Contracts

Question 1

Parol Evidence (Extrinsic Evidence)

Answer 1

R2K §§ 214, 215, 216
UCC § 2-202(2)

Rule: Evidence outside of the contract should not be considered in contract interpretation, unless an ambiguity exists which cannot be resolved by the information in the contract.

Process:
1. Determine whether an ambiguity exists
(a) 4 corners rule (majority rule) = only intrinsic evidence + trade usage
(b) Provisional rule (minority rule) = all intrinsic and extrinsic evidence

2. If an ambiguity exists, resolve it using intrinsic, extrinsic, and trade usage (in both majority and minority jurisdictions)

Question 2

Parol Evidence Rule (Parol Promises)

Answer 2

R2K §§ 209, 210, 213
UCC § 2-202(1)

Rule: Prevent disputes over promises which the parties did not intend to be included in their final agreement

Process:
1. Determine whether the agreement is completely or partially integrated
(a) Provisional rule (majority rule) = all intrinsic and extrinsic evidence
(b) 4 corners rule (minority rule) = intrinsic evidence only

2. If the agreement is completely integrated:
   - All prior and contemporaneous promises that are within the scope of the agreement are discharged
   - Promissory estoppel claims from prior and contemporaneous promises are all discharged
   - Promises made after the agreement was formed are valid as either modifications or separate agreements
   - Promises out of scope of the agreement can be valid as a separate agreement
3. If the agreement is partially integrated:
   - Promises which are not in the agreement, but which are in the scope of the agreement and consistent with the agreement may be considered
   - All prior and contemporaneous promises which are inconsistent with the written agreement are discharged

Question 3

Contract Modifications

Answer 3

R2K § 89
UCC § 2-209

Common Law:
Modifications are allowed when:
(a) supported by consideration; OR
(b) not supported by consideration, but conditions of R2K § 89 are met:
(i) contract not fully performed; AND
(ii) modification is fair and equitable in light of circumstances not anticipated by the parties at the time the contract was made; OR
(iv) modification provided for by statute; OR
(v) justice requires enforcement in view of material change of position in reliance on the promise

UCC 2-209
Modifications are allowed when:
(a) the parties agree to the modification (agreement is required, but consideration is not); AND
(b) the modification meets the test of good faith (no hold-ups/extortion)

Question 4

Unconscionability

Answer 4

R2K § 208
UCC § 2-302

At the time the contract was made:
(1) One party has little meaningful choice during the formation process (procedural unconscionability)
- Standardized form agreement
- Unequal bargaining power between the parties
- Lack of opportunity to read or become familiar with the terms before agreeing
- Use of fine print in the portion of the contract containing the unfavorable provision
- Unfair surprise or lack of notice about the unfavorable provision

(2) Terms of the contract are unreasonably favorable to the other party (substantive unconscionability)
- Absence of evidence that the provision was commercially reasonable
- Term “shocks the conscience”

Question 5

Implied covenant of good faith and fair dealing

Answer 5

R2K § 205
UCC § 1-305

Every contract imposes an obligation of good faith and fair dealing between the parties in its performance and enforcement.
- R2K: Bad faith = evading the spirit of the bargain
- UCC: Good faith = honesty in fact in the conduct or transaction

This obligation means that neither party will do anything to injure or destroy the right of the other party to receive the benefits of the agreement.

Does NOT write into the contract obligations that do not exist, and does NOT override express terms of the contract. If the defendants were given the right to do what they did by the express provisions of the contract, there can be no breach.

Question 6

Unenforceable Terms