Contracts II Outline

Contracts II Outline

Definitions:

Output Contract: the buyer agrees to buy everything the supplier produces
Requirement Contract: the supplier agrees to meet all of the buyer’s needs
Contracts of Adhesion: a standard form contract prepared by one party, to be signed by another party in a weaker position (usually a consumer) who adheres to the contract with little choice about the terms
Illusory Promise: A promise that appears on its face to be so insubstantial as to impose no obligation on the promisor; an expression cloaked in promissory terms but actually containing no commitment by the promisor; i.e. A guarantor promises to make good on the principal debtor’s obligation “as long as I think it’s in my commercial interest,” the promisor is not really bound.
Waiver: An intentional and voluntary relinquishment of a known right by one party

I. WHAT ARE THE TERMS OF THE DEAL: What Did the Parties Agree To?
A. Trade Usage
· What the parties actually express does not cover everything that the parties actually agree upon
· Trade Usage – A practice or method of dealing having such regularity of observance in a region, vocation, or trade as to justify an expectation that it will be observed in a given transaction; a customary practice or set of practices relied on by persons conversant in, or connected with, a trade or business. • While a course of performance or a course of dealing can be established by the parties’ testimony, a trade usage is usu. established by expert testimony
o There is a distinction between “accepted practices that have developed into substantive rules of law” and “trade usage which is offered only as EVIDENCE as to the INTENT of the parties.”
· Trade Usage Rules:
1. Actual knowledge or constructive knowledge (SHOULD be aware of) of the usage will bind the parties
2. The “proper test” = must be sufficiently general so that the parties could be said to have contracted with reference to it for trade usage to be binding upon a party
· These are not mandatory rules but if parties do not contract around it or do not mention it then trade usage will fill in the gap
· UCC § 1-205 definitions:
1. A Course of Dealing is a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct
2. Trade Usage – An industry standard (see above definition). The existence and scope of such a usage are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing the court will interpret the writing
o If course of dealing or trade usage is unreasonable then the express terms of the contract will be relied upon

B. Express Terms/Parol Evidence Rule
· There is a Parol Evidence Rule issue when: There is a written agreement
· Parol Evidence Rule – Once there is a final deal, then all other expressions prior to the final contract are SUPERSEDED by the final written document
· Parol = not only oral communications, but ANYTHING that the parties discussed or put in writing BEFORE entering into a written and final document (negotiations before the final written document)
o Justification is that there is evidence in writing which preserves evidence, leaving less room for fraud
· Integrated Document = final written document
· Integration Clause = merger clause
· *When there is integration, the parol evidence rule applies
o If there is a completely integrated agreement, all other negotiations of terms are void
· When determining if the parol evidence rule applies, the 1st issue is whether there is an integration?
o Look at the parties’ intent, also there may be a merger clause
o Look at the language – the document itself can expressly say that it is not integrated (although this does not definitely mean that it is integrated), or there may be other language
· The 2nd issue is whether the integration is partial or complete integration?
o If there is complete integration, then extrinsic evidence is not allowed (nothing outside of the final written document comes in)
§ Another way of saying this: (Parol Evidence Rule bars introduction of any evidence of terms that may supplement or contradict the agreement)
o Complete Integration occurs when there is nothing outside of it – exclusive (the document excludes things) and unambiguous, so nothing can come in and supersede it
o If there is partial integration, then certain extrinsic evidence can be included/supplemented/admissible SO LONG AS the evidences does not contradict anything in the document
§ Another way of saying this: (Parol Evidence Rule bars evidence of terms INCONSISTENT with the integrated terms – usually the terms written down)
o With a partial integration, there is a written agreement, but it is not exclusive (so other things can come in) and it is not final
§ **Also, think about the parties’ intent; if they negotiated about a certain term, like delivery date but failed to include it in the written document, the agreement will probably be only partially integrated and they should be able to introduce evidence that they did in fact agree on a date but just didn’t write it down
· When there is a merger clause (integration clause), as a rule the court will generally rely on this and consider the contract completely integrated UNLESS the agreement is obviously incomplete or there’s evidence that the merger clause was included by fraud or mistake
· Integrated Agreements – Restatement § 209:
1) An integrated agreement is a writing or writings constituting a final expression of one or more terms of and agreement
2) Whether there is an integrated agreement is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule
3) Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression
· Completely and Partially Integrated Agreements – Restatement § 210:
1) A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement
2) A partially integrated agreement is an integrated agreement other than a completely integrated agreement
3) Whether an agreement is completely or partially integrated is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule
· Contradiction of Integrated Terms – Restat