CONTRACTS

Prof. Neustadter

Spring 2003

I.  PAROL EVIDENCE

  1. Def: Evidence of oral or written agreement prior to or contemporaneous with the execution of the written record.

i.  If PARTIALLY INTEGRATED – you CAN’T introduce evidence to CONTRADICT the record

ii.  If COMPLETELY INTEGRATED – you CAN’T introduce evidence to CONTRADICT or SUPPLEMENT the record.

  1. Critical Questions:

i.  What was the parties intent? Did they intend the writing to serve as the exclusive embodiment of their agreement?

  1. FORMULA – look at:

i.  Record itself

ii.  Circumstances

iii.  Parol Evidence itself and then determine if the evidence would have naturally been separate

  1. Cal. Code of Civil Procedure 1856:

i.  (a) Terms set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement.
(b) The terms set forth in a writing described in subdivision (a) may be explained or supplemented by evidence of consistent additional terms unless the writing is intended also as a complete and exclusive statement of the terms of the agreement.
(c) The terms set forth in a writing described in subdivision (a) may be explained or supplemented by course of dealing or usage of trade or by course of performance. à see 2-202
(d) The court shall determine whether the writing is intended by the parties as a final expression of their agreement with respect to such terms as are included therein and whether the writing is intended also as a complete and exclusive statement of the terms of the agreement.
(e) Where a mistake or imperfection of the writing is put in issue by the pleadings, this section does not exclude evidence relevant to that issue.
(f) Where the validity of the agreement is the fact in dispute, this section does not exclude evidence relevant to that issue.
(g) This section does not exclude other evidence of the circumstances under which the agreement was made or to which it relates, as defined in Section 1860, or to explain an extrinsic [sic? intrinsic] ambiguity or otherwise interpret the terms of the agreement, or to establish illegality or fraud.
(h) As used in this section, the term agreement includes deeds and wills, as well as contracts between parties.

  1. UCC 2-202 Final Written Expression: Parol or Extrinsic Evidence.

Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented

(a) by course of dealing or usage of trade (Section 1–205) or by course of performance (Section 2–208); and

(b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.

Ø  MASTERSON v. SINE

o  Attempting to use parol evidence to show that there was an oral agreement that the option was not assignable. This was important because Masterson filed a liquidation bankruptcy and if the property was assignable it would become reachable, but if not assignable, not reachable.

Ø  PUGH v. SEE’S CANDY

o  See’s promised continued employment if there was no good reason for termination. There was an implied promise not to deal arbitrarily with employees

II.  TERMS ESTABLISHED BY DEFAULT RULES

  1. Restatement demonstrates the most encompassing common law default term: 204: When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.
  2. The UCC implied warranties are examples of default terms

i.  Warranty of Merchantability: (2-314)

ii.  Warranty of Fitness for a Particular purpose (2-315)

iii.  Express Warranty: (2-313) – there doesn’t need to be the use of the terms “promise” “guarantee” or “warranty.” It doesn’t need to be written, and doesn’t matter if the seller is a merchant or not.

iv.  Exclusion or modification of warranties: (2-316) – the “AS IS” problem

  1. Other key UCC sections:

i.  You should skim other UCC Article 2 provisions establishing default terms that we do not study in detail: UCC 2-305 (open price term); UCC 2-306 (terms in output and requirements contracts); UCC 2-307 (delivery in single lot or several lots); UCC 2-308 (place for delivery); UCC 2-309 (time for delivery or other actions); UCC 2-310 (time for payment); UCC 2-311 (options and cooperation respecting performance); UCC 2-503 (manner of seller's tender of delivery); UCC 2-504 (shipment by seller).

  1. Also the Song-Beverly Consumer Warranty Act:

i.  Cal. Civ. Code 1790.3. The provisions of this chapter shall not affect the rights and obligations of parties determined by reference to the Commercial Code except that, where the provisions of the Commercial Code conflict with the rights guaranteed to buyers of consumer goods under the provisions of this chapter, the provisions of this chapter shall prevail.

ii.  Cal. Civ. Code 1792.4. (a) No sale of goods, governed by the provisions of this chapter, on an "as is" or "with all faults" basis, shall be effective to disclaim the implied warranty of merchantability or, where applicable, the implied warranty of fitness, unless a conspicuous writing is attached to the goods which clearly informs the buyer, prior to the sale, in simple and concise language of each of the following:
(1) The goods are being sold on an "as is" or "with all faults" basis.
(2) The entire risk as to the quality and performance of the goods is with the buyer.
(3) Should the goods prove defective following their purchase, the buyer and not the manufacturer, distributor, or retailer assumes the entire cost of all necessary servicing or repair.
(b) In the event of sale of consumer goods by means of a mail order catalog, the catalog offering such goods shall contain the required writing as to each item so offered in lieu of the requirement of notification prior to the sale.

III.  INTERPRETATION OF TERMS

  1. This is the source of the majority of contract litigation
  2. Important Restatement Sections

i.  200 – 204

ii.  Especially 201 which determines whose meaning prevails:

1.  Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning.

2.  Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made

(a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or

(b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.

3.  Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.

iii.  The whole of the contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other (section 1641 of California Civil Code)

iv.  Also See Cal. Civ. Code 1635-1654 [Statutory rules for interpretation of contracts, derived from the Field Codes] – linked in the commentary on interpretation of terms

Ø  PRYTANIA PARK HOTEL v. GENERAL STAR INDEMNITY CO.

o  Debate over the difference between permanently installed fixtures v. furniture and fixtures – because fixtures was used in both and furniture was not, this means that furniture CANNOT be included in the category that it was not mentioned in.

Ø  FRIGALIMENT IMPORTING CO v. B.N.S INTERNATIONAL SALES CORP

o  The case of “chicken.” P has the burden of proving the meaning of “chicken” and didn’t meet that burden. The court looked at:

§  Actual contract language – how the chicken was described using a dictionary definition

§  The price that plaintiff was paying and the way that factored into the quality of chicken that P should have expected to receive

§  Trade Usage – although here D was new to the industry and it is not fair to impose trade standards upon him

Ø  TAHOE NATIONAL BANK v. PHILLIPS

o  Bank did not use a mortgage form when they had Mrs. Phillips file for her loan, and when she didn’t repay the note the Bank wanted to collect on the debt. Since it was not a mortgage though, they could not collect on it because she had homesteaded the property.

o  Its construed against the bank because they were in the better bargaining position – and this was their own fault.

IV.  PROMISES AND CONDITIONS (“Express Conditions”)

a.  When attempting to avoid the consequences of a condition the courts will look at the following:

i.  Interpretation Preference: The court prefers to interpret things in doubt as promises rather than conditions. (Howard v. Federal Crop Insurance, NY Bronze v. Benjamin, Kennedy v. Fisher)

ii.  Obligor’s behavior presents occurrence of condition: If the obligor is required to do something, but the obligor’s own behavior was what stopped him from doing the activity – this may excuse the condition. (Charter Oak v. Color Converting)

iii.  Excuse Condition to avoid disproportionate forfeiture: The court will sometimes just outright wipe the condition out of the contract as a judicial fiat because they find that it is causing a forfeiture that is disproportionate to the damage done. (JNA Realty v. Cross Bay Chelsea)

iv.  Modification of Waiver.

b.  Vocabulary used:

i.  “Shall” is typically associated with a Promise

ii.  “In the event that” is synonymous with “on the condition that”

iii.  You have to evaluate whether you want to make these conditions or promises

c.  Key Restatement Sections:

i.  224 – Condition defined

ii.  225 – Effect of non-occurrence of a condition

iii.  226 – How an event may be made a condition

iv.  227 – Standard of preference with regard to condition

v.  228- Satisfaction of the obligor as a condition

vi.  229 – Excuse of a condition to avoid forfeiture

vii.  230 – Event that terminates a duty

Ø  HOWARD v. FEDERAL CROP INSURANCE CORPORATION

o  Court had to determine whether the language about not plowing under the stalks before the investigator came out was a promise or a condition. If a condition – the farmer would get none of his claim. If a promise – the farmer would have breached his promise and the insurance company would be entitled to damages, but this would not necessarily forfeit damages. The court determined ultimately that this was a promise.

Ø  NY BRONZE POWDER CO. v. BENJAMIN ACQUISITION CORP

o  There was a promise to pay the remaining $350,000 based upon the results of an appraisal. The debate is over whether handing over the note upon the maturity or prepayment to receive full payment was a condition or a promise. The court determined that it was a promise.

Ø  KENNEDY ASSOCIATES v. FISCHER

o  Fischer made agreements that Kennedy would loan him 90% of the money he needed and Alaska would loan him the other 10%. Kennedy’s loan was based upon approving the building. After an independent surveyed the land he found that it was not worth it and backed out. The debate was over whether the condition precedent to survey the land should be interpreted by an objective or subjective standard. The court determined here it should be objective.

Ø  CHARTER OAK FIRE INSURANCE v. COLOR CONVERTING INDUSTRIES CO.

o  On threat of losing good customer, Color paid them for the damage that had happened to their goods. Color believed that the insurance company was purposely dragging their feet so they would have to pay the clients, and this would relieve the insurance company from their duty. The court held that there was no implied duty that the insurance company will protect their insured from a loss of a customer – and therefore there was no excuse for Color to make the voluntary payment, and therefore the duty of Charter Oak eliminated.

Ø  JNA REALTY CORP v. CROSS BAY CHELSEA

o  Sale of a restaurant with the option to renew for 24 years. The tenants were late and overlooked the notice of renewal and the court had to determine whether they should execute the condition precedent or excuse it to avoid forfeitures that the tenant would suffer and whether there would be a prejudice to the landlord. The court determined that this forfeiture outweighs the prejudice to the landlord so sufficiently that they are going to excuse it even though the tenant was negligent.