Contract content and meaning - Omitted and implied terms

Learning Outcomes

This article explores how courts determine what a contract actually says and means when disputes arise, focusing on:

• How the Parol Evidence Rule (PER) limits or allows the use of extrinsic evidence.
• How to distinguish complete from partial finalization of a writing.
• When extrinsic evidence is admissible despite the PER (e.g., to interpret ambiguity, prove defenses, or establish conditions precedent).
• How course of performance, course of dealing, and usage of trade operate, especially under UCC Article 2.
• How courts fill missing terms using UCC gap fillers and common-law implied terms.
• How the implied duty of good faith and fair dealing shapes contract performance.
• How UCC implied warranties (merchantability, fitness, title) arise, how they can be disclaimed, and how they interact with express terms.
• How PER and the Statute of Frauds interact in problems involving oral and written terms.
• How to spot common MBE traps involving collateral agreements, oral conditions, merger clauses, and “as is” language.

MBE Syllabus

For the MBE, you are required to understand contract content and meaning, with a focus on the following syllabus points:

• Application of the Parol Evidence Rule, including whether the writing is complete or partial as a final expression, and the effect of merger clauses.
• Distinguishing barred uses of extrinsic evidence from permitted uses (interpretation, defenses, reformation, conditions precedent, subsequent modifications).
• Use of course of performance, course of dealing, and usage of trade in interpreting and supplementing contracts, especially under UCC § 2‑202.
• Operation of implied terms: good faith and fair dealing; reasonable efforts; reasonable time; implied duties in exclusive dealing and satisfaction clauses.
• Creation, scope, and disclaimer of UCC implied warranties (merchantability, fitness for a particular purpose, title).
• UCC gap-filler provisions for missing terms (price, delivery, time, payment) and limits on gap filling (e.g., quantity).
• Interaction between implied warranties, express warranties, and disclaimer language, including “as is” clauses and conspicuousness requirements.
• Distinguishing Article 2 rules from common-law rules on gap filling, interpretation, and implied obligations.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Buyer and Seller sign a detailed written agreement for the purchase of 1,000 widgets, which includes a merger clause. Buyer now claims that prior to signing, Seller orally promised a 10% discount for prompt payment, a term not in the writing. Evidence of this oral promise is likely:
   1. Admissible because it is an additional consistent term.
   2. Admissible to show the true consideration for the contract.
   3. Inadmissible under the Parol Evidence Rule because the writing is completely finalized.
   4. Inadmissible unless the promise constituted fraud in the inducement.
2. Which term will the UCC generally supply if a contract for the sale of goods fails to specify it?
   1. Quantity.
   2. Subject matter.
   3. A reasonable price.
   4. Names of the parties.
3. Buyer, needing durable boots for mountain climbing, tells Seller, a shoe store owner, "I need the toughest boots you have for climbing Mt. Colossus next month." Seller recommends "Ironclad Boots." Buyer relies on this recommendation, purchases the boots, and they fall apart on the climb. Which warranty has Seller most clearly breached?
   1. Express warranty.
   2. Implied warranty of title.
   3. Implied warranty of merchantability.
   4. Implied warranty of fitness for a particular purpose.

Introduction

Disputes over contracts frequently turn not on whether a contract exists, but on what its terms require and how those terms should be understood. Parties may remember negotiations differently, written language may be ambiguous, or the contract may simply omit something important (price, delivery terms, a quality standard).

Two main bodies of doctrine address these issues:

• The Parol Evidence Rule (PER), which governs when parties may use extrinsic evidence (prior or contemporaneous statements or writings) to change or supplement a written contract.
• The law of omitted and implied terms, which supplies terms the parties did not expressly state—through statutory “gap fillers,” implied duties such as good faith, and implied warranties under the UCC.

Key Term: Parol Evidence Rule (PER)
:
A rule that restricts the use of prior or contemporaneous extrinsic evidence to contradict, modify, or supplement the terms of a written agreement intended by the parties to be the final expression of their deal.

Key Term: Finalization
:
The degree to which a writing represents the parties' final agreement. A complete finalization is intended as the final and exclusive statement of all terms. A partial finalization is final as to the terms included but may not cover all aspects of the agreement.

Key Term: Merger Clause
:
A clause stating that the written contract is the parties’ entire agreement, often phrased as “This agreement constitutes the entire understanding between the parties.” It is strong (though not absolutely conclusive) evidence that the writing is complete and exclusive as to its terms.

Key Term: Gap Filler
:
A statutory or common-law default rule that supplies a missing contract term (such as price or time for performance) when the parties intended to contract but omitted the term.

MBE questions often turn on small variations: Is the writing completely final? Is the contested statement prior, contemporaneous, or subsequent? Are we trying to contradict a written term, or to interpret it or prove a defense? This article builds those distinctions carefully and then turns to how the law fills gaps in contracts—especially under Article 2 of the UCC.

The Parol Evidence Rule (PER)

The Parol Evidence Rule limits the admissibility of extrinsic evidence of prior or contemporaneous oral or written negotiations and agreements when that evidence is offered to contradict, vary, or add to the terms of a written contract that the parties intended as the final expression of their agreement.

Put differently, PER is a content rule, not a formation rule: it assumes you already have an enforceable contract and asks what its terms are. It does not decide whether there is a contract in the first place.

A useful way to structure PER analysis is to ask three questions:

• Is there a written agreement the parties intended as a final expression of their agreement (a writing adopted as the final expression of their deal)?
• If so, is the writing complete (complete and exclusive) or partial (final only as to the terms it contains)?
• For the particular use of extrinsic evidence being proposed, does the PER bar that use, or is it allowed (because it is for a permissible purpose such as interpretation or proving a defense)?

Working through these questions systematically is critical on the MBE.

Finalization and the PER

Although many sources use the term “integrated agreement” as the technical label, this article uses the exam-friendly word finalization.

A writing is integrated (or finalized) when the parties adopt it as the final expression of at least some terms of their agreement.

• If there is no finalized writing (e.g., a non‑binding term sheet, a “letter of intent,” an unsigned draft), PER does not apply at all. All relevant extrinsic evidence is potentially admissible, subject only to ordinary rules of relevance and hearsay.
• Once the parties have adopted a writing as final as to certain terms, PER operates to protect those written terms from being undercut by earlier or contemporaneous negotiations.

Courts then classify integrated writings into two categories:

• Complete Finalization (Complete and Exclusive Final Writing)
  The parties intended the writing to be not only final but also the exclusive statement of their agreement on the subject.

  If a writing is completely finalized:

  • Extrinsic evidence of prior or contemporaneous expressions cannot be used to:
    • Contradict the writing.
    • Vary the writing.
    • Add additional terms, even if they are consistent.

  A detailed writing plus a merger clause is the classic exam signal of complete finalization.

• Partial Finalization (Final but Not Complete)
  The writing is final as to the terms it contains but does not purport to cover all aspects of the parties’ arrangement.

  If the writing is only partially finalized:

  • Evidence of consistent additional terms may be used to supplement the writing.
  • Evidence that contradicts the writing is still barred.

On the MBE, spotting whether the writing is complete or partial often decides the case.

Exam tip: Ask yourself, “If the parties really agreed to this alleged oral term, is it the sort of thing they would naturally have written down?” If yes, its omission strongly suggests complete finalization and the term will be excluded.

Tests for Completeness

Courts use slightly different approaches, but two styles are common:

• “Four corners” approach (traditional common law):

  • The court looks mainly at the document itself.
  • If the writing appears on its face to be complete and detailed, it is treated as completely integrated.
  • Parol evidence of additional terms is excluded.

  Under this approach, courts are reluctant even to look at extrinsic evidence to decide whether the writing is complete.

• Contextual approach (modern common law and UCC‑influenced):

  • The court may consider surrounding circumstances and negotiations to decide whether the parties intended the writing to be complete.
  • The classic question: Is the alleged extra term of the sort that parties would naturally and ordinarily have included in a writing of this kind?
    • If yes, and the term is missing, the writing is treated as complete and the term is excluded.
    • If no (e.g., it is collateral, minor, or customarily omitted), the writing is treated as partially integrated and the term may be admitted as a consistent additional term.

Some courts phrase this as the “natural omission test” (would parties naturally omit this term from the writing?) or, in a stricter version, the “certainly included test” (would parties certainly have included such an important term if they had made a complete writing?).

Under the UCC, courts are particularly willing to treat a writing as partial unless it clearly appears to be complete and exclusive.

On the MBE, look for cues:

• A short, simple writing with few terms and no merger clause is often only partially integrated. Expect more willingness to admit consistent additional terms.
• A long, lawyer‑drafted writing with a merger clause and detailed treatment of the subject usually signals complete finalization; prior or contemporaneous additional terms will be excluded.

What Counts as “Parol Evidence”

“Parol” evidence includes more than just oral statements.

Parol evidence includes:

• Prior oral agreements.
• Prior written agreements.
• Contemporaneous oral agreements (spoken at or around the time of signing).

Parol evidence does not include:

• Subsequent agreements or modifications.
  Anything agreed after the written contract is outside PER. These are governed by:

  • Contract‑modification rules (consideration at common law; good faith and sometimes a writing under UCC Article 2).
  • The Statute of Frauds, if the contract as modified falls within it.

• Evidence used for purposes other than changing the writing’s content, such as:

  • Interpreting ambiguous language.
  • Proving defenses to formation or enforcement (fraud, duress, mistake, illegality, lack of consideration, incapacity).
  • Showing a condition precedent to the contract’s effective date or to a duty.
  • Seeking reformation to correct a drafting error.

Courts may also consider extrinsic evidence at the threshold to determine whether the writing is integrated at all and, if so, whether it is complete or partial. Using evidence for that limited purpose does not violate PER.

Exam tip: If the fact pattern says “After signing, the parties orally agreed that…,” you are not in a PER problem. You are in modification territory. Immediately think: consideration (for common law), UCC modification rules, and the Statute of Frauds—not PER.

A related detail: contemporaneous separate writings are often treated as part of the integrated agreement, not as parol evidence. If two documents are executed at the same time as part of a single transaction, courts generally read them together.

Completeness, Merger Clauses, and Exam Traps

A merger clause is strong evidence of complete finalization, but it is not absolutely conclusive in all real‑world jurisdictions. Courts may disregard boilerplate merger clauses when the circumstances clearly show the parties did not mean to include certain collateral promises in the writing.

On the MBE, however:

• A detailed writing plus a merger clause almost always means complete finalization.
• The most common trap is an answer choice that treats the writing as partially integrated and admits a prior consistent term despite a strong merger clause. That is usually wrong unless the term is clearly collateral and separate (a classic collateral agreement situation discussed below).

Another frequent trap: confusing the concept of a finalized writing (finality) with enforceability.

• PER assumes the contract is otherwise valid.
• Defenses such as incapacity, duress, or illegality are not affected by PER and can always be proven by extrinsic evidence.

Barred vs. Permitted Uses of Parol Evidence

Think in terms of use:

• Barred uses under PER (if writing is integrated):

  • To add terms to a completely integrated writing.
  • To contradict written terms.
  • To vary or modify written terms by prior or contemporaneous evidence.

• Permitted uses (even when integrated):

  • To interpret ambiguous language.
  • To show defenses to formation/enforcement.
  • To prove a collateral agreement that does not contradict the writing and concerns a separate subject.
  • To show an oral condition precedent to effectiveness (subject to limitations).
  • To support a reformation claim.
  • To show subsequent modification (not within PER at all).

Keeping the timing and purpose straight solves most PER questions.

Completeness and Levels of Finalization

The PER applies only if the parties have adopted a writing as a final expression of at least some terms—a writing adopted as the final expression of at least some terms.

• If the writing is not intended as final (e.g., a preliminary draft, a letter of intent stating it is “non‑binding”), then the PER does not apply at all; all relevant extrinsic evidence is potentially admissible, subject to ordinary relevance rules.
• Once the parties have adopted a writing as final, the degree of finalization determines how strictly the PER operates.

Courts distinguish two basic levels:

• Complete Finalization (Complete and Exclusive Final Writing):

  If the writing is intended as the complete and exclusive statement of the parties’ agreement, the PER bars extrinsic evidence of prior or contemporaneous expressions that:

  • Contradict the writing.
  • Vary the writing.
  • Add additional terms.

  A merger clause is powerful evidence that the writing is complete and exclusive, especially when the writing is detailed and appears to cover the subject matter comprehensively. Under modern common law and the UCC, a merger clause is persuasive but not absolutely conclusive—courts may still consider circumstances suggesting the parties did not mean to include everything. On the MBE, however, a detailed writing plus a merger clause almost always means complete finalization unless the question clearly signals otherwise (for example, by stating that the parties always intended a separate side agreement).

• Partial Finalization (Final but Not Complete):

  If the writing is final only as to the terms it contains, but not as to all aspects of the deal, it is treated as only partially final. In that case:

  • Extrinsic evidence of consistent additional terms may be admitted to supplement the writing.
  • Extrinsic evidence that contradicts the writing is still barred.

The hard part is determining whether the writing is complete or partial. The tests for completeness discussed above are designed to answer that.

What Counts as “Parol Evidence” (Deepening the Distinction)

It is useful to sharpen the distinction between three groups of communications:

• Negotiations before the writing
  These are classic prior parol evidence. If the writing is integrated, such negotiations cannot be used to change its terms, subject to the exceptions discussed below.

• Statements made at the time of signing
  Contemporaneous oral agreements are treated as parol evidence and are subject to PER, just like prior negotiations. Contemporaneous separate writings, however, are often viewed as part of the integrated set of documents and may be read together with the main writing.

• Negotiations after the writing
  These are potential modifications. PER simply does not apply. The key questions become:

  • Was there mutual assent to change the contract?
  • Was consideration required and supplied (for common-law contracts)?
  • Does the contract (as modified) satisfy the Statute of Frauds?

Exam tip: Be wary of answer choices that say “barred by the Parol Evidence Rule” when the fact pattern clearly states that the alleged agreement occurred after the written contract. Shift your analysis to modification and Statute of Frauds.

Exceptions to the PER (or Situations Outside Its Scope)

The PER bars only a specific use of extrinsic evidence: using prior or contemporaneous statements to alter the content of an integrated writing. It does not bar extrinsic evidence used for other purposes. Here are the main categories, all heavily tested.

Interpretation of Ambiguous Terms

A central distinction: explaining a term vs. changing a term.

• If a written term is reasonably susceptible to more than one meaning, extrinsic evidence is admissible to show what the parties intended.
• Courts take a relatively liberal view of “ambiguity,” especially in commercial and UCC contexts. Terms that seem plain in ordinary language (“chicken,” “first quality,” “FOB”) may have technical meanings in the relevant trade.

Permitted interpretive evidence includes:

• Prior negotiations.
• Trade usage.
• Course of dealing between the parties.
• Course of performance under this contract.

Because interpretation is viewed as identifying what the parties meant by the words they chose, it is not treated as adding or contradicting terms and is therefore outside PER’s bar.

Key Term: Course of Performance
:
A sequence of conduct between the parties concerning performance of the particular contract at issue, used to interpret or supplement contract terms.

Key Term: Course of Dealing
:
A sequence of conduct between the parties in prior contracts that establishes a common basis of understanding for interpreting their present agreement.

Key Term: Usage of Trade
:
Any practice or method of dealing regularly observed in a place, vocation, or trade that justifies an expectation it will be observed in the transaction in question.

In practice, courts often use course of performance, course of dealing, and usage of trade both to interpret and to fill gaps.

Two kinds of ambiguity sometimes appear on the MBE:

• Patent ambiguity (obvious on the face of the document), for example, “Purchase price is five dollars thousand ($5,000).”
• Latent ambiguity (arises only with extrinsic facts), for example, a promise to deliver “the green Honda” when the seller has two green Hondas.

In both situations, extrinsic evidence is admissible to clarify the parties’ intent.

Subsequent Agreements

As noted, the PER does not apply to statements or writings made after the integrated agreement.

• A later oral or written modification is analyzed under:

  • Consideration rules (common law).
  • UCC modification rules (good faith; writing possibly required).
  • The Statute of Frauds, if the modified contract falls within it (e.g., a price increase that takes a goods contract over $500).

• “No oral modification” clauses:

  • Under the UCC, such clauses are generally enforceable, especially between merchants (UCC § 2‑209(2)).
  • Under common law, courts are more flexible; some allow oral modifications even when the contract says modifications must be in writing, under theories of waiver or estoppel.

MBE questions often combine PER and modification. The key is watching the timeline of the alleged statement.

Collateral Agreements

Key Term: Collateral Agreement
:
A separate agreement concerning a distinct subject, supported by its own consideration, that does not contradict the main written contract and may be proven even when the main contract is integrated.

Evidence of a side agreement is admissible if:

• It does not contradict the written contract; and
• It concerns a subject that parties might naturally omit from the writing.

Examples:

• A written contract selling a machine, plus a separate oral agreement for the seller to provide consulting services in a different transaction.
• A written land-sale contract, plus an oral promise to allow the buyer to graze cattle on adjacent land owned by the seller.

Indicators that a side term is a genuine collateral agreement:

• It has its own consideration.
• It involves a different subject matter.
• Its omission from the main writing is plausible and consistent with practice.

If instead the side term is closely related to the main subject and clearly should have been included (for example, a significant warranty or price term), courts treat it as part of the main deal, and PER will bar it if the writing is complete.

Defenses to Formation or Enforcement

PER does not block evidence offered to show that the writing is invalid or unenforceable. Common defenses:

• Fraud (in the inducement or in the execution).
• Misrepresentation.
• Duress.
• Mistake (mutual, or qualifying unilateral mistake).
• Illegality.
• Lack of consideration.
• Incapacity.
• Unconscionability.

Key Term: Misrepresentation
:
A false statement of existing or past fact made at the time of contracting that is material (or fraudulent) and that induces the other party’s assent, where the other party’s reliance is justifiable.

From the source materials on misrepresentation and fraud:

• Misrepresentation is a false statement of fact at the time of contracting.
• To assert the defense, a party must show:
  • Misrepresentation of a material fact (not mere opinion or puffery).
  • That is fraudulent (intentional) or material.
  • Justifiable reliance.

Evidence of the misrepresentation is admissible even if it consists of prior oral statements that contradict the writing, because the party is not trying to change the contract’s content but to avoid the contract altogether.

Exam tip: Carefully distinguish:

• “You told me the car was new; I want to enforce that as a warranty term.”
  → PER problem (trying to add a term).
• “You told me the car was new; that lie induced me to sign.”
  → Fraud/misrepresentation defense (PER does not apply).

The preferred answer often turns on which characterization you choose.

The preferred answer often turns on which characterization you choose.

Conditions Precedent to Effectiveness

Key Term: Condition Precedent
:
An event that must occur before a duty or an entire contract becomes effective; if the condition does not occur, the would‑be duty does not arise.

A party may introduce evidence of an oral condition precedent to the entire contract becoming effective, so long as the condition does not directly contradict the writing’s express terms.

• Example: “We signed this lease, but agreed it would not be binding unless my lender approved the financing.”

Because this goes to whether any obligation arose at all, rather than to changing the content of an existing obligation, courts place such evidence outside the PER.

Limits:

• If the alleged oral condition directly conflicts with a specific clause in the writing (e.g., the contract states “This agreement is effective upon signing”), many courts treat the oral term as contradicting the writing and exclude it.
• Others may admit it if the written clause is generic boilerplate and the condition is quite plausible, but on the MBE you should generally treat a direct conflict as barred.

A related but distinct concept is a condition to performance, rather than to the contract’s existence. Evidence of a contemporaneous oral condition to a specific duty can sometimes be seen as adding a condition inconsistent with the written promise, and courts differ in how they treat that. On the MBE, when in doubt, treat such evidence as barred if the writing unconditionally promises performance.

Reformation for Mistake

If the writing fails to reflect the parties’ actual agreement due to a drafting or transcription error, a party may seek reformation.

• Extrinsic evidence is admissible to show:
  • The parties’ prior actual agreement.
  • The nature of the mistake in reducing that agreement to writing.

Reformation is an equitable remedy. The usual requirements:

• A prior agreement.
• A writing that differs from that agreement because of a mistake (typically mutual, sometimes one‑sided if there is inequitable conduct).
• Proof by clear and convincing evidence.

Because the party is asking the court to correct the writing so that it matches the actual agreement, PER does not bar the evidence.

Course of Performance, Course of Dealing, and Usage of Trade

As noted above, these three concepts are powerful interpretive tools, particularly under the UCC:

• Course of performance: How the parties have actually behaved in performing this contract.
• Course of dealing: How the parties behaved in prior contracts with one another.
• Usage of trade: How the relevant industry or trade typically behaves.

Under the UCC, these can be used to explain or supplement a written contract, even when the writing looks clear on its face.

There is a hierarchy when they conflict:

• Express terms of the agreement.
• Course of performance.
• Course of dealing.
• Usage of trade.

Courts prefer reconciliation if possible, but if there is a direct conflict:

• Express terms override any inconsistent course of performance, dealing, or trade usage.
• Course of performance overrides inconsistent course of dealing or trade usage.
• Course of dealing overrides inconsistent trade usage.

Exam tip: If a buyer repeatedly accepts late deliveries under this contract without objection, that course of performance can operate as a practical construction of the contract and may prevent the buyer from later insisting on strict compliance—unless the buyer clearly notifies the seller that it will require strict timing going forward.

The UCC and the PER (UCC § 2‑202)

For contracts for the sale of goods, UCC § 2‑202 codifies a more flexible version of the PER.

Key features:

• Presumption of partial finalization:

  A writing is presumed to be only a partial final expression unless it “certainly” appears complete and exclusive on its face. That makes it easier to admit consistent additional terms than under strict traditional common law.

• Use of course of performance, course of dealing, usage of trade:

  Even if the writing appears complete, UCC § 2‑202 allows it to be explained or supplemented by:

  • Course of performance.
  • Course of dealing.
  • Usage of trade.

  Importantly, the UCC does not require that the writing be facially ambiguous before such evidence can be considered. Courts may look to trade usage and past practice even when the writing looks clear in ordinary language.

• Consistent additional terms:

  Under § 2‑202, consistent additional terms may be admitted unless the court finds that the writing was intended as a complete and exclusive statement of the agreement. There is a pro‑admissibility tilt.

  However, additional terms that materially alter the bargain (e.g., arbitration clause, substantial limitation of remedies) are more likely to be treated as inconsistent or excluded, especially in consumer or non‑merchant cases.

Consistency vs. Contradiction

The MBE often hinges on whether an extra term “contradicts” the writing or is merely “consistent.”

• A term contradicts the writing if both cannot logically be true at the same time.

  • Written: “Price is $10 per unit.” Alleged oral term: “Price is$8 per unit.”
    → Direct contradiction.

• A term is consistent if it can reasonably coexist with written terms.

  • Written: “Delivery by truck on or before June 1.”
    Alleged term: “Delivery will be made at night to avoid disrupting customers.”
    → Consistent.

Under common law:

• For a completely integrated writing, no extrinsic terms—consistent or inconsistent—may be used to vary or supplement it.
• For a partially integrated writing, consistent additional terms may supplement it; contradictory terms may not.

Under the UCC:

• Consistent additional terms are generally admissible unless the court finds the writing “certainly” complete and exclusive.

This liberal approach explains why UCC problems often allow more extrinsic evidence than analogous common-law problems.

PER vs. the Statute of Frauds

Students often confuse the PER with the Statute of Frauds (SOF), but they address different questions.

• The Statute of Frauds asks:
  Is there a writing sufficient to satisfy the statute for certain kinds of contracts?
  If not, the contract may be unenforceable.

• The Parol Evidence Rule asks:
  Given a writing, can prior or contemporaneous extrinsic evidence be used to change its terms?

Important contrasts:

• SOF is a formation/enforceability doctrine. It can prevent enforcement of a contract altogether.
• PER is a content doctrine. It determines what terms the contract contains once you have a writing that is treated as integrated.

The doctrines sometimes interact:

• An oral agreement for the sale of land is unenforceable under the SOF unless an exception applies (e.g., part performance). PER is irrelevant because there is no integrated writing.
• An oral modification to a written contract may raise both issues:
  • PER: not implicated because the oral modification is subsequent.
  • SOF: implicated if, as modified, the contract falls within the statute (e.g., a price increase over $500 for goods).

On the MBE:

• If you are dealing with an attempt to add to or contradict a written contract, think PER.
• If you are dealing with enforcement of an oral contract or oral modification, think SOF.

Worked Example 1.1

A written contract for the sale of a used car states the make, model, year, VIN, price, and delivery date. It contains a merger clause: "This agreement constitutes the entire understanding between the parties." The buyer claims the seller orally promised before signing that the car had a brand‑new transmission. The car’s transmission fails shortly after purchase. Can the buyer introduce evidence of the oral promise?

Answer:
The buyer likely cannot introduce the oral statement to prove a separate contractual warranty term. The detailed writing plus merger clause strongly indicate a fully integrated agreement. A promise about something as significant as the transmission’s condition is exactly the type of term that would naturally appear in a comprehensive written sales contract. Under the PER, evidence of the prior oral promise, offered to add such a term, is barred.
However, the buyer can reframe the statement as fraudulent misrepresentation—arguing that the seller knowingly misrepresented the transmission’s condition to induce the buyer to sign. In that posture, the PER does not bar the evidence; the analysis shifts to contract defenses and potential tort liability. On the MBE, answer choices often contrast “barred by PER” with “admissible to show fraud”; choose the latter when the facts support intentional or material misrepresentation and reliance.

Worked Example 1.2

Landlord and Tenant sign a written lease for a commercial space. The writing is silent on parking. Tenant claims that before signing, Landlord orally promised Tenant the exclusive right to use six parking spaces behind the building. The lease has no merger clause. Tenant later sues to enforce the parking promise. Is the oral promise admissible?

Answer:
A court could reasonably find that the lease is only a partial finalization and admit the oral promise as a consistent additional term. Parking is related to, but not necessarily part of, the core lease terms (rent, term, premises description). Without a merger clause and with silence on parking, a court might conclude that a parking arrangement is a collateral term that parties might naturally omit from the writing. In that case, PER does not bar the oral promise.
If instead the lease had detailed provisions on parking (for example, “Tenant and others shall have non‑exclusive use of all spaces on a first‑come, first‑served basis”), the alleged exclusive‑parking promise would directly contradict the writing and be excluded. The MBE frequently tests this by giving you a sparse lease versus an elaborate one; your PER conclusion should track the level of detail.

Worked Example 1.3

Party A and Party B execute a written agreement for A to purchase an office building from B. The contract states: “This agreement is effective as of the date of signing.” Before signing, A and B orally agree: “This deal is not binding unless A’s board approves it.” A’s board later disapproves. B sues for breach and A offers evidence of the board-approval understanding. Is the evidence admissible?

Answer:
This is a classic oral condition precedent scenario. If the written clause “effective as of the date of signing” is read to mean “no conditions to effectiveness,” then evidence of the board-approval understanding directly contradicts the writing and PER will bar it. Many courts (and bar examiners) will interpret the express clause that way and exclude the oral term. If, instead, the writing were silent on effectiveness, evidence of an oral condition precedent (board approval) would usually be admissible to show that no duties ever arose because the condition failed. On the MBE, when the writing squarely states it is effective upon signing, expect the oral condition to be excluded.
A common distractor in answer choices is “admissible because it shows lack of consideration” or “admissible because it is a collateral agreement.” Neither is accurate in this pattern; focus on the contradiction with the express effectiveness clause.

Exam Warning: PER vs. Subsequent Modifications

The PER bars evidence of prior or contemporaneous agreements used to alter a writing adopted as the final expression of the parties' agreement. It does not bar evidence of agreements made after the written contract (subsequent modifications). Subsequent modifications:

• Do not implicate PER.
• Must satisfy:
  • Consideration (at common law, unless a substitute such as promissory estoppel applies).
  • UCC modification rules (good faith, and a writing if required by § 2‑209 or the Statute of Frauds).
  • The Statute of Frauds if the contract as modified falls within it.

Carefully read timing words: “before signing” or “at the time of signing” = PER; “after signing” or “later agreed” = modification.

Omitted and Implied Terms

Even in detailed written contracts, parties often leave some matters open or use vague formulations. Contemporary contract law generally tries to enforce bargains wherever possible rather than declare them void for indefiniteness. Courts therefore:

• Supply missing terms using gap fillers.
• Recognize implied duties (such as good faith and reasonable efforts).
• Under the UCC, impose implied warranties concerning title and quality of goods.

This section concentrates on those omitted and implied terms—prime MBE territory.

UCC Gap Fillers

Article 2 of the UCC is particularly liberal about enforcing contracts despite missing terms. UCC § 2‑204 provides that:

• A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct recognizing a contract.
• A contract does not fail for indefiniteness if:
  • The parties intended to make a contract, and
  • There is a reasonably certain basis for giving an appropriate remedy.

Certain terms—especially quantity—cannot usually be supplied, but many others can.

Quantity

As a general rule, quantity cannot be supplied by a gap filler; an open quantity term usually prevents contract formation under the UCC.

• A document saying “Seller will sell Buyer widgets at $10 each” with no quantity is typically too indefinite.
• The court cannot guess how many units the parties intended; UCC Article 2 has no general provision allowing courts to supply a “reasonable quantity.”

There is, however, an important exception.

Key Term: Output Contract
:
A contract in which the seller promises to sell all of the goods it produces of a particular type to a single buyer, who agrees to buy that entire output.

Key Term: Requirements Contract
:
A contract in which the buyer promises to purchase all of its needs (requirements) of a specified type of goods from a particular seller, who agrees to supply that quantity.

In output and requirements contracts, quantity is defined by reference to the seller’s output or the buyer’s requirements, rather than a fixed number. These contracts are enforceable, but UCC § 2‑306 imposes two important limits:

• The party controlling quantity (the output seller or requirements buyer) must act in good faith. They cannot manipulate quantity solely to escape a bad bargain.
• Demanded or tendered quantities cannot be unreasonably disproportionate to:
  • Any stated estimate, or
  • Prior actual output or requirements.

For example:

• A buyer with an average monthly requirement of 10,000 units under a requirements contract cannot suddenly demand 100,000 units when the market price rises, merely to resell for profit; this is unreasonably disproportionate.
• Similarly, a seller under an output contract cannot arbitrarily drop output to zero just to avoid supplying a buyer at a now-unfavorable price, if the seller continues its business.

Exam tip: UCC § 2‑306 is tested both as a quantity rule and as a good‑faith rule. Look for sudden, unexplained spikes or drops in requirements or output and ask:

• Is the change due to genuine business circumstances (e.g., loss of a major customer, closing the plant)?
• Or is it opportunistic behavior triggered by market changes?

Closely related is exclusive dealing, also governed by § 2‑306(2), which implies best efforts duties (discussed further below).

Price (UCC § 2‑305)

When the contract leaves price open, UCC § 2‑305 supplies a default rule:

• If the contract is silent as to price, or the parties agree that price is to be fixed later and it is not, the price is a reasonable price at the time of delivery, provided:
  • The parties intended to make a contract, and
  • The price is not made a condition of the contract’s existence.

Price may also:

• Be left to be fixed by a third person or an external standard (e.g., “market price as quoted in the Wall Street Journal on the date of delivery”).
• Be fixed by one party:
  • If one party is empowered to fix price, it must do so in good faith.
  • If the price‑setting party fails to set the price, the other party may either:
    • Treat the contract as cancelled, or
    • Fix a reasonable price and perform, depending on the circumstances and the parties’ intent.

If the parties clearly intend not to be bound unless or until the price is fixed, and the agreed method for fixing price fails (for example, the appraiser refuses to act), then there is no contract. Party intent is determinative.

MBE question writers like to give you an open price term and ask whether there is a contract at all. If the facts show:

• A deal in principle (“We have a deal; we’ll sort out the exact price later, based on the market”), the UCC will fill the gap with a reasonable price.
• An understanding that “we are not bound until we agree on price,” then there is no contract if agreement on price never occurs.

Place of Delivery (UCC § 2‑308)

If the contract does not specify a place of delivery:

• The default place is the seller’s place of business.
• If the seller has no place of business, the default is the seller’s residence.
• If both parties know the goods are located elsewhere when they contract (e.g., in a warehouse), that location is the place of delivery.

This default frequently appears together with risk‑of‑loss questions; remember that absent special shipping terms, the buyer typically must collect the goods from the seller’s place.

Time for Shipment or Delivery (UCC § 2‑309)

If no time is stated:

• Shipment or delivery must occur within a reasonable time.

What is reasonable depends on:

• The nature of the goods (perishable, seasonal, custom‑made, etc.).
• Trade practice (how quickly such goods are typically delivered).
• Business circumstances (distance, available transportation, any known constraints).

Courts will consider course of dealing and course of performance in deciding what is reasonable.

Time for Payment (UCC § 2‑310)

If the contract is silent:

• Payment is due at the time and place at which the buyer is to receive the goods.

In practical terms, payment is generally due upon delivery, not in advance, unless the contract or trade usage provides otherwise.

The parties can always agree to credit terms (e.g., “net 30 days”), which will override this default.

Single vs. Installment Delivery (UCC § 2‑307)

When the contract does not explicitly call for installment deliveries:

• The UCC assumes delivery in a single lot and a single payment.

If the parties intend an installment contract (e.g., “1,000 units in ten equal monthly shipments”), special UCC rules apply for nonconforming installments and cancellation (UCC § 2‑612). But absent such language, the gap filler is a single delivery.

Risk of Loss and Shipping Terms (Context Note)

Risk‑of‑loss rules are separate from gap fillers but often appear together in MBE questions.

If the contract is silent:

• For a merchant seller, risk of loss passes to the buyer when the buyer receives the goods.
• For a non‑merchant seller, risk of loss passes when the seller tenders delivery (makes the goods available to the buyer).

Shipping terms such as FOB (“free on board”) can override these defaults and convert the contract into a shipment or destination contract. Those terms are usually express rather than implied, so they are not gap fillers, but you must be able to recognize them.

Other UCC Defaults: Assortment and Packaging

Two additional default rules sometimes appear:

• If the contract leaves assortment of goods to the buyer (for example, “100 shirts, assorted sizes”), and the buyer fails to specify the assortment in a reasonable time, the seller may:

  • Make a reasonable assortment selection, or
  • Treat the failure as a breach.

• Goods must be adequately packaged and labeled as the agreement, trade usage, or course of dealing may require. If not specified, ordinary commercial standards apply.

Common UCC Gap‑Filler Patterns

On the MBE, you might see:

• Offer: “100 laptops at $500 each, delivery in April; confirm?”
  Response: “Agreed.”
  The writing is silent on place of delivery and payment time. The UCC will supply:

  • Delivery at seller’s place of business.
  • Payment due on delivery.

• Contract to sell “all the wheat Seller grows this year at $4/bushel” with no delivery date.
  UCC gap fillers supply:

  • Quantity (via output).
  • Delivery within a reasonable time after harvest (using course of dealing and trade usage).

Common-Law Gap Filling and Indefiniteness

Common-law contracts (services, real estate, intangible property) are somewhat less tolerant of open terms than the UCC, but courts still supply missing details where:

• The parties clearly intended to contract, and
• There is a reasonably objective basis for enforcement.

Typical common-law gap fillers:

• Time for performance:

  • If none is stated, performance is due within a reasonable time.

• Place for performance:

  • For services, performance usually occurs at the service provider’s place of business, unless circumstances indicate otherwise.

• Price:

  • Courts are more cautious about supplying price at common law. If the parties provide a formula or external standard (e.g., “prevailing market rate,” “standard hourly rate for partners”), courts will usually use that standard.
  • If the parties simply say “we will agree on the price later” without more, many courts treat that as an agreement to agree and may find no contract, especially when price is essential and no performance has yet occurred.

Courts are particularly skeptical of:

• Bare agreements to negotiate (“We will negotiate in good faith to reach a definitive agreement”) as creating enforceable contracts for the substantive subject matter. They may enforce a duty to negotiate honestly but not a duty to accomplish a final contract.

Exam tip: A common MBE trap is to suggest that a promise to negotiate in good faith “forms a contract for the proposed project.” That is almost always incorrect. The obligation is at most to negotiate in good faith, and even that is often non‑actionable if the parties reserve the right to walk away.

Implied Duty of Good Faith and Fair Dealing

Every contract under both common law and the UCC contains an implied duty of good faith and fair dealing.

Key Term: Implied Duty of Good Faith and Fair Dealing
:
A non‑disclaimable duty imposed on each party to a contract requiring honesty in fact and the observance of reasonable commercial standards of fair dealing in performing and enforcing the contract.

Under UCC § 1‑201(20):

• For all parties, good faith means honesty in fact.
• For merchants, good faith also includes observance of reasonable commercial standards of fair dealing in the trade.

Under the common law:

• The standard is similar: parties must not act to destroy or injure the right of the other to receive the fruits of the contract.

Good faith does not:

• Create new, independent substantive duties beyond the contract.
• Override clear, express terms in the contract.

But it does:

• Regulate how contractual discretion is exercised.
• Prevent parties from opportunistically exploiting gaps or technicalities to defeat the other’s reasonable expectations.

Some recurring contexts:

• Discretionary quantity in output and requirements contracts.
• Discretionary satisfaction or approval clauses.
• Discretionary termination-at-will.
• Discretion in exercising options (e.g., renewal options) or setting price.

Good Faith in Output and Requirements Contracts

As discussed above, UCC § 2‑306 governs:

• Output contracts: seller promises all its output of a type of goods to a buyer.
• Requirements contracts: buyer promises all its requirements of a type of goods from a seller.

Good faith limits:

• The controlling party (who determines the amount of output or requirements) cannot, in bad faith, manipulate quantity to avoid the contract.

  • A buyer cannot deliberately reduce its contractual “requirements” to zero solely to buy more cheaply elsewhere, while in fact continuing its business.
  • A seller cannot deliberately cut its “output” to zero solely to escape supplying the buyer, if it is still operating the business.

• However, genuine business changes are permitted:

  • If a buyer’s business legitimately shrinks or closes, a drop (even to zero) in requirements can be in good faith.
  • If a seller shuts down the relevant line of business for bona fide reasons (not just to avoid the contract), a drop in output can be good faith.

• Quantities cannot be unreasonably disproportionate to any stated estimate or prior output/requirements, even if demanded or tendered in good faith.

These rules ensure that open‑quantity contracts are neither illusory nor abusive.

Satisfaction Clauses

Some contracts condition performance (usually payment) on a party’s “satisfaction” with the other party’s performance:

• “Payment due upon Buyer’s satisfaction with the building’s construction.”
• “Composer will be paid only if Producer is personally satisfied with the song.”

Courts treat these differently depending on subject matter:

• If the subject involves commercial quality or fitness (e.g., utility of a machine, construction of a building), courts apply an objective standard:

  • Would a reasonable person in the promisor’s position be satisfied?
  • The promisor cannot arbitrarily refuse to approve performance that meets the contract’s standards.

• If the subject involves personal taste or aesthetics (e.g., art, custom clothing, personal services), courts apply a more subjective standard:

  • The promisor may honestly be dissatisfied based on taste.

In both contexts:

• The promisor must exercise the power of approval in good faith.
• They cannot pretend to be dissatisfied merely to avoid payment or to gain a stronger bargaining position for a better deal.

Termination-at-Will Clauses

Contracts sometimes state that a party may terminate “at any time,” “at will,” or “on thirty days’ notice.”

• Even when such broad discretion is granted, the terminating party must act in good faith.
• A classic example from the sources: an employer terminates a salesperson just before commissions are due solely to avoid paying the earned commissions. Courts often hold this violates the implied duty of good faith, even though the contract technically allows at‑will termination.

Good faith cannot be disclaimed (UCC § 1‑302), although parties may specify standards to measure performance, so long as those standards are not unconscionable or inconsistent with public policy.

Worked Example 1.4

Writer grants Publisher an exclusive license to publish Writer’s novel in the United States. The contract says nothing about Publisher’s promotional efforts. Publisher prints only a handful of copies, does no advertising, and shelves the project. Writer sues for breach. Is there an implied term Publisher has violated?

Answer:
Yes. Courts commonly imply a duty of reasonable efforts in exclusive dealing arrangements. Under UCC § 2‑306(2) (for goods) and parallel common‑law principles (for other subject matter), when a party is granted exclusivity, that party must use reasonable efforts to bring about the contemplated result. Here, Publisher’s failure to make any genuine effort to print, distribute, and market the book breaches that implied obligation, even though the contract does not expressly require specific promotional activities. The implied duty of good faith and fair dealing prevents Publisher from rendering the exclusivity promise illusory. On the MBE, when you see “exclusive dealing” with silence about efforts, look for an implied “best efforts” duty.

UCC Implied Warranties

Article 2 implies several important warranties into contracts for the sale of goods, unless they are effectively disclaimed.

Key Term: Merchant
:
A person who deals in goods of the kind involved in the transaction or otherwise holds themselves out as having knowledge or skill peculiar to the practices or goods involved.

The main implied warranties are:

• Merchantability (for merchants dealing in goods of the kind).
• Fitness for a particular purpose (for any seller with knowledge of purpose and reliance).
• Title (for all sellers, unless properly limited).

Implied Warranty of Merchantability (UCC § 2‑314)

Key Term: Implied Warranty of Merchantability
:
A warranty, implied if the seller is a merchant dealing in goods of the kind sold, that the goods are fit for the ordinary purposes for which such goods are used and meet certain minimum quality standards.

Who is bound?

• The seller must be a merchant with respect to goods of that kind. A casual seller (for example, a private person selling a used couch on a one‑off basis) is not bound by this implied warranty.

What is warranted?

• Goods must:
  • Pass without objection in the trade under the contract description.
  • If fungible, be of fair average quality within the description.
  • Be fit for the ordinary purposes for which such goods are used.
  • Be adequately contained, packaged, and labeled as the agreement may require.
  • Conform to any promises or affirmations made on the container or label.

Examples:

• A ladder that collapses during normal, non‑abusive use likely breaches merchantability.
• Bottled food contaminated with glass or harmful bacteria breaches merchantability.
• Ordinary office chairs whose legs snap under normal seated use breach merchantability.

Note: Merchantability focuses on ordinary use, not the buyer’s subjective or unusual purpose. That is covered, if at all, by the fitness warranty.

Implied Warranty of Fitness for a Particular Purpose (UCC § 2‑315)

Key Term: Implied Warranty of Fitness for a Particular Purpose
:
A warranty, implied when any seller knows the buyer’s particular purpose for the goods and that the buyer is relying on the seller’s skill or judgment, that the goods are fit for that specific purpose.

Who is bound?

• Any seller, merchant or not, can be liable for breach of this warranty.

When does it arise?

• The seller has reason to know:

  • The buyer’s particular purpose (a special or unusual use), and
  • That the buyer is relying on the seller’s skill or judgment to select suitable goods.

• The buyer actually relies on the seller.

Typical fact patterns:

• “I need paint that will stick to wet concrete in a refrigerated warehouse.”
• “I need a pump that can safely handle highly corrosive chemicals.”
• “I need roofing material suitable for use in a high‑salt, coastal environment.”

In such cases, the seller implicitly warrants that the goods will be fit for the stated particular purpose.

This warranty is in addition to any warranty of merchantability. Often, both are breached.

Implied Warranty of Title (UCC § 2‑312)

Key Term: Implied Warranty of Title
:
A warranty, implied in sale contracts unless disclaimed or modified, that the seller has good title, the right to transfer it, and that the goods are delivered free from undisclosed liens or security interests, and, in many cases, free from rightful claims of infringement.

Specifically, unless otherwise agreed, the seller warrants that:

• The title conveyed shall be good, and its transfer rightful.
• The goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer had no knowledge at the time of contracting.

In addition, in transactions where the seller regularly deals in goods of the kind, there is often an implied warranty against rightful claims of infringement (patent, trademark, etc.), unless excluded or modified by specific language or circumstances.

This warranty of title can be disclaimed only:

• By specific language (e.g., “Seller transfers only such right, title, and interest as it has”), or
• By circumstances that give the buyer reason to know that the seller does not claim full title (e.g., a sheriff’s sale, foreclosure sale).

Worked Example 1.5

Buyer, needing durable boots for mountain climbing, tells Seller, a shoe store owner, “I need the toughest boots you have for climbing Mt. Colossus next month.” Seller recommends “Ironclad Boots.” Buyer relies on this recommendation, buys the boots, and they fall apart on the climb. What warranty is most clearly breached?

Answer:
The implied warranty of fitness for a particular purpose is most clearly breached. Seller had reason to know Buyer’s particular purpose (a demanding mountain climb) and that Buyer was relying on Seller’s skill in selecting suitable boots. The boots failed to perform for that particular purpose. Because the seller is a merchant in boots, there may also be a breach of the implied warranty of merchantability if the boots were also unsuitable for ordinary hiking or walking uses, but the facts emphasize the specific purpose and reliance, which is the hallmark of the fitness warranty.

Interaction of Express and Implied Warranties

Express warranties are created by:

• Any affirmation of fact or promise made by the seller to the buyer that relates to the goods and becomes part of the basis of the bargain.
• Any description of the goods that becomes part of the basis of the bargain.
• Any sample or model that is part of the basis of the bargain.

No special words are required; terms like “guarantee” or “warranty” are not necessary.

Key interactions:

• Express and implied warranties should be construed as consistent and cumulative whenever reasonable.
• If they cannot be reconciled, express warranties prevail over inconsistent implied warranties and over general disclaimers.

Puffery—statements of opinion or commendation (“this is a top‑notch machine,” “best on the market”)—does not create an express warranty. The MBE often contrasts factual claims (“runs at 60 copies per minute”) with puffery.

Exam tip: Boilerplate disclaimers such as “Seller makes no warranties, express or implied” do not erase a specific express representation (“This machine processes 500 units per hour”). The specific promise usually controls, and the seller will be held to it.

Disclaiming Implied Warranties (UCC § 2‑316)

Key Term: Warranty Disclaimer
:
Contract language or conduct that excludes or modifies an otherwise applicable warranty. The UCC prescribes specific formal requirements to disclaim implied warranties of merchantability and fitness.

Implied warranties can generally be disclaimed, subject to statutory rules and unconscionability limitations.

Disclaimer of Merchantability

To disclaim merchantability:

• The disclaimer must mention “merchantability.”
• If in writing, it must be conspicuous—a reasonable person ought to notice it.

An oral disclaimer is technically possible (“There is no warranty of merchantability”), but on the MBE, expect written disclaimers highlighted by:

• Capital letters.
• Boldface.
• Contrasting font or color.

Courts decide conspicuousness as a matter of law.

Disclaimer of Fitness for a Particular Purpose

To disclaim fitness:

• The disclaimer must be in a writing.
• It must be conspicuous.
• It need not use the word “fitness”; language such as “There are no warranties which extend beyond the description on the face hereof” can suffice if conspicuous.

Because fitness turns on reliance and particular purpose, courts scrutinize attempts to disclaim it, especially in consumer cases.

“As Is” and Similar Phrases

Phrases like “as is,” “with all faults,” or similar expressions:

• If conspicuous, they can disclaim both merchantability and fitness warranties.

The idea is that the buyer is accepting the goods in their current condition, with whatever defects they may have, subject only to:

• Any express warranties.
• Fraud or misrepresentation claims.
• Unconscionability limits, especially for personal injury (see below).

Inspection by Buyer

If the buyer:

• Examines the goods (or refuses to examine them) before contracting, implied warranties do not cover defects that a reasonable examination would reveal.

Practical consequences:

• Obvious or discoverable defects are not covered when the buyer had a meaningful chance to inspect and did so (or deliberately refused).
• Hidden or latent defects that a reasonable inspection would not discover remain covered by implied warranties, absent a valid disclaimer.

Course of Dealing, Course of Performance, Usage of Trade

Implied warranties can also be modified or excluded by:

• Course of dealing (how the parties acted in prior contracts).
• Course of performance (how the parties are behaving under this contract).
• Usage of trade (industry practice).

Example:

• In a salvage goods industry, where all buyers understand that “salvage” goods may be defective and carry no warranties, that trade usage can operate as a de facto disclaimer—assuming the buyer is aware or should be aware of the usage.

Courts will not enforce disclaimers that are unconscionable, particularly regarding personal injuries from consumer goods (UCC § 2‑719(3)). Even if an implied warranty is disclaimed, an unconscionable limitation of remedy may be struck, leaving the warranty in effect.

Worked Example 1.6

Merchant Seller sells used computers. The pre‑printed contract provides, in bold capital letters: “ALL GOODS SOLD ‘AS IS.’ SELLER DISCLAIMS ALL IMPLIED WARRANTIES.” Seller is a merchant of computers. Buyer, a business, purchases a batch of computers under this form. Several fail due to latent defects. Does Buyer have an implied warranty claim?

Answer:
Probably not. The conspicuous “AS IS” language, combined with the express disclaimer of all implied warranties, is effective under UCC § 2‑316 to disclaim both merchantability and fitness, assuming the disclaimer is not unconscionable and was part of the bargain. Buyer may still have claims for any express warranties—for example, if Seller made specific factual statements about the computers’ specifications or condition that proved false. The MBE often tests this by pairing a broad “as is” clause with a specific brochure representation; the correct answer usually enforces the express warranty despite the disclaimer.

Worked Example 1.7

Seller’s brochure states: “This model of copier will make 60 copies per minute.” The written sales contract Buyer signs includes, in bold capital letters: “ALL GOODS SOLD ‘AS IS.’ SELLER DISCLAIMS ALL IMPLIED WARRANTIES.” No other warranties appear in the contract. The copier only makes 30 copies per minute. Buyer sues for breach of warranty. What is the likely result?

Answer:
Buyer should prevail on an express warranty theory. The brochure’s specific claim (“60 copies per minute”) is an affirmation of fact that became part of the basis of the bargain, creating an express warranty. General “as is” language and disclaimers of implied warranties do not negate an inconsistent express warranty. The PER does not bar the brochure: express warranties are substantive contractual terms, not mere extrinsic evidence being used to vary a writing. The correct analysis is that the express performance representation overrides the general disclaimer.

Common-Law Implied Terms

Although UCC implied warranties receive the most exam emphasis, common law also implies important terms.

Implied Duty to Cooperate

Each party has an implied duty not to hinder the other’s performance.

Examples:

• An owner who hires a contractor to remodel a house must provide access to the jobsite. If the owner repeatedly locks the contractor out and then complains that the contractor is late, that is inconsistent with the duty to cooperate.
• A client who hires a consultant to create a financial model must supply necessary data. Arbitrarily withholding key information can be a breach of the cooperation duty.

The duty to cooperate can convert what would otherwise be an absolute condition into a promise: if the benefiting party fails to cooperate, it may lose the right to insist on the condition.

Implied Reasonable Efforts in Exclusive Dealing

In exclusive dealing arrangements:

• A distributor granted exclusivity to sell a product is generally required to use reasonable efforts to market and sell it.
• A manufacturer exclusively supplying a buyer’s needs is required to use reasonable efforts to maintain supply.

These implied obligations prevent the exclusive party from simply doing nothing and rendering the contract illusory.

UCC § 2‑306(2) explicitly provides that:

• “Unless otherwise agreed, an exclusive dealing agreement imposes unless otherwise provided an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to market them.”

Even in non‑goods contexts, courts frequently imply similar “best efforts” obligations.

Reasonable Time and Reasonable Price

As under the UCC, if a service or real estate contract does not specify time for performance:

• Courts imply a reasonable time.

If price is left open but:

• The parties clearly intended to contract, and
• Provided a formula or standard (“fair market rent,” “prevailing interest rate”),

courts will enforce the bargain using that standard.

By contrast, where essential terms are left so open that no workable standard exists (e.g., “we will agree later on the key financial terms”), a court may find no contract for indefiniteness.

Illusory Promises and Implied Limitations

Sometimes a promise appears illusory on its face:

• “I will buy all I want from you.”
• “I will hire you if I feel like it.”

Courts often attempt to save such promises by reading in implied limitations or good‑faith obligations when consistent with reasonable expectations and context, especially under UCC Article 2 (as with output and requirements contracts). But where no meaningful obligation can be implied, the promise is truly illusory and does not supply consideration.

Worked Example 1.8

Buyer and Seller, both merchants, sign a short written contract: “Seller agrees to sell 500 widgets to Buyer at $2 each. Delivery next month.” The contract is silent on the delivery location. Seller refuses to ship, claiming Buyer must pick up the goods at Seller’s warehouse. Buyer insists Seller must deliver to Buyer’s city. Under the UCC, what is the default rule?

Answer:
The default place of delivery under UCC § 2‑308 is the seller’s place of business when no delivery place is specified. Since the contract did not set a delivery location, Seller is entitled to tender delivery at its own warehouse, and Buyer must take delivery there, absent any contrary trade usage or subsequent agreement. On an MBE question, the wrong answer choices typically say “buyer’s place of business” or “a reasonable place chosen by the buyer”; those are incorrect under the code’s default rule.

Worked Example 1.9

Manufacturer agrees in writing to sell Retailer “all the flour Retailer requires for its bakery business” for one year at a fixed price per pound. For the first six months, Retailer orders approximately 10,000 pounds per month. After a successful marketing campaign, demand triples, and Retailer orders 50,000 pounds the next month. Manufacturer refuses, claiming the order is unreasonably disproportionate to previous requirements. Is Manufacturer in breach?

Answer:
Probably not. This is a requirements contract governed by UCC § 2‑306. Retailer’s orders must be in good faith and may not be unreasonably disproportionate to any stated estimate or to prior actual requirements. A sudden jump from 10,000 to 50,000 pounds (a five‑fold increase) is likely unreasonably disproportionate, even if Retailer’s demand genuinely increased. Manufacturer may lawfully refuse to supply the excess. Manufacturer remains obliged to supply a quantity reasonably in line with prior requirements or with any stated estimate (for example, perhaps something near 10,000–20,000 pounds).

Worked Example 1.10

Buyer and Seller sign a detailed, apparently complete written sales contract for 1,000 industrial valves. The writing includes a merger clause and a detailed warranty section. Buyer now claims that before signing, the parties orally agreed that Seller would also provide one week of on‑site training for Buyer’s staff, for free, after delivery. Training is not mentioned in the writing. Buyer offers evidence of the oral promise. Is the evidence admissible?

Answer:
Likely no. The training promise concerns the same transaction and is the type of term that parties would naturally include in a comprehensive written agreement covering purchase, delivery, and warranties for industrial equipment. The merger clause signals that the writing is complete and exclusive. Under the PER, evidence of a prior oral promise to add a free training obligation would be treated as an additional term and barred. If, however, the training arrangement were truly separate—for example, a distinct services contract at a separate fee, perhaps memorialized in a separate document—it might qualify as a collateral agreement and be admissible.

Key Point Checklist

This article has covered the following key knowledge points:

• The Parol Evidence Rule restricts use of prior or contemporaneous extrinsic evidence to alter written contracts adopted as the final expression of the parties' agreement.
• Whether a writing is complete or only partially final determines if consistent additional terms may supplement it; merger clauses strongly support treating a writing as complete and exclusive.
• Courts may use extrinsic evidence at the threshold to decide whether a writing is treated as the final expression of the parties' agreement and to interpret ambiguous terms; this use is not barred by the PER.
• The PER does not bar extrinsic evidence used for interpretation, to show defenses (fraud, duress, mistake, illegality, lack of consideration), to prove conditions precedent, to establish collateral agreements, or to obtain reformation.
• Under UCC § 2‑202, course of performance, course of dealing, and usage of trade may always be used to explain or supplement written terms, even if the writing appears unambiguous, subject to a hierarchy in case of conflict.
• UCC gap fillers supply missing terms such as price (reasonable price at time of delivery), place of delivery (seller’s place of business), time of delivery (reasonable time), and time for payment (on receipt of goods), so long as quantity is adequately specified.
• Quantity generally cannot be supplied by gap fillers, but output and requirements contracts validly define quantity by reference to output or requirements, subject to good‑faith and “unreasonably disproportionate” limitations.
• All contracts contain an implied duty of good faith and fair dealing, shaping how contractual discretion (for example, in output, requirements, satisfaction, and termination‑at‑will clauses) may be exercised.
• UCC implied warranties include merchantability (for merchants of goods of that kind), fitness for a particular purpose (for any seller who knows of purpose and reliance), and title (good, rightful title free of undisclosed liens and rightful claims of infringement).
• Implied warranties can be disclaimed only in compliance with UCC § 2‑316 (for example, mentioning “merchantability” and using conspicuous language, or using conspicuous “as is” language); express warranties are harder to disclaim and generally prevail over conflicting general disclaimers.
• Common law also implies terms such as reasonable time for performance, reasonable efforts in exclusive dealings, a duty to cooperate, and good faith in exercising contractual discretion, especially where necessary to avoid rendering a promise illusory.
• Collateral agreements (separate, non‑contradictory side deals) and oral conditions precedent to effectiveness are not barred by the PER when they concern distinct subject matter and do not directly conflict with express written terms.
• The Statute of Frauds and the Parol Evidence Rule address different issues: enforceability of certain contracts (SOF) versus the content of integrated writings (PER), though both can appear in the same fact pattern.
• Under UCC Article 2, courts are generally more willing to enforce contracts with open terms and to rely on course of performance, course of dealing, and usage of trade to fill gaps and interpret obligations.
• Misrepresentation and fraud may always be proven by extrinsic evidence even if that evidence contradicts a writing, because the party is attacking the contract’s validity, not its content.

Key Terms and Concepts

• Parol Evidence Rule (PER)
• Finalization
• Merger Clause
• Course of Performance
• Course of Dealing
• Usage of Trade
• Gap Filler
• Merchant
• Implied Duty of Good Faith and Fair Dealing
• Implied Warranty of Merchantability
• Implied Warranty of Fitness for a Particular Purpose
• Implied Warranty of Title
• Warranty Disclaimer
• Collateral Agreement
• Condition Precedent
• Output Contract
• Requirements Contract
• Misrepresentation