Gap Fillers, interpretation, and the parol evidence rule

Question 1

What are UCC Default Provisions?

Answer 1

used to fill in the gaps when K doesn’t address the matter, but parties free to set default rules aside by contracting otherwise

Question 2

1. For the sale of all goods, there is an implied warranty of:
2. Can only be excluded or modified by

Answer 2

1. seller has title to the goods;
   • Rightful transfer of the goods; and (not breaking any rules by transfering goods)
   • No liens or security interests are attached to the goods
2. • Specific language; eg. “no warranty” OR
   • Circumstances which give buyer reason to suspect seller does not claim unencumbered title
   • eg. estate sale where seller doesnt know about the item sold)

Question 3

1. Warranty of Merchantability applies only for goods:
2. only applies to the seller if the seller is a ________.
3. How can warrant of merchantability be displaced?

Answer 3

warrant of merchantability- Goods fit for ordinary purposes for which those goods would be used

Merchant

can be displaced• Specific use of word “merchantability” and conspicuousness if in writing; OR
• Any other language or circumstances that would be reasonably understood by a buyer to exclude the warranty (“as is” or patent defects-obvious defects car with no tires)

Question 4

1. Explain Warranty of Fitness for a Particular Purpose
2. only applies when?
3. Warranty is negated when?

Answer 4

1. Goods being sold are fit for the particular purpose buyer intends to use them for
2. ONLY applies when, at time of contracting, seller has reason to know:
   • Particular purpose for which the goods are required AND
   • The buyer relies on seller’s expertise to select reasonable goods
   (eg. buyer relies on seller’s expertise in purchasing sunscreen for vacation in a hot sunny area, if the seller knows the purpose for what the sunscreen is for and the customer gets burned)
3. Warranty negated when:
   • Disclaimer is written, clear, and conspicuous; OR (eg. no implied warranty on fitness)
   • Goods have patent defects which were easily detectable

Question 5

1. Express Warranties:
   o Goods will conform to some standard, arises whenever seller expressly makes them as part of the basis of the bargain in the following ways:
2. T or F, for express warranties the words “warrant” or “guarantee” are necessary to create.

Answer 5

1. ways: Any affirmation of promise or fact;
    Any description of the goods; or
    Any sample or model
2. False, words “warrant” or “guarantee” to create are not needed. However, vague or “sales talk” statements are considered “puffing,” not warranty.

Question 6

Under the UCC, where there are pertinent missing terms, the following default rules will fill in those missing terms: Explain the default rules
Price Term
Time Term
Place of Delivery:

Answer 6

o Price term = Reasonable price at time established by the K for delivery
o Time term = Reasonable time
o Place of delivery term = Seller’s place of business (i.e. FOB seller)

Question 7

Explain the 2) Common Law Default Rules for Service Contracts
Missing price term:

Answer 7

• Missing price term: if one party performs services at the request of another, but no price is discussed in advance, then CL default rule applies  reasonable value for services rendered

Question 8

• Another source of “gap-filling” is the obligation of good faith and fair dealing in the performance and enforcement of the K. (UCC and Restatement)

Explain the Good Faith obligation in general

Answer 8

• Good faith = honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade

Question 9

Explain the Good faith obligation where terms of K leave critical term, such as price, satisfaction, or quantity open to the determination of one party.

Answer 9

1. Open price terms = If K leaves price to be fixed by one of the parties, then that party must fix the price in good faith
2. Satisfaction terms = If K contains a satisfaction clause or similar term, then the determination as to whether a party’s performance obligation must be exercised in good faith
   EXAMPLE: A commercial developer and the seller of a piece of land enter into a contract. The developer places a condition on his purchase of the land that the seller first acquires “satisfactory leases” for the future occupancy of the land. The developer must determine in good faith whether or not the future leases are “satisfactory.”
3. o Open Quantity Terms:
    Arises in two contexts:
   • Output contract: Buyer agrees to purchase all or a percentage of a seller’s output for a particular good
   • Requirements contract: Seller agrees to supply the buyer with all or a percentage of the buyer’s requirements for a particular good

 Under the UCC, the party entitled to determine the particular quantity of goods to be sold – either the buyer demanding delivery of his requirements or the seller demanding purchase of her output – must make that determination in good faith.
 UCC also prohibits any unreasonably disproportionate demand or tender, if there was either:
• A stated estimate; OR
• A past course of dealing

Question 10

Hypothetical: Seller and Buyer are parties to a three-year contract obligating Seller to supply Buyer with the latter’s upsidasium bearing requirements for Buyer’s turbojet engine manufacturing plant. The market price for upsidasium suddenly skyrockets, and Buyer greatly increases its demand for bearings with the intention of selling them at great profit to third parties. Is seller obligated to fill the order. why or why not?

Answer 10

Seller is not obligated to fill the order because Buyer’s requirements demand was made in bad faith.

Question 11

Hypothetical The upsidasium market remains stable, but because of a decline in the commercial aviation industry, the demand for Buyer’s engines declines precipitously and accordingly Buyer reduces its monthly demand for bearings by 90% in comparison with the previous 24 months. Can the buyer do that? why or why not?

Answer 11

No, Although Buyer’s reduced demand was made in good faith, it is unreasonably disproportionate to its prior requirements and accordingly violates Section 2-306.

Question 12

1. General rule regarding interpreting ambiguous language
   Give an example
2. What is the exception this rule?

Answer 12

1) Objective Meaning Trumps Subjective Meaning

Example Contractor and Homeowner enter a contract for renovations to Homeowner’s home. The contract incorporates by reference “the specifications dated 1/11/07,” which had been prepared by Homeowner and were attached to the contract before signing. Contractor mistakenly thinks that the specifications referenced were an earlier version prepared by Contractor, and he signs the contract on that understanding. The specifications prepared by Homeowner and referenced in the contract are binding on both parties.

Exception: When one party has reason to know of other party’s subjective understanding the first party is bound by that meaning;
EXAMPLE: The facts being otherwise as stated in the previous example, just before the parties sign the contract, Homeowner overhears Contractor tell his business partner that he was glad Homeowner had agreed to Contractor’s version of the specifications. Because Homeowner knew of Contractor’s understanding of the contractual terms, that understanding controls.

Question 13

Explain Contra proferenem

• Contracts subject to this rule of construction:?

Answer 13

• Rule: If ambiguous term is included in K, then in case of doubt it is construed against the drafter

• Contracts subject to this rule of construction:
o All Ks drafted by one of the parties, whether an adhesion K or one between parties of equal bargaining power

Question 14

Explain the Parol evidence rule

Answer 14

1) Governs admissibility of oral and documentary evidence of negotiations and other communications between the parties that took place prior to or contemporaneously with the execution of the K

Question 15

Explain partial and complete integration

Explain the merger clause

Answer 15

1. Partial integration = Terms within K are intended as final expression of those specific terms
   o Note: the terms “full integration” and “partial integration” are interchangeable.
   • Complete integration = K intended to represent a complete and exclusive statement of all the terms
   • Determining Partial and Complete Integration
2. Merger clause = Writing contains complete/entire agreement or other words to that effect

Question 16

What are the 3 main purposes for which parol evidence is introduced?

specify if admissible or nonadmissible

Answer 16

• Purpose #1: To Explain or Interpret Terms of Written Contract (majority

Purpose #2: To supplement terms of the written contract; o Rule: parol evidence is admissible for this purpose unless the K is completely integrated (i.e., has merger clause)

Purpose #3: To Contradict Terms of Written Contract
o Rule: parol evidence is not admissible for this purpose

Question 17

Hypothetical: To Supplement Terms of Written Contract
A and B had a written contract under the terms of which A agrees to sell B “all the uncut timber on my property,” and the contract contained detailed terms with respect to the felling and transportation of the timber as well as a merger clause stating that the contract was “a complete and exhaustive account of the obligations between the parties.” Evidence of an oral agreement between the parties at the time of signing the contract that A would pay to have the trees inspected for termites before cutting would be admissible to supplement the agreement only if the court concluded that the contract was _________ _________ .
Some courts would consider the merger clause to be conclusive on the question of complete integration and thus bar the evidence, but other courts would treat it as persuasive only, evaluate the proffered evidence of the supplemental oral agreement, and admit it if they concluded that the parties did not intend the previously drafted merger clause to bar it despite their subsequent signatures on the contract.

Answer 17

partially (rather than completely) integrated

Question 18

T or F, Under the UCC the Trade usage, course of dealings, and course of performance can supplement a completely integrated agreement

Answer 18

True
hypothetical
A and B are logging companies and B offers evidence that sellers doing business in the commercial lumber trade invariably pay to have the trees inspected for termites before cutting. This evidence would be admissible even if the court concluded that the contract was completely integrated because under the UCC uncut timber equals “goods” and usage of trade evidence is admissible to supplement a written agreement

Question 19

T or F, parol evidence is not admissible to contradict the terms of a contract

Answer 19

True

Question 20

Hypothetical: EXAMPLE: A and B have a written contract under the terms of which A agrees to sell B “all the uncut timber on my property.” Evidence of an exchange of letters between the parties in which they agreed that their agreement would not include the shady trees in the immediate vicinity of A’s country cottage would contradict the written expression—i.e., that A had agreed to sell B “all the uncut timber on my property”. Generally not admissible unless?

Answer 20

the court concluded that the quoted provision not intended by the parties to be the final word with respect to which timber would be cut (i.e., that the writing was not integrated). In making that determination, the court is free to consider the exchange of letters and other extrinsic evidence.

Question 21

When will the Parol evidence rule not apply?

Answer 21

• Subsequent Agreements
EXAMPLE: Buyer and Seller enter into a written agreement for the sale of 1,000 widgets. Two months before delivery is to be made, the parties orally agree to modify the agreement and specify the goods as nonstandard type-Y widgets, with Buyer agreeing to pay an additional cost. Evidence of this modification would not fall within the parol evidence rule, as it was made subsequent to the execution of the written agreement.

• Collateral Agreements: PE rule will not affect agreements between parties that are entirely distinct from the written agreement of the K at issue
EXAMPLE: A and B execute a detailed written contract, complete with a merger clause, by which A agrees to sell A’s car to B. As part of the transaction, the parties orally agree that B may park the automobile in A’s garage for one year, paying $25 per month. Despite the completely integrated writing, either A or B may adduce evidence of the parking arrangement under the collateral agreement rule

Question 22

• Attack on Validity of the Written Agreement
o PE rule only applies if there’s a valid written agreement. Thus, the PE rule will not bar efforts to prove the what bases for the invalidity of the K:

Answer 22

 Failure of oral condition precedent to agreement
EXAMPLE: The parties to a written contract for the sale of artwork orally agree that the sale will not take effect unless and until a certificate of authenticity is issued by a named art expert. Because authentication is a condition precedent to the sale, the parol evidence rule will not bar proof of the oral agreement.

 Mistake or duress;

 Fraud;

 Reformation:

Question 23

 Reformation: for plaintiff to obtain reformation, it must be shown:

Answer 23

• There was an antecedent valid agreement;
• That this antecedent agreement is incorrectly reflected in the writing because of mistake or fraud; AND
• That proof is established by clear/convincing evidence

Question 24

Define Usage of trade under the UCC

Answer 24

o Usage of trade is any practice or method of dealing having such regularity of observance in a place or trade as to justify an expectation that it will be observed with respect to the transaction in question [what all members of the trade do]

Question 25

Define course of dealing under the UCC

Answer 25

o Course of dealing is a pattern of conduct based on previous transactions between the parties that is fairly to be regarded as establishing a common basis of understanding for interpreting their subsequent expressions and other conduct [what the parties did in their previous contracts].

Question 26

Define Course of Performance under the UCC

Answer 26

o Course of performance is present when a particular contract involves repeated occasions for performance by a party and the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection [how the parties have acted under their current contract].

Question 27

Extrinsic evidence is admissible to?

Answer 27

• Admissible uses: To fill in gaps (supplement terms) + resolve ambiguities (explain terms)

Question 28

Extrinsic evidence is inadmissible to?

Answer 28

• Inadmissible uses: To contradict express terms of K

Question 29

Can Trade Usage Can Fill in a Gap in the Terms of the Contract? If yes give an example

Course of Dealing Trumps Trade Usage. give an example

Answer 29

Yes

A is one of many suppliers of upsidasium, and B is one of A’s long-standing customers. A fills an order by B and demands immediate payment; B refuses. It is standard practice in the upsidasium industry for purchasers to pay invoices upon delivery, and therefore B’s refusal to do so is in violation of the parties’ contract

Same facts as the previous example except that in the past, A has regularly given B 30 days to pay for deliveries. Because this course of dealing between the parties trumps the payment-upon-delivery usage of trade, B has 30 days within which to make the required payment.

Question 30

EXAMPLE: Same facts as the previous example except that, the parties’ contract contains a provision requiring payment within seven days of delivery. So, B has seven days within which to make payment despite the past practice of paying in 30 days and the industry practice of immediate payment. why?

Answer 30

Express Terms of the Contract Trump Both Course of Dealing and Trade Usage

Question 31

Buyer and Seller enter into a written agreement for the sale of 1,000 widgets. Two months before delivery is to be made, the parties orally agree to modify the agreement and specify the goods as nonstandard type-Y widgets, with Buyer agreeing to pay an additional cost. would this fall under the parol evidence rule?

Answer 31

No Evidence of this modification would not fall within the parol evidence rule, as it was made subsequent to the execution of the written agreement.

Question 32

 Failure of oral condition precedent to agreement
The parties to a written contract for the sale of artwork orally agree that the sale will not take effect unless and until a certificate of authenticity is issued by a named art expert. Since authentication is a condition precedent to the sale will the parol evidence bar proof of the oral agreement?

Answer 32

No Because authentication is a condition precedent to the sale, the parol evidence rule will not bar proof of the oral agreement.