Interpreting Contracts Flashcards
What are the default UCC warranties?
- Warranty of title
- Warranty of merchantability
- Warranty of fitness for a particular purpose.
What is warranty of title and how do you modify it?
1) Good title to the goods
2) The rightful transfer of the goods
3) No liens are attached to the goods
4) Warranty can be excluded or modified by specific language or circumstances showing the absence of good title
What is the warranty of merchantability?
This warranty guarantees that the goods are fit for the ordinary purposes for which those goods would be used
When does the warranty of merchantability apply?
When the seller is a merchant
What can displace the warranty of merchantability?
1) Specific mention of the word merchantability
2) Conspicuousness (bold font) if in writing
3) Any other language or circumstances that are reasonably understood to exclude the warranty
Examples: “As is,” “Patent defects,” “easily observable defects,” or “obvious defects.”
More Info: Displacing the Warranty of Merchantability
When does the warranty of fitness for a particular purpose apply?
The warranty only applies where, at the time of contracting, the seller has good reason to know:
1) The particular purpose for which the goods are required
And
2) That the buyer is relying upon the seller’s skill to select reasonable goods for that purpose
How do you disclaim the warranty of fitness?
- The disclaimer is in writing in clear & conspicuous bold font
Or
- The goods have obvious defects
What is the UCC default rule for a missing price term?
The Price will equal the reasonable market price at the time established for delivery
What is the UCC default rule for a missing time term?
A reasonable time
What is the UCC default rule for a missing place of delivery term?
Seller’s place of business
What is the common lawdefault rule for amissing price term?
Reasonable value for the services rendered
What is the common lawdefault rule for amissing duration term in an employment contract?
At will employment
What is the obligation of good faith and fair dealing for both the UCC and common law?
- Good faith means honesty in-fact.
- In the case of a merchant, this means honesty in-fact and observance of reasonable industry standards.
When is the obligation of good faith and fair dealing triggered?
Where the terms of the contract leave out a critical term, such as:
- The price
- Satisfaction
Or
- Quantity terms open to the determination of one party
Under the UCC, what must the party entitled to determine the particular quantity of goods do?
Make their determination in good faith
They cannot lie about output and cannot lie about actual requirements.
For output and requirement contracts, when will obligations under the contract be voided?
When there is an unreasonably disproportionate demand or tender, if there was either:
- A stated estimate
Or
- A past course of dealing
What is the effect on the contract when one party has reason to know of the other party’s subjective understanding of their agreement?
The first party is bound by it if not corrected
When, at the time of contracting, both parties have the same subjective understanding of the contract terms, what is the effect on the contract?
The subjective understanding controls
What is the rule of contra proferentem?
If an ambiguous term is included in the contract, then construe it against the drafter.
When does the doctrine of reasonable expectations apply?
Contracts of adhesion (e.g. insurance)
The doctrine only applies to defeat the enforceability of boilerplate terms that are inconsistent with the reasonable expectations of the purchaser.
In construing a contract, what is the controlling hierarchy of the contract language
In order of descending importance:
1) Express term
2) Course of performance
3) Course of dealing
4) Usage in trade
What is usage in trade?
A 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 is a course of dealing?
A pattern of conduct concerning previous transactions between the parties that may fairly be regarded as establishing a common basis of understanding for interpreting their subsequent conduct.
What is a course of performance?
It is present when a particular contract involves repeated occasions for performance of the parties. The parties form a knowledge of the nature of the performance and have opportunity to object to it. The party may either expressly accepts the performance or acquiesce to it without objection.
Trade usage, course of dealing, and course of performance are admissible in contract interpretation for? What can they not be used for?
They can:
1) Fill in gaps
2) Resolve ambiguities
They cannot:
1) Contradict the express terms of the contract
What can course of performance evidence establish?
It can establish a waiver or modification of express terms in a contract.
What is a partially integrated contract?
The terms contained within the writing are intended to be the final expression of those terms
What is a completely integrated contract?
The parties intend the contract to be the complete and exclusive statement of all the terms.
More Info: Integrated Contracts
The question of whether the terms of a contract are partially integrated (final) and whether an integration is complete (exhaustive) is for who to decide?
The judge, not the jury
What is the best evidence of a completely integrated contract?
A merger clause stating that the writing contains the complete and entire agreement of the parties, or other words to that effect.
What are the three purposes for which parole evidence is introduced?
- To explain or interpret the terms of the written contract
- To supplement the terms of the written contract
And
- To contradict the terms of the written contract
What is the legality of using parole evidence to explain or interpret terms of a written contract?
Parole evidence is always admissible for this purpose.
What is the common law legality of using parole evidence to supplement terms of a written contract?
Parole evidence is admissible for this purpose unless the contract is completely integrated.
What are the steps in analyzing a parole evidence issue?
1) What is the purpose for which the evidence is being introduced?
2) Does the evidence relate to a term or contract that is integrated?
3) Is it integrated partially or completely?
What is the UCC legality of using parole evidence to supplement terms of a written contract?
Parole evidence of trade usage, course of dealings, and course of performance can supplement a completely integrated agreement.
What is the legality of using parole evidence to contradict the terms of a written contract?
Parole evidence is not admissible for this purpose.
The parol evidence rule only applies to what types of evidence?
Oral or written communications made prior to, or contemporaneously with, the execution of a written agreement.
More Info: Parol Evidence Rule
Does the parole evidence rule apply to an attack on the validity of the written agreement?
No, you can use parole evidence to prove that the written agreement is invalid or unenforceable.
More Info: Parol Evidence Rule
How can a party assert an attack on the validity of a written agreement using parole evidence?
1) Evidence that the parties orally agreed to a condition precedent to the contract taking effect will not be barred
2) Evidence that a written agreement lacks consideration or that there is a false recital of consideration is not barred
3) Evidence of mistake or duress is not barred by the parole evidence rule
4) Evidence of fraud is always admissible
