governs contracts for sale of “goods.” ucc 2 preempts common law in sale of goods and modifies...

Governs contracts for sale of Governs contracts for sale of “goods.” “goods.”

UCC 2 preempts common law in sale of goods and modifies common law of contracts in some areas. But where UCC 2 is silent, common law governs.

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Only applies to goods. Only applies to goods. Common law governs real Common law governs real

estate, services or intangible estate, services or intangible property. property.


Article 2 applies to the “Article 2 applies to the “salesale of goods.”of goods.”

A “sale” is the passing of title A “sale” is the passing of title from seller to a buyer for a from seller to a buyer for a price (payable in cash, price (payable in cash, goods, services).goods, services).


Article 2 applies to the “sale Article 2 applies to the “sale of of goodsgoods.”.”

A “good” must be A “good” must be tangibletangible and and movablemovable. . Tangible: has physical existence. Movable: carried from place to

place.


Goods Associated with Real Goods Associated with Real Estate can fall within Art. 2:Estate can fall within Art. 2:(1) Contract for sale of minerals

or a structure is a good IF severance is made by seller. If severance by buyer, sale is governed by common law.

(2) Sale of growing crops.


Goods Associated with Real Goods Associated with Real Estate can fall within Art. 2:Estate can fall within Art. 2:(3) Other “things” attached to

real property, capable of being severed without harm to land.


Mixed Contracts: Goods and Mixed Contracts: Goods and Services Combined. What Services Combined. What law governs?law governs?“Predominant Factor” Test – if

goods, then UCC governs, if services then common law governs entire contract.


UCC Art. 2 imposes special UCC Art. 2 imposes special standards upon a standards upon a “merchant” who has special “merchant” who has special business expertise and is not business expertise and is not a casual buyer/seller. a casual buyer/seller.


UCC Art. 2 defines merchant UCC Art. 2 defines merchant as someone who:as someone who:Deals in goods of the kind in the

sale.Holds herself out as having

special expertise, knowledge, or skill.

Person who employs a merchant.


Definition of a Lease Definition of a Lease Agreement: contract for lease Agreement: contract for lease of personal goods between a of personal goods between a lessor and a lessee.lessor and a lessee.Lessor transfers right to possess

and use goods under lease.Lessee acquires right to possess

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Consumer Leases: lessor, Consumer Leases: lessor, lessee who leases for lessee who leases for personal, family, or personal, family, or household use, and total household use, and total payments less than $25,000.payments less than $25,000.

Finance Leases (involves a Finance Leases (involves a 3rd party-supplier).3rd party-supplier).


OFFER: At common law once OFFER: At common law once a valid offer is unequivocally a valid offer is unequivocally accepted, a binding contract accepted, a binding contract is formed.is formed.UCC is more flexible, and allows

for open pricing, payment, and delivery terms.


UCC 2-204: UCC 2-204: even if terms of are even if terms of are undetermined, a contract may undetermined, a contract may still exist.still exist.

Open TermsOpen Terms: : “Indefiniteness” is “Indefiniteness” is OK as long as the parties OK as long as the parties intended to make a contract and intended to make a contract and there is a reasonable basis for a there is a reasonable basis for a court to grant a remedy. court to grant a remedy.


Open Price TermOpen Price Term: : If parties If parties have not agreed on pricing, have not agreed on pricing, court can determine court can determine “reasonable price at the time of “reasonable price at the time of delivery.”delivery.”

Open Payment TermOpen Payment Term: : unless unless otherwise agreed, payment is otherwise agreed, payment is due on delivery (COD). due on delivery (COD).


Open Delivery TermOpen Delivery Term: : Unless Unless otherwise agreed, buyer takes otherwise agreed, buyer takes delivery at the Seller’s place of delivery at the Seller’s place of business. UCC2-308(a).business. UCC2-308(a).

Seller has duty to make Seller has duty to make arrangements in good faith. arrangements in good faith.


Open QuantityOpen Quantity: : generally generally courts will not impose a quantity courts will not impose a quantity and there is no remedy, unless and there is no remedy, unless the contract is either a the contract is either a requirementsrequirements or or outputoutput contract. contract.


Requirements Contract: buyer agrees to purchase what the buyer needs or requires.

Output Contract: buyer agrees to buy all of seller’s production or output.


Offer made by merchant Offer made by merchant in a in a signed writingsigned writing is irrevocable is irrevocable for reasonable period of time. for reasonable period of time. No consideration necessary.No consideration necessary.

The Offer Must be in Writing The Offer Must be in Writing and Signed by the Offeror.and Signed by the Offeror.


Methods of Acceptance: Methods of Acceptance: offeror can specify a means offeror can specify a means of acceptance.of acceptance.Under the UCC an offeree can

accept an offer to buy goods either by a prompt shipment of conforming or nonconforming goods.


Shipment of Non-conforming Shipment of Non-conforming Goods: Goods: is both an acceptance is both an acceptance and a breach unless goods sent and a breach unless goods sent as an “as an “accommodationaccommodation” to ” to buyer, with prompt notice by buyer, with prompt notice by buyer.buyer.


Communication of Communication of Acceptance.Acceptance.

Additional Terms.Additional Terms.If One Party is a Merchant:

contract is formed according to original terms of the offer.


Additional Terms (cont’d).Additional Terms (cont’d).When Both Parties are

Merchants, contract incorporates new terms unless: (1) original offer expressly limits terms, or

(2) material change, or (3) offeror objects within reasonable time.


Additional Terms (cont’d):Additional Terms (cont’d):Rules for Striking Additional

Terms: Contract will consist of terms in which the parties agree.

Court may strike conflicting or additional terms.


UCC adopts common law UCC adopts common law rule requiring consideration. rule requiring consideration. However, modifications do However, modifications do not need consideration. not need consideration.

Modifications Must be Made Modifications Must be Made in Good Faith.in Good Faith.


When Modification Without When Modification Without Consideration Consideration DoesDoes Require Require a Writing. a Writing. Merchant and non-merchant

contracts in which merchant supplies the forms.

Modifications that trigger Statute of Fraud issues.


Sale of goods over $500 Sale of goods over $500 must have a signed writing to must have a signed writing to be enforceable.be enforceable.Sufficiency of the Writing: signed

by party against whom enforcement is sought. Normally not enforceable beyond quantity of goods shown in the writing.


Special Rules for Contracts Special Rules for Contracts Between MerchantsBetween Merchants. After . After oral agreement, one of the oral agreement, one of the merchants sends a signed, merchants sends a signed, written memorandum written memorandum containing essential terms to containing essential terms to the other merchant within a the other merchant within a reasonable time. reasonable time.


Specially manufactured goods.

Admissions by breaching party. CASE 11.1 Glacial Plains Cooperative v. Lindgren (2009). What admission did Lindgren make?


Partial Performance: oral contract is enforceable IF payment has been made or goods have been accepted.


Sale of goods requires different Sale of goods requires different rules than real property rules than real property transactions: risk should not transactions: risk should not always pass with title.always pass with title.

UCC replaces title with UCC replaces title with identification, risk, and identification, risk, and insurable interest. insurable interest.


For any interest to pass to For any interest to pass to buyer, goods must be buyer, goods must be (1) in existence and (2) identified as specific goods in

sales contract.


Occurs when specific goods are designated as the subject matter of the contract.

Gives a buyer the right to Gives a buyer the right to obtain insurance on the goods, obtain insurance on the goods, and recover from third parties and recover from third parties who damage the good.who damage the good.


Existing Goods: if contact calls for ascertainable goods in existence, identification takes place at the time contract is made.


Future Goods. Animals born within 12 months of

contract, identification takes place at conception.

For crops harvested within 12 months of contracting, identification takes place at time of planting (or when crops begin to grow).

All others, when goods shipped, or marked or designated by seller.


Contract between seller and Contract between seller and buyer usually determines buyer usually determines when title passes.when title passes.

Title can pass:Title can pass:Upon physical delivery, orWhen agreed to by the parties.


If no agreement, title passes If no agreement, title passes as follows:as follows:

Shipment Contract: title passes at time and place of shipment.

Destination Contract: title passes when goods are tendered at the destination.


With With document of title (bill of document of title (bill of lading): lading): title passes when and title passes when and where document delivered.where document delivered.

WithoutWithout document: document: title passes title passes when sales contract is made, if when sales contract is made, if goods have been identified, or goods have been identified, or when identification occurs if they when identification occurs if they have not been identified.have not been identified.


ROL does not necessarily pass ROL does not necessarily pass with title. ROL is important with title. ROL is important because of insurance concerns.because of insurance concerns.Unless agreed otherwise, ROL

passes to Buyer depending on whether delivery is with or without movement of the goods.


ShipmentShipment Contracts: Contracts: Risk of Risk of loss passes to Buyer when loss passes to Buyer when goods tendered to Carrier. goods tendered to Carrier. If goods damaged in transit, Buyer’s bears risk of loss.


DestinationDestination Contracts. Contracts.ROL passes to Buyer when goods

tendered at contractually specified destination.

Whether a contract is Whether a contract is shipment or destination has shipment or destination has significant consequences to significant consequences to all parties.all parties.


Often goods are held by a Often goods are held by a baileebailee on behalf of the seller on behalf of the seller in a bailment arrangement.in a bailment arrangement.Documents of title give bailee possession of goods and/or contracts to deliver them.

Examples: warehouse, trucking company.


Goods Held by Goods Held by SellerSeller::Document of Title is generally

not used.If Seller is a merchant, risk of

loss passes when buyer takes physical possession of goods. (ROL remains with seller until buyer takes physical possession.)


Goods Held by a Goods Held by a BaileeBailee (Warehouse). Risk of loss (Warehouse). Risk of loss passes to buyer when:passes to buyer when:Buyer receives document of title;

bailee acknowledges Buyer’s right to goods and buyer receives title and has reasonable time to pick up.


Generally breaching party Generally breaching party bears risk of loss.bears risk of loss.

If seller delivers noncon-If seller delivers noncon-forming goods, ROL stays forming goods, ROL stays with seller.with seller.ROL does not pass to buyer until

seller “cures” defect, or buyer accepts goods in spite of defect.


ROL immediately shifts to ROL immediately shifts to buyer, with limitations:buyer, with limitations:Seller must identify the goods. ROL passes to buyer for a

commercially reasonable amount of time after seller learns of breach.

Buyer only liable to extent that seller’s insurance does not cover loss.


BuyerBuyer has an insurable interest has an insurable interest in in identified identified goods.goods.

SellerSeller has an insurable interest has an insurable interest as long as she retains title or a as long as she retains title or a security interest in goods.security interest in goods.Both buyers and sellers can have

an insurable interest at the same time.


Mutual Duties:Mutual Duties:Seller must transfer and deliver

conforming goods.Buyer must accept and pay for

conforming goods.In the absence of an agreement

between Seller and Buyer, UCC Article 2 controls as set out below.


Good faith means honesty in Good faith means honesty in fact.fact.For a merchant, it means honesty

in fact and observance of reasonable commercial standards of fair dealing in the trade.

Merchants are held to a higher standard of care than non-merchants.


TenderTender of Delivery: occurs of Delivery: occurs when seller delivers when seller delivers conforming goodsconforming goods to buyer. to buyer.Requires reasonable notice.Reasonable hour and manner. Generally, all goods in one

installment (unless agreed upon by parties).


Place of DeliveryPlace of Delivery: parties can : parties can agree goods tendered at a agree goods tendered at a particular destination for particular destination for buyer to take possession.buyer to take possession.If the contract does not specify,

then it is the seller’s place of business (or the location of the goods.)


If goods, or tender of If goods, or tender of delivery, fail in any respect delivery, fail in any respect to conform to the contract, to conform to the contract, the Buyer has the right to:the Buyer has the right to: Accept the goods; Reject the entire shipment; or Accept part and reject part.


AgreementAgreement of the Parties: of the Parties: agree that some defective agree that some defective goods will be acceptable.goods will be acceptable.

CureCure: : seller has right to repair seller has right to repair or replace defective goods or replace defective goods within the time of contract within the time of contract performance. performance.


CureCure (cont’d). (cont’d).Substantially restricts right of rejection; buyers must act in good faith and give specific reasons for refusing acceptance.


Substitution of CarriersSubstitution of Carriers. . If a If a carrier becomes impracticable carrier becomes impracticable or unavailable through no fault or unavailable through no fault of either party, a commercially of either party, a commercially reasonable substitute is reasonable substitute is acceptable.acceptable.


Commercial ImpracticabilityCommercial Impracticability..If unforeseeable event occurs,

the perfect tender rule no longer applies.

Seller must notify the buyer as soon as practicable the shipment is delayed or undeliverable.


Destruction of Identified Destruction of Identified GoodsGoods. . If no fault of either party and it

occurs,Before risk passes to Buyer then, Both Seller and Buyer are

excused from performance.


Assurance and CooperationAssurance and Cooperation. . One party has “reasonable

grounds” to believe other party will not perform, she can ask for written assurance, or ‘suspend’ performance or delivery.

Failure to respond may constitute a repudiation of the contract.


PaymentPayment: make payment at : make payment at the time and place the Buyer the time and place the Buyer receives the goods.receives the goods.Credit has to be prearranged.Pay with cash, credit card,

check.


Right of InspectionRight of Inspection. . Buyer has Buyer has absolute right to inspection absolute right to inspection before payment, unless C.O.D. before payment, unless C.O.D. CASE 11.2 Romero v. Scoggins-Dickey Chevrolet-Buick, Inc. (2010). Why wasn’t the ‘contract order’ a binding contract for sale of goods?


AcceptanceAcceptance. Buyer can . Buyer can accept goods:accept goods:By words or conduct.If Buyer had reasonable amount

of time and failed to reject.Buyer performs an act which

indicates he thinks he is the owner.


Partial AcceptancePartial Acceptance. . If some of the goods do not

conform to the contract, and seller has failed to cure, buyer can make a partial acceptance.

But buyer cannot accept less a single commercial unit.


A party communicates A party communicates intention to not perform.intention to not perform.Constitutes breach of contract.Nonbreaching party may

suspend performance and treat the AR as material breach and pursue a remedy; or wait a reasonable time.


A Repudiation May Be A Repudiation May Be Retracted.Retracted.Breaching party may ‘retract’

repudiation by any method that clearly indicates their intent.

However, no retraction if the nonbreaching party has materially changed their position.


Remedies of the Seller or Remedies of the Seller or Lessor.Lessor.When buyer breaches, seller has

various UCC remedies, depending on circumstances: Who has possession of the goods? Are goods in transit? Has buyer rejected or accepted the goods?


When Goods in Possession of When Goods in Possession of the Seller:the Seller:Right to Cancel (Rescind) the

Contract. Seller must notify buyer. Buyer is not discharged from remaining obligations.


Goods in Possession of Seller. Goods in Possession of Seller. Right to Withhold Delivery.

If material breach by buyer, seller can withhold delivery of all goods.

If non-material breach, seller can withhold delivery of this installment.


Goods in Possession of Seller.Goods in Possession of Seller.Right to Resell or Dispose of

Goods. Seller can resell and keep profits from

sale and hold buyer liable for difference.

Seller must give buyer notice of sale, unless goods are perishable.


Goods in Possession of Seller. Goods in Possession of Seller. Right to Recover Purchase Price

or Lease Payments Due. Seller can bring action to recover purchase price or lease payments.

If seller must sue, he must hold goods for buyer, and sell anytime before collecting the judgment.


Goods in Possession of Seller. Goods in Possession of Seller. Right to Recover Damages for

Buyer’s Nonacceptance. If buyer repudiates or wrongfully chooses to accept goods, seller can bring action to recover damages.

Damages: market price at the time & place of tender + incidentals.


Goods are “in transit” when Goods are “in transit” when Seller has tendered goods to Seller has tendered goods to Carrier.Carrier.

Seller can stop goods in Seller can stop goods in transit if:transit if:Buyer is insolvent.Buyer is in breach.


Seller may sue for the Seller may sue for the purchase price.purchase price.Seller may also sue Buyer if

goods were “specially-made” which Seller cannot resell.

Seller may also sue for the purchase price if the goods were destroyed and the risk had already passed to the Buyer.


When Seller or Lessor When Seller or Lessor Refuses to Deliver the Refuses to Deliver the Goods.Goods.Buyer has the right to:

Cancel (rescind) the contract. Recover Goods paid for if seller insolvent: whether partial or full payment.


When Seller or Lessor When Seller or Lessor Refuses to Deliver the Goods.Refuses to Deliver the Goods.Buyer has the right to :

Sue for specific performance and recover damages.

Cover: in some situations. Replevy goods. Sue to Recover Damages.


Right to Reject Goods. Right to Reject Goods. Buyer must timely notify seller

of rejection and reasons and follow seller’s directions.

Merchant-buyer has good faith obligation to follow reasonable instructions.


Revocation of Acceptance for Revocation of Acceptance for substantial nonconformity, substantial nonconformity, and:and:Acceptance assumed defect

would be cured, or Nonconformity was discovered

after acceptance.Effective upon notice to seller.


Right to Recover Damages Right to Recover Damages for Accepted Goods. for Accepted Goods. Buyer may keep the goods and

recover any loss in ordinary course of events.

Measure of damages: difference between value of accepted goods and goods as warranted.


Exclusive Remedies.Exclusive Remedies. Consequential Damages.Consequential Damages. Lemon Laws. Lemon Laws.


A warranty is an assurance or A warranty is an assurance or guarantee by the seller of guarantee by the seller of certain facts concerning the certain facts concerning the goods being sold or leased. goods being sold or leased.

If seller breaches a warranty, If seller breaches a warranty, buyer can recover damages, buyer can recover damages, or rescind the contract.or rescind the contract.


Warranties automatically Warranties automatically arise in most commercial arise in most commercial sales transactions.sales transactions.

Normally warranties can be Normally warranties can be disclaimed or modified with disclaimed or modified with specific language in the specific language in the contract. contract.


Under the UCC, three types Under the UCC, three types of warranties arise in sales of warranties arise in sales and lease contracts:and lease contracts:Good Title.No Liens.No Infringements.


Seller can create warranty by Seller can create warranty by making representations making representations about quality, condition, or about quality, condition, or performance of good.performance of good.Can be created by:

Any Affirmation or Promise. Any Description. Any Sample or Model.


Seller does not have to use Seller does not have to use the words “guarantee” or the words “guarantee” or “warranty.”“warranty.”

Reasonable buyer must only Reasonable buyer must only believe warranty was ‘basis believe warranty was ‘basis of the bargain.’of the bargain.’Buyer must rely on warranty

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Statements of Opinion and Statements of Opinion and Value. Value. Only statements of fact create

express warranties.Exception for Statements of

Opinion by Experts. Puffery versus Express

Warranties.


Inferred at law based on the Inferred at law based on the circumstances or nature of circumstances or nature of the transaction. the transaction.


Automatically arises from sale Automatically arises from sale of goods by merchants.of goods by merchants.Merchantable Goods:

“Reasonably fit for ordinary purposes for which such goods are sold.”

Conform to promises on label. Adequately packaged and labeled.


Merchantable FoodMerchantable Food..Fit to eat based on consumer

expectations.CASE 11.3 Webster v. Blue Ship Tea Room, Inc. (1964). Was the soup fit to eat on the basis of consumer expectations?


Arises by Arises by anyany seller who: seller who: Knows the particular purpose for

which the goods are being bought; and

Knows the buyer is relying on seller’s skill and judgment to select suitable goods.


Ordinary vs. Particular Purpose: Ordinary vs. Particular Purpose: Goods can be merchantable but Goods can be merchantable but unfit for a particular purpose.unfit for a particular purpose.

Knowledge and Reliance Knowledge and Reliance Requirements: Requirements: seller must have seller must have reason to know purpose, and reason to know purpose, and buyer must have relied on the buyer must have relied on the recommendation.recommendation.


Arises when both parties to a Arises when both parties to a contract have knowledge of contract have knowledge of a well-recognized trade a well-recognized trade custom. Courts infer that custom. Courts infer that both meant this custom to both meant this custom to apply to their transaction.apply to their transaction.


Online Offers.Online Offers.Displaying the Offer. Seller’s website should include hyperlink to page with full contract.

Provisions to Include.


Provisions to Include:Provisions to Include:Acceptance of Terms: what

constitutes an acceptance.Payment: how payment is made.Return Policy.Disclaimer: of liability for certain

uses of the goods.Limitations on Remedies: if

goods defective or contract is breached.


Provisions to Include:Provisions to Include:Privacy Policy. Dispute Resolution: usually

arbitration or forum-selection clauses.

Choice-of-law clause.


Click-On Agreements. Click-On Agreements. Courts have concluded a binding

contract can be formed by clicking on a box indicating “I Accept” or “I Agree.” Contract can be formed via website or software.

Law does not require parties read all the terms.


Shrink-Wrap Agreements.Shrink-Wrap Agreements.Contract terms are inside the

box.Party opening box agrees to

terms by keeping merchandise.Enforceable vs. Unenforceable

Terms.


Browse-Wrap Terms.Browse-Wrap Terms.Like click-on agreements, browse-wrap terms can occur in transactions over internet.

Unlike click-on agreements, browse-wrap terms do not require assent and are usually unenforceable.


E-Signature: electronic sound, E-Signature: electronic sound, symbol, or process attached to or symbol, or process attached to or logically associated with a record logically associated with a record and executed or adopted by a and executed or adopted by a person with the intent to sign the person with the intent to sign the record.record.

Digitized Signature: graphical Digitized Signature: graphical image of a handwritten signature. image of a handwritten signature.


E-SIGN (2000) gives e-E-SIGN (2000) gives e-signatures and e-documents signatures and e-documents legal force.legal force.For an e-signature to be

enforceable, the contracting parties must have agreed to use electronic signatures.


Applicability of the CISG.Applicability of the CISG. Comparison of CISG and UCC.Comparison of CISG and UCC.

Mirror Image Rule.Irrevocable Offers.Statute of Frauds.Necessity of a Price Term.Time of Contract Formation.


RemediesRemedies for Breach of for Breach of International Sales Contracts. International Sales Contracts. CISG provides remedies similar to

the UCC.Article 74 provides for money

damages, foreseeable consequential damages.


RemediesRemedies (continued). (continued).Damages are difference between

contract price and market price.Article 28 provides for specific

performance where a country would normally grant it in their own law.

Parties can agree to what law they will use.


governs contracts for sale of “goods.” ucc 2 preempts common law in sale of goods and modifies...

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