common law contract: interpretation and formalities

Contract InterpretationMay 6, 2009

Slide 1

Common Law of Contract

Contract Interpretation


Slide 2

Objective Theory of Contract

Applies to disputes concerning the making of an offer, the propriety of an acceptance or the performance or nonperformance of a term.

and more basically what a term means and even whether a contract exits.

Interpretation should be from the perspective of a reasonable person standing in the shoes of the parties


Slide 3

Raffles v. Wichelhausaka “The Peerless Case”


Slide 4

The Peerless CaseAt issue are the terms of the contract

Specifically whether a K exists

D claims there is K, P claims there is no K under D's interpretation

Court says parole evidence may be used when material term of K is unclear

Court finds no K existed


Slide 5

Peerless RuleThere is no binding contract unless both parties agree to the same thing.

We are really talking about material terms and material disputes here.

Court found that delivery date was material, and dispute was at the heart of alleged K.


Slide 6

When Parties Dispute TermsWhat happens when both parties claim a K exists, but they dispute what the terms of the K are?

This could be dispute of meaning of term included in written K, or

over a term not in written K that parties otherwise agreed was part of the K.


Slide 7

Plain Meaning RuleCourts traditionally looked to the “four corners” of a K to determine its meaning.

RULE = if a writing, or the term in question, appears to be plain and unambiguous on its face, its meaning must be determined from the four corners of the instrument without resort to extrinsic evidence.

Today, courts generally reject this rule.


Slide 8

Rules (Generally) Used Today

Look at language and conduct parties in forming the K.

Look at parties' conduct in performance of K.

course of performance

Look at parties' conduct in past dealings.

course of dealings

Customs and usages of the market in which they are dealing. (trade usage)


Slide 9

THE CONTRACT

Oral expressions ofassent or written

agreement.

THE CONTEXTUsage, negotiations

Subsequentconduct

Prior Relationship

Course of dealing Course of performance


Slide 10

Applying the “Rules”

Frigaliment Importing Co.v.

B.N.S. International Sales Corp.


Slide 11

How Courts Use the RulesBetter to think of these NOT as rules but as methods of inquiry.

When there is conflict, general rule is:

express terms of parties

course of performance

course of dealing

usage


Slide 12

Exception to General Rule (updated)General Rule = writing is primary source of meaning

further relevant evidence may be used to determine meaning (negotiations, course of dealing, usages, etc.)

further evidence may even be used to add to or contradict terms of the contract . . .

EXCEPT where parties intend writing to be final and full agreement.


Slide 13

Parole Evidence RuleWhere the parties have reduced their agreement to final written form, evidence of prior or contemporaneous agreements cannot be used to supplement, explain or contradict it.

The crucial issue in determining whether there has been an integration is whether the parties intended their writing to serve as the exclusive embodiment of their agreement.


Slide 14

Elements of the Rule

Writing

Intended to final expression of agreement

No parole evidence to supplement, explain or contradict K can be used.

Parole = written or oral agreement at some time before execution of fully integrated K.

Crucial Question – is K “fully integrated”


Slide 15

Purpose of the RuleShield jury from apparently unreliable or irrelevant evidence.

Save court time

saves examination and cross examination of dubious information.

Encourage more efficient transacting

because of rule, people may write K more carefully


Slide 16

How Rule Works

Parole evidence is offered

Other partyobjects

Judge decidesintegration issue

Judge rules K isNOT fully integrated Judge rule K is

fully integratedfact finder hears &evaluates evidence

Evidence not believe = parole term is not included

judges refusesparole evidence, factfinder does notconsider it.

Evidence believed =parole terms becomespart of K.


Slide 17

Exceptions to Parol Evidence RuleIntent to integrate

Existence of separate agreement

Existence of subsequent agreement (modification)

Show formation defenses

Explanation of ambiguities

Trade Usage, Past Practices, Practices Between Parties


Slide 18

Fully Integrated?

J. Evans & Sons Ltd. v. Andrea Merzario Ltd.


Slide 19

Fully Integrated?

City and Westminster Properties v. Mudd


Slide 20

Determining IntegrationTraditional Approach – look at “four corners” of the K from objective point of view.

Modern Approach – entertain extrinsic evidence

remember, this is preliminary

if judge allows evidence in, factfinder determines if it's credible.

NOTE – there is no one test to determine what “fully integrated” means.


Slide 21

Contract Formalities

Statute of Frauds: When does a contract have to be in writing


Slide 22

Statute of FraudsGenerally, the law recognizes oral Ks

Except Ks that fall within Statute of Frauds

Varies from jurisdiction to jurisdiction

In this class we will deal with Ks for land and sale of goods.


Slide 23

“Statute” Basic Rule

A contract that falls within scope of Statute:

may not be enforced unless

a memorandum of it (the K)

is written

and signed by the party to be charged against whom enforcement is sought

NOTE The entire K does NOT have to be in writing.


Slide 24

Inquiry

YESNO

YES NO

Oral K isenforceable

1. Does the K fall within the statute?

2. Is the K reflectedin a writing thatsatisfies the statute?

K is enforceable

3. Does the case fall within an exception to the statute

YESK is enforceable

NOK is unenforceable


Slide 25

Does K Fall Within Statute?Contracts for Sale of Land

Applies to sale of land

Applies to promise to transfer interest in landmortgage, easement, lease (except shortterm)

Contracts for Sale of Goods

Sale of $500 or more worth of goods (total price)

Includes value of exchanged property


Slide 26

Writing that Satisfies Statute?Written Memorandum

No formal requirements

Could be pencil note on toilet paper

Could be multiple documents

Even a lost document, if oral testimony can be given as to its existence.


Slide 27

Writing that Satisfies Statute?Common Law

identity of parties

subject matter

terms and conditions

UCC

quantity of goods

indication that K for sale has been made

NOTE – common law is becoming less rigorous


Slide 28

Writing that Satisfies Statute?

Signed by Party against whom K is to be enforced.

signature = any mark or symbol placed on paper with intention of authenticating it.

“X” could work

Initials clearly would work

No signature needed if on letterhead

If “writing” consists of multiple documents

signature need only be on one, as they all refer to same transaction.


Slide 29

Exceptions?There are several, but we will only deal with Promissory Estoppel

Promise

Reasonably expected to induce reliance

promise in fact induces justifiable reliance

enforcement needed to prevent injustice.


Slide 30

Impact of NonComplianceMajority Rule = K is voidable, but not void

a void K is not a K at all. A voidable K is a valid K that won't be enforced.

Partial Performance – party who has performed is entitled to restitution.

meaning party against whom K has been voided can still have a remedy if already performed.

common law contract: interpretation and formalities

Education

explainor contradictkcanbeused

thecontext usage

contractinterpretation

negotiations slide9

practicesbetwee slide17