Skip to main content

​
Contracts I - Detailed Course Outline

​
PART I: INTRODUCTION & GOVERNING LAW

​
A. Foundational Concepts

  1. What is a Contract?
    • Primary Definition: A promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.
    • Restatement (Second) § 1: A set of promises that the law will enforce.
    • Formulaic Definition: Offer + Acceptance + Consideration + (Lack of Defenses).
  2. Agreement vs. Contract
    • Agreement: A manifestation of mutual assent sufficiently definite to conclude a bargain (Restatement § 3). Not all agreements are enforceable contracts.
    • Contract: An enforceable agreement.
  3. The Objective Theory of Contracts
    • Core Principle: Contract formation is judged by objective, outward manifestations of intent, not subjective, secret intentions.
    • Test: What would a reasonable person in the position of the other party conclude based on the words and actions?
    • Key Case: Lucy v. Zehmer: Zehmer claimed he was joking when he agreed to sell his farm, but his outward actions (writing a contract, signing, a 40-minute discussion) indicated a serious intent to a reasonable person (Lucy). The contract was held enforceable.
    • Irrelevant Factors: Secret intentions, being drunk (unless capacity is so impaired one cannot comprehend the nature of the act), or internal jokes are not defenses if outward conduct indicates serious agreement.

​
B. What Law Governs? (Common Law vs. UCC)

  1. Common Law
    • Scope: Governs ALL contracts EXCEPT for the sale of goods.
    • Source: Judge-made law (case law/precedent).
    • Requirements: Tends to be stricter, often requiring all material terms to be definite.
  2. Uniform Commercial Code (UCC) - Article 2
    • Scope: Governs contracts for the sale of goods only.
    • “Sale” Defined (UCC § 2-106): The passing of title from a seller to a buyer for a price. Leases are NOT sales as title does not pass.
    • “Goods” Defined (UCC § 2-105): All things that are tangible and movable at the time they are identified to be sold under the contract.
      • Includes: Growing crops, timber to be cut.
      • Excludes: Real estate, services, employment contracts, intangible rights.
      • Fixtures (UCC § 2-107): Items attached to real estate are goods only if they can be severed without material harm to the land and are severed by the seller.
    • Policy: The UCC is pro-contract enforcement and designed to facilitate commerce, making it more flexible than the common law.
  3. Mixed/Hybrid Contracts (Goods and Services)
    • Definition: Contracts that involve both goods (UCC) and services (Common Law).
    • Analysis - Step 1: Severability Test
      • Rule: If the promises are severable, apply the appropriate law to each part. Promises are severable if they are independent and apportionable.
      • Independent: The parties would have contracted for the promises separately.
      • Apportionable: The consideration can be divided and allocated to each respective promise.
      • Example: Buying an Apple Computer (UCC) and a separate AppleCare service plan (Common Law) with distinct prices on the same receipt.
    • Analysis - Step 2: Predominant Purpose Test (If not severable)
      • Rule: If the contract elements cannot be severed, one body of law governs the entire contract based on its predominant purpose.
      • Test: What was the primary intent of the parties, especially the buyer? Was the main goal to acquire goods or receive a service?
      • Factors: Language of the contract, billing structure, allocation of costs, and the nature of the final product.
      • Example: A pizza delivery contract is predominantly for the goods (the pizza), not the service (delivery). The UCC would govern.

​
PART II: CONTRACT FORMATION - MUTUAL ASSENT

​
A. The Offer

  1. Definition of an Offer
    • An offer is an intent to be bound by certain definite terms which are communicated to the offeree.
    • It creates the power of acceptance in the offeree, who need only say “I accept” to form a contract.
  2. Element 1: Intent to Be Bound
    • Standard: Judged by the objective theory. Does the offeror’s communication demonstrate a present willingness to enter a bargain?
    • Future Intent is NOT an Offer: “I will be selling my car next month for $5,000” is a statement of future intent, not a present offer.
    • Context Matters: Off-the-cuff remarks, hyperbole, or statements made in jest are generally not offers if a reasonable person would not perceive them as serious.
      • Case: Leonard v. PepsiCo: The commercial showing a Harrier Jet for 7 million Pepsi points was obvious puffery and not a serious offer a reasonable person could accept.
      • Contrast: Carlill v. Carbolic Smoke Ball Co.: An advertisement offering a £100 reward was a serious offer because the company showed sincerity by depositing £1,000 in a bank.
  3. Element 2: Certain Definite Terms (Material Terms)
    • Common Law Requirement: The offer must contain all material terms, including:
      1. Parties
      2. Subject Matter
      3. Price
      4. Quantity
    • UCC Requirement: The UCC is much more flexible. An offer is valid if it shows intent to be bound and specifies QUANTITY.
      • Quantity is Essential: Quantity cannot be a range (“80-95 barrels”) and cannot be filled in by the court.
        • Exception: Output Contracts (buyer agrees to buy all of a seller’s output) and Requirements Contracts (seller agrees to supply all of a buyer’s needs) are valid under UCC § 2-306, subject to a standard of good faith.
      • UCC Gap Fillers: If other terms are missing, the UCC provides “gap fillers”:
        • Price (UCC § 2-305): A reasonable price at the time of delivery.
        • Place of Delivery (UCC § 2-308): The seller’s place of business.
        • Time of Delivery (UCC § 2-309): A reasonable time.
        • Time of Payment (UCC § 2-310): Due at the time and place the buyer receives the goods.
      • “Agreement to Agree” Limitation: If parties expressly state they will “agree on the price later,” gap fillers do not apply, and the contract fails for indefiniteness. [cite: session-05, session-04] The court will not create a price when the parties specifically reserved that right for themselves.
  4. Element 3: Communicated to the Offeree
    • The offeree must have knowledge of the offer to be able to accept it.
    • Case: Broadnox v. Ledbetter: A person who captured a wanted criminal without knowledge of a reward offer could not later claim the reward. There was no mutual assent.
  5. What is NOT an Offer?
    • Advertisements: Generally considered invitations to make an offer, not offers themselves. This is to protect the advertiser from over-acceptance.
      • Exception (Lefkowitz v. Great Minneapolis Surplus Store): An advertisement can be an offer if it is clear, definite, and explicit, and leaves nothing open for negotiation (e.g., “3 fur coats, $1 each, first come, first served”).
    • Price Quotations: Usually invitations to offer, not offers.
      • Exception (Fairmount Glass Works): A price quote sent in response to a specific inquiry that uses language of commitment (“for immediate acceptance”) is more likely to be an offer.
    • Preliminary Negotiations & Agreements to Agree: Discussions, letters of intent, and agreements to agree on material terms later are not binding offers.
      • Case: Joseph Martin Jr. v. Schumacher (Classic View): An “agreement to agree” on future rent was held unenforceable.
      • Modern Trend (UCC & Restatement): May be enforceable if parties intended to be bound despite the missing term.
    • Illusory Promises: A promise that appears to be a commitment but leaves performance to the complete discretion of the promisor (e.g., “I will pay you if I feel like it”). This is not a real promise and cannot be an offer.
    • Domestic/Social Agreements: Agreements between family members or for social occasions are presumed not to be legally binding contracts unless there is clear evidence of an intent to create legal obligations. [cite: session-03]
      • Case: Balfour v. Balfour: A husband’s promise to pay his wife a monthly allowance while they were living amicably was not an enforceable contract.

​
B. Termination of the Offer

An offer creates a power of acceptance in the offeree, but that power does not last forever. It can be terminated in several ways:
  1. Lapse of Time:
    • The offer terminates after the time specified in the offer.
    • If no time is specified, it terminates after a reasonable time. What is reasonable depends on the subject matter (e.g., minutes for volatile stocks, hours for perishable goods, weeks for real estate).
  2. Revocation by the Offeror:
    • The offeror is the “master of the offer” and can revoke it any time before acceptance.
    • Revocation is effective when received by the offeree.
  3. Rejection by the Offeree:
    • An express rejection (“No, I don’t want it”) by the offeree terminates the offer.
    • Rejection is effective when received by the offeror.
  4. Counteroffer by the Offeree:
    • A counteroffer is both a rejection of the original offer and a new offer.
    • It terminates the original offer, which is now “dead” and cannot be accepted unless the original offeror revives it.
    • Mere Inquiry is NOT a counteroffer (“Would you consider $4,800?”). It does not terminate the original offer.
  5. Death or Insanity of the Offeror:
    • Death or adjudication of insanity of the offeror automatically terminates a revocable offer, even if the offeree does not know about it.
  6. Illegality:
    • If the subject matter of the offer becomes illegal after the offer is made but before acceptance, the offer is terminated by operation of law.

​
C. Irrevocable Offers (Offers that cannot be revoked for a period of time)

  1. Option Contract (Common Law): An offer is irrevocable if the offeror receives consideration from the offeree to keep the offer open for a specified period.
  2. Merchant’s Firm Offer (UCC § 2-205): An offer by a merchant to buy or sell goods in a signed writing that gives assurance it will be held open is irrevocable, without consideration, for the time stated (or a reasonable time, but no longer than 3 months).
  3. Start of Performance in a Unilateral Contract (Restatement § 45): Where an offer seeks acceptance by performance (unilateral contract), once the offeree begins performance, the offer becomes an irrevocable option contract for a reasonable time to allow for completion. The offeree is not bound to finish performance.
  4. Promissory Estoppel (Detrimental Reliance): An offer may be held irrevocable if the offeror should have reasonably expected the offeree to rely on the offer to their detriment, and the offeree did so. (e.g., A subcontractor’s bid relied upon by a general contractor).

​
PART II: CONTRACT FORMATION - Acceptance

​
A. The Acceptance

Definition of Acceptance
  • An assent to the terms of the offer in the proper form. It manifests the offeree’s intent to be bound by the terms of the offer.

​
The Mirror Image Rule (Common Law)

  • Rule: The acceptance must be the exact mirror image of the offer. Any change, addition, or deletion to the terms of the offer constitutes a rejection and a counteroffer. The original offer is terminated.
  • “Grumbling Acceptance”: An acceptance that expresses dissatisfaction but ultimately assents to the terms is still a valid acceptance (e.g., “I accept, but you’re driving a hard bargain”).
  • Implicit Terms: An acceptance that includes a term already implicit in the offer (e.g., “I accept your offer to sell your house if you can provide good title”) is not a counteroffer, as good title is an implied condition.

​
The “Battle of the Forms” (UCC § 2-207)

  • Purpose: Abolishes the common law Mirror Image Rule for contracts involving the sale of goods. It recognizes that in commercial dealings, parties often use pre-printed forms that do not perfectly match.
  • UCC § 2-207(1) - Does an Acceptance Occur?
    • A definite and seasonable (timely) expression of acceptance acts as an acceptance even though it states terms additional to or different from those offered.
    • Exception (The Proviso): It is NOT an acceptance if the acceptance is “expressly made conditional on assent to the additional or different terms.” This language turns the response into a counteroffer.
  • UCC § 2-207(2) - What Happens to the Additional Terms?
    • If at least one party is NOT a merchant: The additional terms are considered mere proposals for addition to the contract. They are not part of the contract unless the original offeror expressly agrees to them.
    • If BOTH parties ARE merchants: The additional terms automatically become part of the contract UNLESS:
      • (a) The original offer expressly limits acceptance to its terms (e.g., “This offer is limited to the terms herein”).
      • (b) The new terms materially alter the contract. A material alteration is one that causes surprise or hardship. (e.g., an arbitration clause, a disclaimer of warranties).
      • (c) The original offeror gives notification of objection to the new terms within a reasonable time.
  • UCC § 2-207(3) - Contract by Conduct
    • If the parties’ writings do not form a contract (e.g., the acceptance was expressly conditional), but the parties act like there is a contract (e.g., seller ships goods, buyer accepts and pays for them), then a contract is formed.
    • Terms of the Contract: The terms will be those on which the parties’ writings agree, supplemented by UCC gap-fillers. Conflicting terms are “knocked out.”

​
Manner of Acceptance

  • Master of the Offer: The offeror controls the manner of acceptance. If the offer specifies a required method (e.g., “acceptance must be by certified mail”), that method must be used.
  • Modern Rule (If Not Specified): Unless otherwise indicated, an offer invites acceptance in any manner and by any medium reasonable under the circumstances (Restatement § 30).
  • Acceptance by Promise (Bilateral Contract): A contract formed by the exchange of mutual promises. A promise for a promise. The contract is formed when the promises are exchanged.
  • Acceptance by Performance (Unilateral Contract): A contract where the offer requests performance rather than a promise. A promise for an act.
    • Formation: The contract is formed only upon complete performance.
    • Irrevocability: Once the offeree begins performance, the offer becomes irrevocable for a reasonable time to allow completion (Restatement § 45).
    • Notice: Notice of acceptance is generally not required unless the offeror would have no way of knowing the act was completed. Performance itself serves as acceptance.

​
Acceptance by Silence

  • General Rule: Silence does not operate as acceptance.
  • Exceptions: Silence can constitute acceptance when:
    1. Benefit of Services: The offeree takes the benefit of offered services with a reasonable opportunity to reject them and reason to know they were offered with the expectation of compensation (Day v. Caton). A “duty to speak” arises.
    2. Prior Course of Dealing: Past dealings between the parties have established that silence is a reasonable mode of acceptance (Hobbs v. Massasoit Whip Co.).
    3. Offeror indicates silence is acceptance: The offeror has given the offeree reason to understand that assent may be manifested by silence, and the offeree in remaining silent intends to accept.

​
The Mailbox Rule (Acceptance Effective on Dispatch)

  • Rule: For acceptances sent by mail or a similar medium, acceptance is effective when it is sent (dispatched), not when it is received.
  • Applies to: Acceptances only. Rejections, revocations, and counteroffers are effective upon receipt.
  • Limitations:
    • The offeror can stipulate that acceptance is only effective upon receipt.
    • Does not apply to option contracts, where acceptance must be received by the deadline.
    • If an offeree sends a rejection and then sends an acceptance, the mailbox rule does not apply. Whichever communication arrives first controls.

​
Acceptance in Digital Contracts

  • Key Principle: Enforceability depends on whether the user had reasonable notice of the terms and manifested assent.
  • Shrinkwrap Licenses: Terms are inside the packaging of a product. Enforceable if the buyer has the opportunity to read the terms and reject the product by returning it (ProCD v. Zeidenberg).
  • Clickwrap Agreements: User must affirmatively click a box (“I Agree”) after being presented with the terms. Generally enforceable as there is express assent.
  • Browsewrap Agreements: Terms are available via a hyperlink, but the user is not required to view them or click “I Agree” to use the site. Often unenforceable due to lack of notice and assent.

​
PART III: ENFORCEABILITY - CONSIDERATION

​
A. The Doctrine of Consideration

  1. Definition: Consideration is a bargained-for exchange involving a legal benefit to the promisor or a legal detriment to the promisee. It is the “glue” that makes a promise legally enforceable.
  2. Element 1: Bargained-For Exchange (“Quid Pro Quo”)
    • The promise must induce the detriment, and the detriment must induce the promise. It is a reciprocal exchange—“this for that.”
    • The promise and the consideration must be the motive for each other.
  3. Element 2: Legal Value (Benefit/Detriment)
    • Legal Detriment: The promisee does something they are not legally obligated to do, OR refrains from doing something they have a legal right to do.
      • Case: Hamer v. Sidway: A nephew’s promise to refrain from smoking, drinking, and gambling (all legal activities for him) until he was 21 constituted a legal detriment and was valid consideration for his uncle’s promise to pay him $5,000.
    • Legal Benefit: The promisor obtains something they were not legally entitled to.
    • Adequacy is Irrelevant: Courts will not inquire into the adequacy or fairness of the consideration. As long as there is a genuine bargain, even a “peppercorn” of value is sufficient.

​
B. What is NOT Consideration?

  1. Gift Promises: A promise to make a gift is unenforceable for lack of consideration.
    • Conditional Gifts: A condition on a gift is not consideration.
    • Case: Kirksey v. Kirksey: A brother-in-law’s promise to give his widowed sister-in-law a place to live if she moved was a conditional gift, not a bargain. Her moving was the condition to receive the gift, not the “price” she paid for his promise.
  2. Past Consideration: A promise made in exchange for a benefit that has already been conferred in the past is not a bargained-for exchange.
    • Case: Kim v. Son: A promise written in blood to repay a business partner for past losses was unenforceable because the losses had already occurred. It was a gratuitous promise motivated by guilt, not a present bargain.
  3. Pre-Existing Duty Rule (Common Law)
    • A promise to perform an act that one is already legally obligated to do is not valid consideration.
    • Application: A party cannot demand more money to finish a job they are already under contract to do (Alaska Packers case).
    • Contract Modifications (Common Law): Any modification to a contract requires new consideration to be binding.
      • Exception - Unforeseen Difficulties (Minority Rule): A modification may be enforced without new consideration if unanticipated difficulties arise during performance that make the modification fair and equitable.
  4. Illusory Promises: A promise where performance is entirely optional and within the promisor’s discretion is illusory and not consideration.
  5. Moral Obligation (Majority Rule)
    • A promise made out of a moral duty or sense of honor is generally unenforceable.
    • Minority Rule - Material Benefit Rule: A promise made in recognition of a significant, material benefit previously conferred by the promisee may be enforceable to the extent necessary to prevent injustice (Webb v. McGowan).

​
C. Consideration Substitutes (Enforcement without Consideration)

  1. Promissory Estoppel (Restatement § 90)
    • A promise that lacks consideration may still be enforced if it is necessary to prevent injustice. It is a “last resort” remedy.
    • Four Elements:
      1. A clear and definite promise was made.
      2. The promisor had a reasonable expectation that the promisee would rely on the promise.
      3. The promisee did in fact reasonably rely on the promise to their detriment.
      4. Injustice can only be avoided by enforcing the promise.
    • Key Cases:
      • Feinberg v. Pfeiffer Co.: A promise to pay a pension was enforced after an employee retired in reliance on it.
      • Drennan v. Star Paving Co.: A subcontractor’s bid was held irrevocable after a general contractor relied on it to win a larger project.
    • Remedy: Damages are often limited to reliance damages (out-of-pocket costs) rather than expectation damages (the full value of the promise).
  2. UCC Modifications (§ 2-209): An agreement modifying a contract for the sale of goods needs no consideration to be binding, but it must be made in good faith.
  3. Promise to Pay a Debt Barred by the Statute of Limitations: A new, signed written promise to pay a debt that is no longer legally enforceable revives the debt and is enforceable without new consideration.
  4. Promise for Benefit Received (Restatement § 86): The modern trend, similar to the material benefit rule, where a promise made for a past benefit can be binding to prevent injustice.

​
PART IV: FORMATION DEFENSES (DEATH TO THE CONTRACT)

​
A. Overview

  1. Definition: A defense to the formation of a contract. If a defense is valid, it renders the contract void or voidable.
  2. Burden of Proof: The party asserting the defense has the burden of proving it.
  3. Effect:
    • Void Contract: Invalid from the start (ab initio). No legal effect; unenforceable by either party.
    • Voidable Contract: Valid until the party with the defense takes steps to rescind (cancel) the contract. They can choose to affirm the contract instead.

​
B. Defenses to Formation

  1. Capacity
    • A party lacked the legal capacity to enter a contract, rendering it voidable.
    • Minors: Contracts are generally voidable by the minor.
      • Age of Majority: 18 (modern law).
      • Right to Disaffirm: Only the minor can disaffirm, and they must do so within a reasonable time after reaching the age of majority.
      • Necessaries of Life Exception: Minors are liable for the reasonable value (restitution) of “necessities” (food, clothing, shelter, medical care). They can’t disaffirm those contracts.
      • Parental Consent: A parent’s signature or agreement does not prevent the minor from disaffirming. Unless a parent is formally appointed as Guardian Ad Litem by a court, then court approval would be required.
      • Misrepresentation of Age: The minor can still disaffirm even if they lied about their age.
    • Mental Incapacity:
      • Cognitive Test: Did the person understand the nature and consequences of the contract? The other party’s knowledge is irrelevant.
      • Product Test: Was the person’s conduct the product of a mental defect? The other party must have known or should have known of the incapacity.
      • Effect: A contract made by a person lacking mental capacity is generally voidable.
      • Restatement (Second): A person incurs only voidable contractual duties if, by reason of mental illness or defect, they are unable to act in a reasonable manner in relation to the transaction, and the other party has reason to know of the condition.
      • Reaffirmation: If the incapacity is temporary (e.g., intoxication), a person can ratify the contract when they regain capacity.
    • Restitution: The party lacking capacity who disaffirms generally must return any benefits received.
      • Minor Exception: Minor must only pay reasonable value for use/depreciation (e.g., damages from use of a motorcycle) - Petty v. Liston.
      • Exception: No restitution required if the other party took advantage of the minor or engaged in fraud.
  2. Mistake
    • An incorrect belief about a fact. The mistake must relate to certain definite terms (CDTs).
    • Unilateral Mistake: One party makes a mistake. It is a defense if:
      • The mistake relates to a CDT.
      • The mistake is material.
      • The non-mistaken party knew or should have known about the mistake.
      • Assumption of Risk: A mistake is not a defense where the party assumed the risk of the mistake, that is, where the party agreed, either expressly or by implication, to bear the risk of the mistake.
    • Bilateral/Mutual Mistake: Both parties are mistaken. It is always a defense.
    • Case (Nelson v. Rice): Where a party is “consciously ignorant,” knowing they have limited knowledge about a fact but proceeding with a transaction, they assume the risk of mistake and can’t claim the defense.
  3. Duress
    • Coercion that overcomes a person’s free will.
    • Physical Duress: Actual physical force or a threat of physical harm. It renders the contract void.
    • Economic Duress: A threat to breach an existing contract or engage in a wrongful act, preventing the party from exercising free will. The party must have had no reasonable alternative.
      • Elements:
        1. An existing contractual relationship.
        2. The other party (defendant) refused to perform their contractual obligation.
        3. The party has no reasonable alternative choices.
      • Critical Element: The duress must come from the other party (the defendant) to the contract. If the duress is caused by the party’s own circumstances (e.g., business difficulties), it’s not a valid defense.
      • Case (Wachovia v. Fullerton County National Bank): Contract signed under threat by bank (defendant) of stopping lending and demanding immediate loan repayment was held voidable for economic duress.
      • Pre-Existing Duty Rule: Consider this to attack a party’s attempt to modify terms.
      • Ratification: Once the duress is removed, the party must promptly repudiate (reject) the contract or they will be deemed to have ratified it.
  4. Undue Influence
    • Occurs when one party uses a relationship of trust and confidence to unfairly persuade another party to enter a contract.
    • Elements:
      1. The party asserting the defense was susceptible to undue influence.
      2. The other party had the opportunity AND the disposition to exert undue influence.
      3. The transaction resulted in an unnatural result.
      • Susceptibility: Often the elderly, mentally compromised, or in a dependent relationship.
      • Opportunity + Disposition: The other party must have both the chance and the inclination to exert influence.
      • Unnatural Transaction: The contract is very one-sided and unreasonable.
      • Case (Francois v. Francois): A wife’s undue influence over her husband resulted in a contract that was totally one-sided.
    • Distinction from Economic Duress: Undue influence requires susceptibility, economic duress does not.
  5. Unconscionability
    • A doctrine where the terms of a contract are so unfair that a court refuses to enforce it. The contract must be extremely one-sided, to an extent that it would shock the conscience of the court.
  6. Misrepresentation
    • A false statement of fact that induces another party to enter into a contract.
    • Negligent Misrepresentation: The misrepresentation was made carelessly, without a reasonable basis for believing it to be true. Duty of care is key.
    • Fraud (Intentional Misrepresentation): The misrepresentation was made knowingly, with the intent to deceive, or with reckless disregard for the truth.
      • Reasonableness: The party asserting misrepresentation must have acted reasonably in relying on the misrepresentation.
      • UCC 2-313 (Express Warranties): A breach of warranty claim might exist if a seller provides an affirmation of fact, promise, or description related to the goods that becomes part of the basis of the bargain.
    • Fraud in the Factum: Where a party signs a document believing it is something entirely different than what it is (e.g., signing a blank paper, signing away assets when not intending to). This makes the contract void.
    • Case (Vokes v. Arthur Murray): The dance school’s lies (opinions treated as facts) about a student’s progress were actionable as misrepresentation because the dance school had superior knowledge.

​
PART V: THE PAROL EVIDENCE RULE & INTERPRETATION

​
A. Overview and Basic Rule

  1. What is Parol Evidence?
    • Any evidence contemporaneous to or prior to the written agreement. Evidence outside of the written agreement.
  2. The Basic Rule: Generally, parol evidence is inadmissible to:
    • Contradict
    • Vary
    • Add to
    • Subtract from
    • …the terms of an integrated agreement.
  3. Integration Defined:
    • Integration: A written expression intended by the parties to be a final expression of their agreement.
    • Complete (Total) Integration: The writing is intended to be the final and complete expression of the agreement. No extrinsic evidence is admissible to contradict or supplement. A merger clause creates a presumption of complete integration.
    • Partial Integration: The writing is intended to be final, but not complete. Extrinsic evidence is admissible to supplement (if consistent), but not to contradict, any terms.
  4. Intent of the Parties: The key factor. Did the parties intend the writing to be a complete or partial integration?
    • Natural Omission Test: Would reasonable, competent parties have naturally included a specific term in the writing? If so, the omission suggests it was not part of the deal OR partial integration.

​
B. Key Cases

  1. Mitchell v. Lath (1923): The ice house case.
    • The oral agreement (removal of the ice house) was held inadmissible because it was closely related to the sale of the farm, and the parties would naturally include it in the written land sale contract.
    • Rule: Three conditions for admissibility:
      1. Collateral agreement
      2. Does not contradict the written contract
      3. Parties would not ordinarily be expected to embody it in writing
  2. Masterson v. Sine (1968): Option to repurchase land
    • The court held that evidence of an oral agreement that the option to repurchase was personal to the Mastersons was admissible, even though the grant deed did not mention this.
    • Justice Traynor’s Modern Approach: Even if the writing appears complete, extrinsic evidence may be admissible if the oral agreement is something that would naturally be made as a separate agreement by the parties, given their circumstances.
    • Emphasis on credibility and natural expectations over rigid formalism.
  3. Lee v. Joseph E. Seagram & Sons, Inc. (1977): Oral agreement to find a new distributor
    • The oral promise was admitted because the parties to the oral agreement were different than those in the written sales agreement, and the written agreement did not contain an integration clause.
    • The parol evidence rule does not bar evidence showing a contract was not intended to be a full agreement and was between different parties.
  4. George v. Davoli (1977): Return of jewelry after a week
    • Court allowed evidence of a Monday return deadline, as the memorandum was not a full and exclusive statement of terms, and the deadline did not contradict the memorandum, just supplemented it (UCC 2-202).
  5. Frigaliment Importing Co. v. B.N.S. International Sales (Chicken Case)
    • Extrinsic evidence (trade usage, market prices, etc.) admissible to interpret an ambiguous term (the meaning of “chicken” in the contract). The court weighed multiple interpretations of what chicken actually meant in relation to the contract.
  6. Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co.
    • If language in the contract is “susceptible to two or more meanings” then the extrinsic evidence can come in to: show the meaning intended by the parties OR to prove a meaning to which the language is reasonably susceptible.
  7. Trident Center v. Connecticut General Life Insurance
    • Court affirmed the dismissal, where the language was clear; however, extrinsic evidence could be admissible to try to show contract language was ambiguous, even where language was clear.

​
C. UCC 2-202 (Presumption of Partial Integration)

  1. General Rule: Terms in a writing intended by the parties as a final expression of their agreement may not be contradicted by evidence of any prior agreement or contemporaneous oral agreement.
  2. Exception: Such terms may be explained or supplemented by:
    • Course of dealing, usage of trade, or course of performance.
    • Evidence of consistent additional terms (unless the court finds the writing was intended as a complete and exclusive statement).
  3. Presumption: UCC 2-202 creates a strong presumption of partial integration. The burden is on the party arguing complete integration to prove it.

​
D. When Parol Evidence IS Admissible

  1. To Show a Contract is No Contract At All
    • Fraud, Sham/Fake Contract, No Meeting of the Minds, Fraud in the Factum.
  2. To Interpret Ambiguous or Vague Terms
  3. To Show a Modification (Post-Contract)
  4. Collateral Agreements
  5. To Supplement a Partially Integrated Agreement (Consistent Terms)
  6. Course of Dealing, Course of Performance, Trade Usage
  7. To Show a Condition Precedent to Formation
  8. To Show an Agreement Was Never Final/Complete

​
E. Integration Clauses (Merger Clauses)

  1. Creates a presumption of complete integration.
  2. Can be overcome, but it is difficult.
  3. Key point is the intent of the parties.