Contracts - Gap-Fillers, Interpretation, & Parole Evidence Rule

Front 1

Implied Warranty
(UCC - Gap-fillers)

Back 1

Default

2 types:
1. warranty of title
2. warranty of merchantability
3. warranty of fitness for a particular purpose

Front 2

Warranty of Title
(UCC)

Back 2

Implied warranty

For the sale of all goods, there is an implied warranty of:
1) Title (good title to the goods)
2) The rightful transfer of the goods
3) That no liens are attached to these goods

This warranty can only be excluded or modified by:
1) Specific language
2) Circumstances which give the buyer reason to know that the seller does not claim unencumbered title.

Front 3

Warranty of Merchantability
(UCC)

Back 3

Implied warranty

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

*This only applies to merchant sellers

The warranty of merchantability will be displaced by:
1) Specific mention of the word “merchantability” and speciousness if the disclaimer is in writing.
2) Any other language or circumstances that would be reasonably understood by a buyer to exclude that warranty
(Ex: saying “as it” or any patent (obvious) defects)

Front 4

Warranty of Fitness for a Particular Purpose
(UCC)

Back 4

Implied warranty

This warranty grants that the goods being sold are fit for the particular purpose for which the buyer intends the goods to be used

The warranty only applies where, at the time of contracting, the seller has good reason to know:
1) The particular purpose for which the buyer is buying goods
2) The buyer is relying on the seller’s skill or judgment to select reasonable goods.

The warranty may be negated:
1) Where the disclaimer is in writing, clear and conspicuous
2) The goods have patent defects which were easily detectable

Front 5

Express Warranties

Back 5

Express warranties by the seller that the goods will conform to some standard arise whenever the seller

Must be expressly or impliedly made as part of the basis of the bargain in the following ways:
a) By any affirmation of fact or promise
b) By any description of the goods
c) Any sample or model

The seller need not use the words “warrant” or “guarantee” in order to create an express warranty.
However, a mere affirmation of the value of the goods does not create a warranty—this is mere “puffing”

Front 6

Missing Terms
(UCC)

Back 6

UCC has default terms.

1. if missing price term:
--reasonable price at the time contract established delivery

2. if missing time term:
--reasonable time

3. if missing place of delivery term:
--seller's place of business

Front 7

Missing Terms
(Common Law)

Back 7

Missing price term:
reasonable value for services rendered

Missing duration term (in employment contracts):
"at-will" - the employer can fire and the employee can quit at any time for any reason

Front 8

Obligation of Good Faith and Fair Dealing

Back 8

Both the UCC and the Restatement impose an obligation of good faith in the performance and enforcement of a contract

In general, “good faith” is defined as honesty in fact.

In the case of a merchant, “good faith” means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.

Price and Satisfaction, if left open, must be done in good faith.

Open Quantity Term
-demand must be made in good faith
-the UCC prohibits any unreasonably disproportional demand or tender, it there was either:
1) A stated estimate
2) A past course of dealing

Front 9

Output Contract

Back 9

a contract in which the buyer agrees to purchase all the seller’s output for a particular good.

Front 10

Requirements Contract

Back 10

a contract in which the seller agrees to supply the buyer with all the buyer’s requirements of a particular good.

Front 11

Interpreting Ambiguous Terms

Back 11

objective trumps subjective

2 Exceptions:
1. Where one party has reason to know of the other party’s subjective understanding, the first party is bound by the subjective understanding.
2. When, at the time of contracting, both parties have the same subjective understanding, that subjective understanding will control.

Front 12

The Rule of Contra Proferentem
(re: Ambiguous terms)

Back 12

When in doubt, construe against the drafter

Types of contracts subject to this rule of construction are all contracts drafted by one of the parties, regardless of bargaining power.

Front 13

Doctrine of Reasonable Expectations

Back 13

Applies to insurance conctacts (really, any contract of adhesion--take it or leave it; no bargaining power)

he doctrine only applies to defeat the enforceability of the boilerplate terms that are inconsistent with the reasonable expectations of the purchaser.

Under the doctrine, courts make a distinction between the dickered terms and the boilerplate terms.

Front 14

Trade Usage, Course of Dealing, and Course of Performance

Back 14

Extrinsic evidence that can be used to both fill gaps and resolve ambiguities in contracts.

Admissible uses:
1) To fill in gaps
2) To resolve ambiguities

Inadmissible uses: to contradict the express terms of a party’s contract

Note, however, that course of performance evidence is uniquely available to establish a waiver or modification of even the express terms of a particular contract.

In the event of a conflict, course of performance prevails over course of dealing and usage of trade, and course of dealing prevails over usage of trade.

Front 15

Trade Usages

Back 15

Customary in that place of trade

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 transactions in question.

Front 16

Course of Dealing

Back 16

previous transactions between parties

A pattern of conduct concerning 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.

Front 17

Course of Performance

Back 17

previous conduct within a particular contract between parties

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.

Front 18

Parole Evidence Rule

Back 18

Governs the admissibility of the following type of evidence:
--both oral and documentary evidence of negotiations and other communications between the parties
--that took place prior to or contemporaneously with the execution of the contract.

**only applies to a valid written agreement

The specific conversations that lead up to the signing of the contract. Not about courses of dealing a usage of trade.

Front 19

Integration
(Parole Evidence Rule)

Back 19

2 types:
1. full integration:
--the terms contained within the contract are intended to be the final expression of those specified terms

2. complete integration
--the parties intend the contract to represent a complete and exclusive statement of all the terms.

Look to:
1. merger clause
2. other evidence

Front 20

Merger Clause
(Integration)

Back 20

writing contains the complete and entire agreement of the parties

shows the intention that the parties intended the whole thing

Front 21

Other Evidence
(Integration)

Back 21

detail of the contract provisions as well as the length of the agreement itself

Front 22

Purpose for which Parole Evidence is introduced

Back 22

1) To explain or interpret the terms of the written contract
2) To supplement the terms of the written contract
3) To contradict the terms of the written contract

Front 23

To Explain or Interpret Terms of a Written Contract
(parole evidence)

Back 23

The majority rule is that parole evidence is always admissible for this purpose.

Front 24

To Supplement Terms of a Written Contract
(parole evidence)

Back 24

The general rule is that parole evidence is admissible for this purpose unless the contract is completely integrated.

UCC Distinction for Sale of Goods Cases
a) Trade usage, course of dealings, and course of performance can supplement even a completely integrated agreement.

Front 25

To Contradict Terms of a Written Contract
(parole evidence)

Back 25

The general rule is that parole evidence is not admissible for this purpose if the terms in question are integrated.

Front 26

Parole Evidence will NOT apply

Back 26

1. subsequent agreements
2. collateral agreements
3. Attack on the Validity of the Written Agreement

Front 27

Subsequent Agreements
(Parole Evidence Rule)

Back 27

The parole evidence rule only applies to oral or written communications made prior to or contemporaneously with the execution of a written agreement.

This means that it will not apply to subsequent agreements entered into after the execution of the written document.

Front 28

Collateral Agreements
(Parole Evidence Rule)

Back 28

The parole evidence rule will not affect agreements between parties that are entirely distinct from the written agreement of the contract at issue.

Front 29

Attack on the Validity of the Written Agreement
(Parole Evidence Rule)

Back 29

The parole evidence rule will not bar efforts to prove that the written agreement is invalid or unenforceable.

Can assert in one of following ways:
1. failure of an oral condition precedent to the agreement
2. absence of consideration
3. mistake or duress
4. fraud
5. reformation

Front 30

Failure of an oral condition precedent
(attack on validity of written agreement - parole evidence)

Back 30

Evidence that the parties orally agreed to the condition precedent to the contract taking affect will not be barred.

Front 31

Absence of Consideration
(attack on validity of written agreement - parole evidence)

Back 31

Evidence that a written agreement lacks consideration or that there was a false recital of consideration is not barred.

Front 32

Mistake or Duress
(attack on validity of written agreement - parole evidence)

Back 32

Evidence of mistake or duress is not barred by the parole evidence rule

Front 33

Fraud
(attack on validity of written agreement - parole evidence)

Back 33

Majority rule: always admissible

Minority rule: admissible unless contract said the parties made no representations and relied on none in the contract.

Front 34

Reformation
(attack on validity of written agreement - parole evidence)

Back 34

The parole evidence rule is also inapplicable where a party to a written agreement alleges facts entitling him to reformation of the agreement.

For the plaintiff to obtain reformation, it must be shown:
a. There was an antecedent valid agreement
b. Incorrectly reflected in the writing by mistake or fraud.
c. Proof of these elements s established by clear and convincing evidence.