Like S/F, evidentiary rule, rule of exclusion: cannot make K enforceable, but can make K unenforceable.
Rule that bars admission of evidence that otherwise would be admissible.
Rule limits the extent to which a party may establish that discussions or writings prior to the signed written K should be taken as part of the agr’nt.
Rule applies to oral agreements and discussions that occur prior to signing of an integration, and also to writings created prior to integration (draft agr’nts that were not intended to be final expressions of agr’nt)
Thompson v. Libbycommon law position: if K is completely integrated, then nothing is allowed in - no oral evidence is admissible
P/seller of logs is suing for purchase price
D/buyer of logs says that breach of warranty excuses payment
if completely integrated writing - no oral evidence is admissible
Held, the evidence of oral warranty is barred.
Court says: for the parol evidence rule to apply (i.e., to bar the introduction of extrinsic evidence), the parties must have intended to have their complete agreement embraced in writing. Integration - a writing that is intended to be a final and complete expression of the agreement of the parties (Rest 210).
Partial integration - a writing that is intended to be final but not complete because it deals with some but not all aspects of a transaction between the parties.
Complete Integration (document that is not only a final expression of agr’nt, but that is also intended to included all details of the agr’nt)
Partial Integration (document that is intended to be final, but that is not intended to include all details of the agr’nt)
writing may not be contradicted,
may not be supplemented/added to
writing may not be contradicted by extrinsic evidence;
but writing may be supplemented by additional consistent terms
Rest 213, UCC 2-202(b)
Rest 213, UCC 2-202
Partial, complete, not at all integrated written agreement may always be explained by extrinsic evidence (Rest 214(c)).
Ks can be complete w/o being comprehensive
Even in 1885 there were 4 exceptions to parol evidence rule (court didn’t find in Thompson v. Libby):
fraud (recognized exception to any K obligation and parol evidence rule, because there is ineffective mutual assent)
to make sure that parties understand and there is no dispute afterwards
to invoke parol evidence rule: states that the writing is intended to be final and complete; designed specifically to result in the application of the parol evidence rule if extrinsic evidence is offered
Hershon v. Gibraltar
Majority and Dissent represent 2 major views on parol evidence rule:
Majority: extrinsic evidence not allowed: public interest in certainty and finality (if you negotiated the K, you should be held to it); majority concedes that the result is harsh, but still
Dissent: purpose of parol evidence rule is to further intent of the parties; here - parties probably didn’t intend the release of all claims - lawyers’ mistake.
Disagreement over a poorly-drafted release agreement. Court finds that the agreement unambiguously released and discharged all claims between the parties, including mortgages. The court did not allow extrinsic evidence that contradicted the agreement’s clear language (releasing “all claims, whether known or unknown”) and plain meaning.
Hershon probably did not intend for the release to cover the mortgages, because even after the agreement, they kept making payments, and actually attempted to refinance. But the court did not allow this evidence, and so Hershon was able to take advantage of the agreement and get out of its obligations.
The release, although releasing “any and all claims forever” is probably limited to the subject matter of the substance of the release; Hershon can’t go and punch out Goldstein.
If the parties got together 3 years later, the clause would not govern.
The release does not cover every event that will happen in the future.
Dissent: if the parties did not actually intend for the release to govern what they say it did, then there is an ambiguity (or even w/o the extrinsic evidence, the release is ambiguous), and extrinsic evidence should be allowed. So, the dissent works to advance what the parties actually intended, while the majority is concerned with certainty and finality.
Here parties were of equal bargaining power, so both had counsel to look over the K, and are sophisticated enough to be held to its terms.
Nanakuli v. ShellParol Evidence Rule under UCC
Long-term supply K; Asphalt co/Nanakuli gets a price protection clause from Shell.
Supplier/Shell/D failed to price protect Nanakuli/P - raised the price
P claims that he was entitled to get old K price - price posted at the time of K, not time of delivery. P says that acc to trade usage and course of performance, a price protection clause was incorporated into their agreement. Trial court finds for D, saying that trade usage and course of performance are not admissible. Appellate court found for P: parol evidence was consistent with the terms of the K.
UCC 2-202: Terms in a writing intended by the parties 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 additional terms unless the court finds completely integrated agreement.
Supplier is concerned about rice moving down - wants to protect itself against downward move of the market
Buyer - good for planning (knows what his costs are gonna be), wants fixed requirements K to protect itself if market price rises
Both want to strike a deal
Here - fluctuating price requirements K
How did P establish trade usage and course of performance to make evidence admissible?
what’s the trade
Court: under UCC 1-205(2), parties can be bound by a usage common to the place they are in business, even if not the usage of their particular trade
UCC 1-205: P must prove regularity of observance of the practice or method - has to be sufficient regularity of trade usage; preponderance, has to be vast majority
Shell would be bound not only by usages of sellers of asphalt but by more general usages on Oahu, as long as those usages were so regular in their observance that Shell should have been aware of them
Shell then either knew or should have known about trade practice
Hierarchy of evidence (esp. in sales Ks under UCC)
express terms of K
course of performance (2-208) (the best evidence is what parties actually did under this very K) prevails over
course of dealing (1-205(1)) (what happened between these parties in other transactions, in past Ks) prevails over
usage of trade (1-205(2)) (such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed w/r/t the transaction in q’n))
But all this evidence of course of performance, course of dealing, and usage of trade is inadmissible to contradict express language of K under Parol Evidence Rule (UCC 2-202); it may be introduced to help interpret and explain the meaning of a writing even if the writing is completely integrated.
What did the court think was really going on here? -2 things happened to Shell:
management change - new management
Arab oil embargo - price of oil rose
Unforeseen circumstances - suddenly smth occurs which nobody could foresee - who is going to bear the risk
In this case the court felt that Shell took the risk
IMPLIED TERMS Implied in fact
Term becomes part of obligation of the parties, as if it is written
The court’s view of what parties agreed to; intention of the parties entering into K
Furthering intention of the parties
Implied in law
Regardless of the parties’ intentions
Can be imposed by the courts contrary to parties’ intentions, for public policy reasons
Most important such implied term - obligation of good faith
Wood v. Lucy, Lady Duff-Gordonimplied in fact: implied obligation
to use reasonable efforts
P is fired by D/Lady Duff from their agency agreement. P sues for breach. D argues that K was illusory bec it was not supported by consideration. That is, there is no mutual obligation on its face, bec P did not bind himself to anything, P did not have any duties. Cardozo read an obligation of “reasonable efforts” into K, to find mutual obligation and bind D. Held, for P.
P’s obligations under K:
to account on monthly payments for fees
to secure intellectual property protection
to split the profits with her on the 50-50 basis
Obligation that’s missing
to get any product placement at all
P has exclusive right to account for her - he has rights, but no obligations
D says - K fails for lack of consideration, mutuality of obligation
In classical K, this K would have been thrown out
Cardozo implied reciprocal obligation
Parties should have made this K to work - therefore, there must have been this implied term - business efficacy
It makes no sense for someone as successful as Lucy to place so much on this guy w/o his obligation - it couldn’t be what parties meant.
“it is true that he does not promise in so many words that he will use reasonable efforts to place D ‘s indorsements and market her designs. We think, however, that such a promise is fairly to be implied”
“we are not to suppose that one party was to be placed at the mercy of the other”
“without an implied promise, the transaction cannot have such business “efficacy as both parties must have intended that at all events it should have’”
Leibel v. Raynor Manufacturing Co.UCC 2-309(3) reasonable notification
Garage door dealer-distributorship agreement: K of indefinite duration, terminable at will by either party. The court holds that reasonable notification is required in order to terminate an on-going oral agreement for the sale of goods in a relationship of manufacturer-supplier and dealer-distributor or franchise.
P says: I’m entitled to reasonable notice before termination
*Is the K for services or the sale of goods? (like asphalt v. paving)
Court finds that distributorship agreement was for the sale of goods
This is a relationship K with the potential to be long-term, indefinite in duration, but no one knows what might happen. So it is in the interests of both parties to keep the duration open-ended.
What are the interests of manufacturer in entering into franchise agreement? -
hopes to increase sales
it’s a way of sharing risk - it’s cheaper for manufacturer
can have more outlets
distributor may have reputation in the community - it will increase sales
quality control, protection of the mark
protecting the name, the brand (good will)
research on the site
What are the dealer’s or franchisee’s interests?
they get smth to sell
brand name/they want the brand - important to advertise as a brand name
support from the parent company
get a lot of services: all service and technical support
get combined purchasing power
get discount price
get tremendous advertising support, benefit of nationwide advertising program
get loans sometimes
maybe they share liability
To deal with indefiniteness problem - make the agreement terminable at will
What’s the problem with termination at will?
bad faith; opportunistic behavior by either party; possibility that one party will seek appropriating all benefits of the relationship to the detriment of the other party
dealer or franchisee is worried about: that he’ll have no business left; he sank a lot of human capital, cash, time - and now it’s taken by the manufacturer
manufacturer is worried about: distributor can shop around for a better deal, man’rer poured in much support or dist’ror to build a thriving business
There is risk on both sides
UCC 2-306 Output, Requirements and Exclusive dealings
UCC 2-309 Absence of Specific Time Provisions; Notice of Termination
2-309(3) reasonable notification requirement
agreement can dispense with notification and will be invalid only if it is unconscionable
Rest 205 Duty of Good Faith and Fair Dealing
court finds an obligation of good faith and fair dealing - reasonable notice of termination (2-309(3)): reasonable notice constitutes fair dealing and is implied as a matter of law - doesn’t matter if parties intended it
amount of money dealer has to invest
no formal written agreement
termination at will - has to be made after a period of reasonable notice
“If the distributorship is terminated without allowing the dealer sufficient time to sell his remaining inventory, substantial damages may result, even if the manufacturer agrees to repurchase the inventory. Reasonable notification should be the minimum amount of protection afforded to either party upon the termination of an ongoing sales agreement.”
Default rule - either party can terminate at will
Court shifts the burden to the party seeking termination w/o notice
Comment 8 to 2-309: you must give the other party some time to minimize its loss from termination at will, to find another deal
Comment 9 to 2-309: if it’s material breach by the other party, you don’t have to give notice, you are relieved from any legal obligations
THE IMPLIED OBLIGATION OF GOOD FAITH 1.Honesty in fact
UCC 1-201 (19): Good faith means honesty in fact in the conduct or transaction concerned.
UCC 1-203 Obligation of Good Faith: Every K or duty within this Act imposes an obligation of good faith in its performance or enforcement.
Rest 205 Duty of Good Faith and Fair Dealing: Every K imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.
Reduces transaction costs: information costs (you don’t have to do due diligence, engage in investigation)
Otherwise you’d have to interact only w/parties that you know
Or you’d have to take insurance (insure against the other party’s dishonesty)
Moral and ethical value
K law is an enforcement system - enforcement mechanism for private arrangements; can demand certain standards of behavior (we don’t allow people to come to court to enforce illegal Ks, dishonesty)
2.For merchants honesty in fact
2-103(b): Good faith in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.
Eastern Air Lines v. Gulf Oil Corp. no breach of obligation of good faith
Requirements K: Gulf would sell the fuel that Eastern needs in certain cities, for a fixed price. Due to the Arab oil embargo, prices went up, provision in K didn’t cover this price increase (K’s escalation clause was about domestic crude oil), so Gulf demanded a price increase from Eastern, or they would shut off supply. Gulf argues that the requirements K is unenforceable do to lack of mutuality of obligation (because Eastern is not obligated to but any fuel), and even if K is found, Eastern breached its good faith obligation by “fuel freighting”.
Requirements K (here) - a K in which seller promises to supply all the goods or services that a buyer needs during a specific period and at a set price, and in which buyer promises (explicitly or implicitly) to obtain those goods or services exclusively from seller.
buyer is not free to deal with other sellers, seller can deal with other buyers (as long as it supplies buyer)
there must be some element of exclusivity: if there is no exclusivity, it’s not K at all, because there is no mutuality of obligation, no consideration - there is no obligation on the buyer (as in Shoney’s)
it need not be complete exclusivity: K can define the scope of the exclusivity obligation
locality (as in this case)
Output K - a K in which buyer promises to buy all the goods or services that seller can supply during a specified period and at a set price.
buyer agrees to buy all of the seller’s output; buyer can go to another supplier for excess of his needs
Very useful Ks for both parties: certainty, allocation of risks
Here, due to unforeseen events, K not only lost its usefulness to one of the parties, it’s onerous to one of the parties, it’s a burden; commercial impracticability for Gulf.
Should we let Gulf out? What does Gulf have to show to prove impracticability?
Force Majeur clauses - essentially govern impracticability
(Gulf is a big company, it can stand to lose some money)
Gulf is accusing Eastern of bad faith - fuel freighting: Eastern wasn’t purchasing its good faith requirements
Eastern is accusing Gulf of bad faith - breach of K
UCC 2-306 Output, Requirements and Exclusive Dealings
Good faith requirement makes this requirements K an enforceable K
Courts looks to
course of performance
course of dealing
to establish commercial standards in the industry.
Court finds that fuel freighting is a very common practice + it happened between these parties, and Gulf never complained