Interpreting Terms of a Contract

Question 1

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.

Answer 1

Traditional (Plain Meaning) Rule - C&A Construction

Question 2

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.

Answer 2

Contextualist View - PG&E

Question 3

Extrinsic evidence is only used to determine the terms of a contract if they are unclear or ambiguous.

Answer 3

Traditional (Plain Meaning) Rule - C&A Construction

Question 4

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.

Answer 4

Parol Evidence Rule

Question 5

(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

Answer 5

RST 2d § 216

Question 6

(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

Answer 6

RST 2d § 216

Question 7

Extrinsic evidence that helps to interpret unclear or ambiguous terms is not covered by the PER

Answer 7

RST 2d § 214

Question 8

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

Answer 8

RST 2d § 214

Question 9

A term is a consistent additional term if, under the circumstances, it is one that “might naturally be omitted from the writing”

Answer 9

RST 2d § 216

Question 10

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.

Answer 10

Classical PER

Question 11

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)

Answer 11

Classic Rule: Collateral Agreement Exception - Mitchell v Lath; Lee v Seagram

Question 12

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.

Answer 12

Modern Approach PER

Question 13

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.

Answer 13

Modern Approach PER

Question 14

Once the contract has been formed, the parties’ history of performance can provide evidence of the terms that were mutually agreed to.

Answer 14

Course of Performance

Question 15

Once the contract has been formed, the parties’ history of performance can provide evidence of the terms that were mutually agreed to.

Answer 15

Course of Performance (Implied-in-fact terms)

Question 16

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

Answer 16

Course of Dealing (Implied-in-fact terms)

Question 17

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

Answer 17

Trade Usage or Custom (Implied-in-fact terms)

Question 18

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

Answer 18

RST 2d § 203

Question 19

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.

Answer 19

“Implied-in-law” terms

Question 20

An event that is not certain to occur

Answer 20

Condition

Question 21

An event that triggers a contractual duty

Answer 21

Condition Precedent

Question 22

An event that terminates a contractual duty

Answer 22

Condition Subsequent