K II Prep

Trevor Granberg

Contracts II Outline
Principles of Interpretation (week 1)

Restatement 201
o Modified Objective Approach
If parties agree as to meaning, it controls
If parties disagree, courts assess parties actual knowledge of other partys
meaning and whether parties knew or had reason to know of other
partys meaning
o Policy of Restatement 201
Modified Objective approach:
Subjective component recognizes individual will or liberty
Objective component balances individual will with fairness (what
parties should reasonably expect) and judicial administration or
efficiency (less court involvement in objective approach

Joyner Case
P= (Joyner) Owner/Landlord
D= (Adams) Tenant/Developer
Lawsuit = Breach of contract for $ for difference between fixed rent paid by D and rent
computed under lease escalation clause.
At-issue contract Language:
o By 9/30, D must subdivide allundeveloped land into lots eligible for the
execution of a [Lot Lease].
Legal Issue:
o Was contract language objectively ambiguous as to whether land developed and
whether lease escalation clause triggered?
Trial Court History:
o T Ct. grants SJ for D, App Ct. reverses finding language objectively ambiguous
o T Ct finds for P, awards $93,695.75 construes ambiguity against D.
o Opinion in book App Ct. reverses finding incorrect application of maxim
Joyner Rules:
o Court assesses at-issue contract language from objective perspective for
ambiguity.
o If ambiguity exists, court applies Restatement 201 (Modified Objective Test)
o (applies under UCC too because UCC silent on this issue)
o Only after applying test does court look to maxims/canons
Maxims/Canons of Construction (pp. 378-380)
Construction against drafter (contra proferentem):
o Person must have actually drafted or insisted on the language
o Public policy person who chose words likely to protect self and deliberately
obscure.

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Trevor Granberg

o Generally applies to adhesion contracts or in unequal bargaining scenarios (Note

3, pp. 381-382, note 6, p. 404)
Joyner Issue Final Appeal
o Can P prove that D either knew or had reason to know of Ps intended meaning
(construction begun by 9/30) and that P did not either know or have reason to
know of Ds intended meaning?
o R. 201
o Actual result in case Note 2, p. 381
Joyner Hypos:
o What if T Ct. had found neither party knew or had reason to know of other
partys intended meaning?
(note 1, p. 380) A court could conclude that no contract existed because
there was no mutual assent, but this is unlikely because so much
performance had occurred. A court is more likely to conclude that P failed
the burden of proof and is not entitle to additional rent.
o What if T Ct. on remand found D knew of Ps intended meaning and P had
reason to know of Ds intended meaning?
R. 201 is interpreted such that actual knowledge trumps constructive
knowledge because it is stronger evidence of intent. A court would find Ps
intended meaning controls.
o What if T Ct. found P did not know or have reason to know of Ds intended
meaning, and D knew of Ps intended meaning, but Ps intended meaning
was different from the reasonable meaning?
Ps intended meaning will control even though it is at odds with a
reasonable meaning. If court applied objective meaning, the parties would
be bound to a contract that neither intended.

Other Maxims/Canons of Construction

Interpretation that makes contract reasonable, lawful, and valid is preferred
Interpretation of contract as a whole is preferred
Interpretation Evidence Negotiations
3 written memos 1 written by Ps accountant and 2 written by Ps negotiator (p. 378)
completed development language
Evidence of custom or trade practice in local real estate market Lot = developed when
everything except building done
Evidence D experienced commercial real estate developer
Frigaliment Case
P = Frigaliment Buyer (Swiss Corp.) (Intends broilers, fryers)
D = BNS Seller (NY Corp) (intends also stewing chicken)
Lawsuit: Breach of warranty quality

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Language: US Fresh Frozen Chicken, Grade A Government Inspected Eviscerated 2 -3

lbs and 1 lbs each
Issue: Did P prove that the word chicken was intended by parties to be limited to
broilers and fryers?
Plaintiffs evidence of intent:
o Language 1 -2 lb. = young 2 1/2 -3 must also mean young
o Negotiations in German, but used English chicken = young; German Huhn
= included stewing chicken
o Trade usage: chicken = young, testimony
Trade Usage: Any practice or method of dealing having such regularity of observance in
a place, vocation or trade as to justify an expectation that it will be observed with respect
to the transaction
Must be proved as fact
UCC 1-303(c)
Party must prove that trade usage of so long continuance, so well established, so
notorious, so universal and so reasonable in itself, that the presumption is violent that the
parties contracted with reference to it, and made it a part of their agreement p. 387
(common law but no longer required; use UCC definition)
If party proves existence of trade usage, other party must either be:
o Member of trade, and
o If new to trade must
Know of trade usage, or
Usage must be so well established, universal that presumption is strong
that parties contracted with reference to it.
Defendants evidence of intent:
o Defendant was new to trade
o Trade usage = all chicken
o Government regulations incorporated into contract
o Impossible to get broilers/fryers at contract price
o Parties conduct after contract (course of performance)
Court looks to:
o Surrounding contract language
o Parties negotiations
o Industry standards and trade usage
o Legal standards (regulations)
o Course of performance
o Maxims of interpretation
Frigaliment Case Question:
o Note 1 asks question: Did P lose because court found a contract was formed
and chickens meant Ds asserted meaning or did court find no contract was
formed because no reasonable basis existed to choose between P and Ds
asserted meaning?

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Trevor Granberg

P loses in proving that its meaning should prevail because P did not prove
D knew or had reason to know of Ps meaning. Thus, P loses whether
court finds no contract formed or that Ds meaning controls.
Breach of warranty claims fail under both contracts and P must pay D
price of chicken reflected in contracts.

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Trevor Granberg
Parol Evidence Rule & Interpretation
Parol Evidence = Substantive rule barring certain written or oral evidence of intent
Parol Evidence = Evidence coming into existence either prior to or contemporaneously
with a written contract.
How much of evidence in prior 2 cases was parol?

Hypothetical Class handout

First-time hotel owner, who had no knowledge of industry practices, signed a contract with
laundry service to provide daily laundry service for $1,000 per week. During negotiations, the
hotel owner communicated to the laundry service representative that the hotel owner expected
laundry service seven days a week. After the contract was signed, the laundry service refused to
pick up laundry on Sunday and communicated to the hotel owner that it never picked up laundry
on Sundays. The hotel owner sued the laundry service for breach of contract. At trial, the court
permitted the laundry service to introduce evidence to show that in the commercial laundry
business daily service did not include Sunday service.
Identify the interpretation issues, the applicable rules of law, and the relevant facts.

No movable good (service)

At issue language = daily laundry service
Language can be found unambiguous or ambiguous (daily could mean 7 days a week 5
or 6 days a week) (some courts do not require ambiguity)
But facts show direct communication to laundry service by hotel of hotels interpretation
(R. 201 knowledge)
Even if trade usage exists, for it to apply to hotel, hotel owner must be member of trade
or know of usage or usage must be so strong that presumption parties contracted with
reference to it
201 knowledge will trump usage.

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Trevor Granberg

Interpretation & Parol Evidence Rule Continued (week 2)

C & J Case
Parties:
o P = C & J (Insured)
o D = Allied (Insurer)
Lawsuit:
o Action to enforce contract to recover for burglary loss under 2 policies
At-Issue Language = burglary:
o visible marks made by tools, explosives, electricity or chemicals upon, or
physical damage to, t he exterior of the premises at the place ofentry.
ISSUE:
o Given fact that contract = adhesion, did insured reasonably expect coverage for
burglary in which only evidence of forcible entry found was found in interior of
building and exclusion language in fine print?
HOLDING:
o Yes, given fact that contract = adhesion, the most P could reasonably expect
contract to require was some visual evidence indicating burglary = outside job
Insurance Contracts & Ambiguous Language
1. Majority of courts apply reasonable expectations to ambiguous language,
2. Admit evidence to interpret contract, and
3. Construe ambiguous language against drafter (note 3, pp. 379-380)
Reasonable Expectations Test & Insurance Contracts
1. Majority: apply after finding ambiguity, admit evidence & construe against drafter
2. Other courts do not require ambiguity: (a) bizarre, oppressive, or (b) eviscerates express
negotiated terms, or (c) inconsistent with purpose
3. Other courts apply when fine print undermines
(Note 2, pp. 378-379; See also R. 211)
Summary: Joyner, Frigaliment, & C & J
Interpretation:
o Plain Language Ambiguity?
o If yes, modified objective approach
If parties agree = intended meaning
If disagree = R. 201 (plus R. 202, 203, 204, 206)
o Reasonable expectations test applied in insurance (& arguably other adhesion
contracts)
Order of Persuasiveness R. 203, UCC 2-208
Where inconsistent:
o Express terms prevail over 2, 3, & 4.
o Course of performance prevails over 3 & 4 (defined R. 202(4), UCC 1-303(a)).

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Trevor Granberg
o Course of dealing prevails over 4 (Defined R. 223, UCC 1-303(b)).
o Trade Usage (Defined R. 222, UCC 1-303(c)).
Supplying Omitted Term
Where contract found to exist but parties have not included essential term, court can
supply it. R. 204
Parol Evidence
Parol Evidence: Substantive rule barring certain written or oral evidence of intent
Integration: First question assessed in ascertaining contractual intent
o Classical courts look to 4-corners
o Modern courts initially consider all relevant evidence
Interpretation & Evidence of Intent
All Courts begin by isolating relevant contract language
Some courts (classical) require ambiguity in contract language as prerequisite to
admission of outside evidence
This classical approach is often referred to as Plain Meaning Rule or 4-Corners Approach
Interpretation & Integration p 390-391
Integration Refers to a writing constituting a final expression of 1 or more contract
terms
Complete = contract is final and exclusive statement of all terms R. 210 (1)
Partial = Contract is Final as to some aspects, but NOT COMPLETE r. 210(2)
Under common law both classical and modern courts:
o May admit explanatory evidence if agreement completely integrated
o May admit explanatory and supplementary evidence if agreement partially
integrated
o Do not admit contradictory evidence
Interpretation & Integration UCC
UCC 2-202 Uses similar Language in defining or describing integration: a writing
intended by the parties as a final expression of their agreement with respect to such terms
as are included therein
Merger Clause (Note 3, p 388-389)
Entire Agreement: this document constitutes the entire agreement of the parties and
there are no representations, warranties, or agreements other than those contained in this
document.
Thompson Case
P = Thompson (seller)
D = Libby (buyer)
LAWSUIT: Suit for failure to pay (breach)
D argued oral warranty as to quality

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T Ct. admitted evidence

P appealed admission
Thompson Illustrates Classical Approach to Integration Issue
o Court Assesses 4-Corners:
Offeror/Offeree Identifed
Subject Matter = logs marked, cut winter 1882-83
Price = $10 a thousand feet
Payment Terms = Cash as fast as scale bills are produced
Court finds contract not facially ambiguous or incomplete (386-387)
Application of UCC 2-202 to Thompson
o Buyer would argue that oral warranty is consistent additional term
o UCC provides that an agreement can be explained or supplemented by: evidence
of consistent additional terms, 2-202(b), unless if agreed upon, they would
certainly have been included in the document Comment 3, p. 393
Thompson Hypo, P 393
o What if different facts argued by buyer?: At time contract signed Seller
stated that if Buyer would agree to buy logs, Seller would cut logs into planks
at Sellers sawmill for specific discount in price for service and Buyer agrees
and Seller refuses?
Buyer has stronger argument that agreement is collateral because
supported by consideration and is separate than the first contract

Exceptions to Parol Evidence Rule

All Courts Recognize Exceptions:
o Explanatory Evidence (such a big exception, analyzed at outset)
o Subsequent Agreements
o Oral Conditions Precedent
o Evidence of Invalidity
o Reformation
o Collateral (separate) Agreements
Pp 390-393
Thompson
Offeror/offeree Identified
Subject matter = Logs marked, cut winter 1882083
Price = $10 a thousand feet
Payment Terms = Cash as fast as scale bills are produced
Are there any terms in agreement parties could argue permit introduction of parol
evidence?
o Yes, one example = winter of 1882-83 could need explanation as to when
begins and ends

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Trevor Granberg
Taylor Case
P = Taylor (Insured)
D = State Farm (Insurer)
LAWSUIT: Bad faith refusal to settle lawsuit within policy limits (3-car accident)
T. Ct. release ambiguous, parol evidence admitted (verdict 2.1 m + fees)
App. Ct. reversed, release not ambiguous, parol evidence inadmissible
P released all contractual rights, claims, and causes of action he had or may have
against State Farm under the policy of insurancein connection with the collisionand
all subsequent matters.
Taylor Issues(s)
o Is ambiguity prerequisite to admission of parol evidence? And
o If not, was language releasing all contractual rights, claims, and causes of
action reasonably susceptible to Ps proffered evidence and interpretation
excluding bad faith?
Taylor Modern View
o Facial Ambiguity Not Necessary. Court:
Determines as Q of Law whether contract language Reasonably
Susceptible to more than 1 interpretation, and if so
Considers all offered evidence relevant to intent and excludes only
contradictory evidence
Submits questions + evidence to jury
Court finds legal character of bad faith not universally established release language
reasonably susceptible to exclude bad faith claims
Court finds facts cut both ways:
o Release of bad faith claim, or
o No release of bad faith claim, or
o No agreement regarding bad faith
Taylor & Thomson Differences
Thomson Buyer wanted to Supplement Agreement by proving additional term (or
collateral agreement)
Taylor Insured offered Extrinsic evidence to Explain proper interpretation of written
terms
Note 1, P. 425
Hypothetical # 1
Sally enters into written K with Betty to sell Ss piano for $500. All other terms included in
K. At time for performance, B claims that prior to signing, S orally agreed to accept $300.
B asserts that S thought Ss Mother would be angry with a $300 price. Although piano =
good assume CL applies
Does evidence come in?
o Classical and modern:
o Complete integration
o Classical: $500 unambiguous

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o Modern: Look at writing with evidence (is it reasonably susceptible?)
o Classical and Modern: Oral evidence of $300 price term characterized =
contradictory of express, written $500 price term
o Modern court would not find evidence relevant to supplement agreement or as
collateral agreement
Hypothetical # 2
Celebrity signs written K to pose nude for GQ Mag which includes unconditional release to
rights to all photos taken on the day of the photo shoot, but just prior to signing
expresses discomfort with some. In response, photographer promises to only publish other
photos.
Classical and modern:
Complete integration
Classical: Fact that release unconditional for all pictures = unambiguous
Modern: look at writing with evidence (is it reasonably susceptible?)
Classical and modern: Photographers oral promise = contradictory of express, written
release
Conclusion: oral conversation evidence inadmissible.
Hypothetical # 3
Buyer and Seller enter into comprehensive written real estate K. Before signing K, at Bs
request, S orally promised B to remove unsightly shed on land adjacent to property,
which was owned by S.
Classical and Modern:
Complete integration
Majority (classical): Ss promise = not collateral agreement because too related to sale of
property and no separate consideration.
Dissent (modern): evidence of conversation reasonably susceptible to being collateral
agreement because distinct enough subject
Hypothetical # 4
Architect (A) and Homeowner (H) sign comprehensive K for A to work on Hs house.
Before signing, A orally informs H that if A is awarded a job in another city, which A has
already bid on, A will be gone for 1 year and will not perform contract H.
Classical and Modern:
Complete integration
Classical: written contract unambiguous
Modern: Look at writing with evidence (is it reasonably susceptible?)
Classical and modern: oral evidence of As statement to H before signing = exception
condition precedent
Approach to Parol Evidence: Common Law
1. Isolate relevant language & assess integration,
2. Characterize parol evidence:

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Trevor Granberg
a. Explanatory
b. Supplementary,
c. Exception,
d. Contradictory**
(analyze using both classical and modern approach)
** never admissible