Interpretation

Front 1

Parol evidence rule defn and reasons

Back 1

extrinsic evidence not incorporated into the written document
Reasons
1. to promote certainty
2. to eliminate perjury
3. to compensate for lay jury naivete
2 aspects: substantive and procedural.
substantive: if the judge decides the writing is the K all oral agreements nugatory
proc: if the writing is the K judge/jury will not hear PE

Front 2

PE rule 3 questions

Back 2

1. Is the writing an integration?
2. Is it a partial or complete integration?
3. Despite finding a complete integration, are there any exceptions to allow the court to admit parol evidence?

Front 3

Question 1

Back 3

Is the writing an integration? Test - Did the parties intend the writing to be a final embodiment of at least part of the agreement?
If no ->parties can explain, supplement, contradict.
if yes ->question 2

Front 4

Question 2: is the writing a complete or partial integration?

Back 4

Tests for complete/partial integration:
Conservative:
Williston:
is the writing complete on its face? if not, partial integration.
if the writing is complete on its face - ask whether the parties would normally and naturally have included the PE in the subject matter of agreement? This is maj view. If yes - PE excluded. If no - PE allowable; partial integration
Wigmore - does the PE deal at all with the subject matter of the agreement? If so ->complete integration. if no, PE is admissible.
Policy considerations: 1) to protect reliance on writings, predictability or certainty in commercial law (think of winky pounding desk)
2. biased toward finding complete integrations

Minority
Corbin - subjective intent of the parties to include terms means it's a partial integration. basically destroys finding a complete integration. (minority approach)
UCC 2-202 - whether reasonable contracting parties would certainly have included the extrinsic evidence? highest standard, most liberal, biased in favor of partial integration.
Policy ocnsiderations:
1) respct for the parties' actual intent
2. biased in favor of finding partial integration

Front 5

Question 3: are there any exceptions to the PE rule applicable to allow the court to admit extrinsic evidence despite finding a complete integration?

Back 5

1. Oral conditions precedent
2. Enforceability doctrines
3. Collateral agreements
4. Subsequent oral modifications
5. Incorporation by reference
6. Implication - in-fact - intrepretive, actual intent; in-law

Front 6

Oral conditions precedent

Back 6

i. Consistent oral conditions precedent to the effectiveness of the K as a writing (formation stage)
ii. Some courts cheat and allow proof of conditions intended to operate during the performance stage
iii. Hick v. Bush

Front 7

Enforceability doctrines

Back 7

i. At the end of K formation, you need a valid, enforceable K. Any unenforceability doctrine, like fraud, will allow you to push the PE rule
1. Facts allowed to be introduced here
ii. Bollinger v. Central Pennsylvania Quarry
1. P wants the reformed K to be enforced as an equitable remedy (“That writing doesn’t reflect our agreement; I want you to rewrite the agreement into what we actually agreed upon, then I want the court to enforce it”). Parties usually realize that oral agreements are not written into the K, but P did not know that here. Held: for P. Ct says in certain circumstances, it’s okay to reform a K—find a mutual mistake between the parties.

Front 8

Collateral agreements

Back 8

i. This should be a separate, two-sided collateral agreement with consideration
ii. An integration is not a black hole that sucks into itself every related K, so we can hold an oral K as a separate, independent, and complete agreement that is not susceptible to integration
iii. Majority: valid exception if collateral agreement does not contradict writing
iv. Minority: not valid exception because it’s too easy to lie about an oral agreement—there is no difference of perjury between the two agreements, so treat this as a partial integration
v. Lee v. Seagram
1. There is a written K where the Lees purport to sell their existing distributorship. Oral agreement to give Lees a new distributorship in the future was considered a collateral agreement and enforced (although it wasn’t really because it was one-sided). Ct also said that it wouldn’t have normally and naturally been included because the written K was about a corporate sale, whereas this agreement dealt with individuals and the close personal relationship of the parties.

Front 9

Subsequent oral modifications

Back 9

i. PE rule only prevents parties from bringing into the complete integration prior and contemporaneous parol promises. Parties retain the power to subsequently orally modify written Ks.
ii. But parties can add to the written K: “no oral modification” clauses
iii. Parties can later waive such clauses (freedom of K), but the question is what requirements are for an effective waiver
1. Wagner: there must be an express waiver, which there was
2. Universal: one party must substantially and materially rely on the other party’s purported oral modification
3. CIT: there also must be an express waiver, but none was found
iv. Restatement 224: prefers substance over form—formality or express waiver is not required, just proof of reliance
v. UCC §2-209(5): same as Restatement view

vii. Cases
1. Gianni v. Russell
a. P and D had a lease. P claims that prior to signing the leases, D promised that P would have exclusive rights to sell soft drinks in the building and D later breached this agreement. Held: for D. K would have “normally and naturally” included this term since the agreement included terms regarding the selling of tobacco
i. Ct appeared to use Williston, but this was a mechanical and unfair application of the test: the writing dealt with P’s unit (he can’t sell tobacco), whereas the oral agreement dealt with all other units (no one else can sell soda)
2. Masterson v. Sine
a. P owns a ranch, which he conveys to his sister (D) by deed, which reserves a 10-year option to repurchase. P goes bankrupt and his trustee sues to exercise the option. D attempts to show that there was a separate oral agreement that the option was to be personal and non-assignable (so all the property would stay in the family). Held: for D. Ct said this agreement might naturally be made as a separate agreement, and an agreement as to the non-assignable nature of the option would have been difficult to include in the K.
i. Traynor is using Corbin
ii. Dissent argues that Ct shouldn’t allow a collateral oral agreement contradict an implied-in-law term (on the face of the K, there seems to be no reason why trustee can’t exercise the option)

viii. Merger clauses
1. A way to avoid the above tests: include a clause in a K that states, “There are no promises, verbal understandings, or agreements of any kind pertaining to this K other than specified herein.”
a. The clause says that the K is the sole agreement and is therefore completely integrated
b. PR can only be used to explain the document and resolve any ambiguities
2. Exceptions to merger clauses:
a. If the document is obviously incomplete on its face
b. If the merger clause was induced by fraud, unconscionability, etc.

Front 10

Incorporation by reference

Back 10

i. A separate document can be taken to be incorporated into a K by reference
ii. Requirements:
1. Clear reference to the separate document
a. Doesn’t have actually be a written document, but can be by custom or expert testimony
2. There must be a manifestation of intent to include the separate document as a part of the K
iii. Often used; not controversial
iv. Can increase the scope of the K

Front 11

Implication

Back 11

i. Def: These are times when we have to readjust the parties’ relationship when common sense requires us to read into the writing something to make it fair
1. Can increase the scope of the K

ii. Implied-in-fact based on actual intent
1. Subjective state of mind
a. Did both parties subjectively have this provision in mind at the time of K formation?
b. Need preponderance of evidence: look for statements and surrounding circumstances
2. Wood v. Lucy
a. D made an agreement so that P had exclusive right to place D’s endorsement of clothes. P agreed to give D ½ the profits. P sued for breach when D put her endorsement on a third-party’s clothes. D said K failed because of lack of consideration from P. Held: for P. There was an implied promise to use good faith and reasonable efforts by P. Ct implied the term because there would have been no economic value to D unless the parties had that actual intent in mind.

iii. Implied-in-fact based on interpretive intent (illustrated by the architect hypo)
1. P bargained for a particular benefit fundamental to original K (essential bargain)
a. Must get architect’s certification before landowner pays construction company
2. Later, unforeseen development
a. Architect dies
3. The event has a drastic impact on original bargain (“necessity”)
a. Landowner will get all the finished construction while the construction company won’t get paid
b. Court can’t make implications just because they would be reasonable; they have to be necessary because the unforeseen development destroys the original bargain
4. Ergo, reasonable fair-contracting parties would want the K modified in light of the unforeseen event
a. Court is not finding actual intent (since it didn’t exist because the parties didn’t foresee this development), rather it is “remaking” the K in the interests of justice using the intent that they think the parties would have had in mind had they foreseen (involves speculation)
5. Parev v. Rokeach
a. D bought from P exclusive right to manufacture and distribute a cooking oil called Nyafat. Agreement provided for royalties and contains a promise by P not to sell any competing product. 15 years later, D markets a semisolid cooking oil called Kea because new and less expensive products were cutting into Nyafat’s market. P sues to enjoin D from marketing Kea. Held: for P. Ct does not enjoin D; rather, the unforeseen emergence of the cheaper product forces Ct to remake the deal. Ct gives the equitable solution of permitting D to sell Kea so long as it doesn’t invade Nyafat’s market. Ct also allows the case to be reopened to show money damages to Nyafat by sale of Kea.

iv. Implied-in-law terms
1. The terms are created by the court’s conception of fairness, not by the party’s assent or conduct
2. May be a result of social policy saying, “if you want this deal, then this must be a provision”
3. UCC
4. HML v. General Foods
a. P sells dressing “Cream Wipt.” D tries to market “Dream Whip.” P sues D because the names are too similar. P wins. D negotiates to buy “Cream Wipt” name from P because D put a lot of money into developing the “Dream Whip” name. P sells trademark and dressing to D for $250K and right to supply 85% of D’s need for dressing manufacture. D later informs P that it doesn’t need any more dressing because it is unprofitable. P tries to get Ct to imply three terms:
i. Exercise best efforts
1. Ct rejects because the supply K was for D’s benefit
ii. Maintain certain level of requirements
1. Ct rejects because seller assumes the risk of variation, even though the loss to P here is especially extreme because P also sold always the dressing patent—P either has to sell it to D or have no sells whatsoever
iii. Act in good faith
1. Ct says burden rests on P to show that D acted in bad faith—P should look at surveys D used to argue that market demand was low to see if D knew about this prior to entering into the K
5. Dickey v. Philadelphia
a. P leased a tract to D; lease provided that D would use it to wash and clean cars and for no other purpose. For rent, D was to pay 12% of gross sales with a minimum rent. D stopped washing cars, but never failed to pay the minimum rent. P sued for breach, arguing that there should be an implied condition to continue using the business to the fullest extent possible. Held: for D. Where there is a minimum rent to be paid, an obligation to conduct a particular business should not be found.
6. Bloor v. Falstaff Brewing
a. D bought P’s beer label. The price included a royalty of each barrel of beer sold in a six-year period. P also tied D to a marketing philosophy. D began to cut costs by using a different marketing procedure and less beer was sold. P sued for breach of “best efforts to promote high sales” clause. Held: for P. Ct said D had to do what it could as long as it wasn’t pushing it into severe financial loss. Burden was on D to show that it was in dire financial straits, and they did not show this.
v. Court has 3 options:
1. Enforce the K literally
2. Invalidate the K and allow the parties to recover in quasi-K
3. Reform the K if implication is necessary
vi. Two questions the court asks:
1. What type of implication is the court making?
2. What evidence is admissible?
a. Must not circumvent the parol evidence rule