LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 12Slide 1 How Are Contracts Interpreted? Describe how conflicting oral and written communications are reconciled Explain how conflicts among written elements in a contract are reconciled LESSON 12-3 GOALS

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 12Slide 2 Consequences of Applying the Parol Evidence Rule Parol evidence rule -rule that bars testimony about what was said prior to the execution of the final writing or at the time of signing. Parol evidence (also called parol statements)- spoken words inadmissible in court.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 12Slide 3 WHAT IS THE PAROL EVIDENCE RULE? (#8) Contracts that have an Integration clause or that have such length and detail that they appear to be intended to be the complete agreement do not admit parol evidence so the written terms prevail. However, parol evidence may be admitted even when there is an integration clause under some circumstances, such as when needed to clarify written ambiguities or in the case of fraud, forgery, illegality, mistake, or misrepresentation.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 12Slide 4 WHAT IS THE PAROL EVIDENCE RULE? (#6) Parties to a contract should be very certain that the written contract specifies all the terms of an agreement that both parties believe are part of the agreement because oral modifications will not be part of the agreement.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 12Slide 5 WHAT IS THE PAROL EVIDENCE RULE? Exceptions to the parol evidence rule To clarify ambiguities in the written agreement If the written contract was not intended to be a complete agreement If a condition necessary to the existence of the contract never occurred To show the parties reached another agreement or terminated the contract under consideration after executing the written contract To show that the contract is voidable because a party lacked contractual capacity

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 12Slide 6 WHAT’S YOUR VERDICT? Can Highman recover the refund?

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 12Slide 7 HOW ARE CONFLICTS IN WRITTEN TERMS INTERPRETED? Parties'’ principal objective –method of contract interpretation focused on the main goals of the parties to the contract. Authors of ambiguity Contracts of adhesion –contract in which the more powerful party dictates all the important terms.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 12Slide 8 HOW ARE CONFLICTS IN WRITTEN TERMS INTERPRETED? Specific rules of construction (#9) Handwritten modifications usually prevail over typeset or typewritten agreements. Amounts in both words and numbers are ruled by the written number if both are unambiguous: otherwise the unambiguous number prevails. Courts may also judge which clauses should prevail by their support of the parties’ principal objective.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 12Slide 9 # 9 Continued. Words are given their plain and normal meaning unless they are legal or other technical terms and words are interpreted in light of a trade custom or practice if both parties are members of the trade.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 12Slide 10 HOW ARE CONFLICTS IN WRITTEN TERMS INTERPRETED? Implied reasonableness (#7) Implied reasonableness means that some conditions which are reasonable and generally understood are not written into a contract. EX: “payment in cash” does not rule out paying by check. Promised services must be performed with reasonable care and skill and reasonable time is allowed if time is not specified.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 12Slide 11 WHAT’S YOUR VERDICT? Is Corrigan entitled to the full balance immediately?