Terms of the Contract

Question 1

When a writing is an integration

Answer 1

Two components of when a writing is an integration
- whether the writing was intended as the final expression of the agreement, and
- whether the integration was intended to be complete or partial

Evidence is admissible to show the parties’ intent

Question 2

Parol Evidence Rule generally

Answer 2

Parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain, the writing is an integration

Any other expressions (written or oral) made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing

Question 3

Partial integration and complete integration - additional terms (PER)

Answer 3

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

But if the integration is partial, writing may not be contradicted but may be supplemented by proving consistent additional terms

Question 4

Merger Clause and integration

Answer 4

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

Presence of a merger clause is usually determinative in large commercial contracts

For most contracts, modern trend is to consider it as one factor in determining integration

Question 5

Memo prepared by one party and not shown to other & confirmatory memo - PER

Answer 5

A memo prepared by one party and not shown to the other can never be an integration because the parties could not have intended it to be the final complete expression of their agreement

Confirmatory memo pay be a partial integration under the UCC because it was sent to the other party and that party was aware of its contents

Question 6

Scope of evidence for PER

Answer 6

The rule prohibits admissibility of only extrinsic evidence that seeks to vary, contradict, or add to an integration

But other forms of extrinsic evidence may be admitted if they won’t bring about this result

Question 7

Evidence for PER and validity issues

Answer 7

A party to a written contract can attack the agreement’s validity

Asserting that the agreement never came into being because of any of the following
- formation defects
- conditions precedent to effectiveness

Question 8

PER and formation defects

Answer 8

Evidence allowed to attack agreement

Asserting that the agreement never came into being because of formation defects
- fraud
- duress
- mistake
- illegality

Question 9

PER and conditions precedent to effectiveness

Answer 9

Evidence allowed to attack agreement

Asserting that the agreement never came into being because of conditions precedent to effectiveness

If a party asserts that there was 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 10

Collateral agreements - evidence for PER

Answer 10

Parol evidence is often said to be admissible if the alleged parol agreement is collateral to the written obligation - related to the subject matter but not part of the primary promise - and does not conflict with it

Rstm naturally omitted terms doctrine similar concept

Question 11

Rstm naturally omitted terms doctrine - evidence for PER

Answer 11

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

A term would naturally be omitted if
- it does not conflict with the written integration, and
- it concerns a subject that similarly situated parties would not ordinarily be expected to include in the written instrument

Question 12

Interpretation - evidence for PER

Answer 12

If there is uncertainty or ambiguity in the written agreement’s terms or a dispute as to the meaning of those terms, parol evidence can be received to aid the fact finder in reaching a correct interpretation of the agreement

However, if the meaning of the agreement is plain, parol evidence is inadmissible

Question 13

Consideration and evidence for PER

Answer 13

The parol evidence rule will not bar extrinsic evidence showing true consideration paid

Question 14

Reformation and evidence for PER

Answer 14

If a party to a written agreement alleges facts (like mistake) entitling him to reformation of the agreement, the parol evidence rule is inapplicable

Question 15

Subsequent modifications and evidence for PER

Answer 15

Parol evidence can be offered to show subsequent modifications of a written contract

PE only looks back at evidence before the writing

Question 16

Article 2 additional terms and evidence for PER

Answer 16

Article 2 generally follows the rules for PER - party cannot contradict a written contract but may add consistent additional terms unless
- merger clause, or
- 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 17

Contracts general intent and construction

Answer 17

Contracts will be construed as a whole

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

Question 18

Article 2 explain or supplement evidence - PER

Answer 18

Provides that a written contract’s terms may be explained or supplemented by evidence of course of performance, course of dealing, and usage of trade
- regardless of whether or not the writing appears to be ambiguous

Question 19

Ordinary meaning and construction

Answer 19

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 20

Inconsistent provisions and construction

Answer 20

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

Question 21

Valid and enforceable - construction

Answer 21

Courts generally will try to reach a determination that a contract is valid and enforceable

Question 22

Ambiguities and construction

Answer 22

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

Question 23

Course of dealing and construction

Answer 23

The parties’ course of dealing can be used to interpret a contract

Sequence of conduct concerning previous transactions between the parties to a particular transaction that may be regarded as establishing a common basis of their understanding

Question 24

Usage of trade and construction

Answer 24

A usage of trade can be used to interpret the contract

Practice or method of dealing, regularly observed in a particular business setting so as to justify an expectation that it will be followed in the transaction in question

Question 25

Course of performance and construction

Answer 25

The parties’ course of performance can be used to interpret the contract

If a contract involves repeated occasions for performance by either party and the other party has the opportunity to object to such performance

Any course of performance accepted or acquiesced to is relevant in determining the meaning of the contract

Question 26

When express terms, course of dealing, course of performance, and trade usage conflict

Answer 26

Express terms are given greater weight than course of performance, course of dealing, and usage of trade

Course of performance is given greater weight than course of dealing and course of dealing is greater weight than trade usage

Question 27

Gap-filler terms and Article 2

Answer 27

If other terms are missing from the agreement other than the quantity term, Article 2 has gap-filler provisions to fill in the missing terms
- price
- place of delivery
- time for shipment or delivery
- time for payment
- assortment

Question 28

Price - gap-filler

Answer 28

If nothing has been said as to price,
- the price is left open to be agreed upon by the parties and they fail to agree, or
- 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 29

Place of delivery - gap-filler

Answer 29

If the place of delivery isn’t specified, the place usually is the place of business

If don’t have one, then seller’s home

Question 30

Time for shipment / delivery - gap-filler

Answer 30

If the time for shipment or delivery is not specified, shipment / delivery is due within a reasonable time

Question 31

Time for payment - gap-filler

Answer 31

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 32

Assortment - gap-filler

Answer 32

If a contract provides that an assortment of goods is to be delivered and does not specify which party is to choose the assortment, it is at the buyer’s option

If the party who has the right to specify the assortment does not do so seasonably, the other party is excused from any resulting delay and may either proceed in any reasonable manner or treat the failure as a breach

Question 33

Warranties and contract for sale of goods

Answer 33

Contracts for the sale of goods automatically include a warranty of title

May also include certain implied warranties and express warranties

Question 34

Express warranties

Answer 34

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, sample, or model is part of the basis of the bargain

Question 35

Express warranties - basis of the bargain

Answer 35

For the statement, description, sample, or model to be part of the basis of the bargain, it need only come at such a time that the buyer could have relied on it when they entered into the contract

Buyer does not need to prove that they actually did rely but seller may negate the warranty by proving that the buyer as a matter of fact did not rely

Seller’s intent in the warranty is immaterial

Question 36

Express warranty vs statement of value / opinion

Answer 36

A statement relating merely to the value of the goods, or a statement purporting to be only the seller’s opinion or commendation of the goods, does not create an express warranty

Question 37

Implied warranty of merchantability

Answer 37

Implied in every contract for sale by a merchant who deals in the goods of the kind sold

That the goods are merchantable
- fit for the ordinary purpose for which such goods are used

Seller’s knowledge of the defect is not relevant - absolute liability

Question 38

Implied warranty of fitness for a particular purpose

Answer 38

A warranty will also be implied in a contract for the sale of goods whenever
- any seller (does not need to be a merchant) has a reason to know the particular purpose for which the goods are to be used
- the seller knows that the buyer is relying on the seller’s skill and judgment to select suitable goods, and
- the buyer in fact relies on the seller’s skill or judgment

Question 39

Warranty of title

Answer 39

Any seller of goods warrants that the title transferred is good, that the transfer is rightful, and 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 40

Warranty against infringement

Answer 40

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

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

Question 41

Disclaiming warranty of title

Answer 41

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

Question 42

Disclaiming warranty of merchantability

Answer 42

Can be specifically disclaimed or modified only be mentioning merchantability

If the sales contract is in writing, the disclaimer must be conspicuous

Question 43

Disclaiming warranty of fitness for particular purpose

Answer 43

The warranty of fitness for a particular purpose can be specifically disclaimed only be a conspicuous writing

Sufficient if it says, for example, there are no warranties which extend beyond the description on the face hereof

Question 44

Conspicuous defined - disclaimers

Answer 44

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
- it is larger type than surrounding text
- contrasting type, font, or color, or
- set off from the text by marks that call attention to it

Court decides any fact question as to conspicuousness

Question 45

Disclaimers - as is or similar language

Answer 45

Unless the circumstances indicate otherwise, the implied warranties of merchantability and fitness can be disclaimed by expressions such as
- as is
- with all faults, or
- other expressions that in common understanding call the buyer’s attention to the fact that there are no implied warranties

Does not need to be conspicuous, but a hidden or fine-print disclaimer of this type is not effective

Question 46

Disclaimers - by examination or refusal to examine

Answer 46

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, no warranty as to defects that a reasonable examination would have revealed

Question 47

Disclaimers - by course of dealing, etc

Answer 47

Implied warranties may also be disclaimed by the course of dealing, course of performance, or trade usage

Question 48

Disclaiming express warranties

Answer 48

Once an excess warranty is made, it is very difficult to disclaim

Question 49

Clause limiting damages for breach of warranty

Answer 49

Parties may include in their contract a clause limiting the damages available in the case of a breach of warranty (limited to repair or replacement)

Such a limitation will not be upheld if it is unconscionable
- causes remedy to fail of its essential purpose, or
- limits personal injury damages for consumer goods

Warranty disclaimers that limit damages for personal injury caused by a breach of warranty on consumer goods are prima facie unconscionable

Question 50

Warranty disclaimer and timing for effectiveness

Answer 50

To be effective, disclaimer of warranty or limitation on remedies must be agreed to during the bargaining process
- few courts hold otherwise

Most courts hold that a warranty disclaimer or limitation on remedy included inside the packaging of goods is not effective against the buyer
- but different for computer software - most courts uphold the limitations and warranties when the software comes with terms that appear during the isntallation process

Question 51

Whom do the warranties extend to generally

Answer 51

Alternative provisions in UCC for determining to whom warranty liability extends beyond the initial buyer

Most states have adopted alternative A - seller’s warranty liability extends to
- any natural person who is in the family or household of the buyer or who is a guest in the buyer’s home
- if it reasonable to expect that the person may use, consume, or be affected by the goods, and
- that person suffers personal injury because of a breach of warranty

Question 52

Delivery terms and risk of loss generally

Answer 52

All contracts for the sale of goods require delivery of the goods

Delivery terms are important because determine when risk of loss passes from the seller to the buyer

Question 53

Risk of loss and buyer right to reject goods

Answer 53

If the buyer has a right to reject the goods, the risk of loss does not pass to the buyer until the defects are cured or the buyer accepts the goods in spite of their defects

Question 54

Risk of loss and revocation of acceptance

Answer 54

If the buyer rightfully revokes acceptance, the 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 55

Seller ships nonconforming goods and risk of loss

Answer 55

If a seller ships nonconforming goods, eliminates the importance of determining whether a contract is a shipment or destination contract

If the goods are nonconforming, the risk of loss remains on the seller

Question 56

Risk of loss and non carrier case

Answer 56

A non carrier case is a sale in which it appears that the parties did not intend that the goods would be moved by a common carrier

If 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
- making goods available

Question 57

Carrier cases generally

Answer 57

A carrier case is a sale in which it appears that the parties intended the goods to be moved by a carrier

Two types of carrier cases
- shipment contracts
- destination contracts

Question 58

Shipment contract - risk of loss

Answer 58

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

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

In absence of a contrary agreement, article 2 presumes a contract is a shipment

Question 59

Seller’s duties under a shipment contract

Answer 59

In a shipment contract, the seller must
- make a reasonable contract with the carrier on behalf of the buyer
- deliver the goods to the carrier,
- promptly notify the buyer of the shipment, and
- provide the buyer with any documents needed to take possession of the goods

Question 60

Destination contracts - risk of loss

Answer 60

Contract requires the seller to deliver the goods at a particular destination

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

Question 61

Risk of loss - FOB

Answer 61

FOB - free on board

Always followed by a location

Risk of loss passes to the buyer at the named location

Seller bears the risk and expense of getting the goods to the named location

Question 62

Risk of loss - FAS

Answer 62

Free alongside

Generally used only when goods are to be shipped by boat

Risk of loss passes to the buyer once the goods are delivered to the dock

Question 63

Goods destroyed before risk of loss passes

Answer 63

If goods that were identified when the contract was made are destroyed without fault by either party and before the risk of loss passes to the buyer, contract is avoided

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

Question 64

Risk of loss - buyer’s special property interest

Answer 64

To aid buyers in the fact that a buyer often bears the risk of loss before receiving the goods purchased, Article 2 gives buyers a special property interest in goods as soon as they are identified as the ones that will be used to satisfy the contract

And this special property interest is insurable

Question 65

Terms for bilateral contracts formed by performance - article 2

Answer 65

Contract was formed by the parties’ performance where mirror image rule is not satisfied and under certain circumstances under battle of the forms

Under article 2, the contract includes all of the terms on which the writings of both parties agree
- any necessary missing terms are filled in by the supplemental terms

Question 66

Terms for bilateral contracts formed by performance - common law

Answer 66

Contract was formed by the parties’ performance where mirror image rule is not satisfied and under certain circumstances under battle of the forms

Last Shot Rule
- the contract includes the terms of the last communication sent to the party who performed