Finding the Law of the Contract

Prof. Tom W. Bell

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I. Guide to Chart

  1. This chart summarizes the principles of finding the law of the contract. Assume that you have a valid and enforceable contract. To determine the nature and extent of the rights and duties under that contract, you will have to "find the law of" the contract; that is, interpret or construct the contract.

  2. You should generally start with the express terms of the contract.
    1. Express terms "control," UCC §§ 1-205(4), 2-208(2), or have "greater weight than," R. (2nd) Contracts § 203(b), course of performance, course of dealing, and usage in trade.
    2. The express terms of a written contract will largely determine whether it is completely or partially integrated, and thus whether and to what extent evidence of prior or contemporaneous agreements (parol evidence) will be admitted to modify or contradict the written contract. See UCC § 2-202, R. (2nd) Contracts §§ 209-10.
    3. Some things can trump even a contract's express terms, however.
      1. Flaws in formation can render a contract's express terms void or voidable. See the chart below.
      2. Some default rules, such as the duty of good faith and fair dealing, cannot be negated even by express contractual terms to the contrary. See the chart below.

  3. Reading the chart
    1. As you read the chart from top to bottom, you move from interpretative items that have greater weight to those that have lesser weight.
    2. As you read the chart from left to right, you generally move from earlier events to later ones; that is, from pre-contractual events, to the contract's creation, to performance and enforcement of the contract. Vertical lines divide these three temporal categories.
      1. Some items straddle the lines between these three temporal categories. For explanations, see the notes accompanying those items.
      2. Although modification of a contract's express terms necessarily postdate them, "modification" appears in the same vertical column as "express terms" because both relate to the creation of a contract.

II. Chart for Finding the Law of the Contract

|               formation flaws1             |
|                    | unconscionable terms2 |
|                    |                       | good faith and fair dealing3
|                    |                       |     + commercial reasonability among merchants4
                     |                       | 3rd party beneficiaries of warranties5
w                    | express terms         |
e                    |     modification6     |
i              parol evidence7               |
g                    |                       | warranties implied or (by sample, etc.) express8
h                    |                       | output, requirements, or exclusive dealing contracts9
t                    |                       | course of performance10
               course of dealing11 -------------?12
|               usage in trade13 ----------------?14
|                    |                       |
- ---- time --------------------------------------------------------------------------------------------- +
                     |                       |

III. Notes

1 See, e.g., problems related to offer, acceptance, consideration, incapacity, illegality, fraud, mistake in reduction to writing, etc. Note that, strictly speaking, such flaws do not concern interpretation. Note too that some such flaws may arise solely at the instant of formation.

2 See UCC § 2-302, R. (2nd) Contracts § 208.

3 See UCC § 1-304, R. (2nd) Contracts § 205.

4 See UCC § 2-103(1)(b).

5 See UCC § 2-318.

6 See UCC § 2-209 (allowing modification except when barred by a signed writing), R. (2nd) Contracts §§ 73, 89 (allowing modification regardless of prior agreements to the contrary).

7 See UCC § 2-202, R. (2nd) Contracts §§ 213-17. Parol evidence can concern terms either prior to or contemporaneous with a written agreement--hence its line-straddling on this chart.

8 See UCC §§ 2-312-17.

9 See UCC § 2-306.

10 See UCC § 1-303(a), R. (2nd) Contracts §§ 203(b), 202(4).

11 See UCC § 1-303(b), R. (2nd) Contracts § 203(b).

12 Query whether course of dealing that arises during the performance or enforcement of a contract can alter its interpretation.

13 See UCC § 1-303(c), R. (2nd) Contracts § 203(b).

14 Query whether usage in trade that arises during the performance or enforcement of a contract can alter its interpretation.

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Finding the Law of the Contract - - v. 2014.01.23