Contracts
Class Notes
This
case is about the doctrine of reformation.
The idea is that when we have a mistake in integration (like a slip of
the pen of the wrong keystroke), under appropriate circumstances we will reform (fix) the writing to make it
reflect the underlying agreement that has been reached.
What
safeguards are found in Hoffman that
are built into that doctrine? One
safeguard is that we have a higher standard of proof for a reformation case
than for other civil cases. For most
civil cases, the standard of proof is “preponderance of the evidence”. For reformation, courts in various jurisdictions
have various standards, but the most common standard is “clear and convincing
evidence”. That is considered to be
somewhere between the “preponderance” and “reasonable doubt” standards.
What’s
the biggest safeguard? What kind of
doctrine is it? What keeps people from
getting carried away by their emotions? This
is an equitable doctrine. That means
this is purely a question for the judge.
Juries have nothing to do with reformation. Some suits are entirely about reformation,
whereas other suits seek damages, specific performance and other stuff and
reformation is one issue along the way.
If the claim is mostly an action at law with a little bit of a suit in
equity, the judge will look at the reformation outside the presence of the jury
and fix it or not.
But
what do you have to show by clear and convincing evidence? Why are we reforming the writing? We’re trying to conform it to the underlying
agreement. Therefore, we must show the
underlying agreement with clear and convincing evidence.
The
deal in this case was for half a lot with one house for $3600. The writing described a deal for a whole lot
with two houses for $3600 also. That’s a
good way to show the underlying agreement: $3600 is probably not the market price
for two whole houses and a whole lot.
These are strong facts.
But
let’s say there was an underlying agreement, but the parties changed it and
came up with a final written agreement.
Doesn’t that run into the parol evidence rule? Well, this doctrine doesn’t bar reformation,
but the parol evidence rule might make it harder to prove that the parties had
some different underlying agreement.
One
way contracts can get messed up is by writing down numbers wrong. It’s easy to mess up $10,000 by writing
$1,000 or $100,000.
This
case tells you that “equity aids the vigilant”.
We
also learn that you can fix your mistakes in the law even if you were careless
or negligent. The case also tells us
that if we have a reformation case, the mistake must be mutual (shared in by both parties).
We can say this because the person who wrote the deed is considered an
agent for both parties. That makes it
easier to reform the contract.
What
if the mistake is unilateral? Let’s say
the vendor messes up and writes down “two houses” instead of “one house”. The buyer thinks “boy oh boy”. This seems like a stronger case for
reformation. However, many courts state
that you can’t reform in the case of unilateral mistake. You may be able to rescind and back out of
the contract, but you can’t reform. So
that’s what courts say. But according to
We
have a deed that contains a mistake. You
can reform it as to the two parties involved in the mistake. But let’s say the purchasers sell the land to
an innocent third party who thinks he is legitimately buying both houses. They’re in good faith, they pay good money,
and they don’t have notice. You can’t
reform against that person.
This
is a mistake in integration. We have
already seen that you can have another kind of mistake: a failure of
communication (like Raffles).
If there is no objective mutual assent and no subjective mutual assent,
we simply rescind the writing because there is
no underlying agreement. We must be
able to distinguish these kinds of mistakes.
Sometimes the distinction can involve some subtleties and difficulties.
A hypothetical
Farmer
Brown owns two farms and he’d like to sell one but not both. Pretty soon, both farms are going to get
developed into suburban farms. A
developer is interested in the farm that’s for sale (though he doesn’t know the
farmer has two of them). Farmer Brown is
in
However,
the farmer might say: “I said County Road 28, and that tells you where the one
I wanted to sell was. My meaning was
much more reasonable than his. Therefore,
the more reasonable meaning under objective mutual assent is the one I
wanted. I will counterclaim for specific
performance and to have the contract reformed to correspond with the underlying
agreement (my underlying agreement).” So the underlying agreement might be formed by objective mutual
assent.
There’s
a difference between a failure of communication mistake and a mistake of
integration.
Let’s
reverse the factual pattern in Hoffman.
Say the underlying agreement was for the entire lot with both houses, and
the price is reasonable for a whole lot with two houses. But when it was written down, there was a
mistake such that the deed conveys only one house. An effort is made to reform the underlying
agreement.
The
argument could be raised that the underlying agreement was oral, and for land, and thus the statute of frauds could prevent
that. Courts usually reject that
argument, saying that the statute of frauds will not bar reformation.
It
is argued that the court is not enforcing
an oral agreement, but rather correcting a writing to enforce the agreement
that the parties actually made. Then we are enforcing the writing, which
satisfies the statute of frauds. Thus,
it can be argued that the statute of frauds can never bar reformation.
The interpretation of
writings
How
do we figure out what the words on a piece of paper mean? This has something to do with the parol
evidence rule and raises the same sorts of arguments. Some people, led by Williston, are reluctant
to admit extrinsic evidence with respect to the interpretation of writings.
There
is some vocabulary that you need to know.
There are two different labels that mean about the same thing applied to
this approach: the “four corners” rule, which says that you ought to be able to
interpret the words that are there just by looking at the piece of paper and
reading. It is supposed that a judge can
read a writing carefully just as well as anybody else or better.
Another
way to look at it is that if you sign a paper that has a relatively clear
meaning, you ought to be held to that.
The standard, dictionary meaning of a writing is said to be the most
reasonable. This is called the “plain
meaning rule” approach.
This
approach allows the resolution of many disputes on summary judgment and makes
for more efficiency and less litigation.
Interpreting a writing is also something that an appellate court can do
just as easily as a trial court. That
makes it appropriate in many cases for an appellate court to reverse. That lets us develop precedent as to what
certain words mean.
Pacific Gas & Elec.
Co. v. G.W. Thomas Drayage & Rigging Co.
Here
we see the more liberal approach: we’ll always admit evidence for the purpose
of interpreting a writing. Also, words
don’t just have one meaning, but rather have a context in which they are
used. This approach has virtues, but
also costs. This approach is less
efficient and may reward liars. This
approach is taken both by the UCC and by the Restatement Second.
In
UCC § 2-202, it is stated in the comments that words are to be understood in
their commercial context and not merely through rules of law.
In
§ 214, we find that parol evidence is admissible to establish the meaning of a
writing.
In
§ 212, the comment says that we can make an effort to figure out what the
parties really meant even if the words seem clear on their face. This makes litigation more complicated and
expensive sometimes. It creates more
uncertainty. It bothers people who write
their agreement in plain English and who want it enforced just as it looks.
What
words have a plain meaning? How many
pounds are in a ton? It depends on
whether it’s a regular ton or a “long” ton.
You might want to interpret the word “ton”. How many ounces in a ton? How many in a dozen? What about a baker’s dozen? If a contract involves bakers, and they’re
talking about dozens, you might suppose that a dozen is 13. If you have a baker and a non-baker
contracting, you might not be too sure. “At
least 50%” might really mean “49.51% or more” according to a course of dealing. There’s another case in which “black” means “white”. Cotton that is clearly white is referred to
as black because it comes in black pods.
You
can use words in a non-dictionary way, and people do it all the time, including
commercial people. One of the underlying
biases of the UCC is that idea that we ought to interpret agreements and
enforce them in a commercial
way. The people who made the deals should
have the deal they thought they made
upheld. They shouldn’t have a deal
forced on them that they never contemplated.
Our
editors tell us something about canons of construction. The Restatement Second gives us some rules of
interpretation starting at § 202 and continuing through § 207.
That’s
it for this section. We already talked
about standardized agreements.
Henningsen v.
Bloomfield Motors, Inc.
Here’s
a famous case! In this case, Henningsen
decided to buy a Mother’s Day present for his wife, and so he decided to buy a
new car. He went to Bloomfield
Motors. He was a personal friend of the
owner and president of the company. They
had a typical bargain over the purchase of a new car. They checked it out, drove it around the
block, and haggled about the price. Then
the papers were produced and the parties sign them.
There
was one piece of paper with writing on the front and back that says his
remedies are limited to repair or replacement of defective parts. He signs!
There’s
a problem with the steering wheel, and the car is totaled. Mrs. Henningsen gets into an accident. The car company says that their remedy is
limited to replacing the “ribbon” that was broken which caused the accident.
Why
did the court allow a remedy beyond the award of a new ribbon? Why don’t they bind Henningsen to the contract
as written? The court says a lot of
things. We must separate the wheat from
the chaff.
Is
the court concerned about the relative bargaining power of the parties? We might say: “So what? Powerful and not powerful people ought to be
free to make contracts with each other.”
Lots of agreements between big, strong people and little people get
enforced without batting an eye.
What
did the parties in fact agree to? What
did they bargain for? Or is the court
saying that what the parties agreed to was unconscionable and thus will not be
enforced on the basis of public policy?
It
may be easier for the plaintiffs to win by saying that they never agreed to the
“a ribbon will do it” deal. Then the judge
can decide on the basis of saying that “these parties didn’t agree, and thus
you win”. That’s not as big a hill to
claim as to say that “you agreed, but this agreement has no redeeming social
value, so we won’t enforce it”. It’s
much harder for a judge to strike down a contract as unconscionable than to
strike it down as simply never having been made.
So
why does this court decide the case the way it does? The provision wasn’t unusual. It is even allowed by UCC § 2-719. That section lets you limit damages in
certain ways. Does that mean that this
case is bad law? No, it’s good law. Why did the court do what it did in this
case?
Normally,
you’re bound by what you sign whether you read it or not. Why should the result be any different here? One thought we find in the opinion is that a
reasonable person would not get out of this language the idea that it
disqualifies the car buyer from suing for personal injuries.