Contracts

• Parol Evidence Rule

  An omitted term is implicitly rejected. Omission means parties decided not to include that term.
• Integration


  • Covers only terms as of time of integration
  • Does not implicitly preclude future changes in terms
  • Parties might adopt new writing to safely incorporation changes
  • Subsequent integration supersede any prior integration of a contract
• Partial Integration


  States a few terms of the agreement; allows supplementary term but bars any term contradicting the integration
• Complete Integration


  States all the terms of the agreement; bars any additional term of the same bargain
• Applying the Parol Evidence Rule


  1. Did the parties adopt a written version of the terms (Integration)?

  2. Is the alleged omitted term within the scope of that writing?

  3. One test: was writing intended to cover all the terms i.e. a complete integration or some (partial integration)

  4. Another test: is the alleged omitted term within scope of matters addressed by the writing? Or is the alleged term part of a collateral agreement?
• Collateral Agreement


  A related but separate agreement; with the same parties and related to the same business. Useful sign of a collateral agreement: parties made a separate exchange of consideration
• Parol Evidence Rule Exceptions (Assuming Integration)


  • Prove collateral agreement (related but separate transaction)
  • You can supplement but not contradict a partial integration
  • The Restatement's permissive naturally omitted term approach
  • UCC's even more permissive presumption for consistent tern unless parties certainly would have included it in integration
  • Fraud: promisor intended at time of promise, to breach it (very hard to prove)
  • Condition Precedent to existence of contract: contract does not exist yet, and neither party is bound unless/until condition occurs.
• The Parol Evidence Rule clearly applies to promises omitted from an integration. What other type of contract term might be omitted and subject to the rule?
• Other types of contract terms that might be omitted and subject to the Parol Evidence Rule

  • Warranties
  • Conditions
• Waiver


  Did buyer manifest its decision to excuse the contract's limits for seller's delivery (or to forgive the seller's delay)?
• Determining if a Waiver Occurred

  1. Did the buyer manifest a decision?

  2. If so, how far did the waiver go?

  3. Was the buyer's waiver binding?

  4. Yes, if it was for consideration (e.g., failed oral agreement)

  5. Or reliance makes waiver binding to the extent of reliance
• Alleged waiver often happens with ambiguous facts
• Ambiguous


  Two different meanings
• Vagueness


  Imprecise use of the word, either broad or narrow meaning
• PER (Parol Evidence Rule)


  Alleged prior or contemporaneous term omitted from integration is rejected, subject to some exceptions
• Interpretation


  Court finds a term is part of the contract (whether omitted or included in an integration) but parties dispute meaning of those words. Meaning might be within the four corners of an integration or extrinsic (parol), outside 4 corners.
• A Process for an Issue About Interpretation of a Term


  1. Identify the word or words in dispute

  2. State the different meanings proposed by the parties

  3. Are words reasonably susceptible to both meanings?

  4. Does reading within the four corners (face of document) show only one meaning is reasonable, and the other is not?

  5. Beware latent ambiguity: another non-obvious meaning might be revealed by a party's offer of extrinsic evidence.

  6. If ambiguous after reading within 4 corners or if the judge recognizes latent ambiguity, extrinsic evidence is admissible.

  7. After trial, does all the evidence point to one meaning?
• Extrinsic Evidence Rule


  Trial and extrinsic evidence allowed to interpret only if parties present alternative plausible meanings. If court deems one meaning clear on its face, no need for trial. Offer preliminary evidence of latent ambiguity to persuade court.
• Tools for Interpretation within 4 corners


  • Words uncertain in isolation might become clear in the context of other provisions within the same text
  • Read text in light of stated purpose (e.g., by recital)
  • Correct obvious errors of grammar, spelling and punctuation
  • Handwritten words take precedence over typed words
• Expressio Unius Est Exclusio Alterius


  Stating one thing might imply exclusion of another
• What Extrinsic Evidence might interpret a term?


  • The parties testimony about what they really meant
  • Proof of special language of parties or their trade
  • Things said and done (1) during negotiations or (2) after contract formation
• Effect of Vague or Ambiguous terms

  If both meanings are reasonable, possible solutions include: who bore the burden of proof, most reasonable meaning, favor a broad not narrow meaning, lack of mutual intent on essential term means no contract
• Why some things are left unsaid in a contact:
• Implied Terms

  Can fill the gaps in a K. Other terms or circumstances imply the unexpressed term. Customary practice of parties or of their trade or their community. Reasonableness or good faith requires rule parties would've adopted had they discussed it. Public policy demands implied term (e.g., implied warranty).
• Custom or Practice are implied unless disclaimed

  • Contracting parties see no need to state what is obvious (to them), and think it would be a waste of time to state what is obvious.
  • Parties might naturally omit the terms taken for granted.
  • It cannot be said they certainly would put the term in integration.
  • Evidence is likely objective, not troublesome.
• Proving Custom or Practice

  1. First, What is the custom of a particular community?

  2. Second, How can the community and its customs be proven?

  3. Third, Parties' own practice can also be an implied term

  4. Fourth: Was it a practice or just a one-time waiver?
• Ways a Contract Changes (Even After Complete Integration)

  • Express modification: but see pre-existing duty rule, statute of frauds, possible no-oral modification clause
  • Practice: course of performance modifying the contract by the parties' adoption of their own custom
  • Waiver: not a true modification; possibly limited to a single occasion (a hall pass); usually not binding except to the extent a party relied on the waiver
• Implied Term Contradicting Express Term

  UCC: custom or practice interpret supplement or qualify express terms. But written terms prevail if conflict with implied term is irreconcilable.
• Implied Duties of Good Faith

  Agreeing to a contract allows continued selfishness. Contract does not make parties fiduciaries in their performance of a contract. Conduct not expressly addressed by contract might be required or prohibited by the implied duty of good faith and fair dealing.
• Requirements for Implied Duty of Good Faith

  • Restatement: all contracts include an implied duty of good faith and fair dealing in performance of contract.
  • UCC: implied duty of good faith in performance in all contracts subject to code.
  • No act shocking to conscience
  • No action rendering contract illusory if not prohibited
  • No conduct destructive of reasonable expectations
• Texas does not require Good Faith in all contracts, but the UCC as adopted in Texas does impose an implied duty of good faith. It is not a fiduciary duty, and a party is entitled to prefer its own interest.
• Analyzing Discretion


  1. What was the decision in question?

  2. Reason for allowing her discretion?

  3. Decision consistent with that reason?

  4. Or shocking, unexpected, harmful?

  5. If her exercise of discretion violated duty of good faith, what rule did the court suggest as a limit on the exercise of that discretion?
• Condition


  Not a promise per se but might create implied duties. An event (to occur/not to occur) limiting a promise. Failure of a condition (the event occurred or failed to occur) is not per se a breach. Implied duty: facilitate where possible and do not interfere with the condition.
• Condition vs Schedule


  • Condition? Failure excuses duty.
  • Schedule? The event determines when performance of duty is due. If an event fails to happen, duty is owed at a reasonable time.
• Fulfillment of Conditions


  • An express condition might state a very specific threshold. Failure of condition of promisor's duty can be very hard on promisee. Might cause disproportionate forfeiture if promise relied at great expense on a promise.
• Ways to Avoid Forfeiture caused by Failure of Condition

  • Restitution if possible (not reliance)
  • Prefer reasonable interpretation to avoid forfeiture (no condition, or condition was fulfilled)
  • Override condition to avoid disproportionate forfeiture
  • If promisor violated implied duty to assure condition's fulfillment court will treat the condition as if fulfilled
  • A waiver of the condition, or estoppel, or election
• Waiver, Estoppel & Election


  The Common Thread: one party has to make a decision. Waiver, estoppel, and election are overlapping doctrines that might make a promisor's express or implied decision binding.
• Waiver (Manifested Decision) As Applied to Failure of Condition

  1. If the condition of a promisor's promise fails, that promisor has an option (must decide): don't perform or perform anyway.

  2. Waiver: promisor manifested a decision before or after failure of condition to perform duty despite failure of the condition.

  3. Typical issues for waiver:

  4. Was the waiver for just one occasion or all occasions?

  5. Is the promisor bound by the decision it manifested?
• Is Waiver Binding? Material v. Nonmaterial Condition

  • If the waived condition was non-material to the promisor, waiver is likely to be binding.
  • If waived condition was material, waiver is not binding unless: promisee gave consideration, or waiver induced promisee's reliance (binding only to the extent of the promisee's reliance).
• Estoppel


  Inducing Reliance By Conduct Regardless of Intent. Estoppel is based on conduct or words regardless of intent to express a decision to ignore condition. Promisee's reliance essential to estoppel - it must've been reasonable to believe promisor's intent was to perform despite failure of condition. Manner of estoppel must be reasonable, material, detrimental.