Best if printed in landscape.
and implied terms of a contract
stated previously, a contract is a way for individuals to specify legal
(enforceable) rights between themselves, but the law sets some parameters
and answers some questions. The parameters vary by type of contract.
list provides examples of types of contracts the legislature has addressed;
the citations are primarily to North Dakota statutes.
Examples of statutes
directing contractual relationships.
- N.D.C.C. §9-12-14. "An offer of performance must be
made in good faith and in such manner as is most likely
under the circumstances to benefit the creditor."
between offer to enter into a contract and an offer of performance.
For example, during a conversation I state to you "I will sell you
10,000 bushels for $35,000;" that is an offer to enter into a contract.
When I arrive with a truck filled with grain intending to deliver
it as partial fulfillment of our contract (wherein I am to deliver
10,000 bushels), that is an offer of performance. See N.D.C.C. §9-12-09
- N.D.C.C. §41-01-13. (1-203) "Every contract or duty within this
title (N.D.C.C. title 41) imposes an obligation of good faith in its
performance or enforcement."
- N.D.C.C. §47-10-13. "A fee simple title is presumed to be intended
to pass by a grant of real property unless it appears from the grant
that a lesser estate was intended."
- N.D.C.C. §47-16-04. "In the absence of any agreement to the contrary
between the lessor and the lessee, the products received from real property
during the term of a lease belong to the lessee."
- N.D.C.C. §47-14-03. "Whenever a loan of money is made, it is presumed
to be made upon interest unless it is expressly stipulated otherwise
in writing at the time it is made."
- N.D.C.C. §41-02-25. (2-308) "Unless otherwise agreed: 1.
The place for delivery of goods is the seller's place of business or,
if the seller has none, the seller's residence ..."
- N.D.C.C. §41-02.1-21. (2A-212) "1. Except in a finance lease, a
warranty that the goods will be merchantable is implied in a lease contract
if the lessor is a merchant with respect to goods of that kind."
- N.D.C.C. §47-07-12. "One who sells the goodwill of a business thereby
warrants that the seller will not endeavor to draw off any of the customers."
Statutes 17.90 to 17.98 and Minnesota
Rules Chapter 1572. Required language and terms for agricultural
(production) contracts in Minnesota.
obligations are implied in contract?
the case of every contact, there is an implied undertaking on the part
of each party that he will not intentionally and purposely
do anything to prevent the other party from carrying out the agreement on his part." taken from Patterson v. Meyerhofer, 204
N.Y. 96 (1912).
- "[In a sale
of personal property,] the Uniform Commercial Code assumes the parties
so phrased their sale contract that, unless otherwise specifically excluded,
course of dealing, course of performance, and usage of trade "were
included in the contract even if not expressly so stated.""
Farms v. Wald, 1998 ND 85, 578 N.W.2d 96
course of dealing is a sequence of previous
conduct between the parties [that can] be regarded as establishing
a common basis of understanding for interpreting their expressions
and other conduct (N.D.C.C. §41-01-15).
- For example, the parties have entered into a series of contracts over the years. How they have dealt with each other in the past during previous contracts (i.e., their course of dealings) will influence how the current contract will be interpreted and applied.
of performance relates to the conduct of the parties
... [after the contract's] formation ." Campbell
Farms v. Wald, 1998 ND 85, 578 N.W.2d 96.
- For example, how the parties have dealt with each other during the current contract (i.e., their course of dealings) will influence how the remainder of the current contract will be interpreted and applied.
- A seller is obligated to make a delivery every Tuesday for the 6-month contract. After several weeks of Tuesday deliveries, the seller begins to make deliveries on Wednesday and the buyer accepts the Wednesday deliveries without expressing a concern that they are a day late. The Wednesday deliveries continue to several months. Finally, the buyer complains that the deliveries should have been on Tuesday. The court may indicate that the parties, through their action of completing Wednesday deliveries have altered their agreement that deliveries on Wednesday is now their contract.
- Course of dealings is somewhat like adverse possession, that is, if you have a legal right (based on contract or property), enforce that legal right. If you do not enforce that legal right, the legal system may subsequently determine that you have decided not to enforce the legal, and now it is too late to change your mind and try to enforce the legal right.
- Bottom line -- if you have a legal right, enforce it; otherwise you may be prohibited from enforcing it at a later time.
usage of trade is any practice or method
of dealing having such regularity of observance in a place,
vocation, or trade as to justify an expectation that it will
be observed with respect to the transaction in question. The existence
and scope of such a usage are to be proved as facts. If it is established
that such a usage is embodied in a written trade code or similar
writing, the interpretation of the writing is for the court (N.D.C.C. §41-01-15).
- N.D.C.C. §41-02-31. (2-314) Implied warranty - Merchantability...,
a warranty that the goods shall be merchantable is implied in a contract
for their sale if the seller is a merchant with respect to goods of
Goods to be merchantable must be at least such as:
Pass without objection in the trade under the contract description;
In the case of fungible goods, are of fair average quality within
Are fit for the ordinary purposes for which such goods are used;
Run, within the variations permitted by the agreement, of even kind,
quality and quantity within each unit and among all units involved;
Are adequately contained, packaged, and labeled as the agreement may
Conform to the promises or affirmations of fact made on the container
or label if any.
- N.D.C.C. §41-02-32. (2-315) Implied warranty - Fitness for
particular purpose. If the seller at the time of contracting
has reason to know any particular purpose for which the goods are
required and that the buyer is relying on the seller's skill or judgment
to select or furnish suitable goods, there is . . . an implied warranty
that the goods shall be fit for such purpose.
"A warranty of fitness for a particular purpose is implied when a lessor, at the time the lease is executed, has reason to know of a particular purpose for which the lessee requires the goods, and the lessee relies on the lessor's skill or judgment to select or furnish suitable goods. Minn. Stat. § 336.2A-213 (1998).
"As noted above, Weinandt admitted that he never told Waconia about his intended modifications at or before the time the parties executed the lease contract and he presented no evidence that Waconia had actual knowledge of the modifications until after the execution of the lease. Therefore, Weinandt could not have relied on Waconia's skill or judgment to select a baler that, after being modified, would successfully bale a manure and straw product in a stationary position. The district court's finding [dismissed Weinandt's claim] is affirmed." Waconia Farm Supply vs.
questions: How do these implied warranties apply to the
sale of breeding livestock? To the sale of grain that will be
used in food for human consumption? When considering the implied
warranty of fitness for particular purpose, how important is the buyer's
reliance on the seller's skill or judgment? When is it reasonable
for a buyer to rely on the seller?
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.
A lawful agreement by either the seller or the buyer for exclusive dealing
in the [specified] kind of goods imposes ... an obligation by the seller
to use best efforts to supply the goods and [an obligation] by the buyer
to use best efforts to promote their sale.
or altering these implied terms
- Can any of the
implied provisions be waived or altered?
- Several of the
examples stated that the provision applies only if the contract does
not impose an alternative requirement; e.g., it is presumed that interest
will be charged when a loan is provided, unless the agreement states
- Other provisions
cannot be waived or altered; e.g., the obligation to perform in good
faith or to not interfere with the other person's efforts to fulfill
their contractual obligation cannot be altered.
What is prohibited from being included in a contract?
there prohibited clauses other than those already addressed as part of
prohibited contracts? Probably not already covered but may not deserve
too much attention. Certainly want to link the two topics.
[¶4] Unconscionability is a doctrine which allows courts to deny enforcement of a contract because of procedural abuses arising out of the contract's formation and substantive abuses relating to the terms of the contract.
[¶7] In assessing unconscionability, the court is to employ "a two-pronged framework: procedural unconscionability, which encompasses factors relating to unfair surprise, oppression, and inequality of bargaining power, and substantive unconscionability, which focuses upon the harshness or one-sidedness of the contractual provision in question."
Strand v. U.S. Bank National Association ND, 2005 ND 68, 693 N.W.2d 918
Unconscionability does not prohibit specific clauses, but it does prohibit a contract from becoming too one-sided.
include an arbitration clause; N.D.C.C.
- Additional examples of common types of contacts or provisions within a contract: option to buy (see
v. Fries, 470 N.W.2d 232 (ND 1991)), right of first refusal (see
Stuart v. Stammen,
1999 ND 38, 590 N.W.2d 224), and "Act of God" clause (see
River Commodities, Inc. v. Eidsness, 459 N.W.2d 805 (ND 1990)).
- The following excerpt is from the Fries v. Fries case.
"An option is a mere offer, and acceptance thereof must be made within the time allowed, and in minute compliance with its terms, or the optionee's rights thereunder will be lost, substantial compliance being insufficient to constitute an acceptance. Gurunian v. Grossman, 331 Mich. 412, 417, 49 N.W.2d 354, 357 (1951)."
- The following paraphrased statement is based on Stuart v. Stammen.
A right of first refusal allows the holder of the right a reasonable time "to sign a contract to purchase the real estate" that is the subject of the right of first refusal "on the same terms and conditions" of an offer received by the selling owner from another interested buyer. If the contract is not signed with a reasonable time, the right of first refusal is considered waived and the seller can complete the agreement with the other interested buyer.
- The following excerpt is from the Red River Commodities, Inc. case.
"Impossibility caused by casualty or commercial impracticability caused by failure of presupposed conditions excuses performance of contracts for sale of goods. NDCC, 41-02-76 (UCC 2-613), 1 41-02-78 (UCC 2-615), 2 41-02-79 (UCC 2-616).3 Under NDCC 41-02-78, unless a seller has assumed a greater obligation, nondelivery "in whole or in part" is excused "if ... made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic [contract] assumption," and if the seller "seasonably" notifies the buyer. Uniform Commercial Code § 2-615, 1B U.L.A. 196-97, Official Comment 9 (1989) says:
The case of a farmer who has contracted to sell crops to be grown on designated land may be regarded as falling either within the section on casualty to identified goods or this section, and he may be excused, when there is a failure of the specific crop, either on the basis of the destruction of identified goods or because of the failure of a basic assumption of the contract.
"Thus, non-occurrence of the loss of [the farmer's] crop was a basic assumption of this contract. [The farmer] did not assume the risk of performing if his crop was affected by causes beyond his control..."
assumptions or conditions that, if they arise during the contract,
would alter the obligations; such as war. Would we include changing
interest rates, destruction of property (assuming a lease), etc as
such conditions? Forming the contract is the time to explicitly manage risk for all parties but make sure you do not write the contract
too "one-sided" (that is, so one-sided that the contract would trigger the defense of unconscionable; see
Associates, Inc. v. Fargo Water Equipment Co., 446 N.W.2d 237
Summary of Key Points
- The purpose of a contract is to define the relative legal rights and obligations of the contracting parties; these rights and obligations are discussed and agreed upon during the negotiations of the contract. Despite considerable flexibility in defining their contract, state law imposes limits on what the contracting parties can agree to. Likewise, state law may specify terms for a portion of a contract if the negotiating parties fail to explicitly address that particular issue in their agreement. Finally, state law may also impose certain expectations upon contracting parties.
November 20, 2010