There’s still some verse five modules explore whether all of the elements necessary to create a contractual relationship exist and whether when a contractual relationship St. that contract is subject to defenses to its enforcement. Once we conclude that a valid, enforceable contractual relationship exists, there’s still some work left to be done. In fact, a lot of legal disputes have nothing to do with whether a basis of enforcement exists, or whether parties manifested assent to a contract, or whether any defenses to enforcing the contract are at work. Instead, contract disputes are frequently about what the terms of the contract are or what the terms of the contract need. Determining contractual meaning requires that we use a lot of different tools. You’ll be introduced to several of those tools here including contract interpretation, the parol evidence rule, use of implied terms, including the implied duty of good faith and UCC gap filler terms. The problems of determining just what the terms of the contract are and what those terms mean can take different forms. Contract interpretation is the search for what the parties intended. Problems, determining just what the contract is might be the result of an omitted term in the contract. Ambiguous terms in the contract, or vague terms in the contract. To resolve these kinds of problems, the law provides rules that aid the courts in resolving them. For example, when parties have the same subjective intent, that intense shall be given effect. When they’re subjective intent differs. The difference shall be resolved by giving effect to the subjective intent of one or the other. By assessing if either party knew at the time of contracting the differing subjective intent of the other. When that happens, the known intent shall be given effect when neither party’s actual knowledge is determinative and interpretation will be imposed. That is the most in with the objective manifestations of the parties. When interpreting the objective manifestations of the parties, ordinarily the words they use in their contract. Courts will look to the common meaning of words or phrases, the provision or contract as a whole, and the purpose of the contract. Additionally, courts may consider the parties course of performance, course of dealing, and the contract terms usage in trade. Beyond these rules, there are several more all designed to assist courts in sorting out vague and ambiguous terms where their parties did not make their intent. These rules have the capacity for leading courts to results that were not intended by one party or both. So in the contract drafting and negotiation process, ensuring that the contract clearly and consistently reflects the entire agreement with clarity and precision is important. When parties go to the trouble of putting their contract and writing, there’s a reason to prefer the written description of the contract over evidence that comes from outside the contract. That outside information is sometimes called parole or extrinsic evidence. When the parties reduce their contract to writing. The parol evidence rule provides some limitations on what information can be admitted to, either add to, explain, or contradict the terms of the written agreement. The first part of the parol evidence rule evaluation focuses on the written contract. When the written contract is the final expression of the parties agreement, it is said to be integrated when the written contract is the exclusive expression of the parties agreement. It is said to be completely integrated. When the written contract is final, but not exclusive, is said to be partially integrated. The second part of the parol evidence rule, evaluation focuses on the parol evidence sought to be admitted. Parol evidence might supplement the terms of the written agreement or it might contradict the terms of the written agreement. The parol evidence rule provides that if the written contract is completely integrated, than no evidence is admissible to supplement or contradict the written agreement. Further at the written contract is partially integrated. The evidence is admissible to supplement it. But not to contradict it. Last, there are some exceptions to this rule. Parol evidence is not precluded by the parol evidence rule. If the evidence fits into one of the following categories, evidence that no agreement was ever concluded. Defenses to enforcing the contract, like duress, misrepresentation, or mistake. Evidence, explaining an ambiguity in the writing. Evidence establishing the right to a particular remedy for breach, and evidence of a course of performance, course of dealing, or usage and trade. In addition to these exceptions, extrinsic evidence is typically admissible for the purposes of assessing the first part of the parol evidence rule, determining if the writing is completely or partially integrated. A common problem in determining the party’s contractual intent is what to do with ambiguous terms. You’ll recall that the parol evidence rule allows for the admissibility of evidence to explain ambiguous written terms. However, this presumes that a term is ambiguous. Accordingly, before that exception to the parol evidence rule applies, the court must conclude that the term sought to be explained really is ambiguous. Term is ambiguous when it is reasonably susceptible to more than one, meaning. Courts don’t agree regarding the extent to which a court should look outside of the writing itself for evidence of this preliminary question of whether a term is ambiguous, some courts adopt the four corners approach, looking exclusively at the writing to assess a term as ambiguous or not before they will look at extrinsic evidence to explain the ambiguous term. Other courts, like the court in Pacific Gas and Electric, look beyond the four quarters of the written contract to make this preliminary determination. Sometimes a contract fails to speak on an important term. For example, a contract might have an express provision dealing with a warranty in a contract for the sale of goods. The UCC provides that warranties can be created by making it an affirmation in the contract, or by a description of the goods, or by providing a sample of the goods. However, what happens if the party contract for the sale of goods failed to create an express warranty, what if they make no provision for warranty at all? The UCC has a gap filler for many of those situations when price, delivery time for performance or payment are not specifically agreed to by the parties. The UCC will provide a term to fill the gap in contracts for the sale of goods. Similarly, when the parties do not agree to an express warranty term that goes along with the goods sold. Implied default. Warranty terms apply. Ordinarily, the core will imply a warranty of merchantability. And any contract where the seller is a merchant with respect to goods of this kind. While UCC two dash 314 subparagraph two provides the details of just what is included in the implied warranty of merchantability. It might be fair to summarize the warranty as providing that goods are fit for their ordinary purpose. Conversely, whether as a basis to imply that goods are fit for a particular purpose. That is a question that involves another implied warranty. The implied warranty of fitness for a particular purpose. Two dash 315 provides that when a seller has reason to know of any particular purpose for which the goods are required, and that the buyer is relying on the seller’s skill or judgment to select her furnish suitable goods. The core will imply a warranty that the good shall be fit for that purpose unless such warranty is excluded by the contract. If a seller does not like these implied warranties, then they should disclaim them expressly in the agreement. If they elect to do this, they have to comply with UCC two dash 316, which outlines different ways that a seller can disclaim warranties. Additionally, every contract includes an implied duty of good faith and fair dealing and the performance and enforcement of the contract. Unlike the other implied duties we’ve seen so far, this imply duties mandatory, and parties cannot disclaim this implied duty. For example, the implied duty of good faith precludes a party from interfering with the other party’s contractual performance. As we’ll see next, there are several specific situations where the implied duty of good faith ensures not only the parties deal fairly with each other in accordance with their reasonable expectation. But also ensures that the parties have agreed to a bargain that genuinely includes consideration. One common consideration problem that shows up in business disputes is the problem of illusory promises. The things bargain for consideration have to count in order for there to be consideration. Sometimes courts will imply a requirement of good faith in words that might otherwise be illusory promises to create the kind of promise that counts as consideration. An example of this issue comes up in contracts for the sale of goods. Where a buyer agrees to buy all of the goods, requires from a specific seller, or where a seller agrees to sell all of the goods it makes to a particular buyer. The problem with these requirements, contracts or output contracts, is that one party gets to determine how many goods it requires or produces. Like the common law case of my tie versus hopper, implying a duty of good faith ensures that these kinds of contracts will not fail for lack of consideration. Ucc two dash 30 6 to codifies the requirement that good faith is implied and the promise unchanged in an output or requirements contract. For example, a buyer might contract to pay $10 per widget. For all of the widgets it requires each month for the next 12 months. And a seller agree to sell those widgets for $10 per widget. But what if the buyer does not require any widgets during the second month? Does that render the promise illusory? Does it mean the buyer has breached the contract under UCC to 30 62? There is consideration and the contract is enforceable. The buyer has a duty to determine its requirements in good faith. And so long as it’s done that and the requirement is not unreasonably disproportionate to any estimate in the contract or prior requirements. It’s not breached the contract by requiring no widgets for one month. One last issue that is not uncommon in contracts for the sale of goods is the question of modification of contracts. Remember, an agreement to modify an agreement raises a special consideration issues. In a sense, if I contract to do something, I’ve already got an obligation to do. My promisee hasn’t received anything new and will question whether their promise is really bargained for. This is called the preexisting duty. The common law and UCC have different approaches to this problem. The UCC approach is simple. No new consideration is necessary to enforce the modification of the contract for the sale of goods so long as the modification is made in good faith. Similarly, sometimes a party has a duty to do more than just act in good faith. Sometimes they have a duty to use best efforts. A duty to exercise best efforts is typically implied in a contract that provides for exclusive dealings between two parties. James 1 versus 16 through 18 teaches us something important about the problem of shifting shadows. It suggests that a relationship between good things, perfect things, things of God, and the absence of variations or shifting shadows. This week, you’ve seen how people use and sometimes abuse language to communicate their promises or distort them. Many of the rules you learned about bring certainty to and encourage clarity in the way people make contracts. They often work to resolve problems of miscommunication or contracting parties, sometimes self-serving constructions of the terms of the deal. When the original terms no longer work to their advantage. You’ll have a chance this week to think, research and write about how words and their meanings are an important part of the contracting and judicial process.
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