Article 2 Flashcards
Purpose of the Uniform Commercial Code (UCC)
Must be liberally construed and applied to promote its underlying purposes and policies, which are:
- To simplify, clarify, and modernize the law governing commercial transactions.
- To permit the continued expansion of commercial practices through custom, usage, and agreement of the parties; and
- To make uniform the law among the various jurisdictions.
Article 2 applies to:
- Sales of goods
- Blended or hybrid contracts wherein the sale of goods is the predominant purpose of the transaction.
What are “Goods”?
Goods are all items movable when identified to the contract. Also includes unborn young of animals and growing crops and other identified things attached to realty.
What is the essence of a “good”?
Tangible mobility
What is a “sale”?
passing of title from the seller to the buyer for a price
What is “title”?
Legal fiction representing a bundle of rights in or to property.
Example: drugs, you can possess them but don’t have legal rights to them.
What is “price”?
-Whatever it means to the parties, as long as it’s not a gift.
-Does not necessarily mean $$$.
-Flexible under UCC; have to look to the context.
Contract Interpretation Under Article 2 in order of priority
- Express Terms
- Course of Performance
- Course of Dealing
- Trade Usage
Express Terms
Most important source of meaning.
Provisions of agreement are clearly and unambiguously stated on the face of the contract.
Express terms control course of performance, course of dealing, and usage of trade.
Course of Performance
Sequence of conduct between the parties to a particular transaction that exists if:
1.Agreement involves repeated occasions for performance, and
- The other party must, with knowledge of the performance and opportunity to object to it, accept or acquiesce to the performance.
Only express terms prevail over course of performance
Course of Dealing
Sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.
Trade Usage
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.
How to differentiate Course of Dealing from Course of Performance?
Course of Performance:
What did the parties do previously in the context of performing this very deal?
Course of Dealing:
What did the parties do previously in the context of other past contracts between them?
Merchant
A person:
- Who deals in goods that are the subject matter of the given transaction; or
- Who hold themselves out as having knowledge or skill peculiar to the practices or goods involved in the transaction.
Unconscionable contract
UCC does not define unconscionability.
What may the court do when finding a contract to be unconscionable.
Courts may decline to enforce contracts or clauses of contracts that the court finds to be unconscionable as a matter of law at the time of formation.
What may the parties do when the court finds a contract or a clause to be unconscionable?
the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
Characteristics of unconscionability
- Essence is disparity of bargaining power
- Cannot be divorced from commercial setting
- Unconscionability assessed at the time of contract formation.
- Unconscionability is a matter of law
What does it mean for unconscionability to be a matter of law?
o Judge decides
o Freely appealable
Remedies for unconscionable contract or clause
- Nullify, but enforce remainder
- Limit application
- Void the entire contract
What does “good faith” means?
“Good faith” means
* Honesty in fact
* Observation of reasonable commercial standards of fair dealing
Article 2 structure of a contract
- Formation
- Content
- Performance
- Remedies
Contract Formation Elements
-Offer
-Acceptance
-Consideration
Offer
UCC does not define offer, we must follow common law:
Manifestation of willingness to enter into a bargain, which justifies the offerree’s acceptance.
Must be:
-reasonably certain
-communicated to the offerree; and
-not terminated prior acceptance
Firm Offer doctrine
Requirements:
-Offer made by a merchant
-Signed writing with assurances that offer will be held open
-Irrevocable, even if not consideration, for time stated or “reasonable time”
-Cannot exceed three months
What if the offerree drafts the firm offer?
Doesn’t matter, as long as it is signed by the offeror
Acceptance
Offerree’s unconditional manifestation of assent to form a contract.
-ANY manner of acceptance is appropriate, unless offer unambiguously indicates otherwise
How may an offerree accept an offer or order to buy goods for prompt or immediate shipment?
Either by:
- prompt promise to ship; or
- prompt shipment
Prompt shipment of nonconforming goods
Still constitutes acceptance of an offer for immediate or prompt shipment of goods.
But remedies may be available to the offeror upon receipt of nonconforming goods.
Battle of the Forms
An expression of acceptance operates as an acceptance, even if it includes additional or different terms
Battle of the Forms framework
If non-merchants:
Additional terms are construed as proposals. Become part of the contract if the original offeror assents to them.
If merchants:
Terms become part of the contract unless:
1. Offer expressly limits acceptance to the terms of the offer
2. New/different terms materially alter the bargain
3. Objection supplied within reasonable time
Battle of the forms: Caveat for exception “materially alters the agreement”
A term materially alters the contract if its incorporation w/o express awareness by the other party would result in surprise or hardship.
For example, a clause negating otherwise applicable warranties or limiting remedies or departing from trade usage would work a material alteration.
Battle of the Forms: contradictory terms
Courts will look to the parties’ conduct to ascertain the meaning of the parties’ contract
Statute of Frauds requirements
- Sale of goods $500 or more
- Valid writing signed by the party against whom enforcement is sought
- Must include quantity item
Statute of Frauds Exceptions
- Reply Doctrine
- Admissions
- Specially Manufactured Goods
- Partial Payment
- Partial Delivery
SOF Exception: Reply Doctrine
- Parties are merchants
- Party against whom enforcement is sought did not sign the writing
- Party against whom enforcement is sought sent a “writing in confirmation of the contract”
An oral contract can be enforceable if one merchant sends another merchant written confirmation of the parties oral agreement.
Requirements to successfully invoke the reply doctrine
- contract must be between merchants
- a letter of confirmation (can be an email) must be received within a reasonable time, and the party receiving it must have reason to know of its contents
- the confirmation must contain quantity item, must evidence a contract for the sale of goods, and must be signed by the sender; and
- the party receiving the confirmation must not object to its contents in writing within 10 days after it is received.
SOF Exception: Admissions
Litigants cannot admit the existence of a contract + claim the benefit of the SOF
One who admits in pleadings, testimony or otherwise in court that a contract was made is bound by that admission, up to the quantity of goods admitted.
SOF Exception: Specially Manufactured Goods
Contracts for the sale of specially manufactured goods are excepted from the writing requirement if:
- goods were specially manufactured by the buyer.
- they are not suitable for sale to others
- Circumstances indicate goods are for the buyer
- Before repudiation / breach, seller made substantial steps in the manufacturing process
SOF Exception: Partial Payment
Absent a writing required under the SOF, an otherwise unenforceable contract is enforceable to the extent of a partial payment.
SOF Exception: Partial Delivery
Absent a writing required under the SOF, an otherwise unenforceable contract is enforceable to the extent of any goods delivered and accepted
What is the Parol Evidence Rule?
-Partially and fully integrated writings cannot be contradicted by prior or contemporaneous oral agreements
-Partially integrated agreements may be supplemented by consistent additional terms
-Fully integrated agreements are deemed “final, complete and exclusive”
-All writings can be explained by the triplets (course of performance, course of dealing, or trade usage)
Exceptions to Parol Evidence Rule
- Evidence that the agreement was procured by fraud, mistake or duress will be admissible, notwithstanding the parol evidence rule.
- Evidence that the parties agreed to an oral condition precedent to the agreement’s validity (example: financing, expert looking at the goods first).
Parol Evidence Rule: The job of a court
-Using the battle of the forms framework, determine which writings constitute the parties’ contract
-Determine whether the writing is partially or fully integrated
-Categorize and assess parties proffered terms
Parol Evidence Rule: Partially integrated writings
Partial integration-complete enforceable contract. There may be terms left undefined or some aspect of performance is not carefully specified. Court will look at other evidence to ascertain the parties intention.
Partially integrated agreement may be supplemented by consistent additional terms
Parol Evidence Rule: Fully integrated writings
Fully integrated contract-contract that is confined to its four corners. So carefully drafted and complete that the court will not entertain additional evidence.
Fully integrated agreements are deemed final complete and exclusive
When does the Parol Evidence Rule do not apply?
-Modifications/agreements struck after the integrated contract
-Oral conditions precedent
Parol Evidence Rule: What courts weigh in to determine the writing was a fully integrated agreement?
Courts weigh…
o Were parties repped by counsel?
o Are parties sophisticated
o Time available to comport the writing
o Merger/integration clauses (one indicia, not
absolute)
Modifications
Consideration not required for modifications, but must be in writing if:
1. Original contract requires it; or
2. Contract as modified falls within statute of frauds
also:
-Good faith required…parties cannot extort modifications
-Must serve some legitimate commercial purpose
What are Gap Fillers?
Terms that are added to a contract by a court or law when the contract doesn’t specify all the necessary information.
Gap Fillers contract interpretation methodology
- Express terms: govern unless unlawful or unconscionable
- If terms missing and parties intended to contract with finality, then assess course of performance, course of dealing, and/or trade usage (in that order!!!)
- Gap-fillers
Gap Filler list
- Price
- Time for Delivery
- Place for Delivery
- Manner of Delivery
- Specifications as to Delivery
- Time and Place for Payment
- Quantity to be Defined by
Seller’s Output or Buyer’s
Requirements - Impossibility/Impracticability
- Quality
Gap Filler: Price
2-305
Requirements:
-Silent on price
-Price is left to be agreed but parties fail to agree
-Price to be set or recorded by third party or agency, and it is not so set or recorded
Rule: Reasonable price
Gap Filler Price Exceptions
But…
-If failure to set / fix price is fault of a party, then the other party may cancel the contract or herself fix a reasonable price.
-No contract if parties intended not to be bound unless price is fixed and agreed
*In such a case, buyer must
return goods or, if unable to
do so, pay their reasonable
value at the time of delivery
and seller must return any
portion of the price paid
Gap Filler Price: What is reasonable price?
Reasonable price is not necessarily the market price
Safeguards in the contract to control the scope of price to be set later
- Stipulate a relevant market, trade journal to impose a price term.
- Set a floor and ceiling price (range)
Gap Filler: Time of Delivery
2-309
Reasonable time
Gap Filler: Time of Delivery
When the contract calls for successive performances
Reasonable time, but may be terminated at any time by either party (unless otherwise agreed)
But termination requires notice! And courts will scrutinize provisions dispensing with the notice requirement.
Gap Filler: Place of Delivery
2-308
Default Rule: seller’s place of business (or residence).
Gap Filler: Manner of Delivery
2-307
Default Rule: single delivery and payment due upon delivery
However, where delivery may be demanded in “lots,” price may be apportioned for each lot.
Gap Filler: Other Specification as to Delivery
2-311
1. Contract can leave particulars of performance to specified by one party
- Specifications relating to assortment are at buyer’s option
- Specifications relating to shipment are at seller’s option
What happens when a specification to delivery would materially alter the other party’s performance or where the other party’s cooperation is necessary?
If not seasonably made, then delay is excused
If not seasonable made, then perform in any reasonable manner
Treat failure to seasonably specify or cooperate as a breach
What does seasonably mean?
an action or event that occurs within a reasonable or appropriate time frame
Gap Filler: Time and Place for Payment
2-310
When and where buyer is to receive goods
If shipment is authorized, buyer may inspect after arrival before payment is due and pay right there
If delivery is authorized by way of documents of title, payment is due
(1) at time/place where buyer receives tangible documents of title, regardless of where goods received, or
(2) at seller’s place of business when electronic documents received
Quantity determined by seller’s output or buyer’s requirement
It is permissible for the parties to specified quantity on the basis of the seller’s output (an output contract) or the buyer’s requirements (a requirement contract)
-Must be in good faith to protect against abuse.
-Must not be unreasonably disproportionate to any stated estimate or standard or comparable output or requirements.
Output contract
Quantity is determined on the seller’s output or production.
Example: buyer agrees to buy 25% of seller’s wheat crop harvested each year.
Requirement contract
Quantity is determined on the basis of the buyer’s need.
Example: Seller promises to supply buyer with 25% of its weekly needs for mozzarella cheese.
Article 2 interpretation methodology:
- Express terms
- If no to #1, did parties intend to contract with finality?
- If yes to #2, assess triplets
- If triplets unavailing, then apply gap-fillers
In an Article 2 contract for the sale of goods, what is the seller’s obligation?
to deliver conforming goods.
deliver the exact goods (type and quantity) to the prescribed place.
“Conforming goods.” (conform to the contract)
In an Article 2 contract for the sale of goods, what is the buyer’s obligation?
to accept and pay for the goods
2-509 Risk of Loss
Shipment contract
does not require seller to deliver the goods at a particular destination.
Risk of loss (if goods are damaged) passes to buyer the moment the seller puts good into carriers hand.
Destination contracts
when it requires seller to deliver the goods to a particular destination. Risk of loss doesn’t shift to buyer until goods gets to its destination.
Bailments
Where the goods are held by a bailee to be delivered w/o being moved (ex. Goods in storage), the risk of loss passes to the buyer on is receipt of a negotiable document of title covering the goods.
If not destination or shipment or bailee contracts:
the other context is when Picking up the goods on sellers location.
When that happens:
The risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant. Otherwise, the risk passes to the buyer on tender of delivery.
What are fungible goods?
Goods that can be substituted or interchanged without altering the value of a contract.
What are identified goods?
Not a specially manufactured goods.
A good that anybody can buy but hard to find.
Not a fungible good.
2-613 Casualty to Identified Goods
Goods identified when contract is made
If identified goods suffer significant damage w/o fault of either party, before the risk of loss passes to thebuyer, then:
-If loss is total, contract is avoided-they don’t have to contract
-If loss is partial and goods are very deteriorated-buyer can inspect goods and void contract or accept goods with due allowance for goods deterioration
2-613 Casualty to Identified Goods: Analytical Framework
- Are the goods “identified to
the contract”? - Have they suffered damage
through no fault of either
party? - Has the damage (i.e.,
casualty) occurred before
the risk of loss passed to the
buyer?
Impracticability
Impracticability can be raised as a defense only if some event occurs that parties assumed would not occur.
-The event [i.e., contingency] cannot have been foreshadowed in the bargaining process
-Increased cost alone is not enough
-Market shifts do not excuse performance unless attributable to some extreme unforeseen event [e.g., an embargo]
2-614 Means of Delivery or Payment Fails
(1) Means of Delivery fail:
If the contractually-specified manner of delivery is no longer available but a commercially reasonable substitute is available, performance will not be excused and that substitute must be tendered and accepted. Otherwise, performance is excused.
Payment Failure:
If the agreed upon means of payment is no longer available because of governmental regulation, seller is within its rights to withhold or stop delivery until buyer provides a commercially equivalent way to pay.
Warranties
- Warranty of TItle
- Express Warranty
- Implied warranty of merchantability
- Implied warranty of fitness for a particular purpose
- Disclaimer of warranties
2-312: Warranty of Title
- seller promises that he owns the goods contracted for; and
- promises that the title conveyed to the buyer is good and free of any outstanding liens or claims that could be asserted by others.
2-313: Express Warranties
Seller of goods could create an express warranty in any of three way:
Seller of goods could create an express warranty in any of three ways:
- by what she says about the goods, whether orally or in writing;
- by providing a description of the goods through, for example, a brochure, pictures or charts of technical specifications; or
- by providing a sample or model of the goods
Express Warranties: Four important connections to make.
- Must be affirmations of fact, not mere puffery.
- No magic words required – don’t have to say “I warrant” or “I guarantee.”
- Statements made after the deal is struck are generally not express warranties; at most, they can possibly be 2-209 modifications.
- Oral warranties made before the deal is struck are subject to the parol evidence rule of 2-202. (ok if partially integrated / problem if completely integrated)
2-314 Implied Warranty of Merchantability
Elements:
- Warranty applies only to contracts for the sale of goods, and not for services.
- Seller must be a merchant.
- Merchant seller implicitly promises that the goods contracted for are suitable for their customary or usual purposes.
- Warranty must not have been modified or otherwise disclaimed pursuant to section 2-316.
*Meaning of merchantability depends on custom, industry practice and trade usage.
2-315: The Implied Warranty of Fitness for a Particular Purpose
1) seller knows or has reason to know of the particular purpose that buyer has in mind for the goods; and
2) buyer actually relies on seller’s expertise to select suitable goods
*seller doesn’t have to be a merchant
2-316. Exclusion or Modification of Warranties
- When the language of a disclaimer and the language of an express warranty conflict, the express warranty controls.
- The implied warranty of merchantability can be disclaimed orally or in writing, but the language of disclaimer must mention the word “merchantability” and the disclaimer, if in writing, must be clearly visible.
- Disclaimer of the implied warranty of fitness for a particular purpose need not use specific language but must be in a clearly visible writing.
- All implied warranties excluded when goods in question are described as “irregular”, “as is”, “with all faults”.
- If the buyer examines good as fully as he desires or if he refuses to examine, then no implied warranties extend to defects the examination ought to have revealed.
2-318. Third Party Beneficiaries of Warranties Express or Implied
In the State of Florida:
Aseller’swarranty whether express or implied extends to any natural person who is in the family or household of hisbuyeror who is a guest in his home if it is reasonable to expect that such person may use, consume or be affected by thegoods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section.
Determining Whether Seller Tendered Conforming Goods: Buyer’s Right to Inspect
- Buyer has the right of a reasonable time to inspect goods before having to remit payment for the goods.
Exception: C.O.D (cash on delivery). Here, buyer must pay for the goods, even before inspecting them, unless the goods’ defect is in plain view and detectable on sight.
- In C.O.D. transaction, buyer’s payment for the goods does not qualify as acceptance of those goods.
§ 2-503: Manner of Seller’s Tender of Delivery
Seller’s job is deliver the exact goods
(type and quantity) to the prescribed place.
“Conforming goods.” (conform to the contract)
§ 2-513. Buyer’s Right to Inspection of Goods
Buyer doesn’t accept goods until he has reasonable
time to inspect. Payment not needed before inspection unless C.O.D.
(in which case payment is NOT acceptance).
When Seller Has Tendered Conforming Goods, Buyer Must Accept and Pay for Them
§ 2-606. What Constitutes Acceptance of Goods.
(1) Acceptance ofgoodsoccurs when thebuyer:
(a) after a reasonable opportunity to inspect thegoodssignifies to thesellerthat the goods areconforming or that he will take or retain them in spite of their non-conformity; or
(b) fails to make an effective rejection (subsection (1) of Section2-602), but such acceptance does not occur until thebuyer has had a reasonable opportunity to inspect them; or
(c) does any act inconsistent with theseller’sownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him.
(2) Acceptance of a part of anycommercial unit is acceptance of that entire unit.
The Consequences of Acceptance
§ 2-607. Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance;
Thebuyermust pay at thecontractrate for anygoods accepted.
A buyer who has accepted non-conforming goods cannot reject (only revoke).
A buyer who has accepted the goods bears the burden of proving that the goods were non-conforming when tendered.
A buyer who is deemed to have accepted seller’s tender must seasonably notify seller of the non-conformity or be barred from any remedy.
What is revocation?
Revocation of acceptance is a buyer’s right to return nonconforming goods to the seller and take back their acceptance.
Buyer Who Accepts Cannot Reject but Can Try to Revoke That Acceptance: Revocation Under 2-608
(1) Thebuyermay revoke his acceptance of
non-conformity goods that substantially impairs its value
(a) on the reasonable assumption that its non-conformity would be cured; or
(b) without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery
(2) Revocation of acceptance must occur within a reasonable time after thebuyerdiscovers or should have discovered the ground for it and before any substantial change in condition of thegoodswhich is not caused by their own defects. It is not effective until the buyer notifies theseller of it.
(3) Abuyerwho so revokes has the same rights and duties with regard to thegoods involved as if he had rejected them.
Difference between Rejection and Revocation
Rejection-Occurs before the buyer accepts the goods.
Revocation-Occurs after the buyer has accepted the goods, but the buyer takes back their acceptance.
Revocation Framework
- Substantial impairment in value?
- Buyer accepted assuming defect would be cured OR problem latent or not easily discoverable?
- Revocation in reasonable time?
Rejection under 2-601 (aka “Perfect Tender Rule”)
. . . if thegoodsor the tender of delivery fail in any respect to conform to thecontract, thebuyer may
(a) reject the whole; or
(b) accept the whole; or
(c) accept anycommercial unitor units and reject the rest.
*doesn’t apply to installment contracts
Seller’s Right to Cure: Section 2-508
§ 2-508. Cure by Seller of Improper Tender or Delivery; Replacement.
(1) Where any tender or delivery by theselleris rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify thebuyerof his intention to cure and may then within thecontracttime make aconforming delivery.
(2) Where thebuyerrejects a non-conforming tender which thesellerhad reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute aconforming tender.
§ 2-711. Buyer’s Remedies in General; Buyer’s Security Interest in Rejected Goods.
(1) Where thesellerfails to make delivery or repudiates or thebuyerrightfully rejects or justifiably revokes acceptance:
-the buyer may cancel and whether or not he has done so, may in addition to recovering so much of the price as has been paid
(a) “cover” and have damages under the next section [Section 2-712] as to all thegoodsaffected whether or not they have been identified to thecontract; or
(b) recover damages for non-delivery as provided in this Article (Section2-713).
(2) Where thesellerfails to deliver or repudiates thebuyer may also . . . .
-obtain specific performance or replevy thegoods.
What is repudiation
Repudiation is when a party to a contract indicates they are unwilling or unable to perform their obligations. This can be done through words or actions.
What does cover mean?
Cover = making in good faith, and with no unreasonable delay any reasonable purchase of goods in substitution for those due from the seller.
§ 2-712. “Cover”; Buyer’s Procurement of Substitute Goods.
Buyermay “cover” by making ingood faithand without unreasonable delay any reasonable purchase of orcontractto purchasegoodsin substitution for those due from theseller.
note: doesn’t necessarily have to be identical goods, (just must be a commercially reasonable equivalent)
(2) Thebuyermay recover from theselleras damages the difference between the cost of cover and thecontract price together with any incidental or consequential damages as hereinafter defined (Section2-715), but less expenses saved in consequence of the seller’s breach.
(3) Failure of thebuyer to effect cover within this section does not bar him from any other remedy.
§ 2-716. Buyer’s Right to Specific Performance or Replevin.
(1) Specific performance may be decreed where thegoods are unique or in other proper circumstances.
Proper circumstances:
-no matter that the goods are not unique, buyer has significant difficulty in covering.
-buyer, having contracted with seller for the sale of goods, enters into a contract to sell those goods to a 3rd party.
§ 2-713. Buyer’s Damages for Non-delivery or Repudiation.
the difference between the market price at the time when thebuyerlearned of the breach and thecontractprice together with any incidental and consequential damages
§ 2-714. Buyer’s Damages for Breach in Regard to Accepted Goods.
(1) Where thebuyerhas acceptedgoodsand given notification (subsection (3) of Section2-607) he may recover as damages for any non-conformity:
the difference at the time and place of acceptance between the value of thegoods accepted and the value they would have had if they had been as warranted
§ 2-715. Buyer’s Incidental and Consequential Damages.
(1) Incidental damages resulting from theseller’sbreach include expenses reasonably incurred in inspection,receipt, transportation and care and custody ofgoods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach
(2) Consequential damages resulting from theseller’s breach include:
(a) any loss resulting from general or particular requirements and needs of which theseller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and
(b) injury to person or property proximately resulting from any breach of warranty.
§ 2-209 Modification & Waiver
- modifying a contract within this Article needs no consideration to be binding.
- between merchants: a form supplied by the merchant must be separately signed by the other party.
(3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is within its provisions.
What is rescission?
Rescission is a legal remedy that allows a party to cancel a contract and return the parties to their original positions before the contract was signed.
