Parol Evidence Rule and Specific Performance in Contract Law | Study notes Contract Law

Specific Performance

Sometimes way to deal with a breach is to require the breaching party to do what they

promised to do. Not a limitation on remedy. Best viewed as an ALTERNATIVE remedy.

Remedies are usually money based damages, specific performance is the alternative.

R § 357 Availability of Specific Performance and Injunction

(1) Subject to rules stated in § 359-69, specific performance of a contract duty will be

granted in the discretion of the court against a party who has committed or is threatening

to commit a breach of the duty.

(2) … an injunction against breach of a contract duty will be granted in the discretion of

the court against a party who has committed or is threatening to commit a breach of the

duty if

(a) the duty is one of forbearance, OR

(b) the duty is one to act and specific performance would be denied only for

reasons that are inapplicable to an injunction.

LONDON BUCKET CO v STEWART (1951, Kentucky) [specific

performance]

Contract to furnish and install heating system for a large motel.

• even if get specific performance, may still be entitled to incidental damages above

and beyond performance (some courts made you choose, back to old court

system)

• Π chose specific performance and dismissed action for damages (without

prejudice).

• ELECTION OF REMEDY: pleading rules (1951) in many jurisdictions

prohibited Π’s from seeking inconsistent remedies. Specific performance and

damages were seen as inconsistent remedies, get one or the other.

• Sins at equity vs sins at law - equity practice (specific perf) vs. law (damages).

Historically, the 2 courts were separate. Law courts had no power to compel

anything. Court would say Π was entitled to damages, but had no power behind

it. Had to go to equity court to collect, get order that directs sheriff to collect the

damages (if they won’t pay on their own).

• Equity courts – could not invoke remedy unless could show that damages were

inadequate, and could then ask for specific performance. These courts could

order someone to do something, unlike courts at law. Equity and law remain

somewhat distinct notions today – but in many jurisdictions today, you can plead

both. (can plead for both SP and damages)

• Courts refuse SP, a policing problem in this case

§ 359: Effect of Adequacy of Damages

(1) SP or injunction are not ordered if damages are adequate [damages are the default]

(2) can get SP or injunction for just part of a contract performance and get damages for

other part.

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Specific Performance Sometimes way to deal with a breach is to require the breaching party to do what they promised to do. Not a limitation on remedy. Best viewed as an ALTERNATIVE remedy. Remedies are usually money based damages, specific performance is the alternative. R § 357 Availability of Specific Performance and Injunction (1) Subject to rules stated in § 359-69, specific performance of a contract duty will be granted in the discretion of the court against a party who has committed or is threatening to commit a breach of the duty. (2) … an injunction against breach of a contract duty will be granted in the discretion of the court against a party who has committed or is threatening to commit a breach of the duty if (a) the duty is one of forbearance, OR (b) the duty is one to act and specific performance would be denied only for reasons that are inapplicable to an injunction. LONDON BUCKET CO v STEWART (1951, Kentucky) [specific performance] Contract to furnish and install heating system for a large motel.

even if get specific performance, may still be entitled to incidental damages above and beyond performance (some courts made you choose, back to old court system)
Π chose specific performance and dismissed action for damages (without prejudice).
ELECTION OF REMEDY: pleading rules (1951) in many jurisdictions prohibited Π’s from seeking inconsistent remedies. Specific performance and damages were seen as inconsistent remedies, get one or the other.
Sins at equity vs sins at law - equity practice (specific perf) vs. law (damages). Historically, the 2 courts were separate. Law courts had no power to compel anything. Court would say Π was entitled to damages, but had no power behind it. Had to go to equity court to collect, get order that directs sheriff to collect the damages (if they won’t pay on their own).
Equity courts – could not invoke remedy unless could show that damages were inadequate, and could then ask for specific performance. These courts could order someone to do something, unlike courts at law. Equity and law remain somewhat distinct notions today – but in many jurisdictions today, you can plead both. (can plead for both SP and damages)
Courts refuse SP, a policing problem in this case § 359: Effect of Adequacy of Damages (1) SP or injunction are not ordered if damages are adequate [damages are the default] (2) can get SP or injunction for just part of a contract performance and get damages for other part.

(3) SP or an injunction will not be refused merely b/c there is a remedy for breach other than damages, but such a remedy may be considered in exercising discretion under the rule stated in 357. à written in the negative , shows SP is not a normal remedy. R § 360 Factors Affecting Adequacy of Damages In determining whether the remedy in damages would be adequate, the following circumstances are significant: (a) difficulty in proving damages with reasonable certainty (b) difficulty of procuring a suitable substitute performance by means of money awarded as damages, AND [ is item unique? ] (c) the likelihood that an award of damages could not be collected expectation interest– to put Π in position would have been in if contract performed, benefit of bargain. (344) [D: exactly what SP does – makes the contract be performed] WALGREEN CO v SARA CREEK PROPERTY (1992) [injunction] Judge Posner – from Chicago, did writing that triggered careful thinking of law and economics. Now on 2nd^ circuit. This is his typical style of his opinions. Other judges pay close attention to him; his opinions always bring in economic analysis.

Walgreen’s signed 30-yr lease in mall, Walgreen’s asks for injunction that would stop mall from signing lease with Phar-Mor.
Injunctions are a negative specific performance ; a way of forcing them to carry out contract BY NOT doing anything (can’t rent to Phar-Mor)
Court does grant the injunction: a one-shot remedy requiring no continuing judicial involvement. WHY grant the injunction? o Lost profit damages would be difficult to estimate. (other malls not directly comparable, arguable) o Judge considers the cost of proving the damages, cost of going to trial. If Π has burden of proving the damages, they also bear burden of paying for calculations, expert witnesses, etc. Very expensive. o Injunction isn’t expensive at all, much simpler and cheaper alternative. o Court says it is a one-shot deal.
Posner thinks of SP outside the normal box. §§ 359 - 360: the std ways of stating this. What Posner does is figure out from an economic standpoint whether or not to grant the injunction. If injunction is granted, what will parties do? An injunction is not necessarily “forever.” Parties could later ask that injunction be resolved, Walgreen’s could sell interest in injunction to mall. à granting injunction grants power to one party over the other re the injunction. Parties are likely to bargain over that right – mall will offer to pay off Walgreen’s for right to dissolve injunction. Gives Walgreens the power. Uniqueness of item required for Specific Performance:

to competitor. Store leasee sues saying we had agreement. In that case, the allegation was that during the negotiations, we reached an agreement you wouldn’t rent to competitor, that agreement was alleged to be oral (could have been in writing). The lease was in writing and landlord relied on this writing. The alleged agreement was prior to, but can also be contemporaneous (at same time) – both are covered by PE rule. Could be a matter of interpretation, but probably not. Nothing really to interpret (maybe only what tobacco meant). Π’s case rests on ability to prove the oral agreement. If Π can’t prove oral agreement, then Δ has done nothing wrong. If oral agreement exists, the Δ is bound by it.

We don’t initially ask if it (the agreement) exists. We first ask if we will admit evidence about the prior oral agreement. A matter of law for the judge to decide. If evidence is allowed in, then the jury decides if there was an agreement or not. Judge decides if you can even talk about it to begin with.
PE rule is pretty narrow in UCC. Commentators are hostile about the rule, some question whether it is a wise rule.
Could possibly argue “mistake” but difficult to prove, doesn’t necessarily give a legal course of action. 2 main reasons in support of PE Rule:
(1) if there is a writing, then ought to protect the integrity of the writing (D: this is nonsense b/c then all contracts would have to be in writing, and they do not; seems to miss the mark)
(2) assume that in negotiating over the lease they had discussed the options but both rejected the idea, year later competing company rents to competitor, and Π is unhappy, recalls discussions and says there was an agreement. People lie, or disremember facts, all the time. PE rule lets judge decide validity of agreement, don’t have to worry about contaminating juries. Juries are likely to be sympathetic to underdog, jury may side with injured party whether there was an agreement or not. Some suggest this is the basis for PE rule. A broad rule, applies to all cases if sympathetic or not. MITCHELL v LATH Good ex of PE problem M has entered into written contract to buy land. Nothing out of ordinary about agreement. A complete contract, no dispute about sell of land. Across road from the land, was an icehouse. When she considered buying the land, she didn’t like the icehouse. She says sellers agreed to move it and she wouldn’t have bought the parcel if they hadn’t agreed to move it. Sequence of what happens: in negotiations, an alleged prior oral agreement , no reference in written contract to its existence. What she is seeking to do is say, you breached!
- she can’t make the breach argument successfully if she can’t prove prior oral agreement à Parol Evidence!!
- Court decides whether to permit that evidence of prior agreement or not
- Real problem is: there will be cases in which cases where the evidence is admissible and cases in which it is not. Difference is confusing.

588 - 9: 3 conditions must exist: (3 TESTS) (1) Agreement must be a collateral one - separate in time, separate in subject matter, and with separate consideration. (not always easy) (2) Must not contradict express or implied provisions of the written contract (what is a contradiction is art) (3) Must be one that parties would not ordinarily be expected to embody in the writing (a much harder test)

would you naturally expect it to be in writing? If so, will exclude evidence of agreement.
could argue this test either way (strong dissent) – can imagine there being 2 separate contracts, or so much a part of the contract that would expect it to be in the agreement
if it doesn’t satisfy this test, evidence is inadmissible.
collateral agreement – must be suppo R § 209: Integrated Agreements (1) an integrated agreement is a writing(s) 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, is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression.
Whether there is an integrated agreement or not is question of law for judge
Parallel is the fact that we no longer apply plain meaning rule. Court’s feeling about the integration is “is it determinative”? Can always show evidence that there was no integration.

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.

last thing the parties decided upon controls! Last thing they put together as final expression of agreement controls previous agreements.
215, 216 are more operational, help you deal with the facts of the case § 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. à if prior agreement is inconsistent to final writing, can’t introduce it! § 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 [icehouse] (b) such a term as in the circumstances might naturally be omitted from the writing.
in some cases, evidence of a consistent additional term is admissible
if court finds a partial integration, then evidence of a consistent additional term is admissible
evidence of this other agreed term not in the writing: (1) if it might naturally be omitted by writing, then it is not completely integrated (Masterson v Sine: court says it is cumbersome to include such a term, might not naturally include the clause, etc – so deed is not a complete integration) (2) if not completely integrated, is it consistent? If yes, can admit it. PG&E (p. 618) D making repairs to turbine, lifted off cover, it fell and damaged the turbine. In performance of the contract, they injured the property – but the injured property of

other party in the contract. Problem: clause in contract usually interpreted to relate to a 3 rd party, not always understood to relate to loss to damage to other party of contract (kinda like an insurance clause)

Relied on contract language – problem is whether language of contract covers damage to PG&E or to 3rd^ parties (in interpretation issue, not PE!!)
START with interpretation!!! CANNOT figure out if have a conflict or scope of integration unless you know what the writing means!! Point is made in § 214 (c).
Whatever PE might suggest, can offer evidence of interpretation before ever get to PE. IF decision had been that clause covers all damage, then don’t have a PE problem.
Plain meaning rule: it says injury to property, this is injury to property so the clause applies
Court – you can’t do that. Trial judge cannot sit in chambers and read language of contract and decide for certainty what the language means, it is never that simple.
plain meaning – is only the plain meaning of the reader, cannot assign same meanings to all people. If purpose of contract is to give meaning to the parties’ intentions, then the judge’s meaning may not be an adequate answer at all. §201: Whose meaning prevails (p.288)
(1) gives primacy to the intention of the parties (not the judge or other reader)
conflicts – 20 2(3) where language has a generally prevailing meaning, it is interpreted in that way.
PE cannot contradict interpretation of a writing, but we don’t have to go there with this case – this is not prior agreement evidence, more like evidence of prior conduct
Interpretive issue has to be decided 1 st before get to PE
plain meaning rule is out – no modern judge would tell you they are using that rule, but lots do (they will read it and tell you what it means) Solving PE Problems:
Must have agreement in writing.
Integration? Total or Partial? o Total integration – if includes all terms of agreement in writing o Partial – if some terms are missing
Is there an interpretation question? (ambiguous terms) o If so, can admit any type of evidence (prior agreements, express terms, course of performance, course of dealing, trade usage) o PE doesn’t bar admission of evidence if it is for interpretation issues o Interpretation is always preliminary to PE (have to first know the meaning of terms in the contract – if they are ambiguous, start there!) o Old common law – would establish meaning through plain meaning rule, but no longer used. o Courts allow admission of evidence to clarify meaning of terms in contract o If evidence is of questionable credibility or several meanings are possible, for jury to decide – otherwise for judge as matter of law.

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