Default terms

     Rules of contract law supply terms of a contract that have not been supplied through the express or implied agreement of the parties.  Contract scholars refer to these terms as "default terms," by analogy to default settings on a computer that cause the computer to respond in defined ways absent contrary instruction by the user.  You will sometimes also see the phrase "gap fillers" to express the same concept.  There are an enormous number and variety of default terms, but an example drawn from your personal experience should suffice to introduce the concept. 

    When you present groceries to the clerk at the check-out counter, you may exchange pleasantries but rarely if ever discuss the quality of the groceries that you are purchasing.  Should one of the products that you purchase prove adulterated or otherwise defective (the canned pears have mold or the light bulbs do not light), the store has breached an implied warranty of merchantability (see U.C.C. 2-314).  This implied warranty is a promise relating to the quality of the goods purchased that is supplied by a rule of contract law in the absence of your agreement concerning quality at the time you purchased the groceries.  Bailey v. Tucker Equipment Sales, Inc. explores how a merchant might disclaim the implied warranty of merchantability (i.e. eliminate the default term).  Typically, of course, you needn't rely on the default term because the store will exchange the product or offer a refund to preserve your good will.  In the unlikely event that the store refuses to do so, rules of contract law found in Article 2 of the Commercial Code supply you with remedies for the store's breach of the implied warranty (see, e.g., U.C.C. 2-711).  Because you didn't discuss or negotiate remedies at the time you purchased the groceries, these remedies are also default terms. 

     This example also suggests one obvious reason for default terms.  For almost every one of the millions of contracts that daily are formed, resort to default terms is unnecessary.  Almost invariably the canned pears do not have mold and light bulbs do light.  It would be enormously inefficient (i.e. a misallocation of resources) for you or the grocery store to spend the time to negotiate these terms at the time of purchase, or for the grocery store to draft a contract stating terms, or for you to read the terms or hire a lawyer to explain the terms to you.  The default terms cover the occasional case in which dissatisfaction and dispute emerge.  On a larger scale, even commercial contracts calling for the exchange of millions of dollars worth of value will not include every conceivable term of the contract even though the records embodying such contracts may be dozens of pages (or 10 megabytes) long and include hundreds of express terms.  Some terms are simply not worth the time and expense required for negotiation and drafting. 

     There are other reasons for default terms.  Even were negotiation and drafting costless, the parties often would not (even could not) anticipate every situation calling for solution by an express term.  Alternatively, one or both of the parties might deliberately refrain from identifying a situation calling for an express term for fear that negotiation on the point might blow the deal.  Default terms cover the unanticipated situation or the situation deliberately left unattended. 

     R.2d Contracts 204 articulates the power of a court to create and employ a default term tailored to the circumstances of a particular case:  "When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court."  R.2d Contracts 205 articulate a default term applicable to all contracts:  "Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement", and U.C.C. 1-203 does the same.  Acree v. General Motors Acceptance Corp., involving rebates of unearned premiums for force-placed insurance purchased by automobile financiers, illustrates the duty of good faith and fair dealing.  For those of you interested in consumer law, the case also nicely illustrates the use of consumer class actions. 

     U.C.C. Article 2 also includes a large number and variety of statutory default terms applicable to transactions in goods (also often adopted by the courts as common law default terms).  In this section of the materials we study a prominent example of the default terms established by Article 2 - implied warranties.  See Problem.Dispute.Laptop computer.   Elsewhere we study some others, or their common law counterparts, such as excuse of performance because performance is impossible, and remedies for breach of contract where the parties have not specified a remedy.  You should skim other U.C.C. Article 2 provisions establishing default terms that we do not study in detail:  U.C.C. 2-305 (open price term); U.C.C. 2-306 (terms in output and requirements contracts); U.C.C. 2-307 (delivery in single lot or several lots); U.C.C. 2-308 (place for delivery); U.C.C. 2-309 (time for delivery or other actions); U.C.C. 2-310 (time for payment); U.C.C. 2-311 (options and cooperation respecting performance); U.C.C. 2-503 (manner of seller's tender of delivery); U.C.C. 2-504 (shipment by seller).  

     Also, review U.C.C. 2-207, a section generally referred to as addressing the battle of the forms.  If, applying UC.C. 2-207(1), the writings of the parties do not create a contract, the conduct of the parties may nonetheless establish a contract under U.C.C. 2-207(3).  Note how U.C.C. 2-207(3) expressly refers to default terms on matters as to which the writings of the parties do not agree.    

     An obvious prerequisite to the use of default terms to supplement the negotiated terms of the agreement is that the negotiated terms be sufficient in themselves to give rise to contractual obligation in the first place.   Note, again, some of the language quoted above from R.2d Contracts 204:   "When the parties to a bargain sufficiently defined to be a contract . . . (emphasis added)."   Consider a fanciful variation of the purchase of groceries:  you approach the clerk at the check-out counter as you first enter the store and promise him that you will buy a cart full of groceries if he promises you to sell them, and he agrees to sell you the groceries that you present for purchase.  If you then change your mind and exit the store without purchasing groceries, the store would not be able to use default remedy terms for breach of contract (the store's lost profit on the anticipated sale to you) because there were not sufficient terms to form a contract.  A "cart full of groceries" is too vague a promise to enable imposition of a remedy (how much lost profits?).   R.2d Contracts 33 captures the idea of the minimal sufficiency of agreed terms as part of its rules on offer and acceptance.  U.C.C. 2-204 is the statutory formulation for transactions in goods.  

     Rules that establish default terms are generally subject to contrary agreement of the parties, just as many settings on the computer may be changed by a few clicks of the mouse.  See, e.g. U.C.C.1-102(3), (4).  However, some default terms are immutable.  For example, one cannot negotiate a remedy for breach of contract that penalizes the breaching party by calling for the breaching party to pay the aggrieved party money damages that exceed the amount of clearly predictable loss from breach of contract (a subject we pursue in discussion of "liquidated damages").  For other examples, read U.C.C. 1-102(3).  The dichotomy between default terms subject to contrary agreement and immutable default terms reflects the tension between two fundamental philosophies that shape the law of contract:  (1) on the one hand, parties should be free to negotiate and enter into contracts of their design and choosing ("freedom of contract"); (2) on the other hand, the state has an interest in regulating or prohibiting some types of deals (e.g. a mob contract for a hit) and in regulating or prohibiting some types of terms (e.g. your breach of this contract to buy a lap top computer shall entitle the computer store to damages of $1,000,000). 

      Supplementary reading:  Farnsworth 1.10; White & Summers, 3-4 - 3-10 and 9-7 - 9-11.