3. Terms of the Contract

Question 1

Integration:

Answer 1

Written agreement that court finds is the final agreement, triggers the parol evidence rule.

Question 2

Partial integration:

Answer 2

Written and final, but not complete.

Question 3

Complete integration:

Answer 3

Written and final and complete.

Question 4

Merger clause:

Answer 4

Contract clause such as, “This is the complete and final agreement.”

Question 5

Parol evidence:

Answer 5

• Words of party (or parties),
• Before integration, i.e., before agreement was put in written form,
• Oral or written.

Question 6

Parol Evidence - Changing/contradicting terms in the written deal:

Answer 6

Evidence of earlier agreements cannot be considered for the purpose of contradicting the terms in the written contract.

Question 7

Parol Evidence - Mistake in integration, i.e., clerical mistake:

Answer 7

A court may consider evidence of such terms for the limited purpose of determining whether there was a mistake in integration, i.e., a mistake in reducing the agreement to writing.

Question 8

Parol Evidence - Defenses, i.e., getting out of a written deal:

Answer 8

The parol evidence rule does not prevent a court from considering evidence of earlier words of the parties for the limited purpose of determining whether there is a defense to the enforcement of the agreement, such as misrepresentation, fraud, or duress.

Question 9

Parol Evidence Ambiguity, i.e., explaining term in the written deal:

Answer 9

The parol evidence rule does not prevent a court from considering evidence of earlier agreements to resolve ambiguities in the written contract.

Question 10

Parol Evidence - Adding to the written deal:

Answer 10

The parol evidence rule prevents a court from considering evidence of earlier agreements as a source of consistent, additional terms unless the court finds

(i) that the written agreement was only a partial integration or
(ii) that the additional terms would ordinarily be in a separate agreement.

Question 11

How does the court consider conduct as contractual terms?

Answer 11

Courts look first to course of performance (same people, same contract),

Second to course of dealing (same people, different contract),

Third to custom and usage to explain words in contracts or to fill gaps in contracts (different people, different contract)

Question 12

If there is an agreement as to place of delivery by a common carrier, then the question is: what does the seller have to do to complete its delivery obligation. There are two possible UCC answers to that question:

Answer 12

1. Shipment contracts

2. Destination contracts

Question 13

The seller completes its delivery obligation under a shipment contract when it:

Answer 13

(i) gets the goods to a common carrier, and
(ii) makes reasonable arrangements for delivery, and
(iii) notifies the buyer.

Question 14

Destination contracts:

Answer 14

The seller does not complete its delivery obligation until the goods arrive at the destination.

Question 15

Determining whether contract is a shipment or destination contract:

Answer 15

Most contracts with delivery obligations are shipment contracts. Watch for the use of FOB – free on board (city) – as source for determining whether the contract is a shipment contract or a destination contract. FOB followed by city where the seller is or where goods are means shipment contract; FOB followed by any other city means destination contract.

Question 16

What is a risk of loss problem?

Answer 16

Risk of loss issues arise where (i) after the contract has been formed, but before the buyer receives the goods,

(ii) the goods are damaged or destroyed, and
(iii) neither the buyer nor the seller is to blame.

Question 17

What are the possible consequences in a risk of loss problem?

Answer 17

If the risk of loss is on the buyer, he has to pay the full contract price for the lost or damaged goods.

If the seller has the risk of loss, no obligation on the buyer and possible liability on the seller for nondelivery.

Question 18

What are the risk of loss rules?

Answer 18

1. Agreement: agreement of the parties controls.
2. Breach: breaching party is liable for any uninsured loss even though breach is unrelated to problem.
3. Common carrier delivery: risk of loss shifts from seller to buyer at the time the seller completes its delivery obligations.
4. “Catch-all” (no agreement, no breach, no delivery by a carrier): the determining factor is whether the seller is a merchant. WHETHER THE BUYER IS A MERCHANT IS IRRELEVANT. Risk of loss shifts from a merchant-seller to the buyer on the buyer’s “receipt” of the goods; risk of loss shifts from a nonmerchant seller when he or she “tenders” the goods.

Question 19

Which of the following is/are an express warranty:

(a) “all steel.”
(b) “top quality.”
(c) guaranteed to operate for two years.
(d) seller’s showing buyer a sample.

Answer 19

a, c, d

Question 20

Implied warranty of merchantability:

Answer 20

Implied warranty of merchantability:
When any person buys any goods from any merchant, a term is automatically added to the contract by operation of law – that the goods are fit for the ordinary purpose for which such goods are used.

Question 21

Implied warranty of fitness for a particular purpose:

Answer 21

Triggering facts: buyer has particular purpose; buyer is relying on seller to select suitable goods; seller has reason to know of purpose and reliance.

Warranty: goods fit for particular purpose.

Question 22

SOL for warranty liability, and when it begins to run:

Answer 22

There is a four-year statute of limitations, and generally the statute starts running on possible warranty actions when the “tender of delivery is made,” not when the buyer learns that the product is defective.

Question 23

Limitation when Buyer examines the goods:

Answer 23

Look for a fact pattern that tells you that the buyer has examined the goods. There are no implied warranties as to defects which would be obvious on examination.

Question 24

Can express warranties be disclaimed?

Answer 24

No

Question 25

Implied warranties of merchantability and fitness can be disclaimed in EITHER of the following ways:

Answer 25

1. CONSPICUOUS language of disclaimer, mentioning merchantability, OR
2. “as is” or “with all faults.”

Question 26

Limitation of remedies:

Answer 26

does not eliminate warranties, simply limits or sets recovery for any breach of warranty

Question 27

General test for whether a limitation of remedies clause is valid:

Answer 27

Unconscionability

(prima facie unconscionable if breach of warranty on
consumer goods causes personal injury)