5. Gap Fillers, Interpretation, Parol Evidence Rule

Question 1

What is the implied warranty of title under UCC Section 2-312?

Answer 1

There is an implied warranty of:
* Good title to the goods
* Rightful transfer of the goods
* No liens or other security interests attached to those goods

Question 2

How can the implied warranty of title be excluded or modified?

Answer 2

By:
* Specific language
* Circumstances giving the buyer reason to know the seller does not claim unencumbered title

Question 3

What does UCC 2-312(3) state regarding merchants?

Answer 3

Unless otherwise agreed, a merchant warrants that goods are free of any rightful claim of a third person by way of infringement.

However, a seller is NOT liable for such a claim if:
* The buyer provides specifications
* The claim arises from compliance with the specifications

Question 4

What does the warranty of merchantability assure under UCC 2-314?

Answer 4

It assures that the goods are fit for their ordinary use

Question 5

How can the implied warranty of merchantability be excluded or modified?

Answer 5

By mentioning ‘merchantability’ and must be conspicuous if in writing

Question 6

What is the warranty of fitness for a particular purpose under UCC 2-315?

Answer 6

It grants that the goods are fit for the particular purpose for which the buyer intends to use them, provided that:
* The seller has good reason to know the particular purpose
* The buyer relies on the seller’s skill or judgment

Question 7

How can an implied warranty of fitness be excluded or modified?

Answer 7

By conspicuous language in writing stating there are no warranties extending beyond the description

Question 8

Language is NOT necessary to exclude or modify the warranty if:

Answer 8

(1) the contract includes an expression like “as is” or “with all faults” or other similar language that in common understanding calls the buyer’s attention to the exclusion of warranties and makes plain that there is no implied warranty;

(2) the buyer has fully examined the goods before entering into the contract, or has refused to do so, in which case there is no implied warranty as to defects that should have been apparent from the examination; or

(3) course of dealing, course of performance, or usage of trade indicates that the warranty is excluded or modified.

Question 9

What creates an express warranty by the seller?

Answer 9

When:
* Any affirmation of fact or promise about the goods becomes part of the bargain
* Any description of the goods becomes part of the bargain
* Any sample or model becomes part of the bargain

Question 10

Do sellers need to use formal words to create an express warranty?

Answer 10

No, formal words like ‘warrant’ or ‘guarantee’ are not necessary

Question 11

Does mere affirmation of the value of the goods or a statement of the seller’s opinion create an express warranty?

Answer 11

no. mere affirmation of the value of the goods or a statement of the seller’s opinion does NOT create an express warranty.

Question 12

Express warranty that conflicts with a limitation or disclaimer

Answer 12

Where an express warranty conflicts with a limitation or disclaimer, the express warranty will prevail.

Question 13

What does the measure of damages for a breach of warranty entail?

Answer 13

The difference between:
* The value of the goods accepted at the time and place of acceptance
* The value they would have had if they had been as warranted

Question 14

What is the default rule for a missing price term under UCC?

Answer 14

The reasonable price at the time established by the contract for the delivery of goods

Question 15

What is the default rule for a missing time term under UCC?

Answer 15

contractual action MUST be performed within a reasonable time.

Question 16

What is the default rule for missing place of delivery term under UCC?

Answer 16

the place of delivery will be the seller’s place of business unless otherwise agreed.

Question 17

what is the default rule for missing time for payment under UCC?

Answer 17

payment will be due at the time the buyer receives the goods, NOT a “reasonable time.”

Question 18

What is the common law default rule for a missing price term in service and Employment contracts?

Answer 18

The reasonable value of the services rendered, typically based on quantum meruit

Question 19

What is the common law default rule for missing duration term for employment-at-will contract?

Answer 19

absent an agreement to the contrary:
i.) an employer may dismiss at any time for any reason;
ii.) and an employee may quit at any time for any reason.

Question 20

What is the common law default rule for oral or written assurances of job security?

Answer 20

Oral or written assurances of job security made to an individual employee, as well as assurances contained in policy documents distributed to the workforce, may suffice to take the contract out of the default rule.

Question 21

What is the obligation of good faith in contracts?

Answer 21

It is honesty in fact in the conduct or transaction concerned

In the case of a merchant, good faith is honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.
The obligation of good faith may ONLY be raised in regard to the performance and enforcement of contracts, but NOT to negotiations or other pre-contractual conduct.
The good-faith obligation will also operate to ensure good faith where the terms of the contract leave a critical term, such as the price, satisfaction, or quantity, open to the determination of one party.

Question 22

What does the open price term rule under UCC 2-305 state?

Answer 22

If a contract leaves the price to be fixed by one party, that party must fix the price in good faith

Question 23

Satisfaction Term

Answer 23

A contract may contain a satisfaction clause, or similar term, whereby the determination as to whether a party’s performance obligation is complete is left to the discretion of the other party.

If a party’s promise is subject to a condition, there can be NO breach of contract by that party until the condition has been fulfilled.

The good-faith obligation operates to require the party making that determination to do so in good faith.

Question 24

What is an output contract?

Answer 24

A contract in which the buyer agrees to purchase ALL of a seller’s output for a particular good.

GOOD FAITH REQUIREMENT

Question 25

what is a requirements contract?

Answer 25

A requirements contract is a contract in which the seller promises to sell to a buyer AS MUCH of an item as the buyer requires.

GOOD FAITH REQUIREMENT

Question 26

Contract for Exclusive Dealing in a Good

Answer 26

Under the UCC, a contract for exclusive dealing in a good imposes:

i.) on the part of the seller an obligation to use best efforts to supply the good; and

ii.) an obligation on the part of the buyer to use its best efforts to promote the good’s sale.

Question 27

Unreasonably disproportionate demand or tender in an output or requirements contract

Answer 27

The UCC prohibits any unreasonably disproportionate demand or tender, if there was either:
i.) a stated estimate made between the parties; or
ii.) in the absence of a stated estimate, any comparable prior outputs or requirements.

Question 28

Objective Meaning Prevailing over Subjective Meaning;

Answer 28

The objectively reasonable meaning of a term at the time of contracting would CONTROL OVER over a contrary subjective understanding of the term by one of the parties.

Question 29

The subjective meaning of a term prevails over the objective meaning of a term

Answer 29

A subjective meaning of a term prevails over an objective meaning of a term when:

i.) if the other party knows or has reason to know of the first party’s subjective understanding of the term; and

ii.) Both parties shared a subjective understanding of the term at the time of contracting.

Question 30

What is the rule of contra proferentem?

Answer 30

Ambiguous contract terms are interpreted against the party who supplied them, favoring the other party’s interpretation

If more than one meaning is possible, then the meaning more favorable to the other party WILL CONTROL.

This applies to contracts between bargaining equals as well as contracts of adhesion.

Question 31

What is the doctrine of reasonable expectations?

Answer 31

even unambiguous terms may be interpreted against the drafting party if they conflict with the reasonable expectations of the other party.

Question 32

what is the general rule for using Extrinsic evidence of trade usage, course of dealing, or course of dealing for interpreting ambiguous language?

Answer 32

Extrinsic evidence of trade usage, course of dealing, or course of performance will be available as an additional means of filling contractual gaps or resolving contractual ambiguities.

i.) supplement the express terms of a contract OR

ii.) give meaning to a particular ambiguous term.

It is NOT Admissible to contradict the express terms of a contract.

Question 33

What is usage of trade?

Answer 33

A usage of trade is a regularly observed practice in a specific trade or place, creating an expectation of its application in relevant transactions.

Question 34

what is course of dealing?

Answer 34

A course of dealing is a consistent pattern of behavior in past transactions between parties that forms a basis for understanding and interpreting their future interactions and communications.

Question 35

What is course of performance?

Answer 35

course of performance occurs when a contract entails repeated actions by one party, which the other party knowingly accepts or acquiesces to WITHOUT objection.

May be available to establish the waiver of modification of an express term.

Question 36

In the event of a conflict, which prevails: course of performance, course of dealing, or usage of trade?

Answer 36

Course of performance prevails over course of dealing and usage of trade;

course of dealing prevails over usage of trade;

express terms prevail over all

Question 37

What is the parol evidence rule?

Answer 37

It governs the admissibility of oral and documentary evidence of negotiations prior to or contemporaneous with the execution of the written contract

Question 38

What is a merger clause?

Answer 38

A clause stating that the document represents the ‘complete and entire agreement’ of the parties.

If the agreement is completely integrated, no outside evidence will be permitted to modify the terms of the agreement, even if the modification is in addition to an existing term, rather than a contradiction of the term

Question 39

True or False: Merger clauses are not conclusive evidence that a writing is completely integrated.

Answer 39

True.

Question 40

What if a written agreement contains only partial information or certain terms are missing?

Answer 40

courts will allow certain extrinsic evidence to supplement or explain terms and provisions of the written agreement.

Question 41

True or False: The parol evidence rule will bar outside evidence of prior or contemporaneous agreements that contradict the written contract.

Answer 41

True.

Question 42

True or False: if a contract is partially integrated, prior consistent additional terms may be shown.

Answer 42

True.

Question 43

When is the parol evidence rule NOT applicable?

Answer 43

To:
* Subsequent agreements
* Collateral agreements
* Attacks on the validity of the written agreement

Question 44

Subsequent Agreements

Answer 44

The parol evidence rule will NOT apply to subsequent agreements entered into AFTER the execution of the written document.

Question 45

Collateral Agreements

Answer 45

The parol evidence will NOT affect agreements between the parties that are entirely distinct from the written agreement of the contract at issue.

Evidence offered to prove or enforce such “collateral agreements” is admissible.

Question 46

Attacks on the validity of the written agreement

The parol evidence rule will not bar efforts to prove that the written agreement is invalid or unenforceable. The absence of an enforceable agreement may be proved by parol evidence or any other extrinsic evidence.

What are the five ways a party can assert a claim?

Answer 46

1. Failure of an Oral Condition Precedent to the Agreement
2. Absence of Consideration
3. Mistake or Duress
4. Fraud
5. Reformation

These claims can be used to challenge the enforceability of a contract.

Question 47

What does the parol evidence rule state regarding a failure of an oral condition precedent?

Answer 47

Evidence of an oral agreement regarding a condition precedent will NOT be barred when both parties’ obligations are discharged by the failure of that condition.

This means that if the condition fails, the parties can still present evidence of their oral agreement.

Question 48

What is the rule regarding absence of consideration and the parol evidence rule?

Answer 48

Evidence that a written agreement lacks consideration or contains a false recital of consideration is NOT barred by the parol evidence rule.

This allows for the introduction of evidence to show that consideration was not present.

Question 49

How does the parol evidence rule apply to mistakes or duress?

Answer 49

Evidence that the written agreement was formed from mistake or duress may be admissible to prove that there was NEVER a contract.

This allows for challenging the validity of the contract based on how it was formed.

Question 50

What does the parol evidence rule say about fraud?

Answer 50

The parol evidence rule will NOT bar extrinsic evidence of fraud.

This means evidence that demonstrates fraudulent activity can still be presented.

Question 51

When is the parol evidence rule inapplicable regarding reformation?

Answer 51

The parol evidence rule is inapplicable when a party alleges facts entitling them to reformation of the agreement.

This allows for changes to be made to a written agreement that does not reflect the true agreement due to mistakes or fraud.

Question 52

What is the premise of reformation?

Answer 52

Reformation is based on the premise that the parties had reached an agreement, but due to mutual mistake or fraud, some provision was omitted, inserted, or incorrectly stated.

This means that the written document does not accurately express the actual agreement.

Question 53

What must be shown for a plaintiff to obtain reformation?

Answer 53

• There was an antecedent valid agreement
• It is incorrectly reflected in the writing
• Proof of these elements must be established by clear and convincing evidence

Question 54

When is reformation NOT a proper remedy?

Answer 54

Reformation is NOT proper when the parties’ original agreement is improperly documented in a way that does NOT reflect their shared understanding.

Question 55

Fill in the blank: Reformation is based on the premise that the parties had reached an _______.

Answer 55

[agreement]

Question 56

True or False: Reformation can be used to fix a contract that reflects only one party’s understanding.

Answer 56

False

Reformation is meant to address mutual mistakes, not disagreements about the terms.