Terms of the Contract:
UCC, Gap Fillers, Battle of the Forms, Interpretation, and Parol Evidence

Thursday should teach students how courts determine the content of the contract.

Once formation exists, the next question is: what did the parties agree to? This is where many students get lost because they assume the contract terms are always obvious. In law school and bar exam fact patterns, terms are often incomplete, inconsistent, oral, written, modified, or disputed.

The key lesson for Thursday is that formation tells us whether there is a contract; terms tell us what the contract actually requires.

The episode should begin with certainty and definiteness. Under the common law, material terms usually must be sufficiently definite for a court to determine breach and remedy. Essential terms may include parties, subject matter, price, quantity, time, and nature of performance.

But under the UCC, contracts for the sale of goods can be formed even with open terms if the parties intended to contract and there is a reasonably certain basis for giving a remedy. The UCC can supply gap fillers for price, delivery, time, payment, and other terms. Quantity, however, is usually essential, unless the contract is a requirements or output contract.

Next, let’s take a close look at UCC gap fillers. If the price is missing, the UCC may supply a reasonable price at the time of delivery. If the place of delivery is missing, delivery is usually at the seller’s place of business. If the time is missing, performance is due within a reasonable time. If payment terms are missing, payment is generally due at the time and place the buyer receives the goods.

These rules show the UCC’s preference for preserving commercial bargains where the parties intended to contract.

The episode should then cover the battle of the forms under UCC section 2-207. Students do not need to master every nuance before 1L, but they need a working understanding.

Businesses often exchange purchase orders, invoices, confirmations, and acknowledgments with different boilerplate terms. Under common law, a response with different terms may be a counteroffer because of the mirror image rule. Under the UCC, a definite and seasonable expression of acceptance can operate as an acceptance even though it contains additional or different terms, unless acceptance is expressly made conditional on assent to those terms.

For additional terms between merchants, those terms may become part of the contract unless the offer expressly limits acceptance to its terms, the additional terms materially alter the contract, or the offeror objects. Terms that materially alter the bargain, such as warranty disclaimers or arbitration clauses in some contexts, are less likely to slip in automatically. This topic is highly testable because students must distinguish common law from UCC treatment.

Now let’s shift to interpretation. Courts interpret contracts to determine the meaning of disputed terms. Students should learn that courts may consider the plain meaning of language, the contract as a whole, the purpose of the agreement, course of performance, course of dealing, and usage of trade.

Under the UCC, course of performance refers to how the parties behaved under the current contract. Course of dealing refers to how the parties behaved in prior transactions with each other. Usage of trade refers to practices common in the relevant industry.

The episode should then cover the parol evidence rule. This is one of the most frequently misunderstood doctrines in Contracts. The parol evidence rule does not bar all evidence outside the written contract. It bars certain prior or contemporaneous extrinsic evidence offered to contradict or supplement a final written agreement.

Students should learn the basic structure.

If the writing is completely integrated, prior or contemporaneous terms generally cannot contradict or supplement it. If the writing is partially integrated, prior or contemporaneous consistent additional terms may be admitted, but contradictory terms are excluded. Later modifications are not barred by the parol evidence rule because they occur after the writing.

The episode should explain the major exceptions. Extrinsic evidence may be admitted to show fraud, duress, mistake, illegality, lack of consideration, condition precedent to effectiveness, ambiguity, or later modification. It may also be used to interpret terms depending on the jurisdiction’s approach.

The episode should also introduce warranties under Article 2. Express warranties arise from affirmations of fact, promises, descriptions, samples, or models that become part of the basis of the bargain.

Implied warranty of merchantability arises when a merchant sells goods of that kind and requires goods to be fit for ordinary purposes. Implied warranty of fitness for a particular purpose arises when the seller knows the buyer’s particular purpose and knows the buyer is relying on the seller’s skill or judgment.

Terms doctrine asks what the parties actually agreed to and what the law will treat as part of the contract. Under common law, material terms usually must be sufficiently definite for a court to determine breach and remedy. Under the UCC, a goods contract can survive open terms if the parties intended to contract and there is a reasonably certain basis for a remedy.

The UCC supplies gap fillers for missing price, delivery, time, and payment terms, reflecting a preference for preserving commercial bargains. Quantity remains especially important unless the agreement is structured as a requirements or output contract.

UCC section 2-207 addresses the battle of the forms. A definite and seasonable expression of acceptance can operate as acceptance despite additional or different terms unless acceptance is expressly conditional. Additional terms between merchants may become part of the contract unless the offer limits acceptance, the term materially alters the deal, or the offeror objects.

Interpretation determines the meaning of disputed terms through plain meaning, the contract as a whole, purpose, course of performance, course of dealing, and usage of trade. The parol evidence rule limits certain prior or contemporaneous extrinsic evidence when a final written agreement exists, but it does not bar all outside evidence and does not bar later modifications.

Article 2 warranties can arise expressly through affirmations, promises, descriptions, samples, and models, or impliedly through merchantability and fitness for a particular purpose.