Contracts Flashcards
Summary
The transaction here is a transaction in goods, and is therefore governed by Article 2 of the Uniform Commercial Code.
The January 9 telephone call was sufficient to create a contract, but, because the contract price was $500 or more, the contract is not enforceable against Seller unless the Article 2 statute of frauds is satisfied. Here, because both Buyer and Seller are merchants, that statute of frauds is satisfied. This is because Buyer’s signed note to Seller was sufficient to enable Seller to enforce the contract against Buyer, and Seller’s failure to object within 10 days after receiving the note makes the contract enforceable against Seller.
While the oral agreement was silent as to delivery obligations, which would normally mean that tender was to take place at Seller’s place of business, the parties’ prior course of dealing, in which Seller repeatedly delivered silk to Buyer at no extra charge, supplements the oral agreement and results in a requirement that Seller deliver the silk to Buyer. Thus, Seller’s failure to deliver the silk to Buyer is a breach of contract, entitling Buyer to damages.
Buyer made a covering purchase in substitution for the 10,000 yards of silk that would have been acquired from Seller. The price Buyer paid is $2 more per yard than the contract price with Seller, for a total cost of $120,000. Therefore, Buyer is entitled to damages of $20,000 from Seller.
What body of law governs the transaction between Buyer and Seller?
The transaction between Seller and Buyer is governed by Article 2 of the Uniform Commercial Code.
Article 2 of the Uniform Commercial Code (2002) governs transactions in goods. UCC § 2-102. “Goods” are “all things . . . movable at the time of identification to the contract for sale . . . .” UCC § 2-105(1). Under this definition, the silk constitutes goods. Therefore, UCC Article 2 governs this transaction.
Is there a contract arising from the January 9 agreement?
The telephone call of January 9 was sufficient to form a contract for the sale of 10,000 yards of silk by Seller to Buyer on February 1 at a price of $10 per yard.
“A contract for the sale of goods may be made in any manner sufficient to show agreement.” UCC § 2-204(1). Moreover, “[e]ven though one or more terms are left open[,] a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.” UCC § 2-204(3). Here, the facts make it clear that there was an agreement between Seller and Buyer for the sale of 10,000 yards of silk by Seller to Buyer. In addition, even though some terms typically found in a contract for the sale of goods (such as delivery obligations, risk of loss, etc.) were not present in this agreement, it is clear that the parties intended to make a contract and there is a reasonably certain basis for determining an appropriate remedy. See Point Four below. Therefore, there is a contract arising from the January 9 telephone call.
Is the contract enforceable by Buyer against Seller?
The contract arising from the January 9 telephone call is enforceable against Seller. While the contract is subject to the statute of frauds in Article 2 of the UCC, the statute is satisfied here even though there is no writing signed by Seller. This is because both parties are merchants and, accordingly, the signed note sent by Buyer to Seller one day after their agreement and not objected to by Seller within 10 days of receipt is sufficient to satisfy the statute against Seller.
UCC Article 2
Section 2-201, the UCC Article 2 statute of frauds, provides that a contract for the sale of goods for a price of $500 or more is not enforceable unless there is a writing signed by the party against whom enforcement is sought that is sufficient to indicate that a contract for sale has been made between the parties. UCC § 2-201(1). In addition, the contract is not enforceable beyond the quantity shown in the writing. Id. This is generally interpreted to mean that a writing without a quantity term does not suffice. See, e.g., id., Official Comment 1, paragraph 1. Here, the contract price is well above $500, so the Article 2 statute of frauds is applicable. The note signed by Buyer is sufficient to indicate that a contract has been made between Buyer and Seller. Even though the note is informal and does not state most of the terms of the contract, it clearly indicates that a contract has been entered into. In addition, the note states the quantity term of the contract: 10,000 yards of silk. Thus, because this note was signed by Buyer, it would be sufficient to enable Seller to enforce the contract against Buyer.
Application
But Seller is not trying to enforce the contract against Buyer. Rather, Buyer is trying to enforce the contract against Seller. UCC § 2-201(1), standing alone, would result in Buyer’s being unable to enforce the contract against Seller because there is no writing signed by Seller. But the rule in UCC § 2-201(1) is subject to the other provisions in § 2-201. In particular, UCC § 2-201(2) provides that, between merchants, a writing in confirmation of a contract, sent by one party within a reasonable time and received by the other, that is sufficient to satisfy the statute of frauds as to the sender, is also sufficient against the recipient if the recipient had reason to know of its contents, unless the recipient objects in writing within 10 days of receipt. Here, both parties are “merchants” as that term is defined in UCC § 2-104(1) because they both “deal in goods of the kind”—Seller regularly manufactures and sells bulk silk and Buyer routinely buys this silk for use in its manufacturing business. Thus, the transaction is “between merchants.” UCC §§ 2-104(3) and 2-201(2) apply.
Each of the elements of UCC § 2-201(2) is satisfied. First, Buyer’s signed note was sent the day after the agreement, and there is nothing in the facts suggesting that one day was not a reasonable time. Second, Seller received Buyer’s note. Third, as explained above, the note was sufficient to satisfy the statute of frauds against the sender (Buyer). Fourth, the recipient (Seller) had reason to know of the contents of the note—Seller read the note. Fifth, the facts do not indicate that Seller objected to the contents of the note within 10 days of its receipt. Therefore, the note signed by Buyer is sufficient to satisfy the statute of frauds against Seller as well.
Does the contract require Seller to deliver the silk to Buyer?
While the parties’ agreement was silent as to any requirement to deliver the silk, the parties’ prior course of dealing establishes that Seller had an obligation to deliver the silk to Buyer.
Both the oral agreement between the parties and Buyer’s note were silent as to delivery obligations. In the absence of agreement to the contrary, UCC § 2-308(a) provides that the place for delivery is the seller’s place of business. If this “gap-filling” provision applied, Seller would have no obligation to deliver the silk to Buyer. But UCC §§ 2-202(a) and 1-303(d) provide that the agreement of the parties may be supplemented by the parties’ “course of dealing.” UCC § 1-303(b) defines “course of dealing” as “a 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 or other conduct.” Here, there is such a sequence of conduct concerning prior transactions. The facts state that the parties had engaged in over 250 purchases of silk over the last six years, and in each of these transactions, Seller delivered the silk to Buyer at no extra charge. Thus, this course of dealing, making it clear that delivery of the silk was the parties’ common expectation, supplements the oral agreement (which did not indicate whether there was a delivery obligation). Accordingly, Seller had an obligation to deliver the silk to Buyer.
Is Buyer entitled to damages of $20,000?
Buyer is entitled to damages of $20,000 because that is the difference between the cost of its covering purchase of silk from Dealer and the price it would have paid Seller under the contract.
Seller’s failure to deliver the silk to Buyer was a breach of its obligations under the contract between them. UCC § 2-711(1) provides that, where the seller fails to make delivery, the buyer may, inter alia, “cover” and have its damages measured under UCC § 2-712. Under that section, an aggrieved buyer “may ‘cover’ by making in good faith and without unreasonable delay any reasonable purchase of . . . goods in substitution for those due from the seller.” UCC § 2-712(1). If the buyer does so, it may recover from the seller the difference between the cost of cover and the contract price, together with incidental and consequential damages. UCC § 2-712(2).
Here, the facts state that Buyer made a good-faith and commercially reasonable purchase from Dealer two days after the breach, so each of the elements in UCC § 2-712(1) is satisfied. (Nothing in the facts suggests that two days was an unreasonable delay.) Accordingly, Buyer can recover the difference between the cost of cover (10,000 yards of silk at $12 per yard, for a total of $120,000) and the contract price (10,000 yards of silk at $10 per yard, for a total of $100,000). Thus, Buyer is entitled to $20,000 in damages. (Buyer would also be entitled to incidental and consequential damages, but the call directs examinees to assume that there are no incidental or consequential damages. Under UCC § 2-712(2), expenses saved in consequence of Seller’s breach must be subtracted from the amount of damages, but the facts do not suggest that any such expenses were saved.)
