Contracts: Parol Evidence, Conditions, Discharge, And Remedies

Parol evidence rule.

Writing is intended to be the final and complete expression of the parties agreement.

Note: Parol evidence is oral evidence.

When a contract in writing is intended to be the final and complete expression of the agreement of the parties.

Note: Parol evidence is admissible to prove or explain circumstances that make the written agreement void, voidable, or unenforceable.

• Lack of capacity to make a contract.
• Fraud.
• Mistake.
• Illegality.
• Duress.
• Undue influence.
• Failure of a condition precedent.

Until a condition is satisfied relates to the validity of the whole contract.

Note: It must not contradict or vary the term of the agreement.

• The meaning of ambiguous terms in the contract, such as custom and usage consistent with the agreement, and typographical or obvious drafting errors that clearly do not represent the intention of the parties.
• A subsequent modification or rescission.
• The existence of any separate agreement if it is reasonable to assume that the parties intended to enter into a collateral agreement separate from the integrated contract.

• It may be supplemented with consistent additional terms from prior negotiations or agreements, whether written or oral.
• It may be supplemented with evidence of course of dealing, course of performance, and usage of trade.

Note: The parol evidence rule does not apply to statements made after the contract was signed.

A merger clause.

Note: Parties commonly insert this clause, and courts give great weight to this type of clause.

If the promise is conditional, the promisor’s duty to perform arises only if the condition occurs. However, it becomes unconditional if the condition is met.

• An act.
• Event.
• Set of facts that create.
• Limits.
• Extinguishes an absolute contractual duty to perform.
• Occurrence or the nonoccurrence of a specific event.

Note: Failure of a condition does not subject either party to liability, and the existence of a condition in a contract does not render it nonbinding. Additionally, conditions may be express, implied-in-fact, implied-in-law, precedent, subsequent, or concurrent.

An express condition.

Performance by one party must be to the personal satisfaction of the other.

The court applies a subjective standard to matters of personal taste, opinion, or judgment.

Matters involving mechanical fitness, marketability, or utility.

Implied condition.

Implied-in-fact.

Implied-by-law.

A condition precedent.

Example: Payment only after delivery of goods.

A condition subsequent.

Example: Return of non-conforming goods.

Concurrent condition.

Note: Payment is often conditioned upon the simultaneous delivery of goods.

By performance, agreement of the parties, operation of law, or breach of contract.

The duty is no longer enforceable.

Strict performance occurs when a party discharges his or her obligations by performing according to the terms of the contract.

• Generally insufficient to discharge contractual duties.
• The parties may agree to accept less than full performance.

Note: If a contract does not specify a time for performance, it is due within a reasonable time after the contract is made.

Substantial performance.

When a party who is in good faith completes the job in substantial compliance with the contract.

By agreement.

When the parties to a contract agree to cancel it.

An accord and satisfaction.

Note: The new agreement is an accord, and its performance is a satisfaction.

A composition with creditors.

Note: The original debts will not be discharged until the debtor has performed the new obligations.

• Restatement of contracts when change is fair given new facts.
• Modifications involving a sale of goods.

A substitute contract.

Note: The new contract is supported by new consideration, which may include a promise made by a new party.

A novation.

A release.

When the liability is contingent or disputed.

A waiver is an intentional and voluntary surrender of a known right and may be expressed or inferred from the circumstances.

Because the contract becomes objectively impossible to perform.

It is another exception to the general rule of strict performance, and circumstances have changed so completely since the contract was formed that the parties could not reasonably have anticipated and expressly provided for the change.

• An essential party to the contract dies.
• an essential item or commodity has been destroyed.
• An intervening change of law has rendered performance illegal.

Note: The impossibility must be objective in the sense that no one could perform the duty or duties.

Commercial impracticability.

• Shortages caused by war.
• Crop failures.
• Labor strikes.

Note: Commercial impracticability permits discharge when a party’s performance is no longer feasible for reasons not their fault.

Impracticability.

Whether the promisor expressly or impliedly assumed the risk of such an event.

The frustration of purpose.

Frustration occurs when a contract becomes valueless when its purpose has been destroyed by an intervening event that was not reasonably foreseeable.

Breach of contract.

Material breach.

• A material breach discharges the non-breaching party from any obligation to perform under the contract and entities that party to seek remedies.
• A nonmaterial breach does not deprive the non-breaching party of the benefit of the bargain and does not discharge that party.

Note: Non-breaching party may sue for damage in a nonmaterial breach event.

When the injured party receives substantially all of the benefits reasonably anticipated.

Anticipatory breach.

The aggrieved party is allowed to suspend his or her own performance and await a change of mind by the breaching party, act to find a substitute performance, or immediately sue for damages.

A designation of a period after which litigation may not be commenced.

It usually begins from the breach’s later date or when it reasonably should have been discovered.

Note: The period of limitations varies from state to state and by the type of action.

To compensate the other party in money for any effect of the breach on an interest in the contract.

• An expectation interest is the expected benefits of the contract.
• A reliance interest is an interest that arises from action in reliance on the other party’s duty to perform.
• A restitution interest arises when a party has an interest in recovering the value of the benefit that his or her performance conferred on the other party.

Restitution is available to prevent unjust enrichment, correct an erroneous payment, or permit recovery of deposits advanced on a contract.

A judgment awarding an amount of money to compensate for damages.

Compensatory damages.

1. Expectation damages compensate for the loss of the expectancy interest or benefit of the bargain.
2. Reliance damages compensate for the loss incurred in reliance on the other’s performance.

Note: Reliance damages may be awarded when expectation damages are too speculative.

Consequential damages.

Punitive damages.

Note: A court awards punitive damages only when the breach is malicious, willful, or physically injurious to the non-breaching party.

Liquidate (undisputed) damages.

• The clause is not intended as a penalty.
• It reasonably forecasts the probable loss due to the breach.
• The loss is difficult to calculate.

Rescission, specific performance, and reformance.

Rescission.

Note: Rescission results from mutual consent, the conduct of the parties, or a court order.

• A material breach.
• Negligent misrepresentation.
• Innocent misrepresentation.
• A mutual mistake in contract formation.
• A unilateral mistake in contract formation.

The remedy of quasi-contract.

Reformation.

• May be granted to the non-breaching party by a court in an appropriate case.
• It is an order to the other party to perform the action specified in the contract.
• Rarely granted and only when no other remedy is adequate.
• Monetary damages must not be available or adequate.
• The subject matter of the contract also must be unique.