Contract Terms

Question 1

What is the parol evidence rule?

Answer 1

The final writing controls. Any exchange (written or oral) between the parties that takes place before or contemporaneous to the contract is inadmissible to contradict the contract.

Question 2

What are the exceptions to the parol evidence rule?

Answer 2

1. to correct a clerical error
2. to establish a defense against formation
3. To interpret a vague or ambiguous term
4. to supplement a partially integrated writing

Question 3

Define partially integrated writing.

Answer 3

A final statement of the terms included, but an incomplete statement of all the terms agreed to.

Where the type of contract would normally include a term, but that term is missing, it’s partially integrated, and parol evidence can be used to fill in the gap.

Question 4

What is the effect of a merger clause, aka a term that says “this contract is limited to the terms herein.”?

Answer 4

The contract cannot be supplemented with parol evidence even if it appears to be missing a term that is traditionally included.

Question 5

Does the parol evidence rule apply to both common law and Article 2?

Answer 5

No. It does not apply to Article 2 unless there is a merger clause.

Question 6

Can parol evidence be used to determine a dispute over a term added after the contract was signed?

Answer 6

Yes. The parol evidence rule does not apply to subsequent developments.

Question 7

What are the three types of conduct used to explain terms or fill in gaps of a contract?

Answer 7

1. course of performance
2. course of dealings
3. trade usage

(note they’re in descending order of importance)

Question 8

Define seller’s express warranty.

Answer 8

A statement of fact, promise, or guarantee, or use of a sample or model is an express warranty that the item(s) sold will conform exactly to the statement.

Opinions are not warranties, and the warranty has to be the basis of the bargain (something buyer could have relied on in deciding to buy).

Question 9

What is the implied warranty of merchantability?

Answer 9

This is a warranty sellers of goods imply - that the goods are fit for their ordinary purpose. This applies only to merchants who sell the kind of goods sold in the deal.

It can be disclaimed only if seller sells “as is” or specifically and conspicuously disclaims the implied warranty of merchantability.

Question 10

Does a casual seller make an implied warranty of merchantability unless disclaimed?

Answer 10

No. The implied warranty of merchantability only applies to merchants dealing in the type of goods being sold in the deal.

Question 11

Nike sells a start-up moving business a fleet of trucks. Have they made an implied warranty of merchantability?

Answer 11

No. Nike sells athletic gear in their ordinary course of business. Because they’re a merchant, but not selling the kinds of goods sold (the trucks), they have not made this implied warranty.

Question 12

What is the implied warranty of fitness for a particular purpose and when does it apply?

Answer 12

Promise that the goods are fit for the buyer’s particular purpose.

It applies to any seller of goods (merchant or not) who knows the buyer has a special use and that the buyer is relying on the seller to pick out goods suitable for that use.

Question 13

Under Article 2A (in NY), what warranties can/does a person leasing goods make?

Answer 13

Exactly the same as under Art. 2.

Question 14

What is the most effective way for a seller to disclaim all implied warranties?

Answer 14

Selling the product “as is” or “with all faults” (using that magic language).

Note: no seller can disclaim express warranties.

Question 15

If a seller does not sell “as is” but wants to disclaim implied warranties, what must he do?

Answer 15

(1) state the disclaimer conspicuously,

(2) if disclaiming the implied warranty of merchantability, must name it.

Question 16

To what extent can a seller limit a buyer’s remedies for breach?

Answer 16

To the extent that the limitation is not unconscionable.

• It is presumed unconscionable if limits recovery for personal injury damages.

Question 17

If a buyer bears the risk of loss, and the goods are destroyed without fault by either party before the buyer gets them, what result?

Answer 17

The buyer must pay the seller the contract price anyway, and seller has no obligation to replace the goods.

Question 18

If a seller bears the risk of loss, and the goods are destroyed without fault by either party before the buyer gets them, what result?

Answer 18

The seller must provide new goods at no extra cost.

Question 19

What two events will definitively tell you who bears the risk of loss?

Answer 19

1. the specific contract language
2. one of the parties has breached the contract (even if breach is unrelated to the destruction of goods) - that party will bear the risk of loss.

Question 20

When goods are delivered by a common carrier, what is the general rule regarding risk of loss?

Answer 20

The risk of loss shifts from seller to buyer when seller completes delivery obligations.

Question 21

What are the seller’s delivery obligations on a shipment contract?

Answer 21

1. seller delivers the goods to a common carrier
2. seller makes arrangements for shipment
3. seller notifies the buyer

Risk of loss shifts to the buyer when the above three are met.

Question 22

If the contract says FOB “Seller’s Location”, what kind of contract is it?

Answer 22

A shipment contract

Question 23

If the contract says FOB “Not the Seller’s Location”, what kind of contract is it?

Answer 23

A destination contract

Question 24

What are the seller’s delivery obligations on a shipment contract?

Answer 24

The seller must get the goods to a specific location and the risk of loss doesn’t shift to the buyer until delivery.

Question 25

FOB Austin. Seller is in Austin, Buyer is in Portland. When does the risk of loss shift?

Answer 25

When the goods are given to the common carrier, seller has made arrangements for shipment, and seller notifies buyer.

Question 26

FOB Portland. Seller is in Austin, Buyer is in Portland. When does the risk of loss shift?

Answer 26

When the goods are delivered to the buyer in Portland.

Question 27

In a non-common carrier contract, when the seller is a merchant, when does the risk of loss shift to the buyer?

Answer 27

When the buyer takes possession of the goods.

Question 28

In a non-common carrier contract, when the seller is not a merchant, when does the risk of loss shift to the buyer?

Answer 28

When the goods are “tendered” - or made available to the buyer for pick up.

Question 29

Who bears the risk of loss on a lease of goods (NY, Art. 2A)?

Answer 29

Lessor always bears the burden, unless it is a finance lease. If it’s a finance lease (bank is leasing a computer, e.g.) the lessee bears the risk of loss.