Contracts Class Notes 1/28/04


The handout problem – UCC § 2-202


Let’s think about UCC § 2-202 and related sections.  Look at the handout problem.  Let’s apply the statute to the problem.


Two corporations make a deal for the purchase and sale of 7,000 yards of carpet.  The buyer sends the seller a purchase order.  Then the seller replies with an acknowledgement.  Time goes by, and the parties get into a hassle resulting in litigation over the deal.  We’re asked a series of alternative questions about the introduction of various bits of evidence.


Let’s start by thinking about what part of § 2-202 applies to this situation.  It’s going to be the bit that says: “Terms with respect to which the confirmatory memoranda of the parties agree”.  Then there’s an important “or” and the bit that talks about an integrated writing.  That second bit relates to when we have a single writing.  We don’t have that in this case.  We have a writing put out by the buyer and one put out by the seller.  The buyer and seller have different intentions for the final expression of their agreement.


We have an agreement made over the phone followed by confirmatory memoranda.  That’s the part we’re in.  What does “agree” mean?  How can one memorandum agree with another memorandum?  People can agree with each other, but can pieces of paper agree?  In this case, it means “coincide” or “match”.  If the terms in the buyer’s memo match the terms in the seller’s memo, then our sentence is up and running.  Such a term can’t be contradicted by a prior written or oral agreement or a contemporaneous oral agreement.  But then there are ways to “explain” or “supplement”, ways to let in evidence.  There’s a positive, “inclusive” clause, and a negative, “exclusive” clause.


If there was only one writing, we would look at the clause that starts “which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms”…


Which terms match between the two memos in the problem?  We have matching quantity and quality terms.  We also have matching color terms.  The pattern matches, the price matches, the shipment information (“rush”) matches.  But only one memo says something about the cost of freight.  “F.o.b. seller’s point” means the buyer will pay freight.  “F.o.b. buyer’s point” means that the seller pays the freight.


So now we know which terms match and which don’t.


Note that this is a contract for sale of goods where you have a big statute of frauds problem until there is a writing signed by both parties (or each party).


There is some disagreement on who would pay freight.  If the evidence is admissible, the trier of fact will have to resolve a “he said, she said” credibility problem.  But the first question is whether the evidence is admissible.  Can the evidence come in?  Yes, because only one writing talks about it.  The memoranda don’t agree on the cost-of-freight term.  They match on some other stuff, but not on this.  So this doesn’t fall under § 2-202 and the evidence isn’t excluded.  Evidence that they were talking about 6,000 yards of carpet instead of 7,000 yards would be excluded, because their memoranda agreed.


How does § 2-207 relate to this problem?  It says that a written confirmation that comes within a reasonable time of an oral agreement operates as an acceptance even if it states additional or different terms than those agreed upon.  But what happens to the additional or different terms?  The buyer says that we agreed over the phone that the seller agreed to the cost of freight.  What if the seller says something different than what the buyer said?  It depends on whether it is an “additional” term (§ 2-207 (2)) or a “different” term.  The buyer ought to be able to prove under § 2-202 that the seller agreed to bear the cost of freight.  Under § 2-207, we find that adequate proof will make the contract on the buyer’s terms.  On the other hand, the finder of fact could find for the seller and make the contract on her terms.


Note that the shipping charge will be significant because of how much carpet is getting shipped.


What about the disagreement about price?  Can Susan Jones get the testimony about the price mistake admitted?  What’s going to happen?  It’s not going to be admitted because it contradicts a term on which the memos agree.  Later we’ll consider the question of whether we can “reform” a mistaken writing.


Another way to look at it is that when the two parties wrote down $10.15 they agreed to replace the previous price with the new price.


What about the idea of the discount?  What’s the fighting issue?  The proffer is that there was an oral agreement for a discount of 2% if cash is paid within ten days of delivery.  It doesn’t matter that it’s conditional.  The seller will say this evidence isn’t admissible because it contradicts the agreed price term from the memoranda.  How do you argue against that on behalf of the buyer?  The fighting issue is: “What does ‘term’ mean?  Will we read it broadly or narrowly?”


If we read it narrowly, then the memoranda agree on the price term, but you could have a separate discount term.  It would follow that evidence of that term should be admissible.  Then you would have a “consistent additional term” that can be allowed to come in.


If we read “term” broadly, then the term will contradict and it can’t come in.  If you’re a disciple of Corbin, you’ll want to read “term” narrowly, and if you’re a follower of Williston, you’ll want to read “term” broadly.


But how does the UCC define “term”?  In § 1-201 (42), it says “term” means “that portion of an agreement which relates to a particular matter.”  That doesn’t sound like it helps.  Is there something to it that would bear on this argument?


If you’re arguing that you want to read “term” narrowly, then you’ll want to make a big deal about the word particular in that definition.  That’s helpful to the liberal position.


§ 2-202 is a more liberal parol evidence rule than some of the preceding common law stuff where you would keep out stuff that would “naturally” be included in the writing.  In the UCC, you only keep out stuff that would “certainly” be included in the writing.


How about the last bit about “rush”?  The confirmatory memoranda do agree on “rush”.  What kind of testimony is the seller seeking to admit?  One way to get this evidence in is to not contradict the word “rush”, but instead explain it by a custom.  Another way would be to run off to the Restatement Second and say that the word “rush” is being interpreted.


The Code is favorable to “course of performance”, “course of dealing” and “usage of trade”.  The negative part of the rule never seems to keep these sorts of things out.  Check out § 1-205, where these terms are defined.  If there’s a custom dictating how “rush” is defined, the court may adopt that.


The seller made reference to the August 11th phone conversation.  That’s not admissible because it is a subsequent oral agreement.


There’s a lot more going on in § 2-202 than this, but it’ll do for now.  Next, we’ll go back to the casebook.  We shall skip to…


There is an exception to the exclusionary force of the parol evidence rule for fraud.  Check out § 214 (d): prior or contemporaneous agreements and negotiations are admissible to show “illegality, fraud, duress, mistake, lack of consideration” or other stuff.


Say we have a writing that provides for the purchase and sale of goods, signed by both parties.  It’s some cotton coming on the ship “Peerless”.  The two sides want to introduce evidence that they meant different “Peerlesses”.  The two parties are trying to show that there’s no contract.  One meant one thing and the other meant another thing.


In particular, you can show that you were induced to sign a contract by fraud.  You can do one of two things: (1) You could rescind and do away with the transaction.  Both parties will be able to back out.  (2) You can sue for damages.  Such damages are measured either by the “out-of-pocket” rule or the “benefit of the bargain” rule.


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