UCC Contracts

Question 1

Statute of Frauds: UCC

Answer 1

Under the UCC, the only term that must be included in a writing sufficient to satisfy the SOF is the quantity term—meaning a writing may omit the—

• 1. price,
  2. time and place of payment or delivery,
  3. general quality of the goods, or
  4. any particular warranties.

Question 2

Firm Offer Rule

Answer 2

• Under the UCC, the firm offer rule (applies only to sale of goods) provides that if the seller is a merchant, the offer may be held open if—
  
  1. it is in writing,
  2. signed by the offeror merchant, and
  3. expressly states it will be held open.
• The offer is irrevocable for the duration of the time stated in the offer, or if no time is stated, it is open for a reasonable time but for no longer than 90 days.

Question 3

UCC Governing Law

Answer 3

• This contract will be governed by the UCC, as enacted in Florida.
• When the contract involves the sale of goods, the UCC governs.
• The test whether the contract involves goods or services is the material purpose test, which is a determination of which is more predominant in the contract.

Question 4

Enforceability

Answer 4

For a contract to be enforceable, there must be offer, acceptance, consideration, and no valid defenses.

Question 5

Offer

Answer 5

• An offer is an invitation to enter into a contract.
• There must be—

1. an expression of a promise to enter into the contract,
2. certainty in the essential terms, and
3. communication of the offer to the offeree.

Question 6

Acceptance

Answer 6

Acceptance is a manifestation of assent to the terms of the offer in the manner prescribed or authorized in the offer.

Question 7

Consideration

Answer 7

• Florida follows the minority view that recognizes a contractual relationship as long as there is either a bargain for a benefit or a bargain for legal detriment.
• Bargained for means asked for by the promisor in exchange for her promise.
• A legal detriment is refraining from doing something that you want to do.
• One promise can be consideration for another promise.
• An Illusory Promise exists when you reserve the right to terminate without notice.

Question 8

Merchant’s Confirmatory Memo (Formation)

Answer 8

In a contract between two merchants, if one party within a reasonable time, sends to the other a written confirmation of the understanding that satisfies the SOF to bind the sender, it will also bind the recipient if the party has reason to know of the confirmation’s contents, and he does not object within 10 days of receipt.

Question 9

UCC Acceptance

Answer 9

• They buyer accepts goods when she indicates to the seller that they conform or that she will keep them even though they fail to conform, after she has had a reasonable opportunity to inspect.
• Alternatively, the goods are accepted when the buyer fails to reject within a reasonable time after tender or delivery of the goods.
• If the seller sends the wrong goods, this is considered an acceptance and a breach.
• If the seller sends an accommodation (explanation) of the breach, then this is considered a counteroffer, and not a breach.

Question 10

UCC Battle of the Forms

Answer 10

• Additional or different terms are not rejections under Article 2.
• A response to an offer that adds additional or different terms, but does not make the new terms a condition of acceptance, is generally treated as an acceptance.
• The additional term is not part of the contract unless both parties are merchants.
• Even if both parties are merchants, the additional term is not part of the contract if the additional term is material or if the additional term is objected to by the original offeror.

Question 11

Modification

Answer 11

• The UCC does not have a pre-existing legal duty rule.
• New consideration is not required to modify a sale of goods contract.
• Good faith is the test used for changes to an existing sale of goods contract.
• Remember that under the SOF, if the contract as modified is for more than $500, it must be evidenced in writing.

Question 12

Statute of Frauds: UCC

Answer 12

• An oral contract is generally enforceable unless it falls within the Statute of Frauds (SOF).
• Under the UCC, a contract for the sale of goods of $500 or more, to be enforceable, must be—

1. in writing,
2. signed by the party to be charged, and
3. contain all essential terms.

• The UCC is liberal in including Gap Fillers where terms are not included, but the contract must include quantity.

Question 13

Statute of Frauds: Exceptions

Answer 13

• Part performance of a contract for the sale of goods, but only to the extent that it has been performed.
• If the seller has made a substantial beginning in the manufacture of specifically manufactured goods that are not suitable for sale to other buyers in the ordinary course of his business, the contract is enforceable even though the contract falls within he SOF.

Question 14

Statute of Frauds: Defenses

Answer 14

Defenses to the statute of frauds in the UCC include part performance, specially manufactured goods, acceptance or complete performance, and judicial pleadings.

Question 15

Parol Evidence Rule

Answer 15

Under the UCC, whether or not the terms are ambiguous, any contract may be supplemented by any evidence of—

1. usage of trade,
2. course of dealing between the parties, and
3. course of performance.

Question 16

Perfect Tender Rule

Answer 16

• Under the UCC, the Perfect Tender Rule states that one party may reject goods for any reason if it does not comply strictly with the contract in a single transaction.
• The seller has the right to cure if there is time left under the contract to perform and the seller gives notice of the intent to cure, or after the time of performance has passed if the seller had reasonable grounds to believe that the non-conforming goods would be acceptable based on past experience, he may be permitted to substitute with a conforming delivery.

Question 17

Rejection of Goods

Answer 17

• The buyer must reject the goods within a reasonable time after delivery and notify the seller of its rejection.
• The buyer can bring an action for damages for the seller’s imperfect tender.
• The buyer must use reasonable care in in holding the goods for the seller while waiting for further instruction.

Question 18

Installment Contracts

Answer 18

• An installment contract requires or authorizes the delivery of goods in separate lots to be separately accepted.
• A breach with respect to one installment is a breach of the total installment only if the non-conformity substantially impairs the value of the entire contract.

Question 19

Common Carrier

Answer 19

• If there is an agreement as to place of delivery by a common carrier, then the question is, “What does the seller have to do to complete its delivery obligation?”
• One possibility is that the contract is a shipment contract, which means that the seller completes its delivery obligation when it gets the goods to a common carrier, makes reasonable arrangements for delivery, and notifies the buyer.
  
  • In a shipment contract, the seller completes its delivery obligation before delivery is completed. However, in a destination contract, the seller does not complete its delivery obligation until the goods arrive at the destination.
  • Most contracts with delivery obligations are shipment contracts.
  • The term Free on Board followed by the city where the seller is or where the goods are means shipment contract.

Question 20

Risk of Loss

Answer 20

• Risk of loss issues arise where after the contract has been formed, but before the buyer receives the goods, the goods are damaged or destroyed, and neither the buyer nor the seller is to blame.
  
  • If the risk of loss is on the buyer, he has to pay the full contract price for the lost or damage goods.
  • If the seller has the risk of loss, there is no obligation on the buyer, and there is possible liability on the seller for non-delivery.
• Typically, the agreement of the parties controls.
  
  • If there is no agreement, the breaching party is liable for any uninsured loss even though breach is unrelated to the problem.
  • If the seller was 2 weeks late in delivering, he is liable for loss.
• In a common carrier delivery, the risk of loss shifts from seller to buyer at the time the seller completes its delivery obligations, which means that the buyer bears risk of loss once the goods are dropped for shipment.
• The determining factor is whether the seller is a merchant.
  
  • The risk of loss shifts from a merchant-seller to the buyer on the buyer’s receipt of the goods (possession by the buyer).
  • If the seller is the merchant, he keeps the risk of loss until the buyer has physical possession of the goods.
  • Risk of loss shifts from a non-merchant seller when he or she “tenders” the goods.

Question 21

Warranties

Answer 21

Disclaiming of warranties must be made before the sale and NOT after.

Question 22

Express Warranty

Answer 22

• An express warranty arises by any affirmation of fact, promise, description, model, or sample which is made part of the basis of the bargain.
• Express warranty must be expressly disclaimed.
• It is extremely difficult to disclaim however, because the language limiting express warranties must be read consistently with the warranty, and to the extent they are inconsistent, the disclaimer is not given effect.

Question 23

Implied Warranty of Title and Against Infringement

Answer 23

Unless excluded or modified, a warranty that seller has title to the good, a right to transfer the goods and that no liens or other security interests are attached to those goods is implied in a contract for their sale.

Question 24

Implied Warranty of Merchantability

Answer 24

• Unless excluded or modified, a warranty that the goods shall be “merchantable” is implied in a contract for their sale, if the seller is a merchant with respect to goods of that kind.
• It is not required that the goods be perfect.
• This implied warranty of merchantability is simply a promise that the goods—

1. pass without objection in the trade; and
2. are fit for the ordinary purposes for which they are used.

• A disclaimer or limitation of the implied warranty of merchantability must expressly mention “merchantability,” and if in writing, this term must appear conspicuously.

Question 25

Implied Warranty of Fitness for a Particular Purpose

Answer 25

• Unless excluded or modified, a sale of goods includes an implied warranty that the goods will be fit for a particular purpose where—

1. the seller, merchant or not, at the time of contracting, has reason to know of the buyer’s particular purpose for which he seeks to purchase the goods; and
2. the buyer relies on the seller’s skill and judgment to select or furnish goods suitable for such purpose.

• Any exclusion or modification of the implied warranty of fitness for a particular purpose must be in writing and must appear conspicuously.
  
  • “Conspicuous,” as defined by UCC, connotes language “so written that a reasonable person against whom it is to operate ought to have noticed it.”
  • Common ways to make contract provisions conspicuous is to put them in bold type, different colored type, larger type, or in all capitals.
• Unless the circumstances indicate otherwise, all implied warranties are excluded by expressions such as “as is,” “with all faults,” or other language which makes plain that there is no implied warranty.

Question 26

Damages for Breach of Warranty

Answer 26

Normally measured by the difference between the value of the Goods accepted and the value they would have had if they had been as warranted.

Question 27

Frustration of Purpose

Answer 27

• According to the applicable UCC rule for sales of good, when an event makes performance of a contract impossible, such as where the subject matter of the contract is destroyed through the fault of neither party, both parties will be discharged from performing under the contract.
• To be considered the subject matter of the contract, the item must have been essential to performance under the contract.
• Under this rule, if the subject matter of the contract is destroyed when the contract has been signed, but the risk of loss remains on the seller, both the buyer and seller are discharged from performing under the contract.

Question 28

UCC Expectation Damages

Answer 28

• A seller’s normal damages are measured as the difference between the contract price and the market price, or the contract price and the resale price.
• If the seller has an unlimited supply of goods and has lost volume sales by the buyer’s breach, the seller can recover lost profits.
• The breaching party will be liable for general damages, or those damages that would foreseeably follow from the breach, but not for consequential damage or those damages that result from the particular circumstances of the aggrieved party that are unforeseeable to the breaching party.

Question 29

UCC Consequential Damages

Answer 29

For an aggrieved buyer may recover the equivalent of lost profits, the buyer must show that—

1. the seller knew or had reason to know of the buyer’s general and specific requirements and needs at the time of contracting; and
2. the losses could have not been prevented or further mitigated.

Question 30

Incidental Damages

Answer 30

• In a contract for the sale of goods, incidentals may be available.
• Incidental damages are expenses that the non-breaching party incurs in responding to the breach.
• These expenses may include costs incurred in finding replacement performance, storing, transporting, or inspecting the goods.

Question 31

Buyer’s Breach under the UCC

Answer 31

Seller can resell his goods in good faith and in a commercially reasonable manner and recover the difference between the contract price and the resale price.

• If he is unable to resell, then he may recover the difference between the contract price and the market price.
• If the seller is a volume seller, he may recover the profit he would have made on the lost sale rather than relating them to either the contract-market or contract-resale differential.
• If the buyer breaches and keeps the goods, then he must pay the contract price.