Interpreting Terms of a Contract Flashcards
If the terms of a written agreement are clear and unambiguous, extrinsic (parol) evidence may not be admitted to aid in the interpretation of those terms.
Traditional (Plain Meaning) Rule - C&A Construction
Extrinsic (parol) evidence is necessary to determine whether the terms of a written agreement are clear and unambiguous. Language is too imprecise to ignore extrinsic evidence of its contextual meaning.
Contextualist View - PG&E
Extrinsic evidence is only used to determine the terms of a contract if they are unclear or ambiguous.
Traditional (Plain Meaning) Rule - C&A Construction
The PER is a substantive rule of contract interpretation that excludes extrinsic evidence of contract terms that are outside the “four corners” of the written agreement under certain circumstances.
Parol Evidence Rule
(1) Collateral Agreements Exception: Evidence of an agreement that is separate from (collateral to) the writing is permissible unless the court finds that the agreement was completely integrated
RST 2d § 216
(2) An agreement is not completely integrated if the writing omits a consistent additional agreed term which is
(a) agreed to for separate consideration, or
(b) such a term as in the circumstances might naturally be omitted from the writing
RST 2d § 216
Extrinsic evidence that helps to interpret unclear or ambiguous terms is not covered by the PER
RST 2d § 214
Agreements or negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish fraud, mistake, unconscionability, and other equitable ground to rescind the contract
RST 2d § 214
A term is a consistent additional term if, under the circumstances, it is one that “might naturally be omitted from the writing”
RST 2d § 216
Williston’s “four corners” test to determine integration: The judge decides the parties’ intent to integrate their writing purely on the basis of the “four corners” of the written document, without looking at extrinsic evidence. If the writing appears on its face to be integrated, extrinsic evidence of additional terms is barred.
Classical PER
Evidence of a contemporaneous oral agreement may be admitted if:
- the oral agreement is collateral
- the agreement does not contradict the writing
- it must be one that the parties would not ordinarily be expected to embody in the writing (natural omission test)
Classic Rule: Collateral Agreement Exception - Mitchell v Lath; Lee v Seagram
Integration is a question of fact, requiring an inquiry into the intent of the parties: The judge decides the parties’ intent to integrate their writing, looking at the document AND extrinsic evidence.
Modern Approach PER
Whether a document is completely integrated is a question of the parties’ intent, so the court looks to the four corners of the writing as well as to extrinsic evidence to determine integration.
Modern Approach PER
Once the contract has been formed, the parties’ history of performance can provide evidence of the terms that were mutually agreed to.
Course of Performance
Once the contract has been formed, the parties’ history of performance can provide evidence of the terms that were mutually agreed to.
Course of Performance (Implied-in-fact terms)
To the extent that the parties have a history of previous conduct that establishes a common basis of understanding, this can provide evidence of the terms that were agreed upon
Course of Dealing (Implied-in-fact terms)
The customs or practices of a particular vocation, trade, or type of business dealing can also provide evidence as to the terms of the parties’ mutual assent
Trade Usage or Custom (Implied-in-fact terms)
In the interpretation of a promise or agreement or a term thereof, the following standards of preference are generally applicable: Expres terms are given greater weight than course of performance, course of dealing, and usage of trade, douse of performance is given greater weight than course of dealing or usage of trade, and course of dealing is given greater weight than usage of trade
express terms > course of performance > course of dealing > usage of trade > nothing
RST 2d § 203
A term which is created by or inferred from common law or stature, which acts as a “default term” in the event that there is no express term.
“Implied-in-law” terms
An event that is not certain to occur
Condition
An event that triggers a contractual duty
Condition Precedent
An event that terminates a contractual duty
Condition Subsequent
