Contract Interpretation

• Interpretation is important because resolving interpretation issues determines if someone has breached a contract.

Ambiguous Terms

• First, it must be determined if any terms are ambiguous
• The "reasonable susceptibility test" is whether the language is reasonably open to different meanings.
  • If the language is, extrinsic evidence can be used to confirm ambiguity.
• The "plain meaning test" applies when the writing seems clear.
  • The meaning is based on the explicit meaning of the words within the document, consulting only the "four corners" of the document itself.
  • With the four corners rule, you can't look for outside evidence to check for contradictions.
• If there's an ambiguity, the "Frigaliment method" (the "chicken case") is used.
  • First look to contract language, and then other evidence.
  • Other evidence can include: trade usage, course of performance, course of dealing, negotiations of parties, dictionary definitions, context, testimony, and canons of construction.
  • Mnemonic for remembering these: TNDCTC

Evidence in Interpretation

• Evidence can be added to prove interpretation, even after intent has been expressed.

Parol Evidence Rule

• A rule that determines whether to add to or alter terms.
• First, determine if there is a wrting
  • If no, analysis ends and the parol evidence rule does not apply
• If there is a writing next determine if the UCC (Uniform Commercial Code) applies, specifically UCC 2102 & 2105, it applies to the sale of goods
  • If yes, UCC 2-202 is applied
    • All evidence is considered, if the evidence contradicts the statement, the analysis ends.
    • If UCC does not apply, common law is applied.
• Ascertain what the party seeks to do with the evidence.
  • If the party seeks to add a term, analysis continues. If they are seeking evidence for interpretation, of a different agreement/contract, or a modification (agreement made after original) the analysis ends.
• Determine if there is a merger clause, considering whether it is probative or dispositive. Refer to R209 & R210:
  • If yes, deal with each of the following cases: fully integrated, partially integrated, or not integrated.
• Ascertain if the contract is fully or partially integrated, according to R213.
  • Fully integrated agreements are complete & final, so no extrinsic evidence is admissible.
  • Partially integrated agreements mean some terms are not final; some evidence (consistent and additional terms) is admissible.
  • Not integrated means all evidence is admissible.
• The RULE for PER involves analyzing five things: Is there a writing? Does the UCC apply? What is the party seeking with the evidence? Is there a merger clause? and Fully or partially integrated?
• When applying the rule, IRAC each question.

Implied Contract Terms

• Terms not explicitly stated in a contract are assumed to apply.
• They are legally binding, even if unwritten or non-verbal.
• Contracts often have "gaps", intentionally or unintentionally left by the parties.

Conditions

• A condition is an uncertain event that must occur before contract performance is due, according to R224, unless its non-occurrence is excused.
• Condition precedent creates the obligation to perform, often using language like "if," "only if," or "but only if."
• Condition subsequent discharges a party of their duty, using terms like "unless," or "but if."
• When a condition is in place, there is no breach.
• Conditions are different from a promise. A promise is always required and must be performed.

Substantial Performance

• The focus in substantial performance is on how much the performing party fulfilled and if it's enough.
• Restatement § 241 should be reviewed to see if there was substantial performance, specifically: the degree to which the injured party is deprived of the expected benefit, and whether the injured party can be compensated adequately.
• Other considerations include the extent of forfeiture for the non-performing party, the likelihood the party will fix the failure, and if the behavior aligns with good faith.
• A party with substantial performance can recover expectation damages, minus any performance defects. Mnemonic: D - damn, C - cool, F - females, C - collect, G - gold.
• If not substantial, it is a material breach, and whether the breach of contract is total or partial hinges on its materiality.
• Factors from Sackett v. Spindler can determine the materiality of a failure, including the extent of substantial benefit to the injured party, and if damages can compensate the injured party.
• Additionally, consider whether the party has partly performed or made preparations, the degree of hardship on the failing party, their behavior (willful, negligent, or innocent), and the uncertainty in contract remainder performance.
  • Mnemonic for this is: S - Sloths(substantial benefit), A - Are(adequately compensated), P - Professionally(party performed or made preparations), H - Horrible(hardship), W - Workers(wilful, negligent or innocent behavior), U - Unfortunately(uncertainty).