I. Determining the Parties’ Obligations under the Contract: Ascertaining, Interpreting and Modifying the Agreement (Chapter 5)
A. Parol Evidence Rule
· The Parol Evidence Rule: When there is a written contract, which the parties intend as the final and complete expression of their agreement, evidence of any earlier oral or written expressions are not admissible to vary the terms of the writing.
o Types of extrinsic evidence that a party may want to introduce: oral negotiations, subsequent modification, prior written documents (notes), presumed industry standards/course of dealing, course of performance.
Restatement §§ 209, 210
1. Is the writing an integration (final expression)? (§ 209)
o The more formal the document, the more likely the document is an integration.
2. If it is an integration, is it partial or complete? (§ 210)
o Test: if the writing seems to be complete, it is.
Is the writing an integration (final expression)?
|———————————————————————————————————-|
Yes No
|———————————| 1. Consistent additional
Complete Partial 2. Contradictory
1. No additional 1. Consistent additional (§ 216)
2. No contradictory (§ 215) 2. No contradictory (§ 215)
UCC § 2-202
· Less strict than the Restatement; it would let more evidence in.
o More contracts are considered “partial,” let in consistent additional terms.
o This is for supplementary or explanatory terms, whereas Restatement is only for supplementary.
· Is the writing a final expression?
· If it is a final expression, is it complete?
o If yes, then no additional terms.
· What is necessary to trigger the parol evidence rule?
o NOT a subsequent term (modification), NOT interpretations, NOT evid. to show K isn’t valid.
o A preliminary agreement not in the final K.
o It is not limited to oral negotiations, it could include notes/drafts.
· Gianni v. Russell (1924) Prior oral agreement excluded.
o π leased store in office building to sell fruit, tobacco and soda. Π alleges that they orally agreed that he would have exclusive right to sell soda before they signed the contract (but that term wasn’t in the K). Δ allowed another tenant to open a second store and sell soda. Π sued for breach of the alleged oral contract, he doesn’t seek to reform the written K.
o Issue: is the oral agreement enforceable? Holding: no. The court concludes that the writing is final because the written K deals with what will happen in the store, so if they wanted to include exclusivity, it would have been in the written K.
· Masterson v. Sine (1968) Partially integrated agreement.
o Mastersons conveyed to the Sines a ranch by grant deed, containing a clause reserving the right to repurchase the ranch for the price they sold it for within 10 years. Mr. M went bankrupt, Mrs. M and his bruptcy trustee wanted to buy the ranch back (exercise the option).
o Δs claim the option is personal and not assignable (issue is whether trustee can exercise option).
o The court concludes that the integration was partial, allows the additional term.
· The majority thinks there is a gap to be filled (the K is silent on this point). They look at the parol evidence to determine the parties’ intent, not just the K itself. (Rest. § 216 comment b: apply the parol evidence rule to determine if there is a gap.)
· Dissent: when there is silence, the option is assignable. Evidence would be contradictory.
· Bollinger v. Central Pennsylvania Quarry (1967) Exception to PER- Mutual mistake.
o K for Δ to deposit waste on π’s property; πs thought waste would be sandwiched between layers of topsoil, but K didn’t contain this provision. Δs began to sandwich, then discontinued this service and claimed it wasn’t in the K. At this point πs learned it wasn’t in the K.
o This is not PER, this is mutual mistake- the parties are reforming the K to include a term which they had agreed and acted upon, they are not adding a new term.
o Types of mutual mistake: 1. Term should be in, but is not. 2. Term should not be in, but it is. 3. Fraud- one party thinks a term is there bc of fraudulent misrepresentations in p/n.
No Oral Modification (NOM) Clauses
· NOM Clause: provision in a K which states that any modifications must be in writing.
· Merger clause: verify that the written contract is a complete integration.
· At common law, despite a NOM clause, oral modification is enforceable because parties making the oral modification are also modifying the NOM clause (voiding it).
o A modification may be made in writing, orally, or by performance. The UCC only recognizes modifications in writing.
· Different result under the UCC:
o UCC § 2-209(2): If there is a NOM clause, a modification must be in writing. If it is a form supplied by a merchant, and the other party isn’t a merchant, both must sign it.
· UCC § 2-209(4): a failed modification might be a waiver.
§ Failed = modification is not in writing.
§ Waiver of the original terms of the contract.
§ A modification must be agreed to by both parties to be enforceable. A waiver can be unilaterally retracted as long as the other party hasn’t acted in reliance on the failed modification. (UCC § 2-290(5))
· Some courts require for a waiver an agreement to modify and reliance.
· Others say all you need is an agreement and no bad faith or coercion.
UCC § 2-209
(1) Don’t need consideration for a modification to be binding.
Modifications (2) If NOM, it is not a modification, but might be a waiver.
(3) A modification must satisfy the SoF (if there is no NOM clause, or if it is in writing)
Waivers (4) A failed modification might be a waiver.
(5) A waiver may be retracted unless it has been acted upon (reliance).
· Wisconsin Knife v. National Metal Crafters (1986)
o National Metal supplied blanks Wisconsin Knife required to produce spade bits. First two order, NM acknowledged acceptance in writing w/delivery dates. Next four, acknowledged orally, NM supplied delivery dates orally, WK wrote them int
mum (breached). Pixey wants to introduce evidence that the right to terminate the K was the exclusive remedy, there is no right for Delta to collect money damages.
o The court allowed extrinsic evidence to show whether termination was an exclusive remedy.
o Note: the court is clearly going too far. They are adding the word “exclusive.” Evid. should be barred.
· Greenfield v. Philles Records, Inc. (2002) Difference in rules- Calif. and N.Y.
o Π agreed to perform exclusively for Δ, in exchange Philles acquired an ownership right to the recordings. The K stated that Δ had the right to reproduce in any method now or hereafter known.
· This is the disputed language in the first contract. It was executed in NY, so the four corners test applies. Holding: the meaning is plain on its face, no ambiguity.
o Greenfield and Spector married, and their divorce settlement executed general releases to resolve all past and future claims and obligations that existed between them, as well as between their companies.
· This K was formed in California. Under the Calif. rule, p/n evidence suggested that the language was ambiguous. P/N suggests that the release only pertains to claims regarding their divorce.
· WWW Associates v. Giancontieri (1990) Extrinsic evidence not admissible to create ambiguity (NY)
o The writing stated that either party could cancel. π argues that the litigation clause was to protect π only and not to give the right to Δ to get out of the contract. Π gets this information from p/n that would limit the right to only π. This evidence is contradictory, so the PER won’t let it in.
o The court uses the four corners test to see if the language is clear or ambiguous. Holding: the language is plain on its face.
o NY Rule (four corners): Extrinsic evidence will not be considered in order to create an ambiguity in a written agreement.
· Trident Center v. Connecticut General (1988) Extrinsic evidence to define K terms.
o πs formed a group to construct an office building, obtained financing from Δ. The K says you can’t prepay for 12 years. After a few years, πs wanted to refinance, but Δ refused to let them. Πs claim that the prepayment fee in the K gives them a right to prepay (at least creates ambiguity).
o 9th Circuit applies California law- they think that all someone has to do is say that something from P/N is ambiguous and the evidence will get in. They are wrong- they skip the second step.
