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Contracts II
University of Toledo School of Law
Pizzimenti, Lee Ann

CONTRACTS II

PIZZIMENTI

SPRING 2011

1.) § 1-106 – Remedies are to be Liberally Construed

a.) Remedies shall be liberally administered so that the aggrieved party may be put in as

good a position as if the other party had fully performed

b.) NO consequential, special, or penal damages are allowed except as specifically provided

for in the Code (or by other rule of law)

2.) § 1-201(19) “gf” = “honesty in fact”

3.) § 1-203 There is an obligation of “gf” (in performance and enforcement)

4.) § 1-205 CD: previous conduct between the parties; UT: customs and practices in the trade

5.) § 2-102 Article II applies to “transactions in goods”

6.) § 2-104 “Merchant”

a.) One who deals in goods of the kind; or

b.) One who hold himself out as having knowledge or skill peculiar to the practice or goods

involved in the transaction

7.) § 2-105 “Goods” are all things which are moveable at the identification of the K

8.) § 2-201 SOF

9.) § 2-208 CP: conduct between the parties w/I that particular K (CP trumps CD and UT)

INTERPRETATION: (1) PAROL EVIDENCE RULE

Can anything be added to the paper? (prior or contemporaneous)

1.) What is it?

a.) external/extrinsic evidence (i.e. things not on the face of the K)

2.) Goal: “protect the deal” by limiting what can be brought in

a.) protect against fraud and allows predictability

3.) Summary:

a.) integrationàthe adoption of the writing as an agreement on at least 1 term (§ 209(1))

b.) partialàfinal expression of 1 or more terms to an agreement

c.) completeàadopted by the parties as a final expression on every term of the agreement

Common Law

UCC § 2-202

1.) Parol Evidence Rule:

a.) if partially integrated…then the writing

is final on at least 1 term (§ 209(1))

1.) can’t contradict w/ parol evidence

(prior written or oral or contempor-

aneous oral) (§ 215)

2.) can supplement though (§ 216(1))

a.) e.g. Lee v. Seagram

b.) if complete integration…then writing is

final on every term and PE inadmissible

for any reason (§ 210(1))

1.) can’t contradict (§ 215)

2.) can’t supplement (§ 216(1))

1.) Parol Evidence Rule:

a.) if terms are final (i.e. “partial”)…then

1.) can’t contradict w/ parol evidence

(prior written or oral or contempor-

aneous oral)(§ 2-202(1))

2.) can explain or supplement w/ the

“trio” (e.g. CP, CD, UT) or w/

“consistent” other terms

b.) if writing is complete (i.e. totally final)..

1.) can’t contradict

2.) can’t explain or supplement w/

consistent additional terms

3.) however, can explain or supplement

w/ “trio” (consistent)(§ 2-202(2))

a.) UNLESS “carefully negated”

2.) General Rules: (for CL and UCC)

a.) A party can always bring in evidence to

to there was no deal. (§ 214(a))

b.) A statement or writing subsequent to

the original writing is not prohibited by

PER. (modification ≠ PER)

c.) If parties are still negotiating, it’s not a

PER problem.

d.) In PER, “the last paper wins”

1.) Hint: Look at the dates!

e.) Condition Precedent can show ≠ deal

1.) unless it’s contradictory to writing

2.) General: (UCC)

a.) The terms the parties “agreed” to and

those in “writing” are the “deal”

b.) What is “consistent”?

1.) Majority: Consistent just means

not contradictory

2.) Minority: Consistent means term

must be “consistent” additional term

a.) i.e. > than not contradictory, it

requires “R harmony”

Tests Whether Integration is Complete or Partial

Traditional Test (a.k.a. Four Corners Test)

Modern Test (a.k.a. Restatement Rule)

1.) Where the writing “on its face” appears to

be the complete expression of the rights and

obligations of both parties, it is a “total

integration”

a.) Unless the additional terms were such

that the parties would naturally enter

into a separate agreement regarding the

additional terms

2.) Only looks to document itself, not intent

1.) Looks at the “intention of the parties” in

light of writing and the surrounding

circumstances (§ 214(b))

a.) Not limited to the document itself.

2.) UCC rejects the Traditional Test.

a.) Concerns w/ what the parties intended

instead of what the judge thinks the

parties intended

Attacking a PER Problem

1.) Is the term prior (written or oral) or contemporaneous (oral)? (CL & UCC)

a.) Yes, potential PER problem. (i.e. evidence is potentially inadmissible per PER)

b.) No, it’s not a PER problem. (since evidence is subsequent (afterward), see NOM clause)

2.) If prior or contemporaneous, is it an integration? (i.e. intended to be a final expression on

at least 1 or > terms)(§ 209(1))(CL & UCC)

a.) Yes, continue to (3)

b.) No, STOP! (not PER…because the parties can’t just be negotiating)

3.) If it’s an integration, is it complete ( i.e. “total integration”)? (CL & UCC)

a.) Yes, nothing comes in (because it is a final expression on all terms)

b.) No, then you can supplement only (since it’s partial – not final expression of all terms)

c.) How do you determine if it is complete?

1.) Determine which test applies: Traditional Test or Modern Test

2.) Look for:

a.) Merger Clause (a.k.a. “Integration Clause”)

1.) This is evidence which supports a finding that the writing is intended as being

the final expression of the agreement. (Betaco v. Cessna)

b.) If no merger clause, consider: (§ 214 allows you to look at everything)

1.) K itself (writing)

2.) CP, CD, UT (§ 1-205: CD and UT; § 2-208: CP)

3.) Relationship between parties (fiduciary: trust)

4.) Nature of the transaction

5.) Oral agreement collateral or not (i.e. closely related)

6.) Negotiations

d.) UCC-If “complete,” is it CP, CD, UT?

(Note: CP: during that K; CD: parties past K; UT: general customs in the trade)

1.) If yes, was it “carefully negated”?

a.) If yes, it’s out.

b.) If no, it’s in.

2.) If no, it’s out. (since the K is complete, nothing is allowed to come in – trio exception)

3.) Summary: If “complete”…the “trio” still might be allowed as evidence.

4.) Note: To “carefully negate” the party should write in express terms that it is not going

to recognize the UCC. (e.g. “We no longer recognize that the time of delivery is a R

time if not specified, instead when no time is specified it is always w/I 30 days.”)

4.) If partial (i.e. not complete), does the additional term(s) contradict? (CL & UCC)

a.) Yes, PER prohibits admission. (oral term ≠ conflict w/ stated term in writing)[p. 319 #3]

b.) No, term is in.

c.) What about oral terms that are not consistent w/ terms of law?

1.) Rule: Oral terms usually trump a default rule. (i.e. beats “gap-filler”) [p. 320 #4]

a.) e.g. If X and Y have a K and it doesn’t say a delivery date in writing, but X and Y

orally agree to “w/I 60 days”…the oral agreement of “w/I 60 days” will trump the

“gap-filler” of a R time.

5.) Do any “Exceptions” apply? (“exception” only means the evidence can be submitted despite

being inconsistent, not that the party automatically wins)(CL & UCC)

a.) Sham (party can show no deal)

b.) Bilateral Mistake (party can show by actions)

c.) Condition Precedent to K (admissible to show no K)

d.) Collateral (can show totally separate agreement; unrelated)

INTERPREATION: (2) NO ORAL MODIFICATIONS (NOM)

Can anything be added to the paper? (subsequent/afterwards)

Common Law

UCC § 2-209(2)

1.) No Oral Modifications:

a.) Unenforceable, unless you can show

“C” and reliance (i.e. can modify)

b.) Even if there is a “merger clause”, the

parties can have oral modifications

c.) In order for oral modifications to be

prohibited, you must have

going on w/ that K (usually installment K)

b.) If K involves…

1.) repeated occasions of performance it must be an installment K (§ 2-612); and

2.) party w/ knowledge; and

3.) opportunity to reject; and

4.) “A” or “acquiesced” w/o objection…

c.) Then…CP is relevant to determine the meaning of the agreement

3.) CD (§ 1-205(4)):

a.) Deals w/ past K and performance of K, the conduct between parties; it establishes a

common basis of understanding

4.) UT (§ 1-205(4)):

a.) Usage or practice w/ such regularity of observances in a place, vocation, or trade as to

justify an expectation it will be observed

1.) Merchants are charged w/ “knowledge”

a.) It does not matter if you are a “new” merchant.

b.) “Actual knowledge” is not required.

b.) E.g. UT experts to provide interpretation, trade journal information, gov’t regulations

5.) Where ambiguous between CP and waiver, must choose waiver. (Nanakuli)

a.) If the court finds CP, then it must remain a term for the rest of the K. If the court finds

waiver, term is in for the time being, but it doesn’t have to be in for remainder of the K.

6.) Course of Negotiations

7.) Market and Surrounding Circumstances

8.) Maxims:

a.) contra proferentum: “against the drafter”

b.) expression unius est exclusio alterius: “expression of one = exclusion of others”

1.) be clear or vague in your expression depending on the result desired

c.) ejusdem generis: “of the same kind, class, or nature”

1.) where general words follow an enumeration of specifics, you may not use the widest

interpretation of the general words, instead you would be limited to the things of the

same general kind or class

a.) general terms: leave interpretation open

b.) specific terms: leave little open for discussion

d.) Interpret terms most consistent w/ public policy and fairness

e.) Put “recitals” in the document – best way to show “intention”

1.) E.g. “The parties want A, B, and C.”

INTERPRETATION: (5) MISUNDERSTANDING

Note: There are no UCC §’s on misunderstanding, so use Restatements §§ 20, 201.

Misunderstanding

1.) No assent if… (i.e. neither are “meeting of the minds”)

a.) materially different meaning; and

b.) § 20(1)(a) neither party knows or has reason to know the meaning attached by the other

party [i.e. both are clueless]; OR

c.) § 20(1)(b) either party knows or each party has reason to know the meaning attached by

the other party [i.e. both know the other’s intent]

2.) If both parties agree to 1 interpretation, then the term is interpreted according to that meaning

(§ 201(1))

a.) In this case, subjective intentions of the parties will beat a judge’s objective interpretation.

3.) If one party knows and the other doesn’t know the meaning of a particular term, the meaning

of the party who doesn’t know is used. (§ 20(2)(a); § 201(2)(a))

4.) If one party has reason to know and he other does not know, the meaning of the one who has

no reason to know is used. (§ 20(2)(b); § 201(2)(b))

5.) Note: When no sensible basis as to whose term is right, the court will find no assent (i.e. ≠ K)

CONDITIONS

What is a condition? What impact does it have on a K?