6/28/12 Contract Law Lawrence Siry This Class •  Modifica(on and Avoidance of Contracts (4) –  Parol Evidence –  Promissory Estoppel –  Voiding Contracts –  Performance Problems WHAT IS A CONTRACT •  An Agreement between two or more parIes which creates rights and obligaIons between the parIes, with the intenIon of the parIes to create legally binding responsibiliIes. 3
1 6/28/12 Contract InterpretaIon •  The Parol Evidence Rule allows for such evidence to: –  Aid the court in interpretaIon of exisIng terms. –  Show that a wriIng was an integra(on into the contract. –  Show that a term or provision is complete or parIal. –  Establish hat the parIes had subsequent agreements. –  Show that a term(s) was a product of fraud, illegality, mistake, duress or lack of consideraIon. –  MUST BE IN WRITING. Parol Evidence Rule •  Mitchell v Lath (NY 1928) •  Mitchells bought a house from the Laths, pursuant to a contract of sale. •  Ice House •  Could the PlainIffs use of the Parole Evidence Rule to show the existence of a side deal to remove the ice house. Parol Evidence Rule •  Mitchell v Lath (NY 1928) •  For an oral agreement to vary the wriXen contract at least three condiIons must be met, –  the agreement must in form be a collateral one, –  it must not contradict express or implied provisions of the wriXen contract, and –  it must be one that parIes would not ordinarily be expected to embody in the wriIng. 2 6/28/12 Parol Evidence Rule •  Mitchell v Lath (NY 1928) •  An oral agreement is not collateral to the wriXen agreement if its subject is closely related to the subject of the wriXen agreement. •  The agreement to remove the icehouse was such that it would have naturally been included in the wriXen contract for the sale of the farm. The oral agreement contradicts the wriXen agreement. Therefore, the wriIng was concluded as being a complete integraIon and cannot be modified. Thinks about the Siry Contract……. Parol Evidence Rule •  Restatements Second •  §213. EFFECT OF INTEGRATED AGREEMENT ON PRIOR AGREEMENTS (PAROL EVIDENCE RULE) –  (1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them. –  (2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope. Parol Evidence Rule •  Comments: •  a. Parol evidence rule. This SecIon states what is commonly known as the parol evidence rule.... It renders inoperaIve prior wriXen agreements as well as prior oral agreements. Where wriIngs relaIng to the same subject maXer are assented to as parts of one transacIon, both form part of the integrated agreement. Where an agreement is partly oral and partly wriXen, the wriIng is at most a parIally integrated agreement. See §209. 3 6/28/12 Parol Evidence Rule •  Comments: •  b. Inconsistent terms. Whether a binding agreement is completely integrated or parIally integrated, it supersedes inconsistent terms of prior agreements. To apply this rule, the court must make preliminary determinaIons that there is an integrated agreement and that it is inconsistent with the term in quesIon. See §209. Those determinaIons are made in accordance with all relevant evidence, and require interpretaIon both of the integrated agreement and of the prior agreement. The existence of the prior agreement may be a circumstance which sheds light on the meaning of the integrated agreement, but the integrated agreement must be given a meaning to which its language is reasonably suscepIble when read in the light of all the circumstances. See §§212, 214. Parol Evidence Rule •  Comments: •  c. Scope of a completely integrated agreement. Where the parIes have adopted a wriIng as a complete and exclusive statement of the terms of the agreement, even consistent addiIonal terms are superseded. But there may sIll be a separate agreement between the same parIes which is not affected. •  To apply the rule of SubsecIon (2) the court in addiIon to determining that there is an integrated agreement and that it is completely integrated, must determine that the asserted prior agreement is within the scope of the integrated agreement. Those determinaIons are made in accordance with all relevant evidence.... Parol Evidence Rule •  Masterson v. Sine (CA 1968) •  -­‐Ranch in the Family •  Under what circumstances should evidence of oral collateral agreements be excluded? •  How must the court determine whether a collateral agreement is such that it might naturally have been made as a separate agreement? 4 6/28/12 Parol Evidence Rule •  Masterson v. Sine (CA 1968) •  Evidence of oral collateral agreements should be excluded only when the fact finder is likely to be misled. •  When determining that a collateral agreement is such that it might naturally be made as a separate agreement, the court must look to the actual experience and dealings between the parIes as they view the status of such a collateral agreement. •  If an agreement is complete, parol evidence cannot be used to vary, contradict, or add to the terms of the contract. If an agreement is parIal, parol evidence can be shown to prove the elements of the contract not reduced to wriIng. Parol Evidence Rule •  Mitchell v Lath (NY 1928) •  Mitchells bought a house from the Laths, pursuant to a contract of sale. •  Ice House •  Could the PlainIffs use of the Parole Evidence Rule to show the existence of a side deal to remove the ice house. PAROL EVIDENCE RULE •  UCC 2-­‐202: •  Terms in a wri(ng intended by the par(es as final expression of their agreement may not be contradicted by extrinsic evidence, but may be supplemented •  by course of dealing or usage of trade (1-­‐205) or •  by course of performance (2-­‐208); and •  by evidence of consistent addiIonal terms unless the court finds completely integrated agreement. 5 6/28/12 Performance Problems
•  Obliga(on to Perform in Good Faith •  Pa[erson v. Meyerhofer (1912) NY •  P agreed to buy property from D. •  Both sides knew that P did not own the property yet. •  D went to AucIon and bid against P and bought the property. P lost 620. Performance Problems
•  Obliga(on to Perform in Good Faith •  Pa[erson v. Meyerhofer (1912) NY •  Court said that the parIes have a duty to act in good faith. D loses-­‐ P gets his 620. •  WHY? What is the social reason behind this? What is Good Faith •  UCC 1-­‐201 (19) •  Honesty… in the act or transacIon concerned. •  UCC 2-­‐103 “unless the context otherwise requires… good faith means… honesty in fact and observance of reasonable commercial standards of fair dealing and trade. 6 6/28/12 What is Good Faith •  §205. DUTY OF GOOD FAITH AND FAIR DEALING •  Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement. What is Good Faith •  §205. DUTY OF GOOD FAITH AND FAIR DEALING •  Comment: •  a. Meanings of "good faith." Good faith is defined in Uniform Commercial Code § 1-­‐201(19) as "honesty in fact in the conduct or transacIon concerned." "In the case of a merchant" Uniform Commercial Code §2-­‐103(1)(b) provides that good faith means "honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade." The phrase "good faith" is used in a variety of contexts, and its meaning varies somewhat with the context. Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the jusIfied expectaIons of the other party; it excludes a variety of types of conduct characterized as involving "bad faith" because they violate community standards of decency, fairness or reasonableness. The appropriate remedy for a breach of the duty of good faith also varies with the circumstances. What is Good Faith Best v. US NaIonal Bank (Oregon 1987) Bank raised fees for NSF. Class sued: -­‐Unconscionability -­‐Good faith-­‐ “within the confines of reasonable expectaIon” read passage from 866. 7 6/28/12 What is Good Faith •  Bloor v. Falsgraff Brewing (1979) •  Falsgraff bourght the right to sell BallanIne beer for $4 m plus .50 per barrel. Falsgraff agreed to keep volume sales up. BallanIne tanked and a new operator cut distribuIon to make the beer more profitable. Bloor sued on behalf of the old owners What is Good Faith Court: while Falsgraff does not have to Spend itself into bankruptcy, the .50 per barrel was a big part of the Deal and to change strategy would Violate the agreement. What is Good Faith Empire Gas v. American Bakeries (1988) D contracted to buy widgets from P. D renegged on the deal without explanaIon. P sued. The Court held that D must act in Good faith. In this case D gave no reasons for his failure to purchase. 8 6/28/12 What is Good Faith Fortune v. NaIonal Cash Register (1977) P worked for D selling Cash Registers for 25 years. At will Contract. P got salary and commission D wanted P to sell a new cash register to the bank-­‐ he did so. Aner the deal was done and P had received some of the payments, D fired P without telling him. He then asked him to stay on and gave him only part of the commission. What is Good Faith Fortune v. NaIonal Cash Register (1977) Do the parIes have to act in good faith in a contract for at will employment. YES. Implied covenant of fair dealing. Why? What is Good Faith •  §205. DUTY OF GOOD FAITH AND FAIR DEALING •  Good faith in nego<a<on. This SecIon, like Uniform Commercial Code §1-­‐ 203, does not deal with good faith in the formaIon of a contract. Bad faith in negoIaIon, although not within the scope of this SecIon, may be subject to sancIons.... 9 6/28/12 Promissory
Estoppel Basic Idea A party who is estopped is stopped or prevented from denying something Different categories of estoppel -­‐ Estoppel by representaIon -­‐ Proprietary estoppel -­‐ Promissory estoppel 29 Estoppel Estoppel by representa(on A party who had made a representaIon of fact would not be permiXed to lead evidence to contradict that fact Proprietary estoppel Limited to property, but, in some cases also relevant for contract law Promissory estoppel An extension of the estoppel by representaIon doctrine that covers not only facts but also future promises 30 10 6/28/12 Estoppel The origins of the Promissory Estoppel Jordan v Money (1854) Estoppel by representaIon was confined to representaIons of exisIng fact, future maXers and intenIons were excluded 31 Estoppel The origins of the Promissory Estoppel Hughes v Metropolitan Railway (1877) A tenant had duty to carry out repairs within a six-­‐month Ime period. Repairs were not carried out as the tenant was in negoIaIons with the landlord. NegoIaIons failed and the landlord tried to evict the tenant based on the fact it had not fulfilled his obligaIons. 32 Promissory Estoppel Restatement 2nd § 90 A promise which the promisor should reasonably expect to induce acIon or forbearance of a definite and substanIal character on the part of the promisee and which does induce such ac(on or forbearance is binding if injusIce can be avoided only by enforcement of the promise 33 11 6/28/12 Substantial Performance
•  degree of performance of a contract which, while not equal to full and complete performance, is so nearly equivalent that it would be unreasonable to deny the contractor the payment agreed upon in the contract, subject, of course, to the owner's right to recover whatever damages he has suffered by reason of the contractor's failure to render full and complete performance. Substantial Performance
•  Kreyer v. Driscol (WI 1968) •  P built a house for D-­‐ •  P did a lousy job, did not pay bills and failed to complete. •  D refused to pay •  SubstanIal performance is not met when the job has not been completed substanIally. Substantial Performance
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Kreyer v. Driscoll For sub. performance, Inconsiderable and Faultless digression •  hXp://www.holdingsinhaiku.com 12 6/28/12 Substantial Performance
•  ConInental Forest Products v. White Lumber (Or 1970) •  P to provide plywood to D-­‐ •  First delivery was bad. D cancelled and agreed to inspecIon of 2nd •  InspecIon found that 1st was bad second ok •  P sued for cancellaIon of enIre deal. •  Industry guidelines permiXed a system of quality percentages. •  SubstanIal impairment regarding the installment (906) Substantial Performance
•  TW Oil v. Consolidated Edison (NY 1982) Next Time Session V •  Performance and Breach (5) –  Remedies –  Reason for voiding Contracts 13 6/28/12 Vielen Dank lawrence.siry@uni.lu 40 14