Hefferan_CommercialLaw_Fall_2014
1. Scope and Applicability of UCC
a. UCC is to be liberally construed Its purposes and policies are:
i. To simplify, clarify, and modernize the law governing commercial transactions.
ii. To permit the continued expansion of commercial practices through custom, usage, and agreement of the parties.
iii. To make uniform the law among various jurisdictions.
b. Unless displaced by the UCC, the common law of contracts shall SUPPLEMENT the UCC
c. Unless otherwise provided for by the UCC, the effect of UCC provisions may be varied by K (parties are free to K around UCC provisions
d. However, obligations of good faith, diligence, reasonableness, and care set forth in the UCC, cannot be disclaimed by K
e. Who is a Merchant:
i. Someone who deals with goods of that kind or holds themselves out as a merchant.
2. Scope:
a. Article 2 applies to “transactions in goods” and does not apply to security transactions
i. Goods are all things, including specially manufactured goods, which are moveable at the time of identification to the K for sale. Can include:
i. Unborn young of animals
ii. Growing crops
iii. Other identified things attached to realty as described in §2-107 (timber, minerals, oil)
b. Goods are identified when the good is marked to go to the customer
2. Exceptions:
a. Money
b. Investment securities
c. Things in action
ii. Future Goods
1. Goods must be existing and identified before an interest in them can pass
2. Goods that are not both existing and identified are future goods
a. A present sale of future goods operates as a K to sell
iii. Commercial Unit
1. A unit of goods that by commercial usage is a single whole for purposes of sale, and division of which materially impairs its character or market value.
2. A commercial unit may be a single article (a machine), a set of articles (a suite of furniture), a quantity (a bale of hay), or any other unit treated in the relevant market as a single whole.
iv. Mixed Contracts
1. Are contracts for both the sale of goods and non-goods (services)
a. Predominant Purpose Test (NC uses this test. Majority)
i. If the predominant purpose of the K involves the sale of goods, Art. 2 of UCC applies. If a mixed K’s is a K for the rendering of a service, with goods being incidentally involved, UCC will not apply. Looks at contract as a whole.
ii. Look at the language of the K AND
iii. Circumstances surrounding the formation of the K to determine predominant thrust of K.
b. Gravamen Test (minority)
i. In a mixed K, if the portion of the K that is in dispute involves goods, then the UCC applies.
1. (cell phone example: Cell phone service K. Primary purpose is most likely to purchase a service not a good, but under Gravamen, if you have an issue with the cell phone (a good), then UCC would apply.)
b. Formation of the K
i. A contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct
1. Emphasis on parties’ subjective intent to form a K
2. Encourages courts to affirm the existence of a K wherever words or actions of the parties reasonably supports such a conclusion
a. K does not need to have all material information/terms to be valid. UCC can utilize gap fillers
ii. Firm Offers
1. Offer must be:
a. Made by a merchant
b. Signed by the offeror
c. No consideration needed
d. Keeps open the offer for no more than 3 months
2. If the assurance is on a form supplied by the offeree, it must be separately signed by the offering party.
3. Irrevocable
a. If there is consideration, and the parties agree, can be open for more than 3 months
4. Can remain open based upon a contingency (some event must happen within 3 months). Once contingency happens, the offer becomes revocable.
iii. Acceptance
1. Can be made in ANY medium reasonable in the circumstances unless offer unambiguously indicates otherwise
2. Offer can be accepted even by shipment is of non-conforming goods.
a. However, a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is only being offered as an accommodation.
3. Additional Terms in Acceptance or Confirmation
a. A definite and seasonable expression of acceptance or a written confirmation sent within a reasonable time operates as an acceptance even though it contains additional or different terms, unless acceptance is expressly made conditional on assent to the additional or different terms.
iv. Battle of the Forms (Different or additional Terms)
1. K can be formed despite terms not being identical when a definite and seasonable expression of acceptance or a written confirmation
a. 2 Situations
i. Written Confirmation (K is formed from the writings)
1. If acceptance is expressly made conditional on accent to the additional or different terms, acceptance must expressly assent to those terms
2. Additional terms are construed as proposals for addition to the K. If between MERCHANTS, such terms become part of the K UNLESS:
a. The offer expressly limits acceptance to the terms of the offer
b. The terms materially alter the K OR
3. Majority Rule: 2-207(2) treats different terms the same as additional terms because “different terms” are not specifically stated in the statute
4. Knock-Out rule (minority): Different terms are knocked-out because it is assumed that both parties rejected/objected to the terms.
ii. If writing do NOT establish a K
1. Conduct by BOTH parties which recognizes the existence of a K is sufficient to establish a K, even if the writings of the parties do not otherwise establish a K
2. The terms of the K will be those on which the parties’ writings agree, along with any UCC gap fillers (can include oral offers)
v. K Modification
1. An agreement modifying a K for the sale of goods does not need to be supported by consideration
a. 2 Limitations
i. A signed agreement excluding modification except by a signed writing cannot be otherwise modified. Caveat: For a consumer to be held to such a clause in a form supplied by a merchant, it must be separately signed. (§ 2-209(2))
ii. If contract as modified is within the SOF, then the requirements of the SOF must be complied with. (§ 2-209(3))
c. Statute of Frauds (SOF)
i. Certain agreements to purchase and sell goods are subject to the SOF
1. K for the sale of goods
2. $500 or more
3. Must be in writing
4. Must be signed by the party against whom enforcement is sought (party to be charged)
ii. Writings may omit or incorrectly state a term BUT MUST indicate a QUANTITY of goods
1. The K will not be enforceable beyond the amount of goods indicated
2. Do not need to have price, who is the buyer or seller, delivery date, and the quantity can be wrong but it will only be enforceable to the amount indicated
iii. 3 Requirements for the Writing
1. Must evidence a K for the sale of goods
2. Must be signed by the party to be charged (very liberal interpretation of what can constitute a writing)
3. Must specify a quantity of goods
iv. Exceptions. A K that does not satisfy the SOF, but can still be valid if:
1. Specifically manufactured goods
a. These are goods that you could not sell in the course of ordinary business and are intended/made specifically for the buyer
2. Admissions in court or testimony
3. Performance
a. Payment may be accepted or goods may be accepted
4. Merchant Exception
a. Between merchants, if a writing, in confirmation of the contract sufficient against the sender, is received within a reasonable time and the party receiving it has reason to know its contents, it satisfies the SOF unless written notice of objection is given within 10 days of receipt.
d. Parole Evidence Rule (PER)
i. There is a K. Now there is an argument about the terms of the K.
1. Triggers:
a. Terms on which the confirmatory memoranda of the parties agree (PARTIALLY INTEGRATED) OR
i. There is enough for a K, but some terms are missing
b. Terms set forth in a writing intended as a FINAL EXPRESSION of the parties’ agreement and is the complete and exclusive expression of the parties’ agreement is a FULLY INTEGRATED K.
i. K containing a merger clause
ii. K in which all the terms that would/should be in the K are in the K
iii. If fully integrated, that agreement can never be contradicted by prior agreements or contemporaneous oral agreements.
1. Such terms MAY NOT be contradicted by evidence of prior agreements or contemporaneous oral agreements
c. Such terms MAY BE explained or supplemented by:
i. Course of performance (b/t both parties after the K was signed)
ii. Course of dealings (b/t both parties prior to the K)
iii. Trade Usage (how 2 similar parties performed under different Ks). This has to be something common or commonly understood
iv. Evidence of consistent additional terms, unless the writing was intended to be the complete and exclusive st
s about the goods:
1. Affirmation of fact or promise
2. Provides a description of the goods
3. Provides a sample or model but only if that sample or model is used as the basis of the bargain and if so, then the goods must conform to that sample or model
ii. All of the above must be part of the basis of the bargain and if so, then it creates an express warranty to that portion of the K.
iii. Do not have to use words, or need an intent to create express warranty
1. Opinion or commendation of the goods does not create express warranty (puffery does not create express warranty):
a. Rock-solid
b. Higher Quality
c. Premium Quality
d. Best Quality
e. Years of service
iv. Burden is on seller to show that the statements did not create an express warranty
v. Affirmations of fact are to be construed broadly and puffery is to be construed narrowly. Factors to consider:
1. Specificity of statement. The more specific, the more likely it will be considered affirmation of fact
2. Statement made in equivocal manner. The more clear and concise, the more likely to be considered affirmation
3. Experimental: if the product is experimental, then there are no express warranties
vi. Cannot disclaim express warranties. Language creating express warranty and language disclaiming it are contradictory, and because any contradictory language is inoperative and language creating express warranties are controlling.
vii. Basis of the Bargain Test:
1. Affirmation is deemed part of the BOTB. All buyer must show is that the affirmation was A reason (single reason, not THE reason), or PART of the reason for making the purchase.
a. Then burden shifts to seller to show that the affirmation was not a BOTB.
i. Exception: If seller can show that buyer had knowledge of the true condition of the goods, prior to making the K, then buyer can say that the affirmations were not part of the bargain.
ii. If buyer inspects the goods before purchase, he MAY be deemed to have waived any express warranties (the fault must have been able to be found during a normal reasonable inspection)
viii. All evidence of express warranties is subject to PER
b. Implied Warranties
i. Implied Warranty of Merchantability (IWM)
1. Warranty that goods are merchantable is implied in contracts where seller is a merchant with respect to goods of that kind. (§ 2-314(1))
a. To be merchantable, goods must be fit for their ordinary purposes and pass without objection in the trade. (§ 2-314(2))
2. Can be excluded or modified under certain conditions. (See § 2-316)
a. Disclaimer must be conspicuous and contain the word “Merchantability”
ii. Implied Warranty of Fitness for a Particular Purpose (IWFFPP)
1. Seller must have reason to know any particular purpose for which the goods are required.
2. Seller must have reason to know that buyer is relying on seller’s skill or judgment to select or provide suitable goods.
3. If these requirements are met, there is an implied warranty that the goods shall be fit for such purpose.
4. Can be excluded or modified under certain conditions. (See § 2-316)
a. To exclude or modify any implied warranty of fitness the exclusion must be in writing and conspicuous. (must be in writing)
b. “There are no warranties which extend beyond the description on the face hereof” is sufficient to exclude all warranties of fitness.
iii. Unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like “as is”, “with all faults” or other similar language calling the buyer’s attention to the exclusion and making plain that there are no implied warranties.
1. When the buyer before entering into the contract has examined the goods as fully as desired, or has refused to examine the goods, there is no implied warranty as to defects which an examination ought to have revealed.
iv. An implied warranty can be excluded or modified by course of dealing, course of performance, or usage of trade.
v. Remedies for breach of warranty can be limited. (§ 2-316(4))
c. Privity (who has the right to sue whom)
