Contract Terms

Question 1

What is the parole evidence rule (PER)?

Answer 1

PER keeps out evidence of a prior or contemporaneous agreement (either oral or written) that contradicts a later writing.

**NOTE: **A PER problem requires a writing - so if a fact pattern involves an oral agreement, its SOF problem.

Question 2

What are the exceptions to PER (where the evidence gets in)?

Answer 2

1. To correct a clerical error (e.g. a typo);
2. To establish a defense against formation;
3. To interpret a vague or ambiguous term;
4. To add to a *partially integrated *writing (a final statement of the terms included, but not a complete statement of all the terms agreeed to)

A contract that has a merger clause [“This contract is limited to the terms herein”] - the writing is complete, and cannot be supplemented.

Question 3

What does the PER not deal with?

Answer 3

**Subsequent Developments: **The PER has nothing to do with what happens after an agreement is reduced to writing.

Question 4

How can conduct explain terms or fill in gaps in a contract?

Answer 4

In descending order of importance:

1. Course of Performance: what the parties did *under this contract *- course of performance is the *best evidence *of what the parties intended.
2. Course of Dealing: what they did under prior contracts with each other - course of dealing is more removed from this contract - it’s about prior deals.
3. Usage of Trade: What others in the trade do in similar contracts - usage of trade is furthest removed from this contract - it’s about how other people act.

Question 5

What are the different types of warranties in a contract in an Article 2 sale of goods?

Answer 5

1. Express Warranties: A seller is liable for breach of an express warranty.
   a. Examples: statements of fact, promises, descriptions of the goods, and the use of a sample or model are express warranties.
   b. Opinion: an opinion is not an express warranty - look for general or subjective statements.
   c. Must be a “basis of the bargain”: If the buyer could have relied on the express warranty, it was a “basis of the bargain.”
2. Implied Warranties:
   a. Implied Warranty of Merchantibility (IMW) - the goods are fit for their ordinary purpose.
   i. Key Fact: Seller is a merchant who deals in goods of the kind being sold (i.e. a “dealer” who has specialized knowledge about particular goods involved in the transaction).
   b. Implied Warranty of Fitness for the Buyer’s Particular Purpose: the goods are fit for buyer’s particular purpose.
   i. Key Fact: Seller knows buyer has a special use for the goods and is relying on seller to pick out goods suitable for that use.
   ii. Note: any seller can make an implied warranty of fitness, merchant or not.

Question 6

What are limitations on warranty liability in Article 2 sales of goods?

Answer 6

1. Disclaimers: A seller can disclaim implied, but not express, warranties.
   a. If a contract provides “as is” or “with all faults” - this language disclaims all implied warranties.
   b. if a contract provides “THERE ARE NO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS,” there are no implied warranties. Absent the use of the phrases above, the disclaimer must be conspicuous and must use the word merchantability in order to disclaim IWM.

Question 7

How is risk of loss (ROL) determined in an Article 2 sale of goods?

Answer 7

In the order listed here:

1. Agreement: the agreement of the parties controls.
2. Breach: breaching party bears ROL, even if the loss is unrelated to breach.
3. Delivery by Common Carrier: ROL shifts to buyer when seller completes its delivery obligations:
   a. Shipment Contract: Seller must get the goods to a common carrier, make delivery arrangements, and notify buyer. ROL passes to the buyer before it gets the good. These contracts are presumed, unless the contract clearly indicates otherwise.
   b. **Destination Contract: **Seller must get the goods to a specific destination (usually where the buyer is located).

TIP: Look out for FOB, followed by the name of a city or place. ROL passes to buyer at the named location. If the place is where the seller is located, you have a shipment contract. If its anywhere else, you have a destination contract.

4. Non-Carrier Cases: the answer depends on whether the seller is a merchant.
   a. Merchant-Seller: seller bears ROL until buyer takes possession of the goods.
   b. Non-Merchant Seller: ROL passes to buyer once seller “tenders” the goods (i.e. makes them available to the buyer). This means that ROL passes sooner under this scenario.