Are Breach of Contract Disputes Governed by Terms of Contract Alone?

You might think so, but generally whether the terms alone govern a dispute depends on the language in the contract.  When a contractual relationship breaks down, parties that previously agreed to terms of a contract suddenly no longer agree on the meaning of key terms. Many times parties to a contract have evidence that supports one meaning versus another.  The question becomes whether any of the evidence is relevant or if the court will simply interpret the terms as written.

I have posted before on the implications of the parol evidence rule in Connecticut.  A recent Appellate Court case serves to highlight some important aspects of the rule.  The case is Sullo Investments LLC v Marci Moreau and will be released for official publication on July 1, 2014.  In Sullo, the defendant signed a guaranty agreement for a commercial note.  The defendant lost at trial.  On appeal, the defendant claimed that the trial court erred because the court went beyond the four corners of the guaranty agreement and considered extrinsic evidence in violation of the parole evidence rule.

The Appellate Court disagreed and pointed out that the parole evidence rule is only implicated where the evidence serves to contradict or vary terms that are actually in the contract.  The rule:

“does not of itself, therefore, forbid the presentation of parol evidence, that is, evidence outside the four corners of the contract concerning matters governed by an integrated contract, but forbids on the use of such evidence to vary or contradict the terms of such a contract.”

The rule of evidence that applies to bar the evidence is relevance.   If the court cannot use the evidence to alter the terms of a complete and clear contract, then the evidence becomes irrelevant.  However, the evidence may be relevant for another purpose or the rule may not apply to the terms of the contract.  For example, extrinsic evidence may be admissible:

  • To explain an ambiguity in the contract
  • To prove a collateral agreement that does not vary the terms of the written
  • To add missing terms to a contract that does not state it is complete
  • To show mistake or fraud

These are all examples where the evidence would not alter the terms of a complete, written contract in clear terms.  As such, to determine whether evidence outside the contract is relevant, you have to consider the nature of the evidence, its purpose, and whether it contradicts the clear terms of a complete contract.  The parol evidence rule also highlights the need to draft clear contracts with clauses that make it clear the contract alone will govern the dispute.  Otherwise, the court will permit each party to introduce evidence outside the four corners of the contract.  This could include conversations, emails, and other documents.

Business Litigation Roundup

As we head to the new year, here is a round up from some fellow bloggers on contracts, cobra, wage disputes, patents, and oral agreements for limited liability companies. 

The California Business Lawyer Blog offers a very detailed post about contractual relationships  between manufacturers and suppliers.  The focus is on well drafted agreements eliminating the fears and concerns of both sides.

A lot of talk about the AT&T suits in different states for $1 billion dollars for unpaid overtime.  The suits picked up a lot of steam with a recent employee favorable ruling from the federal court in Connecticut allowing the claim to proceed as a class action. Rush on Business covers some tips for businesses to avoid these suits.

Just in time for Christmas, President Obama has extended the COBRA subsidy.  Dan Schwartz’s Connecticut Employment Law Blog covers this topic in detail for employers.

Twin Cities Business Litigation Blog has an interesting post on concerns you might have as a shareholder of corporation that fails to follow corporate formalities.  Gavin Craig gives examples of how a shareholder could be exposed to liability.

Anyone who frequently litigates matters involving limited liability companies will tell you that there is not much case law out there in Connecticut.  It is still a developing area of the common law.  Delaware law is often a good option for law in this area because these issues are more frequently litigated by volume in Delaware.  A good resource is the Delaware Corporate and Commercial Litigation Blog.   Two recent posts concerning oral partnerships and LLC agreements are just an example.

PatentlyO hits on some themes for 2010, including an expected increase in patent prosecution and litigation.    They also have a cool picture of heat miser, a childhood classic.

Jeff Mehalic, author of the West Virginia Business Litigation Blog, writes a detailed follow up post to his coverage of the Connecticut dispute between Charter Oak Lending and CTX Mortgage.  Jeff also comments about a post I wrote on the same case.  The case remains significant as it is an example of what can go wrong when a business grows too fast and no written agreements are in place with employees.

Getting A Contract In Writing Does Not Always Satisfy The Statute Of Frauds

One of the first things lawyers check for when contesting an oral contract is the statute of frauds.  The statute of frauds comes from an English rule dating back to the 1600’s.  At its most basic level, the statute of frauds requires certain types of contracts to be in writing or else they are not enforceable in court actions.  However, sometimes, even when a contract is in writing, it still will not satisfy the statute of frauds.

That is what happened in SS-II, LLC v. Bridge Street Associates, an advanced opinion released today by the Connecticut Supreme Court.  The dispute involved an option to purchase property pursuant to a commercial lease that was in writing.  The tenant wanted to exercise the option and the seller did not want to close on the sale. 

When the tenant brought a lawsuit for specific performance trying to force the sale, the owner raised the Connecticut Statute of Frauds as a defense and won in court.  In Connecticut, the agreements that must be in writing under the statute of frauds include the following:

  • any agreement by any executor promising to answer damages out of his own property
  • any promise to answer for the debt, default or miscarriage of another
  • any agreement made upon consideration of marriage
  • any agreement for the sale of real property or any interest in or concerning real property
  • any agreement that is not to be performed within one year 
  • any agreement for a loan in an amount which exceeds fifty thousand dollars.

Not only do these agreements have to be in writing, but they also have to contain the contract’s essential terms.  In a contract to sell land, the terms must describe a certain price, the parties to the contract, and the land.  In the SS-II case, the contract did not comply with the statute of frauds because the purchase price was not certain and was subject to some conditions.  Although there are counter defenses to the statute of frauds, such as partial performance, the court deemed that they did not apply. 

The takeaway from this case is to be cautious with oral contacts and do not assume a writing alone will make the agreement enforceable.  A contract has to be in writing, signed, and have the proper terms in it or else you may not have an enforceable agreement if the statute of frauds applies.