Contract Terms

Question 1

What are gap fillers?

Answer 1

If missing, Article 2 provides:

• price (reasonable at time of delivery),
• place of delivery (seller’s business),
• time of shipment (reasonable),
• time for payment (receipt of goods), and
• assortment (buyer’s option)

Question 2

What is the function of the parol evidence rule (PER)?

Answer 2

PER keeps out evidence of a prior or contemporaneous agreement that contradicts a later writing.

This can prevent supplemental, explanatory, or contradicting terms from written or oral expressions made prior to the written contract at issue or are contemporaneous with the written contract at issue.

Question 3

KK signs a lease for the Grand Ballroom for her wedding. KK claims she could select any ballroom and has a fax from the Ritz sent before the written lease supporting her claim. If KK asks the court to reform the contract, can she get the fax into evidence?

Answer 3

No. PER assumes that a later writing is more reliable than anything before it so PER prevents the fax that predates the lease being taken into account.

Question 4

What are exceptions to the parol evidence rule?

Answer 4

Exceptions to the parol evidence rule:

1. to correct a clerical error (typo)
2. to establish a defense against formation (there was misrepresentation)
3. to interpret a vague or ambiguous term
4. to add to a partially integrated writing

Question 5

After signing the written lease, the manager promised KK the Ritz “would throw in the bridal suite for free.” Does the parol evidence rule prevent KK from getting this promise into evidence?

Answer 5

The parol evidence rule does not relate to LATER agreement that contradicts the writing. PER only looks behind.

Rules for modification apply for here.

Question 6

What are methods to determine what the parties intended?

Answer 6

1. Course of conduct (conduct is the best evidence)
2. Course of dealing (what parties did under prior contracts with each other)
3. Usage of trade (industry custom)

Question 7

What is an express warranty?

Answer 7

An express warranty is a description, promise, or use of a sample or good.

E.g. “guaranteed for 2 years”

Question 8

What is an implied warranty?

Answer 8

An implied warranty can either be:

a) Implied Warranty of Merchantability - goods are fit for their ordinary purpose. This is when the seller is a merchant who deals with goods of this kind and has special knowledge.
b) Implied Warranty of Fitness for a Particular Purpose - goods are fit for buyer’s particular purpose. Seller must know buyer has a special purpose and is relying on seller to select suitable goods.

Question 9

A contract provides for the sale of a computer “as is” or “with all faults.” The contract says nothing else about quality.

Are there any implied warranties under this contract?

Answer 9

No. “As is” or “with all faults” disclaims all implied warranties.

Question 10

What is the general rule for buyer’s remedies?

Answer 10

The general rule for buyer’s remedies is that the seller can limit the buyer’s remedies for breach of any warranty as long as the limitation is not unconscionable.

*limiting buyer’s remedies for personal injury in the sale of consumer goods is presumed unconscionable

Question 11

UCC: what happens if the seller bears the risk of loss?

Answer 11

If the seller bears the risk of loss, seller must provide new goods to buyer for no additional cost or be liable for breach of contract.

Question 12

UCC: what happens if the buyer bears the risk of loss?

Answer 12

If the buyer bears the risk of loss, the buyer must still pay the contract price.

Question 13

Eastciders contracts to ship beer to a Dallas pub. An electrical shortage causes the beer to spoil in transit. The contract is silent on risk of loss and neither party is to blame for the short.

Who has the risk of loss if Eastciders shipped the beer after the contract deadline?

Answer 13

If Eastciders shipped the beer after the contract deadline, Eastciders bears the risk of loss because they breached the contract.

Question 14

T/F: Risk of loss shifts to buyer when seller completes its delivery obligations.

Answer 14

True.

Question 15

What is the effect of a shipment contract?

Answer 15

In a shipment contract, the seller must get the goods to a common carrier, make delivery arrangements, and notify the buyer. Buyer bears risk of loss BEFORE it gets the goods.

*where seller has not agreed to tender at particular destination

Question 16

What is the effect of a destination contract?

Answer 16

In a destination contract, the seller must get the goods all the way to a specific destination.

*FOB where buyer is located, and risk of loss passes to buyer at named location

Question 17

If there is no common carrier used, who bears the risk of loss when there is a merchant seller?

Answer 17

If there is no common carrier used and a merchant seller, the seller bears risk of loss until buyer takes physical possession of the goods.

Question 18

If there is no common carrier and there is a non-merchant seller, who bears the risk of loss?

Answer 18

If there is no common carrier used and there is a non-merchant seller, the risk of loss passes to the buyer once the seller “tenders” the goods (makes them available to the buyer).

Question 19

D contracts to buy a coffin from a funeral home. He’s at the loading dock to pick it up. Before he does, the coffin is ruined by hail. Does D still have to pay?

Answer 19

D does not have to pay. This is a situation in which there is no common carrier and a merchant (funeral home) seller. The seller bears the risk of loss until the buyer takes physical possession of the goods, and here D has not taken physical possession of the coffin.

Question 20

D contracts to buy a coffin at a garage sale. He goes to pick up the coffin. Before he does, the coffin is ruined by hail. Does D still have to pay?

Answer 20

Yes. This is a situation where there is no common carrier and a non-merchant seller. The risk of loss passes to the buyer D because the seller has tendered the coffin (made it available).

Question 21

T/F: Unfair price alone is not a ground for unconscionability.

Answer 21

True. Unconscionability allows a court to refuse to enforce a provision or an entire contract (or to modify it) to avoid “unfair” terms, usually due to some unfairness in the bargaining process.

Question 22

Some states still have a July 2020 bar exam. If that state bar examiner makes students waive the bar’s liability if they get COVID, is this unconscionable?

Answer 22

But actually.

Question 23

What is FOB?

Answer 23

FOB = free on board

It is always followed by a location.

For buyer: the risk of loss passes to buyer at the named location.

For seller: bears risk of loss and expense of getting goods to the named location

Question 24

What is FAS?

Answer 24

FAS = free alongside

*usually boat deliveries and risk of loss passes to buyer once the goods are delivered to the dock

Question 25

T/F: A contract that does not contain FOB (free on board) or any other term explicitly allocating risk of loss is a shipment contract.

Answer 25

True.

Question 26

T/F: If a seller ships non-conforming goods, the risk of loss remains on the seller.

Answer 26

True.

Question 27

T/F: If goods are returned to the seller, the risk remains on the buyer while the goods are in transit.

Answer 27

True.

Question 28

On December 6, the owner of an electronics store sent a written request to a computer manufacturer asking for the price of a certain laptop computer. The manufacturer sent a written reply with a catalog listing the prices and descriptions of all of his available computers. The letter stated that the terms of sale were cash within 30 days of delivery. On December 14, by return letter, the store owner ordered the computer, enclosing a check for $4,000, the listed price. Immediately on receipt of the order and check, the manufacturer informed the store owner that there had been a pricing mistake in the catalog, which should have quoted the price as $4,300 for that computer. The store owner refused to pay the additional $300, arguing that his order of December 14 in which the $4,000 check was enclosed was a proper acceptance of the manufacturer’s offer.

In a suit for damages, will the manufacturer prevail?

A - Yes, because his first communication stated terms calling for cash within 30 days of delivery.

B - Yes, because of the mistake as to price.

C - Yes, because his first communication did not constitute an offer.

D - No, because the store owner’s December 14 letter was a proper acceptance of the manufacturer’s offer.

Answer 28

(D) The store owner’s December 14 letter was an acceptance.
The manufacturer’s written reply with a catalog was the offer (in response to store owner’s request) so the December 14 letter was an acceptance.

*Price quotations may be considered as offers if given in response to a specific inquiry. Like here.

Question 29

A small processor of specialized steel agreed in writing with a small manufacturer of children’s toys that it would supply, and the manufacturer would buy, all of the manufacturer’s specialized steel requirements over a period of years at a set price per ton of steel. Their contract did not include a nonassignment clause. Recently, the toy manufacturer decided to abandon its line of steel toys, so it made an assignment of its rights and delegation of its duties under the contract to a toymaker many times larger. The large toymaker notified the steel processor of the assignment and relayed to the processor its good faith belief that its requirements will approximate those of the assignor.

Must the steel processor supply the requirements of the large toymaker?

Answer 29

Because the large toymaker acts in good faith in setting its requirements to approximately those of the small manufacturer into whose shoes it stepped, the contract may be assigned. The contract in this question is a “requirements” contract: The steel processor must sell the small manufacturer of children’s toys all the specialized steel it requires for its toys. The UCC allows the assignment of requirements contracts if the assignee acts in good faith not to alter the terms of the contract. Thus, assuming the large toymaker’s requirements remain about the same as the small manufacturer’s requirements, the steel processor would be required to honor its contract, now assigned to the large toymaker.

Question 30

T/F: An implied warranty of merchantability is read into a contract only if the seller is a merchant who deals in goods of the kind.

Answer 30

True. There is no implied warrant that the good is fit for ordinary use.

Question 31

T/F: A buyer may revoke his acceptance if a defect substantially impairs the value of the goods.

Answer 31

True. And if:

(i) was difficult to discover OR
(ii) seller assured the buyer that the goods conformed to the contract

A buyer who rightfully revokes acceptance of goods is entitled to a refund of payments made to seller, plus incidental and consequential damages.

Question 32

T/F: UCC presumes all writings are partial integrations unless there is evidence that the parties intended a writing to be the complete agreement.

Answer 32

True. Absent indication that a writing is the complete agreement, courts will typically allow parol evidence of consistent, additional terms - unless the term is something that would certainly have been included in the writing.