Interpreting Contracts

Question 1

What are the default UCC warranties?

Answer 1

1. Warranty of title
2. Warranty of merchantability
3. Warranty of fitness for a particular purpose.

Question 2

What is warranty of title and how do you modify it?

Answer 2

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

Question 3

What is the warranty of merchantability?

Answer 3

This warranty guarantees that the goods are fit for the ordinary purposes for which those goods would be used

Question 4

When does the warranty of merchantability apply?

Answer 4

When the seller is a merchant

Question 5

What can displace the warranty of merchantability?

Answer 5

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

Question 6

When does the warranty of fitness for a particular purpose apply?

Answer 6

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

Question 7

How do you disclaim the warranty of fitness?

Answer 7

1. The disclaimer is in writing in clear & conspicuous bold font

Or

2. The goods have obvious defects

Question 8

What is the UCC default rule for a missing price term?

Answer 8

The Price will equal the reasonable market price at the time established for delivery

Question 9

What is the UCC default rule for a missing time term?

Answer 9

A reasonable time

Question 10

What is the UCC default rule for a missing place of delivery term?

Answer 10

Seller’s place of business

Question 11

What is the common lawdefault rule for amissing price term?

Answer 11

Reasonable value for the services rendered

Question 12

What is the common lawdefault rule for amissing duration term in an employment contract?

Answer 12

At will employment

Question 13

What is the obligation of good faith and fair dealing for both the UCC and common law?

Answer 13

1. Good faith means honesty in-fact.
2. In the case of a merchant, this means honesty in-fact and observance of reasonable industry standards.

Question 14

When is the obligation of good faith and fair dealing triggered?

Answer 14

Where the terms of the contract leave out a critical term, such as:

1. The price
2. Satisfaction

Or

3. Quantity terms open to the determination of one party

Question 15

Under the UCC, what must the party entitled to determine the particular quantity of goods do?

Answer 15

Make their determination in good faith

They cannot lie about output and cannot lie about actual requirements.

Question 16

For output and requirement contracts, when will obligations under the contract be voided?

Answer 16

When there is an unreasonably disproportionate demand or tender, if there was either:

1. A stated estimate

Or

2. A past course of dealing

Question 17

What is the effect on the contract when one party has reason to know of the other party’s subjective understanding of their agreement?

Answer 17

The first party is bound by it if not corrected

More Info: Subjective Understanding and Unilateral Mistake

Question 18

When, at the time of contracting, both parties have the same subjective understanding of the contract terms, what is the effect on the contract?

Answer 18

The subjective understanding controls

Question 19

What is the rule of contra proferentem?

Answer 19

If an ambiguous term is included in the contract, then construe it against the drafter.

Question 20

When does the doctrine of reasonable expectations apply?

Answer 20

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.

Question 21

In construing a contract, what is the controlling hierarchy of the contract language

Answer 21

In order of descending importance:

1) Express term
2) Course of performance
3) Course of dealing
4) Usage in trade

Question 22

What is usage in trade?

Answer 22

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.

Question 23

What is a course of dealing?

Answer 23

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.

Question 24

What is a course of performance?

Answer 24

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.

Question 25

Trade usage, course of dealing, and course of performance are admissible in contract interpretation for? What can they not be used for?

Answer 25

They can:

1) Fill in gaps
2) Resolve ambiguities

They cannot:

1) Contradict the express terms of the contract

Question 26

What can course of performance evidence establish?

Answer 26

It can establish a waiver or modification of express terms in a contract.

Question 27

What is a partially integrated contract?

Answer 27

The terms contained within the writing are intended to be the final expression of those terms

Question 28

What is a completely integrated contract?

Answer 28

The parties intend the contract to be the complete and exclusive statement of all the terms.

More Info: Integrated Contracts

Question 29

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?

Answer 29

The judge, not the jury

Question 30

What is the best evidence of a completely integrated contract?

Answer 30

A merger clause stating that the writing contains the complete and entire agreement of the parties, or other words to that effect.

Question 31

What are the three purposes for which parole evidence is introduced?

Answer 31

1. To explain or interpret the terms of the written contract
2. To supplement the terms of the written contract

And

3. To contradict the terms of the written contract

Question 32

What is the legality of using parole evidence to explain or interpret terms of a written contract?

Answer 32

Parole evidence is always admissible for this purpose.

Question 33

What is the common law legality of using parole evidence to supplement terms of a written contract?

Answer 33

Parole evidence is admissible for this purpose unless the contract is completely integrated.

Question 34

What are the steps in analyzing a parole evidence issue?

Answer 34

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?

Question 35

What is the UCC legality of using parole evidence to supplement terms of a written contract?

Answer 35

Parole evidence of trade usage, course of dealings, and course of performance can supplement a completely integrated agreement.

Question 36

What is the legality of using parole evidence to contradict the terms of a written contract?

Answer 36

Parole evidence is not admissible for this purpose.

Question 37

The parol evidence rule only applies to what types of evidence?

Answer 37

Oral or written communications made prior to, or contemporaneously with, the execution of a written agreement.

More Info: Parol Evidence Rule

Question 38

Does the parole evidence rule apply to an attack on the validity of the written agreement?

Answer 38

No, you can use parole evidence to prove that the written agreement is invalid or unenforceable.

More Info: Parol Evidence Rule

Question 39

How can a party assert an attack on the validity of a written agreement using parole evidence?

Answer 39

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