Gap-Fillers, Interpretation, and Parol Evidence Rule

Question 1

Implied warranties under the UCC

Answer 1

Warranty of Title and against Infringement

Warranty of Merchantability

Warranty of Fitness for a Particular Purpose

Question 2

Warranty of Title and against Infringement

Answer 2

UCC implied warranty

For the sale of all goods, there is an implied warranty of good title to the goods, the rightful transfer of the goods, and that no liens or other security interests are attached to those goods.

How to exclude/modify:
+ specific language; OR
+ circumstances giving the buyer reason to know that the seller does not claim unencumbered title.

Limitations:
A seller is not liable for such a claim if the buyer provides specifications to the seller and the claim arises out of compliance with the specifications.

Question 3

Warranty of Merchantability

Answer 3

UCC implied warranty

If the seller of the goods is a merchant with respect to goods of that kind under the UCC, there is a warranty that guarantees the goods are fit for the ordinary purposes for which those goods would be used.

How to exclude/modify:
By language mentioning “merchantability” and need not be in a writing. However, if it is in a writing, must be conspicuous.

Question 4

Warranty of Fitness for a Particular Purpose

Answer 4

UCC implied warranty

Grants that the goods being sold are fit for the particular purpose for which the buyer intends to use them.

How to exclude or modify:
By language in a writing that is conspicuous.

Limitations:
Warranty only applies where, at the time of contracting, the seller has good reason to know:
+ the particular purpose for which the goods are required; AND
+ that the buyer is relying on the seller’s skill/judgment to select or furnish reasonable goods.

Question 5

Excluding implied warranties of fitness

Answer 5

Language to exclude all implied warranties of fitness is sufficient if it states, for example, that “There are no warranties which extend beyond the description on the face hereof.”

HOWEVER, above language is NOT necessary to exclude/modify the warranty if:

(1) K includes language that calls the buyer’s attention to the exclusion of warranties and makes plain there is no implied warranty (i.e. “as is” or “with faults”);
(2) buyer has fully examined goods before entering K, or has refused to do so - no implied warranty as to defects that should have been apparent from examination; OR
(3) course of dealing, course of performance, or usage of trade indicate that the warranty is excluded or modified.

Question 6

Express warranties under UCC

Answer 6

Express warranties created by seller as follows:

(1) any affirmation of FACT OR PROMISE that becomes part of the basis of the bargain
(2) any DESCRIPTION OF GOODS that is basis of the bargain
(3) any SAMPLE OR MODEL that is basis for the bargain

Seller doesn’t need to use formal words such as “warrant” or “guarantee,” nor does seller have to have specific intention to make a warranty in order to create the express warranty. BUT must be more than mere affirmation of value of goods or statement of seller’s opinion.

Where an express warranty conflicts with a limitation/disclaimer, the warranty will prevail.

DAMAGES: difference at the time and place of acceptance between value of goods accepted and value they would have had if they had been as warranted.

Question 7

Missing terms gap-filling default rules under UCC

Answer 7

PRICE : Reasonable price at time established by K for delivery of goods.

TIME: Contractual action must be performed within a reasonable time.

PLACE OF DELIVERY: Place of delivery will be seller’s place of business unless otherwise agreed.

Question 8

Common law default rules for Service/Employment K’s

Answer 8

MISSING PRICE TERM: Reasonable value of services rendered. typically available based on quantum meruit.

MISSING DURATION TERM: In almost every jx, employment-at-will rule is the default rule for duration of an employment contract; employer may dismiss and an employee may quit at any time for any reason.

Majority of jxs - oral/written assurances of job security made to an individual employee, as well as assurances contained in policy docs distributed to workforce, may suffice to take K out of default rule.

Most courts will enforce a clear and conspicuous declaration in a personnel handbook or other employer policy statement to the effect that the employment relationship is “at will.”
A conflict between such a disclaimer and other written/oral representations by the employer will create a jury question on whether the employer has successfully opted out of the at-will default.

Question 9

Obligation of Good Faith and Fair Dealing

Answer 9

UCC and Restatement impose obligation of good faith in performance/enforcement of K’s.

GOOD FAITH = “honesty in fact in the conduct or transaction concerned”.
MERCHANT GOOD FAITH: “honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.”

Can only be raised in regards to performance and enforcement NOT negotiations/other precontractual conduct.

OPEN PRICE TERM - K leaves price to be fixed by one of the parties, specified party must fix it in good faith.

SATISFACTION TERM: Determination as to whether a party’s performance obligation is complete left to the discretion of the other party – good-faith obligation in making that determination.

Question 10

Output and Requirement K’s

Answer 10

OUTPUT K = Buyer agrees to purchase all of seller’s output of a particular good.

REQUIREMENTS K = K in which the seller agrees to supply the buyer with all of the buyer’s requirements for a particular good.

UCC - Party entitled to determine the particular quantity of goods to be sold must make the determination in good faith.

UCC also prohibits unreasonably disproportionate demand or tender, if there was either:

(1) a stated estimate made between the parties; OR
(2) in absence of stated estimate, any comparable prior outputs or requirements.

Question 11

Objective v. Subjective meaning

Answer 11

Objectively reasonable meaning of a term at time of contracting controls over a contrary subjective understanding of the term by one of the parties.

2 exceptions:

(1) if the other party knows or has reason to know of the first party’s subjective understanding. Subjective controls.
(2) where evidence demonstrates that both parties shared subjective understanding of the term at the time of contracting. Mutual subjective understanding controls.

Question 12

Contra Proferentem

Answer 12

If an ambiguous term is included in the K, then it will be interpreted against the party who supplied the term during negotiations or drafting.

Question 13

Doctrine of reasonable expectations

Answer 13

Even unambiguous terms may be interpreted against the drafting party if they conflict with the reasonable expectations of the other party.

Parties’ obligations consist of the dickered (specific) terms and only the boilerplate terms that would be consistent with the reasonable expectations of the purchaser. Unreasonable boilerplate terms are unenforceable.

Question 14

Trade Usage, Course of Dealing, and Course of Performance

Answer 14

Evidence of trade usage, course of dealing, or course of performance is admissible under the UCC and is typically available in common law cases as well.

Such evidence may be used to supplement the express terms of a K or to give meaning to a particular ambiguous term.

NOT admissible to contradict EXPRESS terms of a K.
BUT – course of performance evidence may be available to establish the waiver/modification of an express term.

Course of performance > course of dealing > trade usage

Question 15

Parol Evidence Rule

Answer 15

Governs efforts to introduce efforts of negotiations of the parties leading up to the execution of a written K.

Governs:

(1) both oral and documentary evidence of negotiations and other communications between parties; AND
(2) communications that took place PRIOR to or CONTEMPORANEOUSLY with the execution of written K.

Question 16

Full Integration

Answer 16

Terms contained within the K are intended to be the final discussion of the parties as to those specific terms. Does NOT mean that the parties have specifically excluded any provisions not contained within the agreement.

To determine whether terms of K are fully integrated, judge will rely on the following evidence:

(1) thoroughness/specificity of the written instrument in connection with the terms at issue; and
(2) parol and other extrinsic evidence are admissible.

Determination is made based on “all the circumstances” (including proffered parol evidence and other extrinsic evidence to the written K).

Question 17

Complete Integration

Answer 17

Parties intend the K to represent a “complete and exclusive statement of all the terms.” Only the terms contained within the written agreement are considered part of the K.

MERGER CLAUSE: Most important evidence that parties ended written agreement to represent an exhaustive account of contractual obligations - “contains the complete and entire agreement of the parties” or other words to that effect.

Some courts view merger clause as conclusive, some only view it as persuasive.

Other evidence:
Detail with which the K sets forth its provisions and length of the agreement itself.

Parol + other extrinsic evidence admissible. “All the circumstances” test.

Question 18

Parol Evidence Admissibility - explain/interpret

Answer 18

To explain or interpret the terms of the written K:

MAJORITY - Always admissible
MINORITY (Common Law) - Threshold showing that term is patently ambiguous is required first.

Question 19

Parol Evidence Admissibility - supplement

Answer 19

Admissible unless the K is completely integrated (intended to represent an exhaustive as well as final account of the parties’ obligations)

UCC distinction:
Trade usage, course of dealing, and course of performance evidence are admissible in the sale of goods cases to supplement the terms of a written agreement.

Question 20

Parol Evidence Admissibility - contradict

Answer 20

Admissible unless the term(s) in question are fully integrated (intended to represent the final agreement on the subjects in question)

UCC distinction:
Course of dealing/course of performance evidence may be admissible in sale of goods cases to “qualify” the meaning of an integrated term.

Question 21

Where Parol Evidence Rule does NOT apply

Answer 21

SUBSEQUENT AGREEMENTS entered into after the execution of the written doc.

COLLATERAL AGREEMENTS that are entirely distinct from the written agreement of the K at issue.

ATTACKS ON VALIDITY of written agreement (efforts to prove written agreement is invalid/unenforceable). The absence of an enforceable agreement may be proved by parol evidence or any other extrinsic evidence.

FAILURE OF ORAL CONDITION PRECEDENT TO AGREEMENT - Evidence that parties orally agreed to a condition precedent to K taking effect, as well as further evidence that the condition failed, not barred by parol evidence rule where both parties’ obligations would be discharged by the failure of that condition.

REFORMATION - Where a party to a written agreement alleges facts entitling him to reformation of the agreement. For plaintiff to obtain reformation, must be shown:

(1) there was an antecedent valid agreement;
(2) which is incorrectly reflected int he writing (e.g. by mistake); AND
(3) proof of these elements is established by clear and convincing evidence.