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Unformatted text preview: Contracts Outline Chapter 6 Supplementing the Agreement: Implied Terms, the Obligation of Good Faith, and Warranties A. Implied Terms 1. Implied in Fact what the parties intended to happen a. Case example: Wood v. Lady Duff Gordon 2. Implied in Law Examples are Gap-filling provisions of the UCC B. The Implied Obligation of Good Faith a. UCC 1-201(b)(20) Definition- Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing b. Restatement 205 Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement (there is also 1-304 UCC imposes good faith in every contract or duty) i. Requirements and Output Contracts: 1. Requirement contracts- providing all the products/goods that the other party requires (and the other party purchases) 2. Output Contract- purchasing all of the goods/services that are made by the seller, and the seller provides the pies a. UCC 2-306 A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded ii. Objective v. Subjective standard 1. Objective standard evaluates the reasonable persons satisfaction to the performance of the contract, (settings of commercial quality, operative fitness or mechanical utility) 2. Subjective standard is when the contract requires that the standard of approval of the single person (settings of personal aesthetics or fancy) 3. A subjective standard can always be expressly written into a contract if the parties desire to do so iii. Example of bad faith: Warner Brothers Case- 1. Misrepresentation- contracting on the basis of one party making statements that are knowingly untrue so that the other party will rely c. Warranties i. Express Warranty by Affirmation, Promise, Description, Sample An explicit promise or guarantee by the seller that the goods will have certain qualities 1. 2-313 By seller to buyer that relates to the goods & becomes part of the basis to the bargain and creates and express warranty Goods will conform to affirmation or promise (reliance by buyer) No opinions or value statements (fact only) ii. Implied Warranty of Merchantability (implied in any transaction for goods whether or not parties mention it)...
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