Parol Evidence, Modification, Interpretation, and Gaps

1. Parol evidence
  • §§209-217; §2-202
2. Interpretation
  • §201, 203(b); §2-208(2)
3. Gaps §204, §§2-305-11
  • Good Faith §205, §§1-203, 2-103(1)(b)
  • Best Efforts §2-306(2)
  • Termination 2-309(2) and (3)

Important to understand the connection between parol evidence, contract interpretation and gap filling to performance and breach, because we must know our rights/duties/obligations before we can assess breach/performance.

1. (Parol) "Box" containing K (written or otherwise)—what outside stuff can be added to K?
  • "Parol" evidence rule only for written contracts, but other aspects apply to all Ks.
2. (Interp) What do the terms mean? (K interpretation)

3. (Gaps) What parts didn’t we address?
  • Example: how do we know when the K is over?
  • How do we fill those gaps?
Parol Evidence Rule
  • Substantive rule of K law, not a procedural standard (i.e., to be applied by federal courts per Erie as well).
    • Not really a rule of evidence
  • Not limited to "oral" stuff
    • If allowed, can merge other materials into K
  • Final K supposed to be a "merging" or "integration" resulting in the written K being the sum total and complete expression of the K
  • No parol evidence issue if no "writing"
    • A relevant writing is an "integration" if it includes terms of the agreement
      • Could have dispute over what the writing/integration is.
  • Only applies to stuff prior to or at the same time as the agreement itself.
  • Process: Writing? (§209?) → YES? → §214/215 → §210? → Partial (§216)
  • General rule: Can ALWAYS explain/clarify/define can NEVER contradict can SOMETIMES add (to partial but not complete)
    • Modification: Parol evidence always available to court, but court decides if it is necessary
    • Modification: "Never" doesn’t mean never.
      • Example: can almost always show "fraud" etc. as basis to contradict—as opposed to changing a term in the contract—but showing that the whole contract is invalid is not a contradiction.
Subsequent modification
  • 1. Whether new consideration is required: if "fair and equitable" in R.2d or with agreement (UCC).
  • 2. Whether modification must be in writings—see statute of frauds.
  • Can orally modify contract and perform, but some clauses in written contract ("waivers") allow going back to original writing
  • Courts do not have to start from scratch and assign a meaning to "chicken" for all time (for example), must ONLY assign meaning for case before them
    • See R2d 201 ("Whose meaning prevails?")—court must simply decide between meanings propounded by parties
    • R2d 201 gives an approach to picking one parties meaning over the other, if same parties use same term to mean the same thing ("John’s [other] wife"), even if that isn’t what outsiders might see.
    • R2d 201 part 2, when mean different things, see if one of the parties knew or should have known that the term had multiple meanings and that the other party was operating under a different interpretation.
    • A sort of duty arises on me to clear that up if I know about it
  • R2d part 3 ("Peerless," coins), if there isn't any basis for one or the other, maybe there is NO AGREEMENT (back to "meeting of the minds")
Implied covenant of good faith and fair dealing (also "best efforts")
  • Looking at the whole deal (see Burger King, Dalton)
  • CA recognizes this, FL doesn’t seem to.
  • Not a fiduciary duty where you must put other parties interests above, but only to treat fairly
  • As long as judgment is in good faith, party gets to decide what is “best effort” (or reasonable efforts)—see Prentice Hall
  • Court can require notice, and adjust notice period to avoid unfairness
    • Principle: terminated part should have an opportunity to recoup investment and "expectation" of reasonable profit
  • Public interest in retaliation (termination)
    • Not applicable (in some jurisdictions) to lawyers generally, who are simply required to do the "right thing" (CA gives protections)
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