Chapter 20 Flashcards
The Uniform Commercial Code
A comprehensive statute
Provides a consistent and integrated framework of rules to deal with all phrases of an entire “commercial transaction for the sale and payment for goods.”
Put together at the federal level. The states are free to adopt UCC. States adopt all or part or can adopt. Louisiana doesn’t follow every single rule.
Article 2
Contracts for the sale of goods
Article 2A
Contracts for leases
All contracts falling under the UCC are to be performed in…
“good faith”
Which is less harsh UCC or common law?
UCC
If article 2 does not provide a rule regarding a particular issue…
another statute or the common law of contracts will apply.
Article 2 deals with goods but not…
real property, services, or intangible personal property
Real property
Land, things attached to the land
Intangible personal property
Intellectual properties (patents, trademarks), accounts, stocks and bonds
In some cases, the rules provided for by Article 2 vary if the buyer or seller is a…
merchant
What is a sale?
The passing of title (evidence of ownership) from a seller to a buyer. Sales are not gifts. Sales are also not bailments (pawn shop).
What are goods?
Tangible and moveable items that are personal property
Goods associated with real property are governed by which UCC rules?
- Sale of minerals
- Sale of structure
- Sale of growing crops/timber
- Other “things attached” to realty
A contract for the sale of minerals or the like is a contract for the sale of goods if __________ is to be made by the _________.
severance
seller
Minerals or the like
oil, stone, gravel, gold, silver, or coal
Severance
The seller is removing these goods from the land and then selling the goods.
I have a sandpit on my land. I pick up the sand and sell 5lbs bags of sand. “I created” a good.
UCC applies
Buyer is given the right to come onto the land and remove the sand.
UCC laws don’t apply, common law applies.
A contract for the sale of a structure is a contract for the sale of goods if _________ is to be made by the _________.
severance
seller
Strucrture
building, trailer house, well house
If I am the seller and I own the land and I’m selling the trailer house. I can lift a trailer house up off the land and put it on a trailer.
This would be under UCC.
Does the seller have to sever a sale of growing crops or timber?
A sale of growing crops or timber to be cut is a sale of goods regardless of who severs them from the land.
Other “things attached” to realty but capable of severance without material harm to the land are considered goods ________ of who severs them from the land.
regardless
Pater owns 360 acres of land in Bear County. Pater makes three separate contracts in writing with Dean concerning the land. Pater is the owner of the land – seller. Dean is the buyer.
Pater removes from the land and sells Dean 500lbs of gravel from a quarry located on the land for a fixed price.
Falls under UCC (sale of minerals if severance is to be made by the seller)
Pater owns 360 acres of land in Bear County. Pater makes three separate contracts in writing with Dean concerning the land. Pater is the owner of the land – seller. Dean is the buyer.
Pater sells to Dean all of the wheat currently on a 40-acre track. Pater is obligated under the contract to harvest the wheat and deliver it to Dean.
Falls under UCC. A sale of growing crops is a sale of goods regardless of who severs them from the land.
Pater owns 360 acres of land in Bear County. Pater makes three separate contracts in writing with Dean concerning the land. Pater is the owner of the land – seller. Dean is the buyer.
Pater sells to Dean the Northeast 90 acres with all corn standing.
NOT UCC. The land is being sold. The seller has sold a piece of land with the crops.
Goods and Services Combined
When a transaction combines a sale of goods and a rendering of services, courts try to determine which factor is predominant. Is it the good or the service?
What are examples of goods and services combined?
1) The serving of food and beverages have been treated as contracts for the sale of goods.
2) Contracts for specially manufactured goods is one for goods, not services. Like custom made things.
What is a merchant?
- Deals in goods of the kind involved in the sales contract;
- Holds himself out, because of his occupation, as having knowledge and skills peculiar to the business or goods involved in the transaction; or
- Employs other people who are merchants to act on his behalf.
Deals in goods of the kind involved in the sales contract
you don’t have to deal exclusively in that type of good), rules are harsher on the merchant.
Holds himself out, because of his occupation, as having knowledge and skills peculiar to the business or goods involved in the transaction
their skills, training, knowledge) People who you would think of as a service provider but who sell goods. Ex: optometrist (inspect eyes but also sell you glasses)
Employs other people who are merchants to act on his behalf.
A person who employs others who are merchants or treated as merchants. I hired someone who fits definition 1 or 2, but I don’t personally fall under 1 or 2.
Offer
An agreement sufficient to constitute a contract can exist even if the magic moment the agreement is formed is not determined.
Open Terms
A contract will not fail for indefiniteness because some terms are left open, as long as:
- the parties intended to make a contract; and
- there is a reasonably certain basis for the court to grant a remedy.
Open Price Term (3 rules)
1) If the parties intended to form a contract, but did not set a price, the price will be the reasonable price at the time of delivery. Quantity is VERY important.
2) If the buyer or seller is to set the price, he must do so in good faith.
3) If the price is not fixed through the fault of one party, the other party may treat the contract as canceled or fix a reasonable price. Allows you to take advantage of market changes.
Open Payment Term
If the terms of payment are not specified, payment is due at the time and place at which the buyer is to receive the goods.
What is an example of open payment term?
Ordered from Frontgate some chairs, table, and umbrella. Umbrella has still not come in since June. You are not expected to pay for the goods until you receive them.
Open Delivery Term (4 rules)
- Place of delivery is not specified
- Time for delivery is not specified
- Successive performance
- Shipping is contemplated
When the place of delivery is not specified:
- Goods are to be delivered at the seller’s place of business. If you want it to be delivered to you, don’t leave it out.
- If the seller has no place of business, the goods are to be delivered at the seller’s residence.
- If the goods are at a location other than the seller’s place of business, and both parties know this, the goods are to be delivered at that location. Could be a neutral location.
When time for delivery is not specified…
the goods are to be delivered within a reasonable time.
If successive performances are indicated without stating the duration of the relationship…
either party may terminate, subject to good faith and reasonable notification
If shipping is contemplated, the contract doesn’t state arrangements…
seller has the right to make good faith, reasonable arrangements.
Open Quantity Term
Generally essential to the contract offer
What are the exceptions to open quantity term?
- Requirements contracts
- Output contracts
Requirements Contracts
Where the buyer buys all he requires (all the seller produces that he requires). If the seller produces 100 bushels, but the seller only needs 5, the buyer is only required to buy 5.
Output Contracts
The buyer is buying everything. Uncertain from the buyer’s perspective.
What are the common law rules relating to offers?
offers can be revoked at any time prior to acceptance. Offeror can revoke. Option contract is an exception. The buyer has to give payment/consideration to keep the offer open.
Merchant’s Firm Offer
- Offer for the sale of goods made by a merchant;
- in which the merchant gives assurances in a signed writing;
- that the offer will remain open for the stated period (or if not stated, for a reasonable time).
- No consideration is necessary.
- The merchant’s firm offer is irrevocable for the period stated (or if not stated, for a reasonable time).
What is the difference between common law option contract and merchant’s firm offer?
Lack of consideration. Reason for the relaxation of the rules is the good faith.
I am the representative of a sorority that orders T-Shirts. I’m looking around for different vendors. Call CC Creations, the price per shirt is $10. The sales rep tells me the price we discussed is good for one week. I call around, $10 really is the most reasonable price. 3 days later I call CC Creations back and the sales rep says they now need $12 per shirt. Was there a breach of contract? Was a merchant’s firm offer made?
Called CC Creations, talked to them. NOT a merchant’s firm offer. It wasn’t in writing. Revokable until accepted.
Means of Acceptance
If no method for communication of acceptance is specified, any reasonable means of communication may be used.
When is acceptance effective?
When it is sent
An offer to buy goods for current or prompt shipment is accepted when…
the seller promises to ship or promptly ships CONFORMING goods.
If the seller does not promise to ship, but accepts by shipment, the shipment of nonconforming goods constitutes both…
an acceptance and a breach of contract
If the seller, however, notifies the buyer that nonconforming goods are being shipped as an accommodation (a favor), the shipment is a counteroffer.
Something different shipped in order to attempt to fulfill the order and make you happy. Because it is a counteroffer, you can reject it.
Accommodation
Advance notice or in the shipment itself (on the Bill of Sale, etc.)
I am the sorority representative. I am ordering maroon pens with white lettering. I’ve ordered 1,000 pens. The shipment comes, it is 1,000 pens but only 900 of them are maroon and white, 100 of the pens are UT’s colors. If I get no notice of anything, just the box…
It is an acceptance and breach of contract (which you could sue over).
I am the sorority representative. I am ordering maroon pens with white lettering. I’ve ordered 1,000 pens. The shipment comes, it is 1,000 pens but only 900 of them are maroon and white, 100 of the pens are UT’s colors. If the company send you an advance notice…
Accommodation
If an offeree to a unilateral contract does not notify the offeror within a reasonable period of time that the offeree is beginning performance…
“the offeror may treat the offer as having lapsed before acceptance.” Under UCC, you have to notify the offeror that you plan to perform.
Battle of the Forms Common Law Rule
must accept with mirror image. If you make any changes – it isn’t acceptance it is a counteroffer.
Battle of the Forms UCC Rule
redlining (lots of changes) on sale of large orders of goods. There is evidence of INTENT to do a deal.
When the offeree communicates that the offeree intends to accept an offer but adds different or new terms:
If offeree’s response indicates a definite acceptance of the offer…
A contract is formed, even if the acceptance includes additional or different terms
When the offeree communicates that the offeree intends to accept an offer but adds different or new terms:
Rule When Seller or Buyer (or Both) is a Non-merchant…
the new/additional terms are just “proposals”. Not a part of the contract. The contract is actually formed under the offeror’s terms (they get the last say).
Rule Between Merchants: (BOTH PARITES ARE MERCHANTS)
Proposals are automatically in the contract
What are exceptions to the rule between merchants?
- The offer limited acceptance to its terms
- The terms materially alter the offer
- OR… the offeror objects to the terms within a reasonable period of time
It is not an acceptance if the modifications are __________ on the offeror’s asset.
conditional
Exception to the exception. Watch for conditioning language “so long as, if only…”
Strike offers to sell Bailey one thousand shirts for a stated price. The offer declares that shipment will be made by Dependable truck line. Bailey replies, “I accept your offer for one thousand shirts at the price quoted. Delivery to be by Yellow Express truck line.” Both Strike and Bailey are merchants. Three weeks later, Strike ships the shirts by Dependable truck line, and Bailey refuses to accept delivery. Strike sues for breach of contract. Bailey claims that there never was a contract because his reply, which included a modification of carriers, did not constitute an acceptance. Bailey further claims that even if there had been a contract, Strike would have been in breach because Strike shipped the shirts by Dependable, contrary to the contract terms. Discuss fully Bailey’s claims.
Shippers are pretty competitively priced (UPS, FedEx, etc.) Having a marriage to one doesn’t necessarily make sense. Modification of carriers does not affect acceptance. Changes between two merchants are automatically in the contract. Not a material change. No objection by the offeror to the change the offeree stated. Wrong about the first argument, correct about the second.
When the Battle of the Forms results in conflicting terms in an established contract…
the court can strike the terms the parties can’t agree on
Consideration
Requried for sales and lease contracts
Consideration is not necessary for a modification of a contract, but modifications still require…
- good faith and
- sometimes must be in writing (agreement of the parties provides that any modification must be in writing or any modification that brings the contract under the statue of frauds must be in writing (sale of goods for $500)).
A contract for the sale of goods at $500 or more and a lease contract requiring total payments of $1,000 or more is not enforceable unless…
there is a writing that is signed by the party against whom it is sought to be enforced.
The contract is usually not enforceable beyond the quantity stated in the writing, but other terms may be proven in court by…
oral testimony
Written Confirmations Between Merchants
- The buyer and seller are both merchants and have entered into an oral agreement;
- One of the merchants sends a signed written confirmation to the other;
- The written confirmation must indicate the terms of the agreement;
- The merchant receiving the confirmation must have reason to know of its contents;
- The receiving merchant does not object within ten days after receiving the confirmation; then
- The contract is enforceable against both parties, even though the receiving merchant has not signed anything.
What are exceptions to UCC Statute of Frauds?
- Specially manufactured goods
- Admissions
- Partial performance
Specially manufactured goods (all 3 things are required)
- A contract for goods to be specially manufactured for a particular buyer
- when the goods are not suitable for resale in the ordinary course of business and
- the seller has begun production.
Admissions
A party admits in court or pleadings that the contract had been formed.
Partial Performance
Payment for the goods or receipt and acceptance of goods by the buyer, to the extent of the performance.
