Contract Doctrine, Theory & Practice Volume Three

Contract Doctrine, Theory & Practice Volume Three
1st Edition
J.H. Verkerke
Introduction
Contract Doctrine, Theory & Practice

Contract Doctrine,

Theory & Practice

 

Volume Three

 

 

 

 

 

J.H. Verkerke

 

 

 

 

 

 

CALI eLangdell Press 2012

Notices

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About the Author

Before he received his law degree in 1990, J. H. (Rip) Verkerke earned a master's of philosophy in economics. Verkerke joined the Law School faculty in 1991 and teaches employment law, employment discrimination law, contracts and a seminar on law and economics.

While at Yale, Verkerke was articles editor and articles administrator for the Yale Law Journal and held a number of fellowships, including the John M. Olin Fellowship in Law, Economics, and Public Policy. After graduation, he clerked for Judge Ralph K. Winter Jr. of the U.S. Court of Appeals for the Second Circuit.

In June 1996 Verkerke received a three-year grant from the University's Academic Enhancement Program to establish the Program for Employment and Labor Law Studies at the Law School. He served as visiting professor of law at the University of Texas at Austin in the fall of 1997. Verkerke also participated in an ABA project to draft a new labor code for the transitional government of Afghanistan. In 2007, Verkerke received an All-University Teaching Award from UVA, and in 2011, he was selected as an inaugural member of the University Academy of Teaching.

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Preface

These teaching materials are a work-in-progress. Our reading assignments this semester will include all of the elements that make up a conventional casebook. You will read judicial opinions, statutory provisions, academic essays, and hypotheticals. You will puzzle over common law doctrines and carefully parse statutes. We will try to develop theories that can predict and justify the patterns of judicial decisions we observe.

Unlike a conventional casebook, however, I have selected each element of the readings myself. We will start at the beginning of these materials, read each assignment in order, and finish at the end. All of the reading assignments are also self-contained. When I ask you to read a statutory section or a portion of the Restatement, it will appear in the text at the point where you should read it. In addition, we will cover the entire set of materials. You will not spend the semester hauling around hundreds of extra pages that we have no time to read or discuss. At the end of each section, you will find discussion questions that track very closely the questions that I will ask during our class time together. Finally, the pages themselves are formatted to make reading easier and to give you plenty of space to take notes and mark up the text.

Our class also will use an online collaboration site to enrich and extend class discussions. This site will provide links to additional legal sources as well as questions for class discussion, practice problems, explanatory notes, and a discussion forum. The site will develop and evolve in response to your needs and interests. If you have any suggestions for changes or additions to these materials, I invite you to talk with me or post your ideas to our collaboration site.

Why study contract law?

The first semester of law school is mostly about learning to speak a new legal language (but emphatically not “legalese”), to formulate and evaluate legal arguments, to become comfortable with the distinctive style of legal analysis. We could teach these skills using almost any legal topic. But we begin the first-year curriculum with subjects that pervade the entire field of law. Contract principles have a long history and they form a significant part of the way that lawyers think about many legal problems. As you will discover when you study insurance law, employment law, family law, and dozens of other practice areas, your knowledge of contract doctrine and theory will be invaluable.

Why collaborative teaching materials?

The ultimate goal of this project is to involve many professors in producing a library of materials for teaching contracts (and other subjects). For the moment, I will be solely responsible for collecting public domain content and generating problems and explanatory essays. These embryonic reading materials will grow and evolve as I use and expand them and as other professors join in producing additional content. I gratefully acknowledge the extraordinary work of my talented research assistants who have been instrumental in helping me to put these materials together. Thanks to Sarah Bryan, Mario Lorello, Elizabeth Young, Vishal Phalgoo, Valerie Barker and Jim Sherwood.

I believe that it is equally important to involve students in the ongoing process of refining and improving how we teach legal subjects. Our collaboration site will provide a platform for student-generated content and lively dialogue. With your enthusiastic engagement, we will finish the semester with an excellent understanding of contracts and a useful collection of reference materials. I invite each of you to join us for what will be a challenging, sometimes frustrating, but ultimately rewarding, intellectual journey.

Chapter One
Identifying and Interpreting the Terms of an Agreement

When contractual relations break down, parties frequently discover that they disagree both about which terms have become part of their agreement and about how to interpret those terms. We have already seen how the common law last shot rule and UCC § 2-207 determine whose terms govern after a “battle of the forms.” In this section, we examine a broader set of doctrines concerning the content and meaning of a contract.

As you read these materials, it will be helpful to bear in mind that a fundamental tension afflicts judicial efforts to identify and interpret the terms of an agreement. The question in every case is whether to hew closely to the language contained in the parties’ written agreement or instead to consider evidence of prior or contemporaneous oral agreements, trade customs, the parties’ course of dealing under earlier contracts, and their experience performing the current contract. Early common law decisions tended to exclude much of this contextual evidence. However, many critics have observed that the traditional formalist emphasis on the text of the written agreement often prevents enforcement of oral promises or understandings between the parties that were assuredly part of their agreement.

More recently, courts have developed rules that permit them to consider a much wider range of contextual evidence. Their goal has been to eliminate formal obstacles to discovering the true intentions of the parties. Both the Restatement (Second) of Contracts § 216 and UCC § 2-202 embody this more permissive attitude. However, a neo-formalist critique of the contextualist approach points out that parties often use written agreements to make their obligations more precise and to narrow the scope of potential disagreement about terms and meaning. Courts frustrate this goal when they permit contextual evidence to undermine the comparative certainty of a writing.

Although these competing concerns apply equally to both identifying and interpreting terms, the cases that follow focus on the problem of identifying which terms will become part of a contract. The common law parol evidence rule and UCC § 2-202 provide the legal framework within which this issue is analyzed.

1.1. The Common Law Parol Evidence Rule

Courts use the common law parol evidence rule to decide whether a party may try to prove contract terms beyond those contained in a written agreement. The traditional textualist approach to this question—the so-called “four corners test”—asked simply whether the written contract appeared complete on its face. If so, both parties would be barred from introducing evidence of any prior or contemporaneous agreement about the same transaction. Contemporary case law has embraced a far more permissive standard that asks instead whether the alleged additional terms “would naturally have been excluded” from the writing. See Restatement (Second) of Contracts § 216. In the majority of US jurisdictions, the common law thus has evolved from a relatively strict parol evidence rule to a comparatively lax standard that is far more likely to permit parties to offer evidence of informal agreements to vary the terms of a writing.

Despite this evolution towards contextualism, constraints remain. The modern parol evidence rule still limits proof of additional terms. It is convenient to distinguish two stages of analysis. Courts ask first whether the parties’ written agreement is partially or totally “integrated” and then whether the proffered additional term is “consistent” with the written terms.

The touchstone for integration is an inquiry into whether the parties intended the writing to be a final and exclusive statement of their agreement. The written contract is fully (or “completely”) integrated if it was meant to exclude all prior or contemporaneous understandings between the parties, and it is partially integrated if it is the final statement of only some of the terms of their agreement. An express “merger clause” stating that the writing will be the final and exclusive statement of the parties’ agreement is by far the most common basis for finding full integration. The test of consistency bars proof of terms that contradict or are inconsistent with the writing. At least in theory, both integration and consistency thus filter out those additional terms that are unlikely to have been part of the parties’ agreement.

As you will discover in reading the cases that follow, applying the rules for integration and consistency is a remarkably uncertain enterprise. Try to discern where each court falls on the continuum from formalist textualism to permissive contextualism. And see if you agree with the underlying policy arguments that animate the various opinions.

1.1.1. Principal Case – Mitchill v. Lath

Mitchill v. Lath

Court of Appeals of New York

247 N.Y. 377, 160 N.E. 646 (1928)

Andrews, J.

[1] In the fall of 1923 the Laths owned a farm. This they wished to sell. Across the road, on land belonging to Lieutenant-Governor Lunn, they had an ice house which they might remove. Mrs. Mitchill looked over the land with a view to its purchase. She found the ice house objectionable. Thereupon "the defendants orally promised and agreed, for and in consideration of the purchase of their farm by the plaintiff, to remove the said ice house in the spring of 1924." Relying upon this promise, she made a written contract to buy the property for $8,400, for cash and a mortgage and containing various provisions usual in such papers. Later receiving a deed, she entered into possession and has spent considerable sums in improving the property for use as a summer residence. The defendants have not fulfilled their promise as to the ice house and do not intend to do so. We are not dealing, however, with their moral delinquencies. The question before us is whether their oral agreement may be enforced in a court of equity.

[2] This requires a discussion of the parol evidence rule—a rule of law which defines the limits of the contract to be construed. (Glackin v. Bennett, 226 Mass. 316.) It is more than a rule of evidence and oral testimony even if admitted will not control the written contract (O'Malley v. Grady, 222 Mass. 202), unless admitted without objection. (Brady v. Nally, 151 N. Y. 258.) It applies, however, to attempts to modify such a contract by parol. It does not affect a parol collateral contract distinct from and independent of the written agreement. It is, at times, troublesome to draw the line. Williston, in his work on Contracts (sec. 637) points out the difficulty. "Two entirely distinct contracts," he says, "each for a separate consideration may be made at the same time and will be distinct legally. Where, however, one agreement is entered into wholly or partly in consideration of the simultaneous agreement to enter into another, the transactions are necessarily bound together. … Then if one of the agreements is oral and the other is written, the problem arises whether the bond is sufficiently close to prevent proof of the oral agreement." That is the situation here. It is claimed that the defendants are called upon to do more than is required by their written contract in connection with the sale as to which it deals. The principle may be clear, but it can be given effect by no mechanical rule. As so often happens, it is a matter of degree, for as Professor Williston also says where a contract contains several promises on each side it is not difficult to put any one of them in the form of a collateral agreement. If this were enough written contracts might always be modified by parol. Not form, but substance is the test.

[3] In applying this test the policy of our courts is to be considered. We have believed that the purpose behind the rule was a wise one not easily to be abandoned. Notwithstanding injustice here and there, on the whole it works for good. Old precedents and principles are not to be lightly cast aside unless it is certain that they are an obstruction under present conditions. New York has been less open to arguments that would modify this particular rule, than some jurisdictions elsewhere. Thus in Eighmie v. Taylor (98 N. Y. 288) it was held that a parol warranty might not be shown although no warranties were contained in the writing.

[4] Under our decisions before such an oral agreement as the present is received to vary the written contract at least three conditions must exist, (1) the agreement must in form be a collateral one; (2) it must not contradict express or implied provisions of the written contract; (3) it must be one that parties would not ordinarily be expected to embody in the writing; or put in another way, an inspection of the written contract, read in the light of surrounding circumstances must not indicate that the writing appears "to contain the engagements of the parties, and to define the object and measure the extent of such engagement." Or again, it must not be so clearly connected with the principal transaction as to be part and parcel of it.

[5] The respondent does not satisfy the third of these requirements. It may be, not the second. We have a written contract for the purchase and sale of land. The buyer is to pay $8,400 in the way described. She is also to pay her portion of any rents, interest on mortgages, insurance premiums and water meter charges. She may have a survey made of the premises. On their part the sellers are to give a full covenant deed of the premises as described, or as they may be described by the surveyor if the survey is had, executed and acknowledged at their own expense; they sell the personal property on the farm and represent they own it; they agree that all amounts paid them on the contract and the expense of examining the title shall be a lien on the property; they assume the risk of loss or damage by fire until the deed is delivered; and they agree to pay the broker his commissions. Are they to do more? Or is such a claim inconsistent with these precise provisions? It could not be shown that the plaintiff was to pay $500 additional. Is it also implied that the defendants are not to do anything unexpressed in the writing?

[6] That we need not decide. At least, however, an inspection of this contract shows a full and complete agreement, setting forth in detail the obligations of each party. On reading it one would conclude that the reciprocal obligations of the parties were fully detailed. Nor would his opinion alter if he knew the surrounding circumstances. The presence of the ice house, even the knowledge that Mrs. Mitchill thought it objectionable would not lead to the belief that a separate agreement existed with regard to it. Were such an agreement made it would seem most natural that the inquirer should find it in the contract. Collateral in form it is found to be, but it is closely related to the subject dealt with in the written agreement—so closely that we hold it may not be proved.

[7] Where the line between the competent and the incompetent is narrow the citation of authorities is of slight use. Each represents the judgment of the court on the precise facts before it. How closely bound to the contract is the supposed collateral agreement is the decisive factor in each case. But reference may be made to Johnson v. Oppenheim (55 N. Y. 280, 292); Thomas v. Scutt (127 N. Y. 133); Eighmie v. Taylor (98 N. Y. 288); Stowell v. Greenwich Ins. Co. (163 N. Y. 298); Newburger v. American Surety Co. (242 N. Y. 134); Love v. Hamel (59 App. Div. 360); Daly v. Piza (105 App. Div. 496); Seitz v. Brewers Refrigerating Co. (141 U. S. 510); American Locomotive Co. v. Nat. Grocery Co. (226 Mass. 314); Doyle v. Dixon (12 Allen, 576). Of these citations, Johnson v. Oppenheim and the two in the Appellate Division relate to collateral contracts said to have been the inducing cause of the main contract. They refer to leases. A similar case is Wilson v. Deen (74 N. Y. 531). All hold that an oral stipulation, said to have been the inducing cause for the subsequent execution of the lease itself, concerning some act to be done by the landlord, or some condition as to the leased premises, might not be shown. In principle they are not unlike the case before us. Attention should be called also to Taylor v. Hopper (62 N. Y. 649), where it is assumed that evidence of a parol agreement to remove a barn, which was an inducement to the sale of lots, was improper.

[8] We do not ignore the fact that authorities may be found that would seem to support the contention of the appellant. Such are Erskine v. Adeane (L. R. 8 Ch. App. 756) and Morgan v. Griffith (L. R. 6 Exch. 70), where although there was a written lease a collateral agreement of the landlord to reduce the game was admitted. In this State Wilson v. Deen might lead to the contrary result. Neither are they approved in New Jersey (Naumberg v. Young, 15 Vroom, 331). Nor in view of later cases in this court can Batterman v. Pierce (3 Hill, 171) be considered an authority. A line of cases in Massachusetts, of which Durkin v. Cobleigh (156 Mass. 108) is an example, have to do with collateral contracts made before a deed is given. But the fixed form of a deed makes it inappropriate to insert collateral agreements, however closely connected with the sale. This may be cause for an exception. Here we deal with the contract on the basis of which the deed to Mrs. Mitchill was given subsequently, and we confine ourselves to the question whether its terms may be modified.

[9] Finally there is the case of Chapin v. Dobson (78 N. Y. 74, 76). This is acknowledged to be on the border line and is rarely cited except to be distinguished. Assuming the premises, however, the court was clearly right. There was nothing on the face of the written contract, it said, to show that it intended to express the entire agreement. And there was a finding, sustained by evidence, that there was an entire contract, only part of which was reduced to writing. This being so, the contract as made might be proved.

[10] It is argued that what we have said is not applicable to the case as presented. The collateral agreement was made with the plaintiff. The contract of sale was with her husband and no assignment of it from him appears. Yet the deed was given to her. It is evident that here was a transaction in which she was the principal from beginning to end. We must treat the contract as if in form, as it was in fact, made by her.

[11] Our conclusion is that the judgment of the Appellate Division and that of the Special Term should be reversed and the complaint dismissed, with costs in all courts.

Lehman, J. (dissenting).

[12] I accept the general rule as formulated by Judge Andrews. I differ with him only as to its application to the facts shown in the record. The plaintiff contracted to purchase land from the defendants for an agreed price. A formal written agreement was made between the sellers and the plaintiff's husband. It is on its face a complete contract for the conveyance of the land. It describes the property to be conveyed. It sets forth the purchase price to be paid. All the conditions and terms of the conveyance to be made are clearly stated. I concede at the outset that parol evidence to show additional conditions and terms of the conveyance would be inadmissible. There is a conclusive presumption that the parties intended to integrate in that written contract every agreement relating to the nature or extent of the property to be conveyed, the contents of the deed to be delivered, the consideration to be paid as a condition precedent to the delivery of the deeds, and indeed all the rights of the parties in connection with the land. The conveyance of that land was the subject-matter of the written contract and the contract completely covers that subject.

[13] The parol agreement which the court below found the parties had made was collateral to, yet connected with, the agreement of purchase and sale. It has been found that the defendants induced the plaintiff to agree to purchase the land by a promise to remove an ice house from land not covered by the agreement of purchase and sale. No independent consideration passed to the defendants for the parol promise. To that extent the written contract and the alleged oral contract are bound together. The same bond usually exists wherever attempt is made to prove a parol agreement which is collateral to a written agreement. Hence "the problem arises whether the bond is sufficiently close to prevent proof of the oral agreement." See Judge Andrews’ citation from Williston on Contracts, section 637.

[14] Judge Andrews has formulated a standard to measure the closeness of the bond. Three conditions, at least, must exist before an oral agreement may be proven to increase the obligation imposed by the written agreement. I think we agree that the first condition that the agreement "must in form be a collateral one" is met by the evidence. I concede that this condition is met in most cases where the courts have nevertheless excluded evidence of the collateral oral agreement. The difficulty here, as in most cases, arises in connection with the two other conditions.

[15] The second condition is that the "parol agreement must not contradict express or implied provisions of the written contract." Judge Andrews voices doubt whether this condition is satisfied. The written contract has been carried out. The purchase price has been paid; conveyance has been made, title has passed in accordance with the terms of the written contract. The mutual obligations expressed in the written contract are left unchanged by the alleged oral contract. When performance was required of the written contract, the obligations of the parties were measured solely by its terms. By the oral agreement the plaintiff seeks to hold the defendants to other obligations to be performed by them thereafter upon land which was not conveyed to the plaintiff. The assertion of such further obligation is not inconsistent with the written contract unless the written contract contains a provision, express or implied, that the defendants are not to do anything not expressed in the writing. Concededly there is no such express provision in the contract, and such a provision may be implied, if at all, only if the asserted additional obligation is "so clearly connected with the principal transaction as to be part and parcel of it," and is not "one that the parties would not ordinarily be expected to embody in the writing." The hypothesis so formulated for a conclusion that the asserted additional obligation is inconsistent with an implied term of the contract is that the alleged oral agreement does not comply with the third condition as formulated by Judge Andrews. In this case, therefore, the problem reduces itself to the one question whether or not the oral agreement meets the third condition.

[16] I have conceded that upon inspection the contract is complete. "It appears to contain the engagements of the parties, and to define the object and measure the extent of such engagement;" it constitutes the contract between them and is presumed to contain the whole of that contract. (Eighmie v. Taylor, 98 N. Y. 288.) That engagement was on the one side to convey land; on the other to pay the price. The plaintiff asserts further agreement based on the same consideration to be performed by the defendants after the conveyance was complete, and directly affecting only other land. It is true, as Judge Andrews points out, that "the presence of the ice house, even the knowledge that Mrs. Mitchill thought it objectionable, would not lead to the belief that a separate agreement existed with regard to it;" but the question we must decide is whether or not, assuming an agreement was made for the removal of an unsightly ice house from one parcel of land as an inducement for the purchase of another parcel, the parties would ordinarily or naturally be expected to embody the agreement for the removal of the ice house from one parcel in the written agreement to convey the other parcel. Exclusion of proof of the oral agreement on the ground that it varies the contract embodied in the writing may be based only upon a finding or presumption that the written contract was intended to cover the oral negotiations for the removal of the ice house which lead up to the contract of purchase and sale. To determine what the writing was intended to cover "the document alone will not suffice. What it was intended to cover cannot be known till we know what there was to cover. The question being whether certain subjects of negotiation were intended to be covered, we must compare the writing and the negotiations before we can determine whether they were in fact covered." (Wigmore on Evidence [2d ed.], section 2430.)

[17] The subject-matter of the written contract was the conveyance of land. The contract was so complete on its face that the conclusion is inevitable that the parties intended to embody in the writing all the negotiations covering at least the conveyance. The promise by the defendants to remove the ice house from other land was not connected with their obligation to convey, except that one agreement would not have been made unless the other was also made. The plaintiff's assertion of a parol agreement by the defendants to remove the ice house was completely established by the great weight of evidence. It must prevail unless that agreement was part of the agreement to convey and the entire agreement was embodied in the writing.

[18] The fact that in this case the parol agreement is established by the overwhelming weight of evidence is, of course, not a factor which may be considered in determining the competency or legal effect of the evidence. Hardship in the particular case would not justify the court in disregarding or emasculating the general rule. It merely accentuates the outlines of our problem. The assumption that the parol agreement was made is no longer obscured by any doubts. The problem then is clearly whether the parties are presumed to have intended to render that parol agreement legally ineffective and non-existent by failure to embody it in the writing. Though we are driven to say that nothing in the written contract which fixed the terms and conditions of the stipulated conveyance suggests the existence of any further parol agreement, an inspection of the contract, though it is complete on its face in regard to the subject of the conveyance, does not, I think, show that it was intended to embody negotiations or agreements, if any, in regard to a matter so loosely bound to the conveyance as the removal of an ice house from land not conveyed.

[19] The rule of integration undoubtedly frequently prevents the assertion of fraudulent claims. Parties who take the precaution of embodying their oral agreements in a writing should be protected against the assertion that other terms of the same agreement were not integrated in the writing. The limits of the integration are determined by the writing, read in the light of the surrounding circumstances. A written contract, however complete, yet covers only a limited field. I do not think that in the written contract for the conveyance of land here under consideration we can find an intention to cover a field so broad as to include prior agreements, if any such were made, to do other acts on other property after the stipulated conveyance was made.

[20] In each case where such a problem is presented, varying factors enter into its solution. Citation of authority in this or other jurisdictions is useless, at least without minute analysis of the facts. The analysis I have made of the decisions in this State leads me to the view that the decision of the courts below is in accordance with our own authorities and should be affirmed.

Cardozo, Ch. J., POUND, KELLOGG and O'BRIEN, JJ., concur with Andrews, J.; Lehman, J., dissents in opinion in which Crane, J., concurs.

1.1.2. Principal Case – Masterson v. Sine

Masterson v. Sine

Supreme Court of California

68 Cal. 2d. 222, 436 P.2d 561 (1968)

Traynor, Chief Justice.

[1] Dallas Masterson and his wife Rebecca owned a ranch as tenants in common. On February 25, 1958, they conveyed it to Medora and Lu Sine by a grant deed “Reserving unto the Grantors herein an option to purchase the above described property on or before February 25, 1968” for the “same consideration as being paid heretofore plus their depreciation value of any improvements Grantees may add to the property from and after two and a half years from this date.” Medora is Dallas' sister and Lu's wife. Since the conveyance Dallas has been adjudged bankrupt. His trustee in bankruptcy and Rebecca brought this declaratory relief action to establish their right to enforce the option.

[2] The case was tried without a jury. Over defendants' objection the trial court admitted extrinsic evidence that by “the same consideration as being paid heretofore” both the grantors and the grantees meant the sum of $50,000 and by “depreciation value of any improvements” they meant the depreciation value of improvements to be computed by deducting from the total amount of any capital expenditures made by defendants grantees the amount of depreciation allowable to them under United States income tax regulations as of the time of the exercise of the option.

[3] The court also determined that the parol evidence rule precluded admission of extrinsic evidence offered by defendants to show that the parties wanted the property kept in the Masterson family and that the option was therefore personal to the grantors and could not be exercised by the trustee in bankruptcy.

[4] The court entered judgment for plaintiffs, declaring their right to exercise the option, specifying in some detail how it could be exercised, and reserving jurisdiction to supervise the manner of its exercise and to determine the amount that plaintiffs will be required to pay defendants for their capital expenditures if plaintiffs decide to exercise the option.

[5] Defendants appeal. They contend that the option provision is too uncertain to be enforced and that extrinsic evidence as to its meaning should not have been admitted. The trial court properly refused to frustrate the obviously declared intention of the grantors to reserve an option to repurchase by an overly meticulous insistence on completeness and clarity of written expression. (See California Lettuce Growers v. Union Sugar Co. (1955) 45 Cal.2d 474, 481, 289 P.2d 785, 49 A.L.R.2d 496; Rivers v. Beadle (1960) 183 Cal.App.2d 691, 695-697, 7 Cal.Rptr. 170.) It properly admitted extrinsic evidence to explain the language of the deed (Nofziger v. Holman (1964) 61 Cal.2d 526, 528, 39 Cal.Rptr. 384, 393 P.2d 696; Barham v. Barham (1949) 33 Cal.2d 416, 422-423, 202 P.2d 289; Union Oil Co. v. Union Sugar Co. (1948) 31 Cal.2d 300, 306, 188 P.2d 470; Schmidt v. Macco Construction Co. (1953) 119 Cal.App.2d 717, 730, 260 P.2d 230; see Farnsworth, ‘Meaning’ in the Law of Contracts (1967) 76 Yale L.J. 939, 959-965; Corbin, The Interpretation of Words and the Parol Evidence Rule (1965) 50 Cornell L.Q. 161) to the end that the consideration for the option would appear with sufficient certainty to permit specific enforcement (see McKeon v. Santa Claus of California, Inc. (1964) 230 Cal.App.2d 359, 364, 41 Cal.Rptr. 43; Burrow v. Timmsen (1963) 223 Cal.App.2d 283, 288, 35 Cal.Rptr. 668, 100 A.L.R.2d 544). The trial court erred, however, in excluding the extrinsic evidence that the option was personal to the grantors and therefore nonassignable.

[6] When the parties to a written contract have agreed to it as an “integration”—a complete and final embodiment of the terms of an agreement—parol evidence cannot be used to add to or vary its terms. (Pollyanna Homes, Inc. v. Berney (1961) 56 Cal.2d 676, 679-680, 16 Cal.Rptr. 345, 365 P.2d 401; Hale v. Bohannon (1952) 38 Cal.2d 458, 465, 241 P.2d 4; see 3 Corbin, Contracts (1960) § 573, p. 357; Rest., Contracts (1932) §§ 228 (and com. a), 237; Code Civ.Proc., § 1856; Civ.Code, § 1625.) When only part of the agreement is integrated, the same rule applies to that part, but parol evidence may be used to prove elements of the agreement not reduced to writing. (Hulse v. Juillard Fancy Foods Co. (1964) 61 Cal.2d 571, 573, 39 Cal.Rptr. 529, 394 P.2d 65; Schwartz v. Shapiro (1964) 229 Cal.App.2d 238, 250, 40 Cal.Rptr. 189; Mangini v. Wolfschmidt, Ltd. (1958) 165 Cal.App.2d 192, 200-201, 331 P.2d 728; Rest., Contracts (1932) § 239.)

[7] The crucial issue in determining whether there has been an integration is whether the parties intended their writing to serve as the exclusive embodiment of their agreement. The instrument itself may help to resolve that issue. It may state, for example, that “there are no previous understandings or agreements not contained in the writing,” and thus express the parties' “intention to nullify antecedent understandings or agreements.” (See 3 Corbin, Contracts (1960) § 578, p. 411.) Any such collateral agreement itself must be examined, however, to determine whether the parties intended the subjects of negotiation it deals with to be included in, excluded from, or otherwise affected by the writing. Circumstances at the time of the writing may also aid in the determination of such integration. (See 3 Corbin, Contracts (1960) §§ 582-584; McCormick, Evidence (1954) § 216, p. 441; 9 Wigmore, Evidence (3d ed. 1940) § 2430, p. 98, § 2431, pp. 102-103; Witkin, Cal. Evidence (2d ed. 1966) § 721; Schwartz v. Shapiro, supra, 229 Cal.App.2d 238, 251, fn. 8, 40 Cal.Rptr. 189; contra, 4 Williston, Contracts (3d ed. 1961) § 633, pp. 1014-1016.)

[8] California cases have stated that whether there was an integration is to be determined solely from the face of the instrument (e.g., Thoroman v. David (1926) 199 Cal. 386, 389-390, 249 P. 513; Heffner v. Gross (1919) 179 Cal. 738, 742-743, 178 P. 860; Gardiner v. McDonogh (1905) 147 Cal. 313, 318-321, 81 P. 964; Harrison v. McCormick (1891) 89 Cal. 327, 330, 26 P. 830), and that the question for the court is whether it ‘appears to be a complete…agreement….’ (See Ferguson v. Koch (1928) 204 Cal. 342, 346, 268 P. 342, 344, 58 A.L.R. 1176; Harrison v. McCormick, supra, 89 Cal. 327, 330, 26 P. 830.) Neither of these strict formulations of the rule, however, has been consistently applied. The requirement that the writing must appear incomplete on its face has been repudiated in many cases where parol evidence was admitted “to prove the existence of a separate oral agreement as to any matter on which the document is silent and which is not inconsistent with its terms”—even though the instrument appeared to state a complete agreement. (E.g., American Industrial Sales Corp. v. Airscope, Inc. (1955) 44 Cal.2d 393, 397, 282 P.2d 504, 506, 49 A.L.R.2d 1344; Stockburger v. Dolan (1939) 14 Cal.2d 313, 317, 94 P.2d 33, 128 A.L.R. 83; Crawford v. France (1933) 219 Cal. 439, 443, 27 P.2d 645; Buckner v. A. Leon & Co. (1928) 204 Cal. 225, 227, 267 P. 693; Sivers v. Sivers (1893) 97 Cal. 518, 521, 32 P. 571; cf. Simmons v. California Institute of Technology (1949) 34 Cal.2d 264, 274, 209 P.2d 581.) Even under the rule that the writing alone is to be consulted, it was found necessary to examine the alleged collateral agreement before concluding that proof of it was precluded by the writing alone. (See 3 Corbin, Contracts (1960) § 582, pp. 444-446.) It is therefore evident that “The conception of a writing as wholly and intrinsically self-determinative of the parties' intent to make it a sole memorial of one or seven or twenty-seven subjects of negotiation is an impossible one.” (9 Wigmore, Evidence (3d ed. 1940) § 2431, p. 103.) For example, a promissory note given by a debtor to his creditor may integrate all their present contractual rights and obligations, or it may be only a minor part of an underlying executory contract that would never be discovered by examining the face of the note.

[9] In formulating the rule governing parol evidence, several policies must be accommodated. One policy is based on the assumption that written evidence is more accurate than human memory. (Germain Fruit Co. v. J. K. Armsby Co. (1908) 153 Cal. 585, 595, 96 P. 319.) This policy, however, can be adequately served by excluding parol evidence of agreements that directly contradict the writing. Another policy is based on the fear that fraud or unintentional invention by witnesses interested in the outcome of the litigation will mislead the finder of facts. (Germain Fruit Co. v. J. K. Armsby Co., supra, 153 Cal. 585, 596, 96 P. 319; Mitchill v. Lath (1928) 247 N.Y. 377, 388, 160 N.E. 646, 68 A.L.R. 239 (dissenting opinion by Lehman, J.); see 9 Wigmore, Evidence (3d ed. 1940) § 2431, p. 102; Murray, The Parol Evidence Rule: A Clarification (1966) 4 Duquesne L. Rev. 337, 338-339.) McCormick has suggested that the party urging the spoken as against the written word is most often the economic underdog, threatened by severe hardship if the writing is enforced. In his view the parol evidence rule arose to allow the court to control the tendency of the jury to find through sympathy and without a dispassionate assessment of the probability of fraud or faulty memory that the parties made an oral agreement collateral to the written contract, or that preliminary tentative agreements were not abandoned when omitted from the writing. (See McCormick, Evidence (1954) § 210.) He recognizes, however, that if this theory were adopted in disregard of all other considerations, it would lead to the exclusion of testimony concerning oral agreements whenever there is a writing and thereby often defeat the true intent of the parties. See McCormick, op. cit. supra, § 216, p. 441.)

[10] Evidence of oral collateral agreements should be excluded only when the fact finder is likely to be misled. The rule must therefore be based on the credibility of the evidence. One such standard, adopted by section 240(1)(b) of the Restatement of Contracts, permits proof of a collateral agreement if it “is such an agreement as might naturally be made as a separate agreement by parties situated as were the parties to the written contract.” (Italics added; see McCormick, Evidence (1954) § 216, p. 441; see also 3 Corbin, Contracts (1960) § 583, p. 475, § 594, pp. 568-569; 4 Williston, Contracts (3d ed. 1961) § 638, pp. 1039-1045.) The draftsmen of the Uniform Commercial Code would exclude the evidence in still fewer instances: “If the additional terms are such that, if agreed upon, they would certainly have been included in the document in the view of the court, then evidence of their alleged making must be kept from the trier of fact.” (Com. 3, § 2-202, italics added.) 

[11] The option clause in the deed in the present case does not explicitly provide that it contains the complete agreement, and the deed is silent on the question of assignability. Moreover, the difficulty of accommodating the formalized structure of a deed to the insertion of collateral agreements makes it less likely that all the terms of such an agreement were included.  (See 3 Corbin, Contracts (1960) § 587; 4 Williston, Contracts (3d ed. 1961) § 645; 70 A.L.R. 752, 759 (1931); 68 A.L.R. 245 (1930).) The statement of the reservation of the option might well have been placed in the recorded deed solely to preserve the grantors' rights against any possible future purchasers and this function could well be served without any mention of the parties' agreement that the option was personal. There is nothing in the record to indicate that the parties to this family transaction, through experience in land transactions or otherwise, had any warning of the disadvantages of failing to put the whole agreement in the deed. This case is one, therefore, in which it can be said that a collateral agreement such as that alleged “might naturally be made as a separate agreement.” A fortiori, the case is not one in which the parties ‘would certainly’ have included the collateral agreement in the deed.

[12] It is contended, however, that an option agreement is ordinarily presumed to be assignable if it contains no provisions forbidding its transfer or indicating that its performance involves elements personal to the parties. (Mott v. Cline (1927) 200 Cal. 434, 450, 253 P. 718; Altman v. Blewett (1928) 93 Cal. App. 516, 525, 269 P. 751.) The fact that there is a written memorandum, however, does not necessarily preclude parol evidence rebutting a term that the law would otherwise presume. In American Industrial Sales Corp. v. Airscope, Inc., supra, 44 Cal.2d 393, 397-398, 282 P.2d 504, we held it proper to admit parol evidence of a contemporaneous collateral agreement as to the place of payment of a note, even though it contradicted the presumption that a note, silent as to the place of payment, is payable where the creditor resides. (For other examples of this approach, see Richter v. Union Land etc. Co. (1900) 129 Cal. 367, 375, 62 P. 39 (presumption of time of delivery rebutted by parol evidence); Wolters v. King (1897) 119 Cal. 172, 175-176, 51 P. 35 (presumption of time of payment rebutted by parol evidence); Mangini v. Wolfschmidt, Ltd., supra, 165 Cal.App.2d 192, 198-201, 331 P.2d 728 (presumption of duration of an agency contract rebutted by parol evidence); Zinn v. Ex-Cell-O Corp. (1957) 148 Cal.App.2d 56, 73-74, 306 P.2d 1017; see also Rest., Contracts, § 240, com. c.)  Of course a statute may preclude parol evidence to rebut a statutory presumption. (E.g., Neff v. Ernst (1957) 48 Cal.2d 628, 635, 311 P.2d 849 (commenting on Civ.Code, § 1112); Kilfoy v. Fritz (1954) 125 Cal.App.2d 291, 293-294, 270 P.2d 579 (applying Deering's Gen.Laws 1937, Act 652, § 15a; see also Com.Code, § 9-318, subd. (4).) Here, however, there is no such statute. In the absence of a controlling statute the parties may provide that a contract right or duty is nontransferable. (La Rue v. Groezinger (1890) 84 Cal. 281, 283, 24 P. 42; Benton v. Hofmann Plastering Co. (1962) 207 Cal.App.2d 61, 68, 24 Cal.Rptr. 268; Parkinson v. Caldwell (1954) 126 Cal.App.2d 548, 552-553, 272 P.2d 934; see 4 Corbin, Contracts (1951) §§ 872-873.) Moreover, even when there is no explicit agreement—written or oral—that contractual duties shall be personal, courts will effectuate presumed intent to that effect if the circumstances indicate that performance by [a] substituted person would be different from that contracted for. (Farmland Irrigation Co. v. Dopplmaier (1957) 48 Cal.2d 208, 222, 308 P.2d 732, 66 A.L.R.2d 590; Prichard v. Kimball (1923) 190 Cal. 757, 764-765, 214 P. 863; Simmons v. Zimmerman (1904) 144 Cal. 256, 260-261, 79 P. 451; La Rue v. Groezinger, supra, 84 Cal. 281, 285, 24 P. 42; Coykendall v. Jackson (1936) 17 Cal.App.2d 729, 731, 62 P.2d 746; see 4 Corbin, Contracts (1951) § 865; 3 Williston, Contracts (3d ed. 1960) § 412, pp. 32-33; Rest., Contracts (Tent. Draft No. 3, 1967) § 150(2).)

[13] In Standard Box Co. v. Mutual Biscuit Co. (1909) 10 Cal.App. 746, 750, 103 P. 938, 940, the rationale of Gardiner v. McDonogh was extended to exclude evidence of an agreement for a time of performance other than the “reasonable time” implied by law in a situation where the writing, although stating no time of performance, was “clear and complete when aided by that which is imported into it by legal implication.” This decision was simply an application of the then-current theory regarding integration. The court regarded the instrument as a complete integration, and it therefore precluded proof of collateral agreements. Since it is now clear that integration cannot be determined from the writing alone, the decision is not authoritative insofar as it finds a complete integration. There is no reason to believe that the court gave any independent significance to implied terms. Had the court found from the writing alone that there was no integration, there is nothing to indicate that it would have excluded proof contrary to terms it would have otherwise presumed.

[14] In Buffalo Arms, Inc. v. Remler Co. (1960) 179 Cal.App.2d 700, 710, 4 Cal.Rptr. 103, the court refused to admit parol evidence showing a collateral oral agreement that a buyer would have more than the ‘reasonable time’ presumed by law to refuse goods, but the decision is based on a conclusion that the writing on its face was a complete expression of the agreement. In La France v. Kashishian (1928) 204 Cal. 643, 645, 269 P. 655, and Fogler v. Purkiser (1932) 127 Cal.App. 554, 559-560, 16 P.2d 305, there are no clear findings concerning the completeness of the writings; but the argument in each case is borrowed from the Standard Box Co. decision and thus implies a finding of a complete integration. Calpetro Producers Syndicate v. C. M. Woods Co. (1929) 206 Cal. 246, 247-248, 252, 274 P. 65, relies on Standard Box Co. and expressly finds a complete integration.

[15] In the present case defendants offered evidence that the parties agreed that the option was not assignable in order to keep the property in the Masterson family. The trial court erred in excluding that evidence.

[16] The judgment is reversed.

Peters, Tobriner, Mosk, and Sullivan, JJ., concur.

Dissenting Opinion

Burke, Justice

[17] I dissent. The majority opinion:

(1) Undermines the parol evidence rule as we have known it in this state since at least 1872  by declaring that parol evidence should have been admitted by the trial court to show that a written option, absolute and unrestricted in form, was intended to be limited and nonassignable;

(2) Renders suspect instruments of conveyance absolute on their face;

(3) Materially lessens the reliance which may be placed upon written instruments affecting the title to real estate; and

(4) Opens the door, albeit unintentionally to a new technique for the defrauding of creditors.

[18] The opinion permits defendants to establish by parol testimony that their grant  to their brother (and brother-in-law) of a written option, absolute in terms, was nevertheless agreed to be nonassignable by the grantee (now a bankrupt), and that therefore the right to exercise it did not pass, by operation of the bankruptcy laws, to the trustee for the benefit of the grantee's creditors.

[19] And how was this to be shown? By the proffered testimony of the bankrupt optionee himself! Thereby one of his assets (the option to purchase defendants' California ranch) would be withheld from the trustee in bankruptcy and from the bankrupt's creditors. Understandably the trial court, as required by the parol evidence rule, did not allow the bankrupt by parol to so contradict the unqualified language of the written option.

[20] The court properly admitted parol evidence to explain the intended meaning of the “same consideration” and “depreciation value” phrases of the written option to purchase defendants' land, as the intended meaning of those phrases was not clear. However, there was nothing ambiguous about the granting language of the option and not the slightest suggestion in the document that the option was to be nonassignable. Thus, to permit such words of limitation to be added by parol is to contradict the absolute nature of the grant, and to directly violate the parol evidence rule.

[21] Just as it is unnecessary to state in a deed to “lot X” that the house located thereon goes with the land, it is likewise unnecessary to add to “I grant an option to Jones” the words “and his assigns” for the option to be assignable. As hereinafter emphasized in more detail, California statutes expressly declare that it is assignable, and only if I add language in writing showing my intent to withhold or restrict the right of assignment may the grant be so limited. Thus, to seek to restrict the grant by parol is to contradict the written document in violation of the parol evidence rule.

[22] The majority opinion arrives at its holding via a series of false premises which are not supported either in the record of this case or in such California authorities as are offered.

[The remainder of the dissent presents a point-by-point refutation of the majority’s reasoning. Although I have elected to reprint these pages for the benefit of those students who might find the analysis interesting, you should feel free to skim this material if you are at all pressed for time (or prone to drowsiness). To say that Justice Burke’s writing style is somewhat soporific would be to dramatically understate its likely effect on your level of alertness. Forewarned is forearmed. ]

[23] The parol evidence rule is set forth in clear and definite language in the statutes of this state. (Civ.Code, § 1625; Code Civ.Proc., § 1856.) It “is not a rule of evidence but is one of substantive law….The rule as applied to contracts is simply that as a matter of substantive law, a certain act, the act of embodying the complete terms of an agreement in a writing (the ‘integration’), Becomes the contract of the parties.” (Hale v. Bohannon (1952) 38 Cal.2d 458, 465, 241 P.2d 4, 7(1, 2), quoting from In re Estate of Gaines (1940) 15 Cal.2d 255, 264-265, 100 P.2d 1055.) The rule is based upon the sound principle that the parties to a written instrument, after committing their agreement to or evidencing it by the writing, are not permitted to add to, vary or contradict the terms of the writing by parol evidence. As aptly expressed by the author of the present majority opinion, speaking for the court in Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865(2), 44 Cal.Rptr. 767, 402 P.2d 839, and in Coast Bank v. Minderhout (1964) 61 Cal.2d 311, 315, 38 Cal.Rptr. 505, 507, 392 P.2d 265, 267, such evidence is “admissible to interpret the instrument, but not to give it a meaning to which it is not reasonably susceptible.” (Italics added.) Or, as stated by the same author, concurring in Laux v. Freed (1960) 53 Cal.2d 512, 527, 2 Cal.Rptr. 265, 273, 348 P.2d 873, 881, “extrinsic evidence is not admissible to add to, detract from, or vary its terms.” (Italics added.)

[24] At the outset the majority in the present case reiterate  that the rule against contradicting or varying the terms of a writing remains applicable when only part of the agreement is contained in the writing, and parol evidence is used to prove elements of the agreement not reduced to writing. But having restated this established rule, the majority opinion inexplicably proceeds to subvert it.

[25] Each of the three cases cited by the majority (fn. 3, Ante) holds that although parol evidence is admissible to prove the parts of the contract not put in writing, it is not admissible to vary or contradict the writing or prove collateral agreements which are inconsistent therewith. The meaning of this rule (and the application of it found in the cases) is that if the asserted unwritten elements of the agreement would contradict, add to, detract from, vary or be inconsistent with the written agreement, then such elements may not be shown by parol evidence.

[26] The contract of sale and purchase of the ranch property here involved was carried out through a title company upon written escrow instructions executed by the respective parties after various preliminary negotiations. The deed to defendant grantees, in which the grantors expressly reserved an option to repurchase the property within a ten-year period and upon a specified consideration, was issued and delivered in consummation of the contract. In neither the written escrow instructions nor the deed containing the option is there any language even suggesting that the option was agreed or intended by the parties to be personal to the grantors, and so nonassignable. The trial judge, on at least three separate occasions, correctly sustained objections to efforts of defendant optionors to get into evidence the testimony of Dallas Masterson (the bankrupt holder of the option) that a part of the agreement of sale of the parties was that the option to repurchase the property was personal to him, and therefore unassignable for benefit of creditors. But the majority hold that that testimony should have been admitted, thereby permitting defendant optionors to limit, detract from and contradict the plain and unrestricted terms of the written option in clear violation of the parol evidence rule and to open the door to the perpetration of fraud.

[27] Options are property, and are widely used in the sale and purchase of real and personal property. One of the basic incidents of property ownership is the right of the owner to sell or transfer it. The author of the present majority opinion, speaking for the court in Farmland Irrigation Co. v. Dopplmaier (1957) 48 Cal.2d 208, 222, 308 P.2d 732, 740, 66 A.L.R.2d 590, put it this way: “The statutes in this state clearly manifest a policy in favor of the free transferability of all types of property, including rights under contracts.”  (Citing Civ.Code, §§ 954, 1044, 1458;  see also 40 Cal.Jur.2d 289-291, and cases there cited.) These rights of the owner of property to transfer it, confirmed by the cited code sections, are elementary rules of substantive law and not the mere disputable presumptions which the majority opinion in the present case would make of them. Moreover, the right of transferability applies to an option to purchase, unless there are words of limitation in the option forbidding its assignment or showing that it was given because of a peculiar trust or confidence reposed in the optionee. ( Mott v. Cline (1927) 200 Cal. 434, 450(11), 253 P. 718; Prichard v. Kimball (1923) 190 Cal. 757, 764-765(4, 5), 214 P. 867; Altman v. Blewett (1928) 93 Cal.App. 516, 525(3), 269 P. 751; see also 5 Cal.Jur.2d 393, 395-396, and cases there cited.) Thus, in Prichard the language of the document itself (a written, expressly nonassignable lease, with option to buy) was held to establish the trust or confidence reposed in the optionee and so to negate assignability of the option.

[28] The right of an optionee to transfer his option to purchase property is accordingly one of the basic rights which accompanies the option unless limited under the language of the option itself. To allow an optionor to resort to parol evidence to support his assertion that the written option is not transferable is to authorize him to limit the option by attempting to restrict and reclaim rights with which he has already parted. A clearer violation of two substantive and basic rules of law—the parol evidence rule and the right of free transferability of property—would be difficult to conceive.

[29] The majority opinion attempts to buttress its approach by asserting that “California cases have stated that whether there was an integration is to be determined solely from the face of the instrument (citations), and that the question for the court is whether it ‘appears to be a complete…agreement….’” (citations), but that “Neither of these strict formulations of the rule…has been consistently applied.”

[30] The majority's claim of inconsistent application of the parol evidence rule by the California courts fails to find support in the examples offered. First, the majority opinion asserts that “The requirement that the writing must appear incomplete on its face has been repudiated in many cases where parol evidence was admitted ‘to prove the existence of a separate oral agreement as to any matter on which the document is silent and which is not inconsistent with its terms'—even though the instrument appeared to state a complete agreement. (Citations.)” But an examination of the cases cited in support of the quoted statement discloses that on the contrary in every case which is pertinent here (with a single exception) the writing was obviously incomplete on its face.  In the one exception (Stockburger v. Dolan (1939) 14 Cal.2d 313, 317, 94 P.2d 33, 128 A.L.R. 83) it was held that lessors under a lease to drill for oil in an area zoned against such drilling should be permitted to show by parol that the lessee had contemporaneously agreed orally to seek a variance—an agreement which, as the opinion points out, did not contradict the written contract. But what is additionally noteworthy in Stockburger, and controlling here, is the further holding that lessors could not show by parol that lessee had orally agreed that a lease provision suspending payment of rental under certain circumstances would not apply during certain periods of time—as “evidence to that effect would vary the terms of the contract in that particular….” (P. 317(5) of 14 Cal.2d p. 35 of 94 P.2d.)

[31] In further pursuit of what would appear to be nonexistent support for its assertions of inconsistency in California cases, the majority opinion next declares (p. 548) that “Even under the rule that the writing alone is to be consulted, it was found necessary to examine the alleged collateral agreement before concluding that proof of it was precluded by the writing alone. (See 3 Corbin, Contracts (1960) § 582, pp. 444-446.)” Not only are no California cases cited by the majority in supposed support for the quoted declaration (offered by the majority as an example of inconsistent applications of the parol evidence rule by California courts), but 3 Corbin, Contracts, which the majority do cite, likewise refers to no California cases, and makes but scanty citation to any cases whatever. In any event, in what manner other than by “examining” an alleged collateral agreement is it possible for a court to rule upon the admissibility of testimony or upon an offer of proof with respect to such agreement?

[32] The majority opinion has thus demonstrably failed to substantiate its next utterance (p. 548) that “The conception of a writing as wholly and intrinsically self-determinative of the parties' intent to make it a sole memorial of one or seven or twenty-seven subjects of negotiation is an impossible one,” citing 9 Wigmore, Evidence (3d ed. 1940) section 2431, page 103, whose views on the subject were Rejected by this court as early as 1908 in Germain Fruit Co. v. J. K. Armsby Co., 153 Cal. 585, 595, 96 P. 319, which, indeed, is also cited by the majority in the present case. And the example given, that of a promissory note, is obviously specious. Rarely, if ever, does a promissory note given by a debtor to his creditor integrate all their agreements (that is not the purpose it serves); it may or it may not integrate all their present contractual rights and obligations; but relevant to the parol evidence rule, at least until the advent of the majority opinion in this case, alleged collateral agreements which would vary or contradict the terms and conditions of a promissory note may not be shown by parol. (Bank of America etc. Ass'n v. Pendergrass (1935) 4 Cal.2d 258, 263-264(6), 48 P.2d 659.)

[33] Upon this structure of incorrect premises and unfounded assertions the majority opinion arrives at its climax: The pronouncement of “several policies [to] be accommodated…[i]n formulating the rule governing parol evidence.” (Italics added.)  Two of the “policies” as declared by the majority are: Written evidence is more accurate than human memory  fraud or unintentional invention by interested witnesses may well occur.

[34] I submit that these purported “policies” are in reality two of the basic and obvious reasons for adoption by the legislature of the parol evidence rule as the policy in this state. Thus the speculation of the majority concerning the views of various writers on the subject and the advisability of following them in this state is not only superfluous but flies flatly in the face of established California law and policy. It serves only to introduce uncertainty and confusion in a field of substantive law which was codified and made certain in this state a century ago.

[35] However, despite the law which until the advent of the present majority opinion has been firmly and clearly established in California and relied upon by attorneys and courts alike, that parol evidence may not be employed to vary or contradict the terms of a written instrument, the majority now announce (p. 548) that such evidence “should be excluded only when the fact finder is likely to be misled,” and that “The rule must therefore be based on the credibility of the evidence.” (Italics added.) But was it not, inter alia, to avoid misleading the fact finder, and to further the introduction of only the evidence which is most likely to be credible (the written document), that the Legislature adopted the parol evidence rule as a part of the substantive law of this state?

[36] Next, in an effort to implement this newly promulgated “credibility” test, the majority opinion offers a choice of two “standards”: one, a “certainty” standard, quoted from the Uniform Commercial Code,  and the other a “natural” standard found in the Restatement of Contracts,  and concludes that at least for purposes of the present case the “natural” viewpoint should prevail.

[37] This new rule, not hitherto recognized in California, provides that proof of a claimed collateral oral agreement is admissible if it is such an agreement as might naturally have been made a separate agreement by the parties under the particular circumstances. I submit that this approach opens the door to uncertainty and confusion. Who can know what its limits are? Certainly I do not. For example, in its application to this case who could be expected to divine as “natural” a separate oral agreement between the parties that the assignment, absolute and unrestricted on its face, was intended by the parties to be limited to the Masterson family?

[38] Or, assume that one gives to his relative a promissory note and that the payee of the note goes bankrupt. By operation of law the note becomes an asset of the bankruptcy. The trustee attempts to enforce it. Would the relatives be permitted to testify that by a separate oral agreement made at the time of the execution of the note it was understood that should the payee fail in his business the maker would be excused from payment of the note, or that, as here, it was intended that the benefits of the note would be personal to the payee? I doubt that trial judges should be burdened with the task of conjuring whether it would have been ‘natural under those circumstances for such a separate agreement to have been made by the parties. Yet, under the application of the proposed rule, this is the task the trial judge would have, and in essence the situation presented in the instant case is no different.

[39] Under the application of the codes and the present case law, proof of the existence of such an agreement would not be permitted, “natural” or “unnatural.” But conceivably, as loose as the new rule is, one judge might deem it natural and another judge unnatural.  And in each instance the ultimate decision would have to be made (“naturally”) on a case-by-case basis by the appellate courts.

[40] In an effort to provide justification for applying the newly pronounced “natural” rule to the circumstances of the present case, the majority opinion next attempts to account for the silence of the writing in this case concerning assignability of the option, by asserting that “the difficulty of accommodating the formalized structure of a deed to the insertion of collateral agreements makes it less likely that all the terms of such an agreement were included.” What difficulty would have been involved here, to add the words “this option is nonassignable”? The asserted “formalized structure of a deed” is no formidable barrier. The Legislature has set forth the requirements in simple language in section 1092 of the Civil Code. It is this: “I, A B, grant to C D all that real property situated in (naming county), State of California…described as follows: (describing it).” To this the grantor desiring to reserve an option to repurchase need only so state, as was done here. It is a matter of common knowledge that collateral agreements (such as the option clause here involved, or such as deed restrictions) are frequently included in deeds, without difficulty of any nature.

[41] To support further speculation, that “the reservation of the option might well have been placed in the recorded deed solely to preserve the grantors' rights against any possible future purchasers, and this function could well be served without any mention of the parties' agreement that the option was personal,” the majority assert that “There is nothing in the record to indicate that the parties to this family transaction, through experience in land transactions or otherwise, had any warning of the disadvantages of failing to put the whole agreement in the deed.” (Italics added.) The facts of this case, however, do not support such claim of naivete. The grantor husband (the bankrupt businessman) testified that as none of the parties were attorneys “we wanted to contact my attorney…which we did….The wording in the option was obtained from (the attorney). …I told him what my discussion was with the Sines (defendant grantees) and he wanted…a little time to compose it…. And, then this (the wording provided by the attorney) was taken to the title company at the time Mr. and Mrs. Sine and I went in to complete the transaction.” (Italics added.) The witness was an experienced businessman who thus demonstrated awareness of the wisdom of seeking legal guidance and advice in this business transaction, and who did so. Wherein lies the naive family transaction postulated by the majority?

[42] The majority opinion then proceeds on the fallacious assertion that the right to transfer or to assign an option, if it contains no provisions forbidding transfer or indicating that performance involves elements personal to the parties, is a mere disputable presumption, and in purported support cites cases not one of which involves an option and in each of which the presumption which was invoked served to supply a missing but essential element of a complete agreement.  As already emphasized hereinabove, the right of free transferability of property, including options, is one of the most fundamental tenets of substantive law, and the crucial distinction would appear self-evident between such a basic right on the one hand, and on the other hand the disputable evidentiary presumptions which the law has developed to supply terms lacking from a written instrument but essential to making it whole and complete. There is no such lack in the deed and the option reservation now at issue.

[43] The statement of the majority opinion that in the absence of a controlling statute the parties may provide that a contract right or duty is nontransferable, is of course true. Equally true is the next assertion that “even when there is no explicit agreement—written or oral—that contractual duties shall be personal, courts will effectuate a presumed intent to that effect if the circumstances indicate that performance by a substituted person would be different from that contracted for.” But to apply the law of contracts for the rendering of personal services to the reservation of an option in a deed of real estate calls for a misdirected use of the rule, particularly in an instrument containing not one word from which such “a presumed intent to that effect” could be gleaned. Particularly is the holding objectionable when the result is to upset established statutory and case law in this state that “circumstances” shown by parol may not be employed to contradict, add to or detract from, the agreement of the parties as expressed by them in writing. And once again the quoted pronouncement of the majority concerning the showing of “circumstances” by parol fails to find support in the cases they cite,  which relate to a patent license agreement, held to be assignable absent terms indicating a contrary intent; a contract to sell grapes, also held assignable; a contract which included language showing the intent that it be nonassignable; a contract to buy land held to be assignable because approval of title by the buyer was held not to be a personal privilege attaching only to the assignor; and to contracts for personal services.

[44] In Prichard v. Kimball, supra (1923) 190 Cal. 757, 764-765, 214 P. 863, next cited by the majority, the written contract contained language showing the intent that it be nonassignable (as already pointed out hereinabove). Simmons v. Zimmerman (1904) 144 Cal. 256, 260-261, 79 P. 451, held that a contract to buy land was assignable, as approval of title by the buyer is not a personal privilege attaching only to the assignor (the party to whom the seller agreed to sell). La Rue v. Groezinger has already been shown not to support the majority's proposition here. And the last case which the majority cite, Coykendall v. Jackson (1936) 17 Cal.App.2d 729, 731, 62 P.2d 746, involved a contract for personal services, almost uniformly held to be nonassignable; it did not deal with a contract or an option to buy property, which ordinarily imposes no other obligation on the buyer than to make payment, as does the option now before this court.

[45] Neither personal skill nor personal qualities can be conjured as a requirement for the exercise of the option reserved in the deed here, regardless of how ardent may be the desire of the parties (the bankrupt husband-optionee and his sister), “to keep the property in the … family.” Particularly is this true when a contrary holding would permit the property to be acquired by plaintiff referee in bankruptcy for the benefit of the creditors of the bankrupt husband.

[46] Comment hardly seems necessary on the convenience to a bankrupt of such a device to defeat his creditors. He need only produce parol testimony that any options (or other property, for that matter) which he holds are subject to an oral “collateral agreement” with family members (or with friends) that the property is nontransferable “in order to keep the property in the family” or in the friendly group. In the present case the value of the ranch which the bankrupt and his wife held an option to purchase has doubtless increased substantially during the years since they acquired the option. The initiation of this litigation by the trustee in bankruptcy to establish his right to enforce the option indicates his belief that there is substantial value to be gained for the creditors from this asset of the bankrupt. Yet the majority opinion permits defeat of the trustee and of the creditors through the device of an asserted collateral oral agreement that the option was “personal” to the bankrupt and nonassignable “in order to keep the property in the family”! 

[47] It also seems appropriate to inquire as to the rights of plaintiff wife in the option which she holds with her bankrupt husband. Is her interest therein also subject to being shown to be personal and not salable or assignable? And, what are her rights and those of her husband in the ranch land itself, if they exercise their option to purchase it? Will they be free to then sell the land? Or, if they prefer, may they hold it beyond the reach of creditors? Or can other members of “the family” claim some sort of restriction on it in perpetuity, established by parol evidence?

[48] And if defendants sell the land subject to the option, will the new owners be heard to assert that the option is “personal” to the optionees, “in order to keep the property in the Masterson family”? Or is that claim “personal” to defendants only?

[49] These are only a few of the confusions and inconsistencies which will arise to plague property owners and, incidentally, attorneys and title companies, who seek to counsel and protect them.

[50] I would hold that the trial court ruled correctly on the proffered parol evidence, and would affirm the judgment.

McComb, J., concurs.

 

1.2.1 Discussion of Mitchill v. Lath and Masterson v. Sine

In Mitchill v. Lath, how does the court decide whether the written agreement was integrated?

If you thought that the oral agreement to tear down the ice house had truly been made, can you think of any policy justification for a rule that nevertheless refuses to enforce that agreement?

What exactly is the basis for the court’s ruling, in Masterson v. Sine, that proof of the alleged oral agreement is admissible?

Do you think that the parties really made the agreement making the repurchase right non-assignable?

2. The Use of Merger Clauses

Most commercial parties use a “merger clause” (or “integration clause” or “entire agreement clause”) to signal that they intend for a court to construe their written agreement as the final and exclusive statement of their agreement. Some commonly used versions of such a clause include the following:

This Agreement represents the Parties’ entire understanding regarding the subject matter herein. None of the terms of this Agreement can be waived or modified, except by an express agreement signed by the Parties. There are no representations, promises, warranties, covenants, or undertakings between the Parties other than those expressly set forth in this Agreement.

OR

This agreement constitutes the entire agreement between the parties. There are no understandings, agreements, or representations, oral or written, not specified herein regarding this agreement. Contractor, by the signature below of its authorized representative, hereby acknowledges that the Contractor has read this agreement, understands it, and agrees to be bound by its terms and conditions.

OR

This Agreement, along with any exhibits, appendices, addendums, schedules, and amendments hereto, encompasses the entire agreement of the parties, and supersedes all previous understandings and agreements between the parties, whether oral or written. The parties hereby acknowledge and represent, by affixing their hands and seals hereto, that said parties have not relied on any representation, assertion, guarantee, warranty, collateral contract or other assurance, except those set out in this Agreement, made by or on behalf of any other party or any other person or entity whatsoever, prior to the execution of this Agreement. The parties hereby waive all rights and remedies, at law or in equity, arising or which may arise as the result of a party’s reliance on such representation, assertion, guarantee, warranty, collateral contract or other assurance, provided that nothing herein contained shall be construed as a restriction or limitation of said party’s right to remedies associated with the gross negligence, willful misconduct or fraud of any person or party taking place prior to, or contemporaneously with, the execution of this Agreement.

OR

This Agreement and the exhibits attached hereto contain the entire agreement of the parties with respect to the subject matter of this Agreement, and supersede all prior negotiations, agreements and understandings with respect thereto. This Agreement may only be amended by a written document duly executed by all parties.

Courts typically enforce merger clauses as a matter of course unless they find evidence of procedural unconscionability. See, e.g., Brinderson-Newberg Joint Venture v. Pacific Erectors, Inc., 971 F.2d 272, 276 (9th Cir. 1992) (enforcing merger clause as bar to parol evidence).

3. The Restatement Formulation of the Parol Evidence Rule

It should be apparent from reading Mitchill v. Lath and Masterson v. Sine that there is no consensus among judges or jurisdictions about when to consider evidence of prior or contemporaneous oral agreements. Nevertheless, there is broad agreement about the general doctrinal framework within which these issues are analyzed. Whether textualist or contextualist, jurists all ask first whether the written agreement is partially or completely “integrated” and then whether the proffered additional terms are “consistent” with the writing. The Restatement (Second) of Contracts formulates these rules as follows:

 

                   

§ 209. Integrated Agreements

(1) An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.

(2) Whether there is an integrated agreement is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule.

(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.

§ 210. Completely and Partially Integrated Agreements

(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.

(2) A partially integrated agreement is an integrated agreement other than a completely integrated agreement.

(3) Whether an agreement is completely or partially integrated is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule.

§ 213. Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule)

 (1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them.

(2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope.

(3) An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not been integrated.

§ 214. Evidence of Prior or Contemporaneous Agreements and Negotiations

Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish

(a) that the writing is or is not an integrated agreement;

(b) that the integrated agreement, if any, is completely or partially integrated;

(c) the meaning of the writing, whether or not integrated;

(d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause;

(e) ground for granting or denying rescission, reformation, specific performance, or other remedy.

§ 215. Contradiction of Integrated Terms

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.

§ 216 Consistent Additional Terms

(1) Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated.

(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.

1.2. The UCC Parol Evidence Rule

The same problems of identifying and interpreting contract terms that arise under the common law also affect transactions involving the sale of goods. The Uniform Commercial Code includes a section that, unsurprisingly, embraces a thoroughly contextualist approach to these issues.

§ 2-202 Final Written Expression: Parol or Extrinsic Evidence.

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 (Section 1-205) or by course of performance (Section 2-208); 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.

Official Comment

Purposes:

1. This section definitely rejects:

(a) Any assumption that because a writing has been worked out which is final on some matters, it is to be taken as including all the matters agreed upon;

(b) The premise that the language used has the meaning attributable to such language by rules of construction existing in the law rather than the meaning which arises out of the commercial context in which it was used; and

(c) The requirement that a condition precedent to the admissibility of the type of evidence specified in paragraph (a) is an original determination by the court that the language used is ambiguous.

2. Paragraph (a) makes admissible evidence of course of dealing, usage of trade and course of performance to explain or supplement the terms of any writing stating the agreement of the parties in order that the true understanding of the parties as to the agreement may be reached. Such writings are to be read on the assumption that the course of prior dealings between the parties and the usages of trade were taken for granted when the document was phrased. Unless carefully negated they have become an element of the meaning of the words used. Similarly, the course of actual performance by the parties is considered the best indication of what they intended the writing to mean.

3. Under paragraph (b) consistent additional terms, not reduced to writing, may be proved unless the court finds that the writing was intended by both parties as a complete and exclusive statement of all the terms. If the additional terms are such that, if agreed upon, they would certainly have been included in the document in the view of the court, then evidence of their alleged making must be kept from the trier of fact.

The reference in § 2-202 to usage of trade, course of dealing and course of performance evidence requires a bit more explanation. In the following enacted section of the Virginia Commercial Code, which mirrors § 2-208 of the UCC, we see how the statute establishes an interpretive hierarchy among these forms of contextual evidence.

§ 8.1A-303 Course of performance, course of dealing, and usage of trade.

(a) A "course of performance" is a sequence of conduct between the parties to a particular transaction that exists if:

(1) the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and

(2) the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection.

(b) A "course of dealing" is a sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.

(c) A "usage of trade" is 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 in question. The existence and scope of such a usage must be proved as facts. If it is established that such a usage is embodied in a trade code or similar record, the interpretation of the record is a question of law.

(d) A course of performance or course of dealing between the parties or usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware is relevant in ascertaining the meaning of the parties' agreement, may give particular meaning to specific terms of the agreement, and may supplement or qualify the terms of the agreement. A usage of trade applicable in the place in which part of the performance under the agreement is to occur may be so utilized as to that part of the performance.

(e) Except as otherwise provided in subsection (f), the express terms of an agreement and any applicable course of performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other. If such a construction is unreasonable:

(1) express terms prevail over course of performance, course of dealing, and usage of trade;

(2) course of performance prevails over course of dealing and usage of trade; and

(3) course of dealing prevails over usage of trade.

(f) Subject to § 2-209, a course of performance is relevant to show a waiver or modification of any term inconsistent with the course of performance.

(g) Evidence of a relevant usage of trade offered by one party is not admissible unless that party has given the other party notice that the court finds sufficient to prevent unfair surprise to the other party.

1.2.1. Principal Case – Hunt Foods & Industries v. Doliner

The following case illustrates the (mis)application of § 2-202 to an alleged oral agreement to limit the circumstances in which an option could be exercised.

Hunt Foods & Industries v. Doliner

Supreme Court of New York, Appellate Division

26 A.D.2d 41, 270 N.Y.S.2d 937, aff’d, 272 N.Y.S.2d 686 (1966)

Steuer, J.

[1]  In February, 1965 plaintiff corporation undertook negotiations to acquire the assets of Eastern Can Company. The stock of the latter is owned by defendant George M. Doliner and his family to the extent of 73%. The balance is owned by independent interests. At a fairly early stage of the negotiations agreement was reached as to the price to be paid by plaintiff ($5,922,500 if in cash, or $5,730,000 in Hunt stock), but several important items, including the form of the acquisition, were not agreed upon. At this point it was found necessary to recess the negotiations for several weeks. The Hunt negotiators expressed concern over any adjournment and stated that they feared that Doliner would use their offer as a basis for soliciting a higher bid from a third party. To protect themselves they demanded an option to purchase the Doliner stock. Such an option was prepared and signed by George Doliner and the members of his family and at least one other person associated with him who were stockholders. It provides that Hunt has the option to buy all of the Doliner stock at $5.50 per share. The option is to be exercised by giving notice on or before June 1, 1965, and if notice is not given the option is void. If given, Hunt is to pay the price and the Doliners to deliver their stock within seven days thereafter. The agreement calls for Hunt to pay $1,000 for the option, which was paid. To this point there is substantial accord as to what took place.

[2]  Defendant claims that when his counsel called attention to the fact that the option was unconditional in its terms, he obtained an understanding that it was only to be used in the event that he solicited an outside offer; and that plaintiff insisted that unless the option was signed in unconditional form negotiations would terminate. Plaintiff contends there was no condition. Concededly, on resumption of negotiations the parties failed to reach agreement and the option was exercised. Defendants declined the tender and refused to deliver the stock.

[3]  Plaintiff moved for summary judgment for specific performance. We do not believe that summary judgment lies. Plaintiff's position is that the condition claimed could not be proved under the parol evidence rule and, eliminating that, there is no defense to the action.

[4]  The parol evidence rule, at least as that term refers to contracts of sale,  is now contained in section 2-202 of the Uniform Commercial Code, which reads: 

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 …

(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.

[5]  The term (that the option was not to be exercised unless Doliner sought outside bids), admittedly discussed but whose operative effect is disputed, not being set out in the writing, is clearly "additional" to what is in the writing. So the first question presented is whether that term is "consistent" with the instrument. In a sense any oral provision which would prevent the ripening of the obligations of a writing is inconsistent with the writing. But that obviously is not the sense in which the word is used (Hicks v. Bush, 10 N Y 2d 488, 491). To be inconsistent the term must contradict or negate a term of the writing. A term or condition which has a lesser effect is provable.

[6]  The Official Comment prepared by the drafters of the code contains this statement: "If the additional terms are such that, if agreed upon, they would certainly have been included in the document in the view of the court, then evidence of their alleged making must be kept from the trier of fact." (McKinney's Uniform Commercial Code, Part 1, p. 158.)

[7]  Special Term interpreted this language as not only calling for an adjudication by the court in all instances where proof of an "additional oral term" is offered, but making that determination exclusively the function of the court. We believe the proffered evidence to be inadmissible only where the writing contradicts the existence of the claimed additional term (Meadow Brook Nat. Bank v. Bzura, 20 A D 2d 287, 290). The conversations in this case, some of which are not disputed, and the expectation of all the parties for further negotiations, suggest that the alleged oral condition precedent cannot be precluded as a matter of law or as factually impossible. It is not sufficient that the existence of the condition is implausible. It must be impossible (cf. Millerton Agway Co-op. v. Briarcliff Farms, 17 N Y 2d 57, 63-64).

[8]  The order should be reversed on the law and the motion for summary judgment denied, with costs and disbursements to abide the event.

1. Snyder v. Herbert Greenbaum & Associates

In Hunt Foods, the court construed the requirement in UCC § 2-202(b) that any proffered additional terms must be “consistent” to preclude only proof of terms that contradict or negate the written agreement. Other courts have explicitly rejected this interpretation of the statute.

In Snyder v. Herbert Greenbaum & Associates, 38 Md. App. 144, 380 A.2d 618 (1977), a contractor agreed to supply and install carpet and padding for 228 garden apartments that a developer was about to build. The developer chose to cancel the contract after discovering that it had ordered about ten percent more carpet than would be needed for the apartments. When the contractor sued for breach, the developer sought to introduce evidence that five prior contracts between the parties had been rescinded by mutual agreement. According to the developer, this evidence established a course of dealing or oral agreement giving either party a unilateral right to modify or cancel any contract between them.

The court of appeals upheld the trial court’s decision to reject the developer’s argument and award damages to the contractor. The court noted that a course of dealing can be used to give meaning to the terms of a written contract, but the purported cancellation privilege was an additional term that should be analyzed under UCC § 2-202(b).  Applying the test of Comment 3, the court held that such a term “would certainly have been included” in the writing and thus the developer should be barred from relying on that evidence. Finally the court expressed its disagreement with the analysis of consistency in Hunt Foods:

At any rate, for much the same reason, we hold that the additional terms offered by appellants are inconsistent with the contract itself. In so doing we reject the narrow view of inconsistency espoused in Hunt Foods v. Doliner, 26 A.D.2d 41, 270 N.Y.S.2d 937 (1966), and Schiavone and Sons v. Securalloy Co., 312 F. Supp. 801 (D. Conn. 1970). Those cases hold that to be inconsistent the “additional terms” must negate or contradict express terms of the agreement.

This interpretation of “inconsistent” is itself inconsistent with a reading of the whole of § 2-202. Direct contradiction of express terms is forbidden in the initial paragraph of § 2-202. The Hunt Foods interpretation renders that passage a nullity, a result which is to be avoided. Gillespie v. R & J Constr. Co., 275 Md. 454 (1975).

Rather we believe “inconsistency” as used in § 2-202(b) means the absence of reasonable harmony in terms of the language and respective obligations of the parties. § 1-205(4); see Southern Concrete Services v. Mableton Contractors, 407 F. Supp. 581 (N.D. Ga. 1975). In terms of the obligations of the appellee, which required appellee to make extensive preparations in order to perform [such as purchasing substantial quantities of materials in anticipation of the project], unqualified unilateral cancellation by appellants is not reasonably harmonious. Therefore, evidence of the additional terms was properly excluded by the trial judge, and we find no error.

Id. at 152.

2. Discussion of Hunt Foods v. Doliner

What is the court’s holding and reasoning concerning the alleged agreement to limit the circumstances in which Hunt Foods would be entitled to exercise its option to purchase the Eastern Can stock?

Do you agree with the court’s interpretation of § 2-202?

Is there any reason to worry that the court’s approach might defeat the purpose for which the parties executed the option?

How would the approach taken in Snyder apply to the facts of Hunt Foods?

1.3. Interpretation

Although we have focused on the rules that determine which terms become part of a contract, there is also an analogous group of doctrines governing the interpretation of those terms. These interpretive rules confront the same tension that exists between formal textualist and permissive contextualist approaches to parol evidence.

On the side of formalism, we find the so-called “plain meaning” school of interpretation. Loosely speaking, judges committed to this approach ask first whether the terms of the written contract are ambiguous and only permit parties to introduce extrinsic evidence if the language in question appears reasonably susceptible to alternative interpretations. Adherents to the formalist school view the ordinary dictionary definition of express contract terms as an important constraint on the range of potential interpretations. They are likely to be skeptical about a party’s self-serving attempts to evade the conventional meaning of a word by alleging idiosyncratic exceptions or variant meanings.

The currently ascendant contextualist approach to interpretation focuses instead on a (possibly quixotic) quest to discover the true meaning that the parties have attached to the relevant terms. Courts committed to this interpretive perspective are inclined to consider any contextual evidence that might plausibly reveal something about the parties’ intentions. The Uniform Commercial Code § 2-202(a) embodies this permissive evidentiary standard by allowing a course of dealing, a usage of trade, or a course of performance to “explain” the meaning of any contract term.

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