreements to the the extent that it is inconsistent with them.
o RST 213 (2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope.
· When is evidence of prior or contemporaneous agreements and negotiations admissible? RST 214
o Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish
o (a) that the writing is or is not an integrated agreement.
o (b) that the integrated agreement is completely or partially integrated.
o © the meaning of the writing, whether or not integrated.
o (d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause.
o (e) gr
erformance – where a contract involves repeated occasions for performance by either party and the other party has the opportunity to object to such performance, any course of performance accepted or acquiesced to is relevant in determining the meaning of the contract. UCC 1-303 (a), (d).
· Whenever it is difficult to determine whether a particular act merely sheds light on the meaning of the agreement or represents a waiver of a term, the preference is in favor of a waiver b/c needed to preserve the flexible character of commercial K’s and to prevent future surprise of hardship. Nanakuli.
· Policy: Courts will protect the party who chose to continue to do business in the interest of flexibility as opposed to making actions a CP which makes the party obligate.
· Course of dealing, usage of trade, course of performance. Analysis
o What did the parties intend the writing to be?
o Terms intended as a final expression cannot be contradicted.
o If they intended for it to be all or the complete statement, you can’t add.
o But if the writing was intended to be the final but not the complete statement of the deal, you can add consistent additional terms.
o But even if it is a complete integration, you can interpret or add to the writing by using course of dealing, trade usage, or course of performance.
o As long as it’s not the complete and explicit statement of the terms of their agreement.
· Agreement = bargain in fact between the parties
· Contract would be what the parties in fact have agreed to plus all applicable rules of law.
Nanakule (price protection part of the agrmt as agrmt is defined by the code)
· P. sued D. for breach of a supply K when D. failed to provide price protection on a delivery of asphalt as it had done in the past.
· Issue: Whether trade usage or course of dealing can be used to modify or supplement the express terms of a written commercial K? How broad is the trade?
· P argued that price protection clause was part of their agreement b/c it was a term of their agreement as agreement is defined in the code including what’s in the writing as well as TU, CP, and CD. Second argument was that part of every K in the code is an obligation of GF. GF requires reasonable commercial standards and fair dealing the trade.
· Rule: 2-202(a) even if you have a CI, TU and CP get in. A TU will be binding on a person who is either a member of the trade or is a person who knows or should have know of the TU.
