Determining Terms of the K

Question 1

Determining K Terms

Answer 1

• Once you have determined K exists, next determine terms

Question 2

Parol Evidence Rule - Supplementing, Explaining, or Contradicting Terms

Answer 2

• When parties express agreement in a writing w/ intent that it be the final expression of the bargain, writing is an “integration.”
• Any other expression (written/oral) made prior to the writing, as well as any oral expressions contemporaneous w/ writing, are inadmissible to vary terms of writing.

Question 3

PER: Is the Writing an Integration?

Answer 3

• There are two components:
  (1) whether writing was intended as final expression of agreement; and
  (2) whether integration was intended to be complete/partial.
• Evidence is admissible to show parties’ intent

Question 4

Partial Integration - Additional Terms Permitted

Answer 4

• If an integration is complete, writing cannot be contradicted/supplemented.
• If integration is partial, writing may not be contradicted but may be supplemented by proving consistent additional terms.
• UCC presumes all writings are partial integrations.

Question 5

Effect of Merger Clause

Answer 5

• Merger clause recites that agreement is the complete agreement between parties.
• Presence of merger clause is usually determinative in large commercial Ks.
• For most Ks, modern trend is to consider it as 1 factor in determining integration.

Question 6

Tip:

Answer 6

A memo prepared by 1 party and not shown to the other can never be an integration b/c the parties could not have intended it to be the final complete expression of their agreement when 1 party has not even seen it. The writing is merely evidence of agreement. A confirmatory memo may be a partial integration under UCC b/c it was sent to the other party and that party was aware of its contents.

Question 7

Evidence Outside Scope of PER

Answer 7

• B/C rule prohibits admissibility only of extrinsic evidence that seeks to vary, contradict, or add to an “integration,” other forms of extrinsic evidence may be admitted if they won’t bring about this result (fall outside PER scope)

Question 8

Evidence Outside PER: Validity Issues

Answer 8

• A party to a written K can attack agreement’s validity.
• The party acknowledges that writing reflects the agreement but asserts agreement never came into being b/c of any of the following:

(1) Formation Defects
-Formation defects (ex. fraud, duress, mistake,& illegality) may be shown by extrinsic evidence.

(2) Conditions Precedent to Effectiveness
- If a party asserts there was an oral agreement that the written K would not become effective until a condition occurred, all evidence of the understanding may be offered & received.

Question 9

Evidence Outside Scope of PER: Conditions Precedent to Effectiveness

Answer 9

• PE is often said to be admissible if the alleged
  parol agreement is collateral to the written obligation (related to SM but not part of the primary promise) & does not conflict w/ it.
• R.Ks include similar concept:naturally omitted terms doctrine.
• Doctrine allows evidence of terms that would naturally be omitted from written agreement.
• A term would naturally be omitted if:
  (1) it does not conflict w/ written integration; and
  (2) it concerns a subject that similarly situated parties would not ordinarily be expected to include in the written instrument.

Question 10

EOS of PER: Interpretation

Answer 10

• If there is uncertainty/ambiguity in written agreement’s
  terms/dispute as to meaning of terms, PE can be received to help reach a correct interpretation of agreement.
• If meaning of agreement is plain, PE is inadmissible.

Question 11

EOS of PER: Showing of “True Consideration”

Answer 11

• PER will not bar EE showing “true consideration” paid (such as evidence that the consideration stated in K was never paid)

Question 12

EOS of PER: Reformation

Answer 12

• If a party to a written agreement alleges facts (ex. mistake) entitling him to reformation of agreement, PE is allowed

Question 13

EOS of PER: Subsequent Modifications

Answer 13

• PE can be offered to show subsequent mods of a written K

Question 14

EOS of PER: Additional Terms Under Art 2

Answer 14

• Art 2 provides that a party can’t contradict a written K but may add consistent additional terms unless:
  (1) merger clause, or
  (2) cts find from all of circumstances the writing was intended as a complete & exclusive statement of terms of the agreement.
• Art 2 also provides that a written K ’s terms may be
  explained/supplemented by evidence of course of performance, course of dealing, and usage of trade—regardless of whether/not the writing appears to be ambiguous

Question 15

General Rules of K Construction

Answer 15

• There are # of general rules of construction applied by cts when interpreting Ks.

Question 16

General Rules of K Construction: Rules 1-4

Answer 16

(1) Ks will be construed as a “whole”; specific clauses will be subordinated to K’s general intent.
(2) Cts will construe words according to their “ordinary” meaning unless it is clearly shown they were meant to be used in a technical sense.
(3) If provisions appear to be inconsistent, written/typed provisions will prevail over printed provisions.
(4) The cts generally will try to reach a determination that K is valid & enforceable.

Question 17

General Rules of K Construction: Rules 5-8 Plus When Rules Conflict

Answer 17

(5) Ambiguities in K are construed against the party preparing the K, absent evidence of the intention of parties.
(6) Parties’ course of dealing (sequence of conduct concerning previous transactions between parties to a particular transaction that may be regarded as establishing a common basis of their understanding)
(7) Usage of trade (a practice/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)
(8) Parties’ course of performance (if a K involves repeated occasions for performance by either party and the other party has opportunity to object to performance, any course of performance accepted/ acquiesced to is relevant in determining K meaning)

• When rules conflict:
  (1) express terms are given greater weight than course of performance, course of dealing, and usage of trade;
  (2) course of performance is given greater weight than course of dealing or usage of trade; and
  (3) course of dealing is given greater weight than
  usage of trade

Question 18

Art 2 Provisions on Interpreting Ks: Gap Filler Terms

Answer 18

• The key to forming SOGK is the quantity term.
• If other terms are missing from agreement, Art 2 has gap-filler provisions to fill in missing term(s).

Question 19

Gap Filler: Price

Answer 19

• If:
  (1) nothing has been said as to price;
  (2) price is left open to be agreed upon by parties and they fail to agree; or
  (3) price is to be fixed in terms of some standard that is set by a 3rd person/agency and it is not set, then price is a reasonable price at time for delivery

Question 20

Gap Filler: Place of Delivery

Answer 20

• If place of delivery isn’t specified, the place usually is seller’s place of business, if they have one; otherwise, it’s seller’s home.

Question 21

Gap Filler: Time for Shipment/Delivery

Answer 21

• If time for shipment/delivery isn’t specified, shipment/
  delivery is due w/in a reasonable time

Question 22

Gap Filler: Time for Payment

Answer 22

• If time for payment isn’t specified, payment is due at time & place at which buyer is to receive goods.

Question 23

Gap Filler: Assortment

Answer 23

• If K provides an assortment of goods is to be delivered (ex. blouses in various colors and sizes) and doesn’t specify which party is to choose, assortment is at buyer’s option.
• If party who has right to specify assortment doesn’t do so seasonably, the other party is excused from any resulting delay and may either proceed in any reasonable manner (ex. choose a reasonable assortment) or treat failure as breach

Question 24

Warranties

Answer 24

• SOGK automatically include a warranty of title (in most cases).
• Also may include certain implied warranties & express warranties

Question 25

Express Warranties

Answer 25

• Any affirmation of fact/promise made by seller to buyer, any description of goods, and any sample/model creates an express warranty if statement, description, sample, or model is part of the basis of the bargain.
• For statement, description, sample, or model to be a part of the basis of the bargain, it need only come at such a time that buyer could have relied on it when they entered into the K.
• Buyer does not need to prove they actually did rely, although seller may negate warranty by proving that buyer did not rely.
• It isn’t necessary that seller intended affirmation of fact, description, model, or sample to create warranty.

Question 26

Express Warranties: Distinguish Statements of Value/Opinion

Answer 26

• A statement relating merely to value of goods, or
  a statement purporting to be only seller’s opinion/commendation of goods, doesn’t create an express warranty.

Question 27

Implied Warranty of Merchantability

Answer 27

• Implied in every K for sale by a merchant who deals in goods of the kind sold, there is a warranty that goods are merchantable.
• To be merchantable, goods must be “fit for the ordinary purpose for which such goods are used.”

Question 28

IWM: Seller’s Knowledge of Defect Not Relevant

Answer 28

• Makes no difference that seller didn’t know of defect or that they couldn’t have discovered it.
  -Implied warranties aren’t based on negligence but rather on absolute liability that is imposed on certain sellers

Question 29

Implied Warranty of Fitness for A Particular Purpose

Answer 29

• A warranty will also be implied in a SOGK whenever
  (1) any seller, merchant/not, has reason to know the particular purpose for which goods are to be used and that buyer is relying on seller’s skill & judgment to select suitable goods; and
  (2) buyer relies on seller’s skill/judgment.

Question 30

Warranty of Title and Against Infringement

Answer 30

(1) Warranty of Title:
- Any seller of goods warrants that title transferred is good & rightful, and there are no liens/encumbrances against title of which buyer is unaware at time of contracting.
- This warranty arises automatically & need not be mentioned in K.

(2) Warranty Against Infringement
- A merchant seller regularly dealing in goods of the kind sold also automatically warrants that goods are delivered free of any patent, trademark, copyright, or similar claims.
- But buyer who furnishes specifications for the goods to seller must hold seller harmless against such claims.

Question 31

Disclaimer of Warranties: WOT & IW

Answer 31

WOT:
- Title warranty can be disclaimed/modified only by specific language/by circumstances that give buyer notice that seller does not claim title or that they are selling only such rights as they/3rd party may have (ex. a sheriff’s sale).

IW:
- The implied warranties of merchantability & fitness for a particular purpose can be disclaimed by either specific disclaimers/general methods of disclaimer.

Question 32

Disclaimer of WOM:

Answer 32

• The warranty of merchantability can be specifically
  disclaimed/modified only by mentioning merchantability.
• If sales K is in writing, disclaimer must be conspicuous

Question 33

Disclaimer of Warranty of Fitness for a Particular
Purpose

Answer 33

• Warranty of fitness for a particular purpose can be specifically disclaimed only by a conspicuous writing.
• A written disclaimer is sufficient if it says, for example, “there are no warranties which extend beyond the description on the face hereof.”

Question 34

“Conspicuous” Defined

Answer 34

• 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:
  (1) it is in larger type than surrounding text;
  (2) it is in a contrasting type, font, or color; or
  (3) it is set off from the text by marks that call attention
  to it.
• The ct, not jury, decides any fact question as to conspicuousness.

Question 35

Other Methods of Disclaiming Implied Warranties

Answer 35

• UCC also provides several more general methods for disclaiming implied warranties

Question 36

By “As Is” or Similar Language

Answer 36

• Unless circumstances indicate otherwise, implied
  warranties of merchantability & fitness can be disclaimed by expressions such as “as is,” “with all faults,” or other expressions that in common understanding call buyer’s attention to the fact that there are no implied warranties.
• Although this type of disclaimer does not have to be conspicuous, a hidden/fine-print disclaimer of this type is not effective.

Question 37

By Examination or Refusal to Examine

Answer 37

• If buyer, before entering into K, has examined goods/sample/model as fully as they desire/has
  refused to examine, there is no warranty as to defects that a reasonable examination would have revealed.

Question 38

By Course of Dealing, Etc.

Answer 38

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

Question 39

TIP

Answer 39

It may seem odd that there are specific disclaimer
methods with detailed requirements, and more
general disclaimer methods requiring little formality.
In actual practice, it’s better to use specific disclaimers
b/c general disclaimers may be limited by circumstances. However, on MBE, an “as is” or “with all
faults” disclaimer will generally be as effective as a specific disclaimer.

Question 40

Express Warranties

Answer 40

• UCC provides that words/conduct relevant to
  creation of express warranties & words/conduct
  tending to negate such warranties shall wherever possible be construed as consistent with each other, but “negation/limitation is inoperative to the extent that such construction is unreasonable” (once an express warranty is made, it is very difficult to disclaim)

Question 41

Limitations on Damages

Answer 41

• Parties may include in K a clause limiting damages available for breach of warranty (ex. “remedy for breach of warranty is limited to repair/replacement of defective goods”).
• However, such a limitation won’t be upheld if it’s unconscionable (ex. causes remedy to fail its essential purpose/limits personal injury damages for consumer goods)
• Moreover, warranty disclaimers that limit damages for personal injury caused by breach of warranty on consumer goods are prima facie unconscionable

Question 42

Timing—Disclaimers and Limitations in the Box

Answer 42

• To be effective, disclaimer of warranty/limitation
  on remedies must be agreed to during the bargaining
  process.
• Thus, cts hold that a warranty disclaimer/limitation on
  remedy included inside packaging of goods is not effective against buyer.

Question 43

Compare—“Clickwrap”

Answer 43

-Computer software often comes with terms that
appear on user’s computer screen during installation, and purchaser must click to agree to terms before installing.
- Such limitations & disclaimers typically are upheld

Question 44

Unconscionability and Warranty Disclaimers

Answer 44

• Some cts will, in addition to determining whether
  disclaimers have met formal requirements, test warranty disclaimers by unconscionability standards.

Question 45

Buyer’s Damages for Breach of Warranty: In General—Difference Between Goods Tendered and as Warranted

Answer 45

• Generally, measure of damages for breach of
  any warranty is the difference between the value of
  goods accepted & the value of goods as warranted, measured at time & place of acceptance.
• If there are special circumstances, damages may be measured differently to account for those circumstances.
• In addition, buyer can recover appropriate incidental & consequential damages.

Question 46

Breach of Warranty of Title

Answer 46

• If warranty of title is breached, goods are reclaimed by true owner/lienholder, thus dispossessing buyer.
• Buyer may then rescind K, revoke acceptance of goods, or sue for damages.
• The value of goods accepted is deemed to be nothing; so damages are the value of goods as warranted.
• Often, but not always, that’s the same as purchase price.

Question 47

Special Circumstances—Appreciation and Depreciation

Answer 47

• If there are special circumstances, the value of goods
  is measured at time of dispossession rather than
  at time of acceptance.
• A great appreciation (such as, art)/depreciation (car) in value of goods from time of delivery until dispossession is usually considered a special circumstance.

Question 48

To Whom Do Warranties Extend?

Answer 48

• UCC section 2-318 provides alternative provisions for determining to whom warranty liability extends beyond initial buyer.
• Narrowest provision, seller’s warranty liability extends to any natural person who is in the family/household of buyer/ who is a guest in buyer’s home if it is reasonable to expect that the person may use, consume, or be affected by goods & that person suffers personal injury b/c of breach of warranty

Question 49

Delivery Terms and Risk of Loss

Answer 49

• All SOGK require delivery of goods.
• K’s delivery terms determine when risk of loss passes from seller to buyer if goods are damaged/destroyed

Question 50

Effect of Breach on Risk of Loss: Defective Goods

Answer 50

• If buyer has right to reject goods, risk of loss doesn’t pass to buyer until defects are cured/buyer accepts goods in spite of defects.

Question 51

Revocation of Acceptance

Answer 51

• If buyer rightfully revokes acceptance, risk of loss is treated as having rested on seller from beginning to the extent of any deficiency in buyer’s insurance coverage.

Question 52

Tip

Answer 52

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

Question 53

Noncarrier Case

Answer 53

• A noncarrier case is a sale in which it appears that parties did not intend that goods would be moved by a common carrier (ex. buying groceries).
• In such a case, if seller is a merchant, risk of loss passes to buyer only when they take physical possession of goods.
• If seller is not a merchant, risk of loss passes to buyer upon delivery

Question 54

Carrier Case

Answer 54

• A carrier case is a sale in which it appears that the parties intended goods to be moved by a carrier (ex. order a book from website).
• There are 2 types of carrier cases: shipment Ks & destination Ks.

Question 55

Shipment Contract

Answer 55

• If K authorizes/requires seller to ship goods by carrier but does not require them to deliver goods at a particular destination, it is a shipment K and risk of loss passes to buyer when goods are delivered to carrier.
• In the absence of a contrary agreement, Art 2 presumes a K is a shipment K.

Question 56

Seller’s Duties Under Shipment Contract

Answer 56

• In a shipment K, seller must:
  (1) make a reasonable k with carrier on behalf of buyer;
  (2) deliver goods to carrier;
  (3) promptly notify buyer of shipment; and
  (4) provide buyer with any docs needed to take possession of goods.

Question 57

Destination Contracts

Answer 57

• If K requires seller to deliver goods at a particular destination, risk of loss passes to buyer when goods are tendered to buyer at the destination.

Question 58

FOB

Answer 58

• FOB stands for “free on board.”
• FOB is always followed by location (ex. a city name), and risk of loss passes to buyer at named location.
• Seller bears risk & expense of getting goods to named location.
• These Ks can be either shipment/destination Ks, depending on location named.

Question 59

FAS

Answer 59

• FAS stands for “free alongside.”
• Used only when goods are to be shipped by boat.
• Risk of loss passes to buyer once goods are delivered to dock.

Question 60

tip

Answer 60

All Ks for goods require an address for delivery. Merely indicating an address for shipment doesn’t make a destination K. A K that doesn’t contain an FOB term/any other term explicitly allocating risk of loss is a shipment K

Question 61

Risk in Sale or Return and Sale on Approval Contracts: Sale or Return

Answer 61

• For purpose of determining risk of loss, a sale/return K (buyer takes goods for resale but may return them if they are unable to resell goods) is treated as an ordinary sale and the above rules apply.
• If goods are returned to seller, risk remains on buyer while goods are in transit.

Question 62

Sale on Approval

Answer 62

• In a sale on approval (buyer takes goods for use but may return them even if they conform to K), risk of loss does not pass to buyer until they accept

Question 63

Goods Destroyed Before Risk of Loss Passes

Answer 63

• This is an exam favorite, particularly on essays. If goods that were identified when K was made are destroyed
  (1) without fault by either party &
  (2) before risk of loss passes to buyer, K is avoided (seller’s performance is excused).
• If goods were not identified until after K was made, seller in this situation would have to prove impracticability.

Question 64

Insurable Interest and Identification

Answer 64

• Buyer often bears risk of loss before receiving goods purchased.
• To aid buyers in this situation, Art 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 K (ex. as soon as seller sets them aside for buyer).
• This special property interest is insurable.

Question 65

Bilateral Contracts Formed by Performance

Answer 65

• Recall that a K may be formed by parties’ performance where MIR in’t satisfied & under certain circumstances under Art 2’s “BOF” provision.
• In such cases, under Art 2, K includes all of terms on which the writings of both parties agree.
• Any necessary missing terms are filled in by supplemental terms provided for in Art 2.

Question 66

Compare—Common Law Last Shot Rule

Answer 66

• The rule is different in CLKs
• At CL, K includes terms of last communication sent to performing party