#11439 - Term Interpretation And Parol Evidence - Contracts

Implied terms

1. R2 § 204

2. Problems of autonomy:

   1. Lovers’ quarrel, failed business – pigeonholing facts into legal pattern: loan, capital investment, or gift. But neither thought of the matter under any sort of terms.

3. Courts sometimes must imply terms. Williams excerpt contrasts the 3 thought processes in reaching decision on implied term(pg 397):

   1. A term is implied based on what the parties probably had in mind but did not express.

   2. A term is implied based on what the parties probably would have agreed to had they thought about the matter.

   3. A term is implied for reasons of policy or fairness or as a matter of law.

      1. Corbin: (a) is interpretation; (3) is construction.

         1. Interpretation justifies a result by reference to party’s actual intent.

         2. Construction justifies a result by reference to what is reasonable, fair, good policy.

4. Haines v. New York (pg 399) – NY not obligated to expand sewage treatment facility; implicit in terms of contract which provide for expansion of sewer lines but did not mention the possibility of expansion of facility. Contract only calls for expanding the lines. No specific term. Court implies a “reasonable time” which it justifies by a presumption that a contract such as this is for a reasonable term. Reasonable term = while NY draws water from stream.

   1. Interpretation?

      1. Terms are being enforced as written

   2. Construction in the cloak of interpretation?

      1. Because court is relying on a legal presumption, which doesn’t even always apply. Court explicitly states that such a presumption should not, for policy reasons, apply to contracts of employment or exclusive agency (relationships presumed to be terminable at will)

   3. Why is NY not freed because of change in pollution control laws that eliminates need for NY to bargain for clean water?

      1. Principle that a contract is enforced as written in the event of a contingency not foreseen by the parties at the time of the contract.

         1. Consistent with general purpose of contract – to bind people in the face of an uncertain future

         2. Encourages planning and foresight

5. Spaulding v. Morse (pg 402) –Father to pay support for son until son graduated from college, but unforeseen event is that son is drafted before going to college. Father relieved from duty because neither mother nor son use money to provide care for son (court looks to the purpose of the contract)

   1. Principle stated above (i) is therefore not a categorical rule.

   2. Why differences in finding implied condition?

      1. In Haines, NY would have been relieved of obligation entirely. In Spaulding, only temporary cessation.

         1. Condition is more easily implied if it does less violence to the contract

      2. Condition in Spaulding goes along with general practice/understanding of why support is paid

      3. Court may worry about extortion in Haines (village relies on plant that NY controls)

      4. Not the same reliance, dependence, or chance for exploitation in Spaulding

6. Difference between misunderstanding and omitted terms?

   1. The problems seem different. In Raffles the misunderstanding was on a positive point of disagreement. One party thought the cotton was coming on the early Peerless, the other on the later Peerless.

   2. In Haines, the misunderstanding is on how to handle an unforeseen contingency.

      1. Opposing obligation here does less violence to parties’ autonomy

      2. it arguably is in their interest when they make the contract to empower a court to imply terms if necessary to make the contract effective

7. Acceptance by silence

   1. Vogt v. Madden (pg 491): Vogt sharecrops for Madden in 1979 & 1980. They discuss plans regarding renewal & a year later strongly disagree about what was said. Madden sells after Vogt has already put in work. Idaho SC says that silence cannot be construed as acceptance under R69 because in the 2 prior years, Vogt & Madden had made an express contract.

      1. Incorrect ruling because:

      2. It is not clear if/when Vogt plowed under second year wheat crop in preparation for next year, or how much work that entailed

      3. If Madden knew Vogt planned to do significant work in Aug/Sept only if agreement was renewed, then this expected reliance is a basis for treating Madden’s silence as acceptance.

      4. Court should have depended on

         1. Social practices

         2. Extent of the work

         3. Cost to Vogt

         4. Benefit to Madden

         5. Madden’s knowledge/reason to have knowledge

         6. Madden’s understanding that Vogt did the work on assumption the contract was renewed.

      5. Takeaways

         1. While silence can be acceptance, it is the exception, not the rule

   2. Restatement § 69(1) Silence is acceptance where...

(a): an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation.

(b): the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer

1. application of the general principle that shared subjective understanding trumps objective or general meaning of words or conduct.

(c): Silence is acceptance where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.

3. Laural Race Courses v. Regal Constr. Co., pg 495: Laurel demands that Regal correct problems in construction. Regal proceeds to do so but after telling Laurel that it expects to be paid for the additional work if defects in its work did not create the problems. Laurel neither agrees nor disagrees but allows Regal to proceed.

   1. Held: Regal not responsible for the problems

4. Cole-McIntrye-Norfleet Co. v. Holloway, pg 495: C-M-N tried to protect itself from its salesmen binding it to a contract by using a home office acceptance clause. Notwithstanding this term, Holloway believed he had a contract for meal.

   1. Held: Holloway’s belief reasonable

      1. CMN’s frequent contact with H

      2. H ‘s reliance

      3. Price increased

      4. H asked CMN to begin shipment

      5. CMN may have been acting opportunistically; choosing to disavow the contract only because the price rose so high

      6. Perishable nature of good

         1. Like in Hobbs v. Massasoit Whip Co. (pg 486) where the buyer sits on perishable goods (snake skins) because there is a loss to the seller

            1. Previous dealings is another basis for treating silence as acceptance in Hobbs. The previous dealings were that the buyer had not complained when the seller sent unordered snake skins in the past

         2. Problem here: it doesn’t really make sense when the seller is just sitting on an order

      7. Court reject’s custom argument (that other dealers in similar position nonetheless delivered the feed) – strict view of when an obligation can be implied as a matter of custom

      8. Best R69(1) explanation = i(c), fitting in the “otherwise” category. If CMN was acting opportunistically, then the case would be pigeon-holed under 1(b)

5. Kukuska – pg 498: a crop insurer is under an implied duty to act within a reasonable time on an application for insurance. The insurer seems not to have acted in bad faith, rejecting the application after the loss occurred (or was looming). An argument for imposing a duty to act is that the insured is exposed to a loss in the interim and will not seek other insurance until it gets a response. That the premium is paid with the application strengthens the case for imposing a duty.

6. Louisville Tin & Stove Co. v. Lay, p. 499: Ms. Lay exercised dominion over the goods when she instructed that they be picked up from the depot and delivered to her husband. She would have had no obligation is she left the goods at the depot. This is pretty clear if the goods are not perishable and her husband has no authority to deal on her behalf.

7. R69(2): There is an implied in fact contract if “[a]n offeree . . . does any act inconsistent with the offeror's ownership of offered property.”

   1. Statutory exemption: allows recipients of unordered goods received in the mail to treat them as a gift

8. Nursing Care Services v. Dobos, p. 504. NCS provides Dobos with i) 2 weeks of in-hospital care; (ii) 48 hours of post-release care; and (iii) 2 weeks of at-home care. Dobos concedes she is liable for ii) because it was ordered by her daughter, presumably with an understanding it was to be paid for. Dobos thought Medicare would pay for service

   1. For (i), the rescuer rule (R3RUE § 20) is a better basis that explaining it as an implied in fact contract (because she thought Medicare would pay)

   2. For (iii), easier to explain liability on grounds of an implied in fact contract. The rule conditions liability on an intent to charge for the services. Is this the service provider’s intent, the recipient’s intent, or both? The contract law answer is that the service provider must reasonably believe the recipient intends to pay for the services. But according to the trial court Dobos reasonably believed Medicare would pay. This should preclude a finding an implied in fact contract.

      1. This suggests basis for the claim is restitution. (Implied in Law?) Like Raffles – mutual misunderstanding about Dobos’ payment obligation was neither party’s fault. Problems:

         1. Benefit conferred is a service, and cannot be returned in kind

         2. Why doesn’t the anxiety with imposing a forced exchange on Dobos justify casting the loss on NCS?

            1. Becasue services was of clear and significant value to Dobos

            2. Dobos bears some fault in not understanding her insurance position

            3. May encourage...