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Commercial Law
Rutgers University, Newark School of Law
Kaplan, Michael

Commercial Law
Kaplan
Fall 2012


I.              SALES:
A.   Scope of UCC Article 2 (sales):
i.      2-102: Article 2 governs transactions (other than those intended solely for security) in goods.
ii.    2-106(1): Article 2 governs present or future sales (passing title from the seller to the buyer for a price) of goods.
iii.   Sale 2-106(1): A sale is the passing of title from a seller to a buyer for a price.
iv.   Goods 2-105(1): Goods means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities and things in action.
1.    Goods also includes the unborn young of animals and growing crops and other identified things attached to realty as described in 2-107.
2.    Goods are defined as tangible thing that are movable at the time of their identification to the contract (2-105(1))
3.    Money and intangible items such as stocks, bonds, and patents are NOT tangible goods.
4.    Real estate is NOT a tangible goods because it is not movable.
5.    Contracts for provision of services are NOT covered by Article 2.

v.    Mixed Contracts: those involving a combination of goods and services, or a combination of goods and something other than services.
1.    Courts determine whether UCC Article 2 governs a transaction or dispute involving a contract for goods and either non-goods personal property or services using one of two tests:
a.    Predominant purpose
i.      If the main purpose of the contract is goods, Article 2 applies to the whole transaction & vice versa.
ii.    Either contract will be entirely subject to Article 2 or not at all.
b.    Gravamen of the action:
i.      whether the dispute over defects in the quality of the goods or in the services.
ii.    If problem lies with the goods, Article 2 applies even if the predominant purpose of the transaction is services rather than goods.

vi.   Merchants (2-104(1))  a person who:
1.    Deals in the goods of the kind involved in the transaction, or
2.    By his or her occupation holds himself out as having knowledge or skill peculiar to the goods involved in the transaction.
3.    Merchant Standards: UCC frequently holds a merchant to a higher standard of conduct than a non-merchant.
a.    Only merchants who deal in goods of the kind must take the responsibility of the implied warranty of merchantability.
b.    General duties of good faith and standards of fair dealing in trade – any person in business would be subject to these requirements.

B.   THE PROCESS OF SALES CONTRACT FORMATION UNDER UCC
i.      Contract Formation:
1.    Definitions
a.    Contract (1-201(11)): the total legal obligation which results from the parties’ agreement as affected by this Act and any other applicable rules of law.
b.    Agreement (1-201(3)): the bargain of the parties in fact as found in their language or by implication from other circumstances including COD (1‐205), UT (1‐205), or COP (2‐208)
c.    Common Law: need offer, acceptance and consideration. Rest. Sec. 24: offer is manifestation of willingness to enter into a bargain, so as to justify another person into understanding that his consent will conclude bargain.
d.    No UCC definition of “offer” ‐ just look to definition of agreement .

2.    Formation of Sales and Lease Contracts: Any rules established by Articles 2 and 2A take precedence over the common law of contracts.
a.    Offer:
i.      A contract for the sale or lease of goods may be made in any manner sufficient to show agreement.
1.    This includes conduct by both parties that recognizes the existence of a contract 2‐204(1), 2A‐204(1).
ii.    An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined, 2‐204(2); AND
iii.   A Contract does not fail for indefiniteness if:
1.    1) the parties have intended to make a Contract and
2.    2) there is a reasonably certain basis for giving an appropriate remedy, 2‐204(3).
iv.   Contract Requirements:
1.    All you really need:
a.    Quantity term, and
i.       A quantity term need not be expressed if it can be derived from the price term.
ii.    Example: “Some” hay. Does “some” have meaning that can be derived from course of dealing, course of performance, or usage of trade?
b.    Description of goods
2.    Don’t need: Price, delivery, payment, warranty, risk of loss or choice of law.
a.    Once quantity and description of goods are established, all other terms can be fairly worked out through the hierarchy – express terms, conduct, gap-fillers, etc.
3.    Open Terms: Sometimes the parties to a sales or lease contract leave open a major term in the contract
a.    Open Price Term, Open Payment Term, Open Delivery Term, Open Time Tern, Open Assortment Term
b.    These open terms are permitted to be read into a sales or lease contract.
c.    This rule is commonly referred to as the gap-filling rule 2-204(3), 2A-204(3).

b.    Acceptance § 2‐206
i.      2‐206 is relevant to determine whether an agreement has been reached. In cases of conflict, the more specific rules of 2‐206 govern over 2‐204.
1.    The UCC provides that a contract is created when the offeree (i.e., the seller or lessor) sends an acceptance to the offeror, not when the offeror receives the acceptance.
2.    The UCC permits acceptance by any reasonable manner or method of communication 2‐206(1)(a), 2A‐206(1).
ii.    Mailbox Rule – Common Law
1.    Judge made legal doctrine of contract law that finds the acceptance of an offer is made as of the time the acceptance is placed in a mail box, as long as mailing an accepting reply is a reasonable form of acceptance. The acceptance is effective at the time of sending.
2.    But the mail box rule does not apply to revocations of an acceptance, which are only effective when received.
iii.   Immediate Shipment Contract
1.    When a buyer offers to purchase goods for immediate shipment, the seller may accept such an offer either by shipping the goods or by promising to ship them, 2‐206(1)(b).
2.    Shipment of Non‐Conforming Goods, 2‐206(1)(b): A shipment of non‐conforming goods will count as an acceptance UNLESS the shipment is offered only as a mere accommodation to the buyer.
iv.    Accommodation[1]  Shipment
1.    A shipment that is offered to the buyer as a replacement for the original shipment when the original shipment cannot be filled.
2.    The accommodation is a counteroffer from the seller to the buyer.
3.    The buyer is free either to accept or to reject the counteroffer 2‐206(1)(b).

c.    Consideration
i.      The formation of sales and lease contracts requires consideration.
ii.    Under the UCC, an agreement modifying a sales or lease contract needs no consideration to be binding. 2‐209(1), 2A‐208(1).
iii.   Modification of a sales or lease contract must be made in good faith [1‐203].

d.    Firm Offer Rule 2‐205
i.      Merchant who (1) offers to buy, sell, or lease goods, and (2) gives a written and signed assurance on a separate form that the offer will be held open.
1.    Offer to buy or sell goods
2.    Offeror is a merchant
3.    Signed writing
4.    Assurance that offer is held open.
5.    THEN offer is irrevocable even without consideration.
6.    Offeror cannot revoke the offer for the time stated or, if no time is stated, for a reasonable time.
a.    3 months is the maximum amount of time permitted under this rule.
b.    If the firm offer is explicitly open for more than 3 months, 2‐205 will hold it open for only 3 months. Comment 3.
c.    If the offeree wants to have the firm offer extend beyond the 3‐month limitation, she needs to provide additional consideration for the additional time to make the offer binding on the offeror.
ii.    Elements: Firm offers are binding even in the absence of consideration IF:
1.    The offeror is a merchant
a.    Merchant 2‐104(1): A merchant is either 1) a person who deals in goods of the kind or 2) a person who holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction.
2.     The offer is contained in a signed writing; AND
a.     Must be a signed writing. Cannot be merely oral. Must give the terms and assurances that it will be held open. Could be a stamp or letterhead.
3.     The writing “by its terms give assurances that it will be held open.”

e.    Battle of Forms 2-207
i.      A communication, which is either
1.    1) a definite and seasonable expression of acceptance or
2.    2) a written confirmation, which is sent within a reasonable time,
3.    operates as acceptance even though that communication states terms additional to or different from those offered or agreed upon
4.    UNLESS acceptance is expressly made conditional on assent to the additional or different term.
ii.    Not Valid Acceptance, 2‐207(1):
1.    Two ways in which a purported acceptance might not operate as a valid acceptance under 2‐207(1), if the acceptance is:
a.    Not a “definite and seasonable expression of acceptance” OR
b.    “Expressly made conditional on assent to the additional or different terms.”
iii.   Battle of the Forms ‐ 3 Scenarios
1.    No pre‐existing contract and buyer sends purchase order (offer) with boiler plate language and seller sends acceptance with boilerplate language and additional or different terms.
2.    Oral agreement and confirming memoranda with boilerplate language having additional or different terms.
3.    No agreement per writing, but through conduct there’s agreement.
iv.   Additional or Different Terms:
1.    Additional: those that raise issues not covered in the offer.
2.    Different: contradict terms in the offer.

ii.    Is there a Contract by Writings?
1.    True acceptance (no pre‐existing oral contract)
a.    2‐207(1): Where there is no pre‐existing oral contract, the seller/offeree’s form will act as “true acceptance” even though it states terms additional to or different from those that were offered and there will be a contract by the writings, unless the response is:
i.       Not a definite and seasonable expression of acceptance OR
1.    “Definite”: the response must indicate a willingness to go forward with the deal. The forms can’t be so different, so widely divergent that the folks aren’t even talking to each other about the same deal.
2.    “Seasonable”: find out what the industry standard is.
ii.    Expressly conditioned upon acceptance of additional or different terms.
1.    “Expressly conditioned”: In order to be expressly conditional, the qualifying language needs to be stated clearly in such a place, manner, and language that the offeror will understand in the commercial setting of t

ts the goods, neither party can deny the existence of the oral contract.
i.      Unilateral action not enough: unilateral action by one party is not enough. So the buyer cannot get the benefit of the provision just because he makes a payment, nor can the seller get the benefit simply by shipping the goods. Rather, there must be either payment by the buyer and acceptance of that payment by the seller, or delivery by the seller and acceptance of that delivery by the buyer.
ii.    Damages: Damages are equal to the amount accepted.
1.    Example: Dan agrees to buy 50 cattle from Mike for $100 a head. Dan sends $200 to Mike and Mike keeps the money. Part performance exception applies. What are Dan’s damages? Only 2 heads of cattle because that is all Mike had accepted in terms of money.

vi.   MODIFICATION: When[2]  Written Modification is Required
1.    Not Enforceable: Oral modification is not enforceable if the parties agree that any modification of the sales or lease contract must be in a signed writing. [2‐209(2)] 2.    Enforceable: In the absence of such an agreement, oral modifications to sales and lease contracts are binding if they do not violate the Statute of Frauds.

D.   PAROL EVIDENCE RULE
i.      A rule that states that when a sales or lease contract is evidenced by a writing that is intended to be a final expression of the parties’ agreement or confirmatory memorandum, the terms of the writing may not be contradicted by evidence of:
1.    Prior oral or written agreement, or
2.    Contemporaneous oral agreement (i.e., parol evidence) [2‐202] ii.    Statute of Frauds (SOF) v. Parol Evidence(PER):
1.    SOF bars enforceability of contract without a writing that satisfies the requirements.
2.    PER bars introduction of evidence and enforceability of certain terms, not included in the written agreement.
iii.   2‐202 Breakdown
1.    Writing: includes printing, typewriting or any other intentional reduction to tangible form. 1‐201(46).
a.    Intended by both parties as a final expression of agreement terms:
i.      Final: A writing which reasonably appears to be a complete agreement is final as to the terms therein unless it is established by other evidence that the writing did not constitute a final expression.
ii.    Parole evidence rule WILL NOT bar the parties from introducing extrinsic evidence to explain or supplement non‐final or missing terms.
1.    Absence of Merger Clause: Absence of a merger clause may suggest that the writing was not intended to be final expression.
a.    Example of Merger Clause: “This Agreement contains all of the terms and conditions of the Agreement and shall constitute the complete and exclusive agreement between the parties.”
b.    May NOT be contradicted by evidence of any prior agreement or contemporaneous oral agreements:
i.      Post‐oral agreements: Parties MAY introduce extrinsic evidence (even if contradictory) of oral or written agreements that occurred after the final writing to prove, for example, that the agreement had been modified.
1.    BUT modification must be agreed by both parties.
c.    BUT this writing MAY be explained or supplemented by:
i.      (a) Course of dealing, trade usage, or course of performance; and
ii.    (b) Evidence of consistent additional terms unless the court finds the writing to have been intended as a complete and exclusive statement of the terms of agreement.
1.    Consistent = reasonable harmony: Under the majority of courts, to be consistent the additional term must be in “reasonable harmony” with the language of the writing and respective obligations of the parties. Evidence that, if agreed upon, would certainly have been included in the writing must be excluded from the jury. 
2.    Complete and exclusive: However, even if the additional terms are consistent, the extrinsic evidence will not be allowed if the writing was intended to be a complete and exclusive statement of the terms.
iv.   EXCEPTIONS: Judge‐Made Exceptions to Parole Evidence Rule
1.    Fraud: a party may not invoke 2‐202 to shield his own fraud.
2.    Mistake: 2‐202 will not bar evidence of mutual mistake or unilateral mistake.
3.    True Ambiguous Terms: 2‐202 will not bar evidence bearing on a genuine issue of interpretation arising because of ambiguity or uncertainty in the writing’s terms.
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