978-1285428222 Chapter 10 Lecture Note Part 3

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Add. Case: Pardoe & Graham Real Estate v. Schulz Home (Sup. Ct., Va., 2000)–Pardoe, a

real estate broker, sued Schulz, a home builder, claiming he owed Pardoe a commission on the

sale of a custom home in the LM subdivision. Schulz had agreed with LM that Schulz would pay

Pardoe 6% on the sale of any spec home Schulz built. Later, the developer showed Schulz an

amendment to the deal that said that builders would pay 2.5% to Pardoe when they built a

custom home on a lot already owned by the buyer. Schulz did not sign. The Carltons owned a lot

at LM. They hired Schulz to build. When the construction papers were signed, Pardoe testified

that Schulz said he would pay 2.5%. The trial court held that Pardoe’s testimony was accepted,

but the deal was subject to the statute of frauds. Since it was not in writing, the judge held for

Schulz. Pardoe appealed.

Decision: Reversed. The statute of frauds covers a contract for the sale of real estate. Real

estate does not include a building that is unattached to land. Since construction of the Carlton

Sufficiency of the Writing—For a writing to be sufficient under the Statute of Frauds, it must

set out all material terms in writing and must be signed by the party against whom its

enforcement is sought.

Add. Case: Lamle v. Mattel (Fed. Cir., 2005)–Lamle owned a game, Farook. Mattel was

interested in distribution rights. They signed an agreement that Mattel had exclusive rights to

negotiate with Lamle from March 18 until June 15 for $25,000, but there was no distribution

contract unless it was in writing. On June 11 the parties reached an agreement. Mattel asked

Lamle to draft a contract to memorialize the deal. On June 26, Mattel employee Bucher sent

Lamle an email entitled “Farook Deal” that repeated the key terms of the June 11 meeting. It

stated that the terms had been agreed to and ended “Best regards Mike Bucher.” August 13,

Mattel sent Lamle a fax saying it was “waiting for a draft licensing agreement.” Lamle sent it on

August 19. Mattel decided it was not interested and told Lamle in October. He sued for breach of

contract. The district court dismissed the suit. Lamle appealed.

Decision: Remanded. Whether a contract is formed depends on the mutual assent of the parties as determined by

their objective expressions. There is a question of fact whether or not the parties entered into a contract. The initial

written agreement may have been replaced by a later oral agreement, if they mutually intended. If that was the case,

Add. Case: Hammond Group v. Spalding (7th Cir., 1995)–Spalding, a sporting goods

producer, contracted with Hammond to be sales representative in the Midwest. They signed

contracts in 1982, 1983, and 1984 that set the terms of commissions for sales. The agreement

expired each year and had to be renewed in writing each year. When the contract for 1985 was

signed, Hammond claimed it was told that they would continue indefinitely as a sales rep.

Spalding terminated Hammond in 1987. Hammond sued for breach of oral contract. Court

dismissed; Hammond appealed.

Decision: Affirmed. The parties were operating under an oral agreement after 1984, the last time

they signed a one year contract. Hammond claimed that because it met its sales quota, it met the

Note on Statute of Frauds in New York: “An agreement, promise or undertaking to change or

modify, or to discharge in whole or in part, any contract … shall not be invalid because of the

absence of consideration, provided that the agreement, promise or undertaking changing,

modifying, or discharging such contract … shall be in writing and signed by the party against

whom it is sought to enforce the change, modification or discharge, or by his agent.”

Parol Evidence Rule—It prohibits the introduction of oral evidence where the evidence

presented is contrary to the terms of a written contract. Oral evidence cannot contradict, change,

or add terms to a written contract. Oral evidence may be introduced when the written contract is

incomplete or ambiguous, when it will prove fraud, mistake, or misrepresentation, or when the

parol evidence explains the written instrument via trade usage or course of dealing.

CASE: Deschamps v. Treasure State Trailer Court (Sup. Ct., Mont., 2010)—Deschamps

bought a mobile home park from Rasmussen for $1,445,000 in 2003, with payments to be made

over time (to Rasmussen’s estate after he died). The water system turned out to be defective and

required $400,000 in repairs. Deschamps quit making payments in 2006 and was sued by the

estate; he sued for breach and fraud, contending that Rasmussen told him the water system was

in good repair and that the occupancy rate was higher than in fact it was. Trial court held that the

parol evidence rule precluded Deschamps claims. He appealed.

Decision: Affirmed. The contract was well drafted and disclaimed any oral assurances.

Questions: 1. What is the key lesson from this case—and many others like it? Do you think the

court believed that Rasmussen never made the claims that Deschamps claimed?

It does not matter what the court thought; a clear, written contract trumps oral claims by one

party that are denied by the other party who sticks to the written contract. Do not let parties to a

2. Would Deschamps’ claim of fraud, a tort claim, avoid the parol evidence rule for the contract?

It could have, since it is a tort claim. But the alleged tort occurred in 2003 and suit was not

brought until 2006. The statute of limitations was two years, so Deschamps failed to bring his

Add. Case: First Data POS v. Willis (Sup. Ct., Ga., 2001)–First Data bought COIN Banking

Systems for $2.5 million. The agreement said that COIN’s owners would receive additional

payments for three years if they generated new business, but that First Data could end COIN

operations or change it in any way. The contract contained a standard merger clause that the

agreement “constitutes the entire agreement between the parties with respect to the subject

matter contained herein and supersedes all prior agreements and understandings, both oral and

written by and between the parties.” Later, COIN’s sellers sued First Data, contending that it

misrepresented its intention to increase COIN’s business after the purchase, which induced them

to sell COIN for less than it was worth. After complicated proceedings, the case was appealed.

Decision: When the language of a contract is plain, unambiguous, and capable of only one

reasonable interpretation, no construction is required or allowed. The contract language used by

the parties must be afforded its literal meaning. When the parties put their agreement in writing,

Add. Case: Catex Vitol Gas v. Wolfe (1st Cir., 1999)–Catex hired Wolfe with a written,

year-to-year employment contract that detailed compensation, terms of dismissal, and this

integration clause: “This Agreement constitutes the entire Agreement between the parties with

regard to the subject matter hereof, superseding all prior understandings and agreements,

whether written or oral. This Agreement may not be amended or revised except by a writing

signed by the parties.” Later, Wolfe assumed other duties for Catex based, he said, on oral

promises of higher pay, but he was soon fired. He sued for breach, claiming he had not been

paid extra as promised with his new assignment. District court dismissed the suit; Wolfe

appealed.

Decision: Affirmed. “The alleged oral modifications are unenforceable because they are not

sufficiently definite to supply the terms of a valid contract. The terms of an alleged oral

Add. Case: Lawrence v. Ellsworth (Ct. App., Neb., 1993)–Lawrence and Ellsworth discussed

work on the interior of an apartment that Ellsworth rented. They signed an agreement on April

20. Ellsworth agreed to pay Lawrence $27,440. On May 21, Ellsworth’s attorney told Lawrence

to stop any more work. The landlord had not given Ellsworth permission to make the changes.

Lawrence claimed he had incurred $8,323 in expenses and lost profits and that Ellsworth never

said the project needed approval. Ellsworth contended that the parties had an oral agreement

making the written contract subject to the landlord’s approval. The trial court granted summary

judgment for Lawrence and awarded him $8,323.16 in damages. Ellsworth appealed.

Decision: Affirmed. An agreement in writing, absent fraud, mistake, or ambiguity, is primary

evidence. Parol evidence is not admissible to contradict terms. The court could find nothing in

Issue Spotter: Liars’ Contest?

The judge sees a well-drafted, standard-form sales contract that indicates you bought the car on

the date you wrote the check. Your oral testimony is to the contrary, but the sales rep says there

was no oral modification. You are probably stuck unless you have a lawyer willing to beat on the

dealership for nothing. This is not an uncommon practice; if a dealership has a reputation for

being bums, that could help, but that is not to be counted on.

PERFORMANCE, DISCHARGE, AND BREACH OF CONTRACTS—When the

obligations of a contract are satisfied, the contract is terminated or discharged.

Performance—Most contracts end by performance. Performance terminates the contract, no

further obligations exist.

Substantial Performance—If a contract is substantially performed–only a small part was not

that does not impair the whole matter–then there are not grounds for terminating the contract.

Parties are obligated to act in good faith to get along as well as possible–such as subtract for

what was not delivered, but not sue for damages for the value of the contract.

Assignment and Delegation—Transfer of contract rights to a third party is assignment; transfer

of duties is a delegation. Contracts for personal services generally cannot be assigned or

delegated, but for ordinary goods, there is no public police reason against assignment or

delegation.

Add. Case: Western Surety v. APAC (Ct. App., GA, 2010)— Albea was contractor on a

highway project. It subcontracted with APAC, an asphalt company. The contract could not be

assigned without Albea’s consent. Albea and its sureties executed a $24 million bond providing

that they were liable for all work related to the project. During the project, the price of asphalt

shot up. Albea and APAC got into disputes over payments. APAC sold and assigned its assets,

including the contract, to Matthews Contracting. Albea was informed of the assignment and

while it did not approve it, it allowed Matthews to work so the job could proceed. Matthews

demanded higher payments for asphalt and Albea agreed because no other contractor would

step in at the original price. Albea lost money on the job and could not pay its bills, so the

sureties paid Matthews $2.7 million. APAC sued Albea and its sureties for $1.2 million for work

performed before the contract was assigned to Matthews. The trial court granted APAC

summary judgment against defendants for $1.2 million. On appeal, defendants argued that APAC

breached the contract by its assignment without consent.

Decision: Affirmed. It was a breach for APAC to assign the contract without consent, but the

anti-assignment clause had no impact since Matthews provided the asphalt APAC had promised

to deliver. An anti-assignment clause is to protect a party from a material reduction in the value

Third-Party Beneficiaries—Third-party beneficiaries of a contract to which they were not an

original party may sue to force performance of the contract, or for damages, if the party to the

original contract fails to performs.

Discharge by Breach—When parties do not perform their obligations there is a breach and a

remedy may be available.

Material Breach—Performance fails to meet the terms of the contract. The wronged party has a

cause of action against the breaching party for damages and is discharged from the performance

promised under the contract.

Add. Case: Kain v. Bluemound East Industrial Park (Ct. App., Wisc., 2001)–Kain bought

land from Bluemound. Since it had been filled, Kain was concerned that it would support a

building exerting 3,000 pounds per square foot (PSF). The contract included the statement

“Bluemound … hereby warrants and represents to … Kain that the soils on the subject premises

will satisfactorily support a minimum of 3,000 pounds per square foot.” After Kain built a

building that imposed less than 3,000 PSF, it sunk 2 inches. Kain spent sustantial sums to repair

the damage. He sued for breach of warranty. The judge dismissed Kain’s claim. Kain appealed.

Decision: Reversed. “A ‘warranty’ is an assurance by one party to a contract of the existence of

a fact upon which the other party may rely. It is intended to relieve the promisee of any duty to

Anticipatory Breach—Before performance of the contract is to take place, an anticipatory

breach (or repudiation) occurs if one party expresses inability or lack of desire to perform the

contract. The nonbreaching party’s duties are discharged and that party may sue for damages

incurred from the repudiation. Until the nonbreaching party treats the expression not to perform

as a repudiation, the breaching party may retract the repudiation, and the duties of the contract

will be reinstated.

Discharge by Agreement of the Parties—The parties to a contract have the freedom to agree to

modify or to terminate their obligations under the contracts. Discharge by agreement between the

parties include rescission, novation, and accord and satisfaction.

Rescission—occurs when both parties agree that their contractual relationship should be

terminated without performance. A rescission discharges completely the obligations of both

parties under the contract.

Add. Case: Giesler v. U.S. (Fed. Cir., 2000)–The government issued a request for proposals

(RFP) for 8800 cases of canned, shelled mixed nuts. The nuts were to be “CID A-A-20164,”

which means no more than 10% peanuts under Commerce Department code. Giesler bid, not

knowing what the code meant, and won with a bid of $470,000. The next bid was 10% higher.

Giesler stated he understood the bid and later sent a confirmation that his nuts would be 60%

peanuts. The government buyer did not notice this. Before shipment, inspectors visited the

production site and discovered the nuts did not conform. The government cancelled the contract.

Giesler sued for damages or for rescission of the contract. The Court of Federal Claims allowed

rescission of the contract based on unilateral mistake. The decision was appealed.