George Mason School of Law Contracts II Terms

George Mason School of Law Contracts II Terms © F. H. Buckley Not for sharing fbuckley@gmu. edu 1

The demise of Heenan Blaikie This is the Achilles heel of the Canadian legal profession. Canada’s lawyers are facing a triple professional crucible: globalization, the commoditization of routine legal work, and the technological revolution. But these things represent an opportunity as much as a threat. —National Post, Feb. 11, 2014 2

So now we have an enforceable contract But what is its content? 3

Identifying the Terms and Interpreting them o Identifying: what are the terms o Interpreting: what do they mean? 4

What happens where there is a writing? o First question: Is this a binding contract? 5

What happens where there is a writing? o Unsigned terms n Birmingham TV v. Waterworks at 431 6

The effect of a signature o Fraud in the factum? Curtis v. Curtis at 437 Justin Bieber signs an autograph 7

Identifying the terms o So assume we have a contract—but what are its terms? 8

The Parol Evidence Rule o Do we look outside the written contract? n n 9 Oral statements Course of dealings Trade customs Implied terms

The traditional Parol Evidence Rule o Burke at 549 in Masterson o Parol evidence is not admitted to “add to, vary or contradict” the writing 10

The traditional Parol Evidence Rule o Burke at 549 in Masterson o Parol evidence is not admitted to “add to, vary or contradict” the writing o The “four corners” rule: a presumption of full integration that excluded oral and other evidence 11

How would the Restatement change this o Completely integrated agreements o Partially integrated agreements o Non-integrated agreements 12

How would the Restatement change this o Completely integrated agreements: n Four corners rule: can’t add to o Partially integrated agreements n Can add to but can’t contradict o Non-integrated agreements n Anything goes 13

Non-integrated agreements o Is the agreement integrated or nonintegrated? n § 209(1) An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement. n Otherwise parol evidence admitted 14

Integrated Agreements o Is this an integrated agreement? n § 209(3) Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression. 15

Integrated Agreements o Is this an integrated agreement? n § 209(3) Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression. 16

Complete Integration o Restatement § 210(1) A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement. 17

Complete Integration o Restatement § 210(1) A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement. o So no parol evidence of any kind: o Can’t add to, vary or contradict 18

Complete Integration: Can’t “Add to” o Restatement § 213(2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope. o I. e. , can’t “add to, vary or contradict” 19

Partial Integration o Restatement § 210 (2) An agreement is not completely integrated if the writing omits a consistent additional agreed term which is o (a) agreed to for separate consideration, or o (b) such a term as in the circumstances might naturally be omitted from the writing. 20

Partial Integration o Restatement § 210 (2) An agreement is not completely integrated if the writing omits a consistent additional agreed term which is o (a) agreed to for separate consideration, or o (b) such a term as in the circumstances might naturally be omitted from the writing. o So oral evidence can “add to” the terms 21

Partial Integration: Can’t contradict o Whether completely or partially integrated: n § 215 Except as stated in the preceding Section, where there is a binding agreement, either completely or partially integrated, evidence of prior or contemporaneous agreements or negotiations is not admissible in evidence to contradict a term of the writing. 22

Partial Integration: Can’t contradict o Restatement § 213(1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them. n I. e. , can’t “contradict” a completely or partially integrated agreement 23

Partial Integration: Can “Add to” o Restatement § 216(1) Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated. 24

Can we look behind a signed written contract for the terms of the contract? o So the traditional Parol Evidence Rule survives for completely integrated agreements but only in part (can’t contradict) for partly integrated agreements 25

Parol Evidence: Restatement §§ 209 ff. o Completely integrated agreements: n Four corners rule: can’t add to o Partially integrated agreements n Can’t contradict o Non-integrated agreements n Anything goes 26

Limits to the Parol Evidence Rule o A agrees to sell his house to B in a signed agreement on Feb. 20. o On the same day A sells a painting to B for $400 in an oral agreement. o Can the oral agreement be enforced? 27

Collateral Contracts o A agrees to sell his house to B in a signed agreement on Feb. 20. On the same day B sells a painting to A for $400 in an oral agreement. Problems? o “Two entirely distinct contracts … may be made at the same time, and will be distinct legally. ” Williston at 543 28

Collateral Contracts o Restatement § 213(2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope. 29

Collateral Agreements o The test in Mitchill v. Lath 542 Ice House 30

Collateral Agreements o How is this like my example of the painting? 31

Collateral Agreements o What is the test of a collateral agreement? 32

Collateral Agreements o The test in Mitchill v. Lath n In form a collateral agreement 33

Collateral Agreements o The test in Mitchill v. Lath n In form a collateral agreement n Can’t contradict the written agreement 34

Collateral Agreements o The test in Mitchill v. Lath n In form a collateral agreement n Can’t contradict the written agreement n The collateral agreement would not ordinarily be embodied in the main agreement 35

Collateral Agreements o The test in Mitchill v. Lath n In form a collateral agreement n Can’t contradict the written agreement n One that would not ordinarily be embodied in the writing o Andrews: Πs fail no. 3 and maybe no. 2 o And why is that? 36

Collateral Agreements o The collateral agreement would not ordinarily be embodied in the main agreement o Restatement § 213(2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope. 37

Collateral Agreements Restatement § 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. 38

Collateral Agreements n Would the ice house covenant ordinarily or naturally be found in the land sale contract? Judge William Andrews 39 Chief Judge Irving Lehman

Collateral Agreements n What about a parol warranty on a sale, per Andrews? 40

Masterson v. Sine 546 Escola v. Coca-Cola Jones v. Ahmanson Pacific Gas infra Perez v. Sharp Chief Justice Roger Traynor 41

Masterson v. Sine Chief Justice Roger Traynor 42 Justice Louis H. Burke

Masterson o What was the contract? 43

Masterson Sale o Dallas Medora Option to repurchase 44

Masterson Sale o Dallas Medora Option to repurchase o What was the oral modification? 45

Masterson o What was the oral modification? n Dallas reserves an option to repurchase which does not convey to his assigns (i. e. , trustee in bankruptcy) 46

Masterson o What happens if an agreement is fully integrated per Traynor? 47

Masterson o What happens if an agreement is fully integrated per Traynor? n Parol evidence can’t be admitted to add to or vary terms 48

Masterson o How to tell if a writing is completely or partially integrated per Traynor? 49

Masterson o How to tell if a writing is completely or partially integrated per Traynor? o “Any such collateral agreement must itself be examined…”? 50

Masterson o How to tell if a writing is completely or partially integrated per Traynor? o So can a court ever restrict itself to the writing? 51

Masterson o What was the oral modification? n How to tell if a writing is completely or partially integrated per Traynor? o “The conception of a writing as wholly and intrinsically selfdeterminative… is impossible”: Wigmore 52

Masterson o “The conception of a writing as wholly and intrinsically self-determinative… is impossible”: Wigmore o What if there had been a merger clause? 53

Masterson o What does it means to say that the Parol Evidence Rule is a rule of substantive law and not of evidence? P. 549 54

Masterson o Are Burke’s charges correct? n The change contradicts a term which would ordinarily be supplied by operation of law. 55

How does the Restatement handle this? o Which way does the Restatement come down? Traynor or Burke? 56

How does the Restatement handle this? o § 214. Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish o (a) that the writing is or is not an integrated agreement; o (b) that the integrated agreement, if any, is completely or partially integrated; o (c) the meaning of the writing, whether or not integrated; o (d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause; o (e) ground for granting or denying rescission, reformation, specific performance. . . 57

How does the Restatement handle this? o Which way does the Restatement come down? Traynor or Burke? n Cf. § 210(3) comment: “a writing cannot prove its own completeness” 58

How does UCC 2 -202 handle this? o Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented (a) by course of dealing or usage of trade or by course of performance; and (b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement. 59

How does UCC 2 -202 handle this? o Comment 3: Admit oral evidence unless it would “certainly” have been included in the writing 60

Masterson o What about the oral evidence in this case? n Admit if the terms would “naturally be made as a separate agreement”: Restatement n Admit unless the terms would “certainly have been included in the agreement”: UCC 2 -202 61

What’s the difference? o Test this against the ice house, as seen by Andrews n Admit if the terms would “naturally be made as a separate agreement”: Restatement n Admit unless the terms would “certainly have been included in the agreement”: UCC 2 -202 62

How does UCC 2 -202 handle this? o What happened in Hunt Foods 562 63

How does UCC 2 -202 handle this? o What happened in Hunt Foods 562 o How was this an Article 2 transaction? 64

How does UCC 2 -202 handle this? o What happened in Hunt Foods 557 Asset purchase agreement George Doniler 73% Eastern Can 65 Hunt Foods

How does UCC 2 -202 handle this? o What happened in Hunt Foods 557 George Doniler 73% Eastern Can 66 Option to purchase stock Hunt Foods

How does UCC 2 -202 handle this? o Hunt Foods n What was the allegedly omitted term? 67

How does UCC 2 -202 handle this? o Hunt Foods n What was the allegedly omitted term? o Option to be exercised only if Doliners shopped around 68

How does UCC 2 -202 handle this? o Hunt Foods n What was the allegedly omitted term? o Did Hunt admit it had conceded the oral term? n And why might Hunt have rejected this? 69

How does UCC 2 -202 handle this? o Hunt Foods n How did the court interpret UCC 2 -202? 70

How does UCC 2 -202 handle this? o Hunt Foods n What was the allegedly omitted term? o “It is not sufficient that the existence of the [oral] condition is implausible. It must be impossible. ” 71

How does UCC 2 -202 handle this? o Hunt Foods n Were these sophisticated parties? 72

Can the impossibility standard be met? o Snyder 565 n What was the alleged omitted term? 73 Twin Lakes Garden Apartments Beltsville MD

Can the impossibility standard be met? o Snyder n Is a cancellation clause inconsistent with the written contract? o Why might Greenbaum have wanted to exclude unilateral exit rights? 74

Can the impossibility standard be met? o Snyder n Is a cancellation clause inconsistent with the written contract? o Why was the Hunt Foods reasoning rejected? 75

Can the impossibility standard be met? o Snyder n Is a cancellation clause inconsistent with the written contract? o The court’s standard: “an absence of reasonable harmony” 76

Can one bargain around this? o Traynor at 547: n “The instrument itself may help resolve the issue” n “Any such collateral agreement itself must be examined … to determine whether the parties intended [it] to be included” 77

Can one bargain around this? o Traynor at 547: n Are we running into a rule of paternalism here? 78

Can one bargain around this? o Traynor at 547: n Should the parties be permitted to bargain back into the parol evidence rule? 79

Can one bargain around this? o Traynor at 551: n Should the parties be permitted to bargain back into the parol evidence rule? n And just how would they do this? 80

Can one bargain around this? o Traynor at 551: n Should the parties be permitted to bargain back into the parol evidence rule? n And just how would they do this? o Cf Eisenberg and Miller at 566 81

Merger Clauses: UAW at 553 Doral Resort and Country Club, Miami 82

Merger Clauses: UAW o How was the merger clause phrased? 83

Merger Clauses: UAW o How was the merger clause phrased? o What was the alleged omitted term? 84

Merger Clauses: UAW You tellin’ me I should stay at a scab hotel!!! Concerned Union Executive “Nix” 85

Merger Clauses: UAW o Roush’s evidence 86

Merger Clauses: UAW o Markman: Can the parties bargain around the “threshold question” of whether a contract is completely integrated with a merger clause? 87

Merger Clauses: UAW o Markman: Can the parties bargain around the “threshold question” of whether a contract is completely integrated with a merger clause? n What was the source of the “unfairness” to the successor corporation? 88

Merger Clauses: UAW o Can you think of something the UAW could have done to satisfy its concerns? 89

Merger Clauses: UAW o Can you think of something the UAW could have done to satisfy its concerns? n Markman: The Parol Evidence Rule gives the parties the incentive to cure the problem in the express contract 90

Merger Clauses: UAW o What was the allegation of fraud? 91

Merger Clauses: UAW o What was the allegation of fraud? n Did Carol Management falsely represent that the union clause was in the contract? n Or that there was no merger clause? 92

Merger Clauses: UAW o What was the allegation of fraud? n Did Carol Management falsely represent that the union clause was in the contract? n Or that there was no merger clause? n Keeping mum about plans for sale of the hotel? 93

UAW o On Holbrook’s analysis, what does a merger clause do? 94

UAW o On Holbrook’s analysis, what does a merger clause do? o What sense do you make of restatement § 216, cmt e: Merger clauses are not controlling 95

Merger Clauses: UAW o Recall Danann on merger clauses and fraud at 428 n A Danann clause negatives reliance on an representation 96

UAW o Does a merger clause always work? n Why not in Seibel at 561 97

UAW o How would Markman have decided Hachmeister at p. 557? 98

UCC 2 -316(1) o Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2 -202) negation or limitation is inoperative to the extent that such construction is unreasonable. 99

UCC 2 -316(1) o Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2 -202) negation or limitation is inoperative to the extent that such construction is unreasonable. o What if anything does this do to merger clauses? 100