Contract Interpretation

Question 1

Typical Contract Interpretation Analysis

Answer 1

1. Look to the K
2. If unclear, use innocent party rule
3. Course of performance, course of dealing, trade usage of key terms
4. If K of adhesion, may use reasonable expectations rule

If one side has reason to know other side would not have accepted a term, that term may be stricken from the K

Use reasonable expectations

Question 2

Define Parol Evidence

Answer 2

Evidence outside of the K. May include:

• Additional paperwork, negotiations, POs, bids, etc
• Verbal agreements

Question 3

Parol Evidence Analysis

Answer 3

1. Is the K fully integrated?
   a. Court will look to the K to see if there is an integration or merger provision. If so, usually no PE admitted. If not, Court may allow PE to be admitted.
2. May Parol Evidence be used to supplement the agreement?
   a. If no integration agreement, the Court may allow PE to be admitted to prove the party’s intent.
3. May Parol Evidence be used to interpret the agreement?
   a. Court will look to K to see if it is ambiguous. If so, Court may allow PE.

Question 4

Implied Terms

Answer 4

Under the UCC, courts will supply terms if reasonable under the circumstances. Best efforts are implied.

2-305 open price
2-306 best efforts
2-307 single delivery/payment on tender
2-308 place of delivery
2-309 time for delivery and notice terminate
2-310 time of payment - due upon receipt of goods (not in supplement)
2-509 risk of loss
2-513 right of inspection

Question 5

Define Good Faith

Answer 5

Implied term of K that states that each party is bound to be fair and not do anything to destroy or injure the rights of the other party.

Applies to enforcement and performance only, not formation of K

Question 6

Define Third Party Beneficiary of Warranty

Answer 6

Traditionally no privity between K and third parties but courts have allowed third party remedies if the relationship was foreseeable. Vertical v. Horizontal privity

Question 7

Restatement Modification

Answer 7

Restatement 2nd section 89 - Modification of executory K allowed if fair and equitable; allowed by statute; OR justice requires due to material change in position in reliance on promise.

Question 8

UCC Modification

Answer 8

UCC 2-209 - While modifications may be oral they must be in writing if main K so provides (except between merchants if K form must initial no oral modification provision) and statue of frauds still applies. Even if modification not allowed conduct may indicate a waiver.

Question 9

Issues with Modification

Answer 9

1. Pre-existing duty rule - need new consideration but under the UCC no need for new consideration
2. Modification may be more lenient for some labor and employment Ks such as those that contain no strike provisions - public policy
3. Modifications often allowed if there are unforeseen circumstances
4. Modification not allowed under facts indicating coercion. If party agrees to modification under duress modification not valid
5. Party must object to modification or conduct may indicate no duress.

Question 10

Conditions Precedent Rule

Answer 10

A condition precedent is an act or event, other than a lapse of time, that must occur before a duty to perform. It may be express or implied.

Issues:

• An express condition may be waived, excused by breach or forfeiture, or not enforced due to public policy considerations
• To determine if a condition has been satisfied the preference is to use the objective reasonable man standard rather than a subjective standard
• A good faith standard is still applied to subjective standard for aesthetics or fancy

Question 11

Material Breach Rule

Answer 11

Non-performance of a duty under a contract is a breach but to excuse performance the breach must be material.

1. Is the victim of the breach deprived of the benefit of the bargain?
2. Can the victim of the breach be adequately compensated for the deprivation of that benefit?
3. Will the breaching party suffer forfeiture?
4. Likelihood breaching party will cure, taking into account reasonable assurances
5. Extent of breaching party’s failure to meet standards of good faith and fair dealing

Issues:

• Restatement 2nd Section 242 specifies when non-performance justifies considering K repudiated (total breach)
  a. Material OR
  b. Further delay may hinder or prevent party from making reasonable arrangements
• Substantial performance may overcome a minor breach affecting the damages awarded.
• Substantial performance occurs when the non-breaching party is given essentially what he contracted for
• A willful breach does not bar recovery for substantial performance but it may be a factor in determining if there is substantial performance

Question 12

Anticipatory Repudiation Rule

Answer 12

Performance is excused if K is repudiated. Repudiation is an indication that a party does not intend to perform under the K. The party that anticipates repudiation may demand adequate assurances from the other party of intent to perform.

Issues:

• Repudiation can be by expression, conduct, or circumstances
• Repudiation may be retracted if done before other party has materially changed position or indicated to the repudiating party he considers the repudiation final.
• There needs to be a clear manifestation of intent not to perform for there to be a valid repudiation. A suggestion for modification does not = repudiation.