Determining the Terms of the Contract

Question 1

What is the parol evidence rule?

Answer 1

The parol evidence rule excludes evidence of prior or contemporaneous agreements that contradict a final written agreement.

Question 2

When is a writing an integration? (2 components)

Answer 2

(1) The writing was intended as the final expression of the agreement; AND
(2) The integration was intended to be complete or partial

Question 3

What is the difference between complete and partial integration?

Answer 3

If an integration is complete, the writing cannot be contradicted or supplemented.

If an integration is partial, the writing may not be contradicted but may be supplemented by providing consistent additional terms.

Question 4

True or false: The UCC presumes all writings are partial integrations.

Answer 4

True

Question 5

In what circumstance is external evidence admissible under the parol evidence rule?

Answer 5

To show the parties’ intent

Question 6

What is a merger clause? What is its legal effect?

Answer 6

A merger clause recites that the agreement is complete between the parties.

The presence of a merger clause is usually determinative in large commercial contracts. For most contracts, however, the modern trend is to consider it as one fact in determining integration.

Question 7

If a party to a written contract seeks to attack the agreement’s validity (i.e., that the agreement never came into being), what issues may the party raise, and what evidence may be offered? (2 things)

Answer 7

(1) Formation defects (e.g., fraud, duress, mistake, and illegality); extrinsic evidence of a formation defect
(2) Conditions precedent to effectiveness (i.e., an oral agreement that the written contract would not become effective until a condition occurred); all evidence of the understanding may be offered and received

Question 8

Parol evidence is often said to be admissible if the alleged parol agreement is _______ to the written obligation (i.e., related to the subject matter but not part of the primary promise) and does not conflict with it.

Answer 8

collateral

Question 9

What is the naturally omitted terms doctrine? When is a term “naturally omitted”?

Answer 9

The naturally omitted terms doctrine allows evidence of terms that would naturally be omitted from the written agreement.

A term would naturally be omitted if:
(1) It does not conflict with the written integration; AND

(2) It concerns a subject that similarly situated parties would not ordinarily be expected to include in the written instrument

Question 10

When is parol evidence admissible for purposes of interpretation?

Answer 10

If there is uncertainty or ambiguity in a written agreement’s terms or a dispute as to the meaning of those terms.

If the meaning of the agreement is plain, parol evidence is inadmissible.

Question 11

True or false: The parol evidence rule will not bar extrinsic evidence showing the “true consideration” paid (e.g., evidence that the consideration stated in the contract was never paid).

Answer 11

True

Question 12

True or false: Parol evidence is inadmissible to prove that a party to a written agreement is entitled to to reform the agreement.

Answer 12

False

Question 13

True or false: Parol evidence can be offered to show subsequent modifications of a written contracts.

Answer 13

True

Question 14

The UCC generally follows the parol evidence rule, providing that a party cannot contradict a written contract but may add consistent additional terms unless:

Answer 14

(1) There is a merger clause, or
(2) The courts find from all of the circumstances that the writing was intended as a complete and exclusive statement of the terms of the agreement

Question 15

The UCC provides that a written contract’s terms may be explained or supplemented—regardless of whether or not the writing appears to be ambiguous—by evidence of: (3 things)

Answer 15

(1) Course of performance (parties’ conduct under prior installments of current contract)
(2) Course of dealing (parties’ conduct in prior contracts)
(3) Usage of trade (industry norms parties are aware of)

Question 16

Explain the rule of construction that contracts will be construed as a “whole.”

Answer 16

Specific clauses will be subordinated to the contract’s general intent.

Question 17

Explain the rule of construction regarding ordinary meaning.

Answer 17

Courts will construe words according to their “ordinary” meaning unless it is clearly shown that they were meant to be used in a technical sense.

Question 18

Explain the rule of construction regarding written or typed provisions.

Answer 18

If provisions appear to be inconsistent, written or typed provisions will prevail over printed provisions.

Question 19

Explain the rule of construction regarding the presumption of validity.

Answer 19

Courts generally will try to reach a determination that a contract is valid and enforceable (i.e., courts will presume validity and enforceability unless proven otherwise).

Question 20

Explain the rule of construction regarding construing ambiguous terms.

Answer 20

Ambiguities in a contract are construed against the party preparing the contract, absent evidence of the intention of the parties.

Question 21

When rules conflict, what is the hierarchy of weight given to express terms, course of performance, course of dealing, and usage of trade?

Answer 21

(1) Express terms are given greater weight than course of performance, course of dealing, and usage of trade
(2) Course of performance is given greater weight than course of dealing or usage of trade
(3) Course of dealing is given greater weight than usage of trade

Question 22

True or false: If a contract for the sale of goods is missing a quantity term, a court will provide a gap-filler term as provided by the UCC.

Answer 22

False. Quantity is an essential term in a sale of goods, so the lack of a quantity term means there is no enforceable contract.

Question 23

Explain the UCC’s gap-filler provision for price.

Answer 23

If: (1) nothing has been said as to price; (2) the price is left open to be agreed upon by the parties, and they fail to agree; or (3) the price is to be fixed in terms of some standard that is set by a third person or agency, and it is not set, then the price is a reasonable price at the time for delivery.

Question 24

Explain the UCC’s gap-filler provision for time for shipment or delivery.

Answer 24

If the time for shipment or delivery isn’t specified, shipment or delivery is due within a reasonable time.

Question 25

Explain the UCC’s gap-filler provision for time for payment.

Answer 25

If the time for payment isn’t specified, payment is due at the time and place at which the buyer is to receive the goods.

Question 26

Explain the UCC’s gap-filler provisions for assortment.

Answer 26

If a contract provides that an assortment of goods is to be delivered (e.g., blouses in various colors and sizes) and doesn’t specify which party is to choose, the assortment is at the buyer’s option.

If the party who has the right to specify the assortment doesn’t do so seasonably, the other party is excused from any resulting delay and may either proceed in any reasonable manner (e.g., choose a reasonable assortment) or treat the failure as a breach.

Question 27

In a contract for a sale of goods, what will create an express warranty?

Answer 27

Any affirmation of fact or promise made by the seller to the buyer, any description of the goods, and any sample or model creates an express warranty if the statement, description, or model is part of the basis of the bargain.

Question 28

What makes a statement, description, sample, or model part of the basis of the bargain for purposes of express warranty?

Answer 28

The statement, description, sample, or model must have come at such a time that the buyer could have relied on it when they entered into the contract.

Question 29

What is the burden of proof for an express warranty, and whose burden is it?

Answer 29

The buyer DOES NOT need to prove that they actually relied upon a statement, description, sample, or model. Rather, the seller may negate the warranty by proving that the buyer did not rely as a matter of fact.

The seller’s intent is irrelevant.

Question 30

True or false: A statement relating merely to the value of goods, or a statement purporting to be only the seller’s opinion or commendation of the goods, is sufficient to create an express warranty.

Answer 30

False

Question 31

Explain the implied warranty of merchantability.

Answer 31

Implied in every contract for sale by a merchant who deals in goods of the kind sold, there is a warranty that the goods are merchantable. To be merchantable, goods must at least be “fit for the ordinary purpose for which such goods are used.”

Question 32

In a contract for goods, is the seller’s knowledge of a defect relevant to the creation of an implied warranty of merchantability? Explain.

Answer 32

No. It makes no difference that the seller didn’t know of the defect or that they couldn’t have discovered it. Implied warranties aren’t based on negligence but rather on absolute liability that is imposed on certain sellers.

Question 33

Explain the implied warrant of fitness for a particular purpose.

Answer 33

A warranty will be implied on a contract for the sale of goods whenever:
(1) ANY seller, merchant or not, has reason to know the particular purpose for which the goods are to be used and that the buyer is relying on the seller’s skill and judgment to select suitable goods; AND

(2) The buyer in fact relies on the seller’s skill or judgment.

Question 34

Explain the warranty of title.

Answer 34

ANY seller of goods warrants (1) that the title transferred is good, (2) that the transfer is rightful, and (3) that there are no liens or encumbrances against the title of which the buyer is unaware at the time of contracting. This warranty arises automatically and need not be mentioned in the contract.

Question 35

Explain the warranty against infringement.

Answer 35

A MERCHANT seller regularly dealing in goods of the kind sold also automatically warrants that the goods are delivered free of any patent, trademark, copyright, or similar claims.

But a buyer who furnishes specifications for the goods to the seller must hold the seller harmless against such claims.

Question 36

What kinds of warranties may a seller disclaim?

Answer 36

Only implied warranties, not express warranties

Question 37

How may a warranty of title be disclaimed or modified?

Answer 37

The title warranty can be disclaimed or modified only by specific language or by circumstances that give the buyer notice that the seller does not claim title or that they are selling only such rights as they or a third party may have (e.g., a sheriff’s sale).

Question 38

How may the implied warranty of merchantability be disclaimed?

Answer 38

The warranty of merchantability can be specifically disclaimed or modified only by mentioning merchantability. If the sales contract is in writing, the disclaimer must be conspicuous.

Question 39

How may the implied warranty of fitness for a particular purpose be disclaimed?

Answer 39

The warranty of fitness for a particular purpose can be specifically disclaimed only by a conspicuous writing. A written disclaimer is sufficient if it says, e.g., “there are no warranties which extend beyond the description on the face hereof.”

Question 40

What makes a term “conspicuous” in a contract?

Answer 40

A term is conspicuous when it is “so written, displayed, or presented that a reasonable person against whom it is to operate ought to have noticed it.”

Language in the body of a writing is conspicuous if:
(1) It is in larger type than surrounding text;

(2) It is in a contrasting type, font, or color; or
(3) It is set off from the text by marks that call attention to it.

Question 41

Who decides any fact question as to conspicuousness?

Answer 41

The court (NOT the jury)

Question 42

What is the legal effect of expressions like “as is” or “with all faults” in a contract for the sale of goods?

Answer 42

The implied warranties of merchantability and fitness can be disclaimed with such language. This type of disclaimer does not need to be conspicuous, but a hidden or “fine-print” disclaimer of this type is not effective.

Question 43

What is the legal effect of examination or failure to examine on contracts for the sale of goods?

Answer 43

If the buyer, before entering into the contract, has examined the goods or a sample or model as fully as they desire or has refused to examine, there is no warranty as to defects that a reasonable examination would have revealed.

Question 44

True or false: Implied warranties may be disclaimed by the course of performance, course of dealing, or usage of trade.

Answer 44

True

Question 45

The UCC provides that words or conduct relevant to the creation of express warranties and words or conduct tending to negate such warranties shall, wherever possible, be construed as consistent with each other, but:

Answer 45

“negation or limitation is inoperative to the extent that such construction is unreasonable”

Question 46

True or false: Parties may include in their contract a clause limiting the damages available in the case of breach of warranty.

Answer 46

True

Question 47

A limitation on damages in a contract for breach of warranty will not be upheld if it is _______.

Answer 47

unconscionable

Question 48

Warranty disclaimers that limit damages for personal injury caused by a breach of warranty on consumer goods are _______.

Answer 48

per se unconscionable

Question 49

When must a disclaimer of warranty or limitation on remedies be agreed to in order to be effective? Any exceptions?

Answer 49

During the bargaining process.

A warranty disclaimer or limitation on remedies included inside packaging of goods is not effective against the buyer.

EXCEPTION: “Clickwrap” agreements containing warranty disclaimers or limitations on remedies in computer software are generally effective because a purchaser can return the software if they disagree with the conditions.

Question 50

In general, what damages may a buyer recover for breach of warranty? (3 things)

Answer 50

(1) The difference between the value of the goods accepted and the value of the goods as warranted, measured at the time and place of acceptance
(2) If there are special circumstances, damages may be measured differently to account for those circumstances
(3) Appropriate incidental and consequential damages

Question 51

What happens in the event of a breach of warranty of title? What damages are available to the buyer?

Answer 51

The goods are reclaimed by the true owner or lienholder, and the buyer is dispossessed. The buyer may rescind the contract, revoke acceptance of the goods, or sue for damages.

The value of the goods accepted is deemed to be nothing, so the damages are the value of the goods as warranted. Often, but not always, that’s the same as the purchase price.

Question 52

If there are special circumstances such as a great appreciation or depreciation in the value of the goods from the time of delivery, what damages are available to the buyer in the event of a breach of warranty?

Answer 52

Damages are measured at the time of dispossession rather than at the time of acceptance.

Question 53

To whom, besides the buyer, do warranties extend?

Answer 53

Most states have adopted the narrowest provision in the UCC, “Alternative A,” which provides that the seller’s warranty liability extends to:

(1) Any natural person who is in the family or household of the buyer, or
(2) who is a guest in the buyer’s home, if
(3) it is reasonable to expect that the person may use, consume, or be affected by the goods, and
(4) that person suffers personal injury because of a breach of warranty

Question 54

What is the legal effect on risk of loss if damaged goods are delivered to a buyer who has a right to reject the goods?

Answer 54

Risk of loss doesn’t pass to the buyer until the defects are cured or the buyer accepts the goods despite their defects.

Note that a buyer generally has the right to reject for any defect.

Question 55

What is the legal effect on risk of loss if a buyer rightfully revokes acceptance?

Answer 55

Risk of loss is treated as having rested on the seller from the beginning to the extent of any deficiency in the buyer’s insurance coverage.

Question 56

What is a noncarrier case? What happens with risk of loss in a noncarrier case?

Answer 56

A noncarrier case is a sale in which it appears that the parties did not intend that the goods would be moved by a common carrier (e.g., when you buy something at a physical store).

In such a case, if the seller is a merchant, risk of loss passes to the buyer only when they take physical possession of the goods. If the seller is NOT a merchant, risk of loss passes to the buyer upon tender of delivery.

Question 57

What is a carrier case?

Answer 57

A carrier case is a sale in which it appears that the parties intended the goods to be moved by a carrier (e.g., when you order a book from a website). There are two types of carrier cases: (1) shipment contracts and (2) destination contracts.

Question 58

What is a shipment contract? What happens with risk of loss in a shipment contract?

Answer 58

A shipment contract is formed if the contract authorizes or requires the seller to ship the goods by carrier but does not require them to deliver the goods at a particular destination. In the absence of a contrary agreement, the UCC presumes a contract is a shipment contract.

Risk of loss passes to the buyer when the goods are delivered to the carrier.

Question 59

What are the seller’s duties under a shipment contract?

Answer 59

The seller must:
(1) Make a reasonable contract with the carrier on behalf of the buyer;

(2) Deliver the goods to the carrier;
(3) Promptly notify the buyer of the shipment; AND
(4) Provide the buyer with any documents needed to take possession of the goods

Question 60

What is a destination contract? What happens with risk of loss in a destination contract?

Answer 60

A destination contract is formed if the contract requires the seller themselves to deliver the goods at a particular destination (e.g., the seller directly delivers the goods or the buyer picks them up from the seller at some particular location).

Risk of loss passes to the buyer when the goods are tendered to the buyer at the destination.

Question 61

What is a sale or return contract? What happens with risk of loss in a sale or return contract?

Answer 61

In a sale or return contract, the buyer takes goods for resale but may return them if they are unable to resell the goods.

If the goods are returned to the seller, risk of loss remains on the buyer while the goods are in transit.

Question 62

What is a sale on approval contract? What happens with risk of loss in sale on approval contracts?

Answer 62

In a sale on approval, the buyer takes the goods for use but may return them even if they conform to the contract (e.g., a contract that allows you to return a product within a time period if you’re dissatisfied with for any reason).

Risk of loss does not pass to the buyer until they accept.

Question 63

If goods that were identified when the contract was made are damaged or destroyed, the contract is avoided if:

Answer 63

(1) There is no fault by either party AND
(2) The damage or destruction occurred before the risk of loss passed to the buyer

If the goods were not identified until after the contract was made, the seller would have to prove impracticability.

Question 64

What is the last shot rule?

Answer 64

Under the common law of contracts, if a bilateral contract is formed by performance, the contract includes the terms of the last communication sent to the party who performed.