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41. Is the laundry company likely to succeed in its action?
An innkeeper, who had no previous experience in the motel or commercial laundry business and who knew nothing about the trade usages of either business, bought a motel and signed an agreement with a laundry company for the motel's laundry services. The agreement was for a term of one year and provided for «daily service at $500 a week.» From their conversations during negotiation, the laundry company owner knew that the innkeeper expected laundry services seven days a week. When the laundry company refused to pick up the motel's laundry on two successive Sundays and indicated that it would never do so, the innkeeper canceled the agreement. The laundry company sued the innkeeper for breach of contract. At trial, clear evidence was introduced to show that in the commercial laundry business «daily service» did not include service on Sundays.
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When each of the parties has a different understanding of the meaning of a term, if one party either knows or has reason to know that they have different understandings of the term, but the other party does NOT know or have reason to know that the parties have a different understanding of what the term means, then the «innocent» party's meaning (i.e., the party who does not realize they disagree) will control. Rest. (Second) of Contracts § 201.
The Parol Evidence Rule (PER) excludes evidence of earlier written or oral agreements that contradict or add to the terms of an integrated writing.
A is correct. The laundry company knew, at the time the contract was formed, that the innkeeper thought the term «daily service» meant that it would perform the service every day. The innkeeper, however, was unaware that in the commercial laundry services industry, «daily service» does not include Sundays. When one party knows that the parties have different interpretations of a term, and the other party is unaware of this discrepancy, the «innocent,» unknowing party's meaning will prevail. Thus, the laundry company will not succeed because the innkeeper's meaning of the term will govern.
B is incorrect. This answer reaches the correct answer with the wrong reasoning. The laundry company will not prevail, but not because there was no contract formed. A contract did exist between the parties, and the dispositive issue is the interpretation of the material term «daily service.» While it may sometimes be the case that no contract is formed when parties attach significantly different meanings to the same material term, that principle is not applicable when one of the parties is aware of the meaning intended by the other. Here, a contract was formed despite the fact that the parties attached different meanings to «daily service.» As explained above, the laundry service knowingly attached a different meaning to «daily service,» and the innkeeper's understanding of the term will control.
C is incorrect. The PER applies when a party is seeking to contradict or add to the terms of an integrated writing, meaning it will bar evidence introduced by a party seeking to change the meaning of a term. However, here, the term at issue is «daily service,» which, on its face, implies service every day. By claiming that «daily service» actually excludes one day every week, Sundays, the laundry company would be the party barred from introducing earlier written or oral agreements to disrupt that meaning. The innkeeper, however, would be looking to affirm that «daily service» means every day, and thus, earlier evidence to affirm that meaning would not be barred by the PER.
D is incorrect. While trade usage is often invoked to interpret terms in a contract, that is not the case here. As explained above, in a scenario where one party knows there are different interpretations and the other party does not know this, the innocent party's meaning will control. Thus, the innkeeper's understanding of the term «daily service» will control because the laundry company knew that the innkeeper was not aware of the trade usage.