Contract Interpretation: Article 2 Provisions on Interpreting Contracts

Question 1

What is the general rule re: missing terms in UCC contracts?

Answer 1

Key term = quantity terms (but outputs/requirements Ks are OK)

Article 2 has gap fillers for other missing terms

Question 2

What is the rule under UCC art 2 re: price term?

Answer 2

Under UCC Art 2, price is deemed to be “REASONABLE PRICE AT THE TIME OF DELIVERY” if:

(1) nothing is said as to price;
(2) price is left open to be agreed upon by parties and they fail to agree;
(3) price is to be fixed by 3rd party, but never fixed

Question 3

What is the rule under UCC art 2 re: missing term for place of delivery?

Answer 3

If place of delivery is not specified, it will be

1. Seller’s place of business, if he has one; IF NOT then;
2. Seller’s home

Question 4

What is the rule under UCC art 2 re: missing term for time for shipment/delivery?

Answer 4

If TIME for shipment/delivery is not specified, shipment/delivery is due in a “REASONABLE TIME”

Question 5

What is the rule under UCC art 2 re: missing term for time for time payment is due?

Answer 5

If time for payment is not specified, payment is due at the TIME AND PLACE AT WHICH BUYER IS TO RECEIVE THE GOODS.

Question 6

What is the rule under UCC art 2 re: assortment which is not specified?

Answer 6

If K provides that an assortment of goods is to be delivered (eg blouses in various colors/sizes), but doesn’t specify which party chooses —> the assortment is at BUYER’s option

If party who has right to specify fails to do so seasonably —>other party is EXCUSED from any resulting delay,. and either:

1. proceed in reasonable manner (eg..provide reasonable assortment; OR
2. treat failure to choose as breach

Question 7

Under art 2 UCC, what issues arise w regards to “delivery terms” and “risk of loss”?

Answer 7

• All K’s for SOG require delivery of goods

- A K’s delivery terms are important bc they determine when ROL passes from seller to buyer

Question 8

What is a “non-carrier case”?

Answer 8

“Non-carrier case” = a sale in which it appears that the parties did NOT intend that goods would be moved via common carrier

Example –> buying groceries

Question 9

What rules apply re: delivery terms/risk of loss in a non-carrier case?

Answer 9

If seller is a merchant –> ROL passes to buyer only when Buyer takes PHYSICAL POSSESSION of goods

If seller is NOT a merchant –> ROL passes to buyer upon TENDER of delivery

Question 10

What is a “carrier case”?

Answer 10

“carrier case” = a sale in which it appears that the parties intended the goods to be moved by a carrier

EXAMPLE –> ordering book from website

NOTE: there are two types of carrier cases:

(1) shipment contracts; and
(2) destination contracts

Question 11

What are the two types of carrier cases?

Answer 11

The two types of carrier cases are:

1. Shipment contracts; and
2. destination contracts

Question 12

What is a “shipment contact”?

Answer 12

“shipment contract” –> authorizes/requires seller to ship goods by carrier, but does NOT require him to deliver them at any particular destination

Question 13

When does ROL pass to buyer in a shipment contract?

Answer 13

In a shipment contract, ROL passes to Buyer once goods are DELIVERED to CARRIER

Question 14

What are Seller’s duties under a shipment contract (4)?

Answer 14

In a shipment contract, seller must:

1. make REASONABLE K w carrier on behalf of buyer; AND
2. DELIVER goods to CARRIER; AND
3. promptly NOTIFY buyer of shipment; AND
4. provide buyer w any DOCUMENTS needed to take possession of goods

Question 15

What is a “destination contract”?

Answer 15

“Destination contract” - requires seller to deliver goods at a particular destination

Question 16

When does ROL pass to buyer in a destination K?

Answer 16

In a destination K –> ROL passes to buyer when goods are TENDERED TO BUYER AT DESTINATION

Question 17

What is F.O.B. and what is the effect?

Answer 17

“F.O.B.” –> free on board

• The letters FOB are always followed by a location.
• ROL transfers to Buyer at named location
• Seller bears risk and expense of getting goods to named location

NOTE: these contracts can be shipment or destination contracts depending on the location named

Question 18

What is F.A.S. and what is the effect?

Answer 18

“F.A.S.” –> free alongside

• Term is generally used ONLY when goods are to be shipped by boat
• ROL passes to buyer once goods are delivered to dock

Question 19

If a contract doesn’t contain an F.O.B. term or any other term explicitly allocating ROL, what is the result?

Answer 19

It is a shipment contract.

EFFECT –> ROL passes to buyer once goods are delivered to carrier

Question 20

Does indicating an address automatically make a contract a “destination contract”?

Answer 20

No!

Merely indicating an address for shipment does NOT make a contract a destination contract.

Question 21

What issues arise with regards to the effect of a breach on risk of loss?

Answer 21

1. Defective goods

2. revocation of acceptance

Question 22

What is the rule with regards to “defective goods” and effect of breach on ROL?

Answer 22

If buyer has a right to reject goods, ROL does not pass to buyer until:

1. defects are cured; OR
2. she accepts goods in spite of their defects

NOTE: Buyer generally has right to reject for any defect

Question 23

What is the rule with regards to “revocation of acceptance” and effect of breach on ROL?

Answer 23

If buyer rightfully revokes acceptance —>

• ROL is treated as having rested on seller from the beginning to the extent of any deficiency in buyer’s insurance coverage

Question 24

What is the MBE exam tip w regards to ROL and non-conforming goods?

Answer 24

If seller ships non-conforming goods, you do not need to determine whether K is a shipment or destination K.

This is bc the ROL remains on seller the whole time

Question 25

What is a “Sale or Return Contract”?

Answer 25

“sale or return K” = a contract where buyer takes goods for resale, but may return them if she is unable to sell them

Question 26

What are the rules re: ROL and “sale or return K”?

Answer 26

• treated as ordinary sale and same rules apply

If goods are returned to seller –> risk remains on buyer while goods are in transit

Question 27

What is a “sale on approval contract”?

Answer 27

“Sale on approval contract” - Buyer takes goods for use, but may return them even if they conform to K

Question 28

When does ROL pass on “sale on approval contract”?

Answer 28

ROL does not pass until buyer accepts

Question 29

What are the consequences if goods are destroyed before ROL passes?

Answer 29

If goods that were IDENTIFIED WHEN K WAS MADE are destroyed:

1. without fault by either party; and
2. before ROL passes to buyer

..the Seller’s performance is excused

If goods were NOT IDENTIFIED until after k was made –> seller must prove IMPRACTICABILITY to be discharged

Question 30

What is the special rule re: bilateral K’s formed by performance where mirror image rule is not satisfied?

Answer 30

K may be formed under certain circumstances where mirror image rule is not satisfied and under certain circumstances under UCC art 2 battle of forms provision.

• in such cases, under art 2, K will include all terms on which writings of both parties agree
• remaining terms will be filled by Art 2 gap filler provisions

NOTE –> this is in contrast to common law “last shot rule” which includes the terms of the last communication sent to party who performed