Determining the Terms of the Contract

Question 1

Parol Evidence Rule

Answer 1

The Parole Evidence Rule excludes evidence of prior or contemporaneous oral statements or a prior written statement that contradicts the fully integrated agreement
-UCC presumes that all writings are partial integrations, meaning additional terms that do not contradict the writing can be supplemented

Question 2

Merger Clause

Answer 2

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

Question 3

Exceptions to the parol evidence rule

Answer 3

1. Evidence as defense to enforcement (no valid contract)
2. Evidence of collateral (ancillary) agreements and naturally omitted terms that do not conflict with the written integration
3. Evidence to interpret ambiguous terms
4. Evidence that shows consideration was never paid
5. Evidence that entitles a party to reformation of the agreement (i.e., mistake)
6. Evidence that shows subsequent modifications of a written contract before the final writing (must be consideration for non-sale of good kx)

Question 4

Additional terms under UCC Article 2 (PER exception)

Answer 4

A party cannot contradict a written contract but may add consistent additional terms unless:
-there is a merger clause; or
-the courts find that the writing was intended as the complete agreement

Contracts terms may be supplemented or explained by evidence of:
1. course of performance
2. course of dealing
3. usage of trade

Question 5

General Rules of Contract Construction

Answer 5

In order of performance:
1. Course of dealing (previous contracts between the parties)
2. Course of performance (prior installments of the present contract)
3. Usage of trade (industry norms)

Question 6

Article 2 Supplemental (“Gap-Filler”) Terms

Answer 6

Price: reasonable price at the time for delivery

Place of delivery: seller’s place of business

Time for shipment or delivery: reasonable time

Time for payment: time and place at which the buyer is to receive the goods

Assortment of goods: at the buyer’s option

Question 7

Warranties

Answer 7

A promise or guarantee from one party to another that the facts are true and reliable

Types of warranties:
1. Express warranties
2. Implied warranty of merchantability
3. Implied warranty of fitness for a particular purpose
4. Implied warranty of title
5. Implied warranty against infringement

Question 8

Express warranties

Answer 8

Any affirmation of fact or promise made by the seller to the buyer as part of the basis of the bargain
-i.e., description of the goods, sample or models
-NOT opinions
-Cannot disclaim

Question 9

Implied Warranty of Merchantability

Answer 9

A merchant seller that regularly deals in that kind of goods has implied warranty that the goods must at least be fit for the ordinary purpose for which such goods are used
-i.e., bike shop selling bicycles, but not selling delivery vans
-Can be disclaimed by conspicuous written disclaimer or “as is” language

Question 10

Implied Warranty of Fitness for a Particular Purpose

Answer 10

Any seller that sells goods fit for the buyer’s special purpose
-i.e., department store clerk selling women a coat that would keep her warm in 20 degree weather
-Can be disclaimed by conspicuous written disclaimer or “as is” language

Question 11

Warranty of Title

Answer 11

ANY seller of goods warrants that the title transferred is good and free from encumbrances
-Automatically applies (does not need to be in contract)
-Can be disclaimed by specific language or circumstances showing seller does not claim title

Question 12

Disclaimer of warranties

Answer 12

Provisions that limit the scope of rights and responsibilities in a contract
-Sellers can disclaim implied warranties, but not express warranties

Implied warranties can be disclaimed using:
-Conspicuous disclaimer: reasonable person would notice (ALL CAPS AND IN BOLD); or
-Magic words: “as is” or “with all faults” (more common on bar exam)
-By examination (buyer examines goods before entering contract)
-By course of dealing, course of performance, or usage of trade

Question 13

Warranty disclaimer limiting damages

Answer 13

A seller can limit buyer’s remedy for breach of any warranty as long as the limitation is not unconscionable
-Warranty disclaimer limiting damages for personal injury caused by a breach of warranty on consumer goods is prima facie unconscionable

Question 14

Delivery Terms and Risk of Loss

Answer 14

All contracts for the sale of goods require delivery terms that determine when the risk of loss passes from the seller to the buyer if the goods are lost or destroyed

Question 15

Effect of Breach on Risk of Loss

Answer 15

If agreement does not allocate risk, the risk of loss stays with the breaching party
-If a seller ships nonconforming goods, the risk of loss remains on the seller

Question 16

Tender of delivery

Answer 16

Seller tells buyer where the goods are and how to get them

Question 17

Non-carrier case

Answer 17

A sale in which the parties did not intend that the goods would be moved by a common carrier (third party shipper)

Risk of loss depends on whether seller is a merchant
-Merchant-seller: risk passes when buyer takes physical possession
-Non-merchant-seller: risk passes upon tender of delivery

Question 18

Carrier cases (shipment and destination contracts)

Answer 18

A sale in which the parties intended the goods to be moved by a common carrier (third party shipper)

*Shipment contract (presumption - no FOB language):
-Buyer assumes risk of loss when the goods are delivered to the carrier
-FOB (“free on board”) followed by the seller’s city
-Seller must contract with carrier on behalf of buyer, deliver goods to the carrier, promptly notify the buyer of shipment, and provide buyer with documentation needed to take possession of goods

Destination contract:
-Buyer assumes risk of loss when the goods are tendered to the buyer at the destination
-FOB (“free on board”) followed by any other city