COMMERCIAL LAW KAPLAN 2012
I. SALES SYSTEMS, GENERALLY
Functions sales systems serve:
1. Formation function—Brings buyers and sellers together to create legally enforceable transfers of ownership
2. Gap-filling function—Provides a set of standard terms that govern the transfer of ownership, unless the buyer-seller choose to modify their own terms
3. Provides a set of delivery institutions that facilitate legal, possessory, and symbolic transfers
4. Creates enforcement mechanisms (remedies)
Sources of contract law:
§ Based on English common law;
§ Summarized in second restatement of contract;
§ Applies to contract of either land or services.
Types of contracts:
§ Bilateral (both parties promise) vs. Unilateral (one party makes a promise the other party can accept by doing something)
§ Express (2 parties explicitly state all important terms) vs. Implied Contracts (the words and conduct indicate that the parties intended an agreement)
§ Executory (one or more parties has not fulfilled its obligations) vs. Executed Contracts (all parties fulfilled their obligations)
§ Valid vs. Unenforceable
§ Voidable vs. Void
Formation of a Contract
o Not just inquiry
o More than negotiation
o Courts use objective standard to determine what an offer is
o Essential terms: Under common law, the offer must contain (5) essential terms of a contract.
§ (1) Parties
§ (2) Subject matter of the contract
§ (3) Price and payment terms
§ (4) Delivery terms
§ (5) Performance Times
Meeting of the Minds: A judge will make an objective assessment of any disagreement of whether a contract is made (whether or not a reasonable person would conclude that there was an agreement based on the parties’ conduct).
II. UCC, GENERALLY
Definition: Nationwide code, drafted by ALI and National Conference of Commissioners on Uniform State Laws, that seeks to standardize commercial transactions into a single cohesive unit.
· It’s enacted by STATES, NOT federal law (varies slightly amongst them, but most states have adopted it)
1. To simplify, clarify and modernize law of commercial transactions
2. To permit expansion of commercial transactions
3. To create uniformity
4. To provide gap-fillers (convenient, fairly comprehensive default terms on issues such as warranties and remedies) to ensure that commercial transactions can be consummated where there is ambiguity or no meetings of the mind on certain terms.
Hierarchy—Progression of Tools to Define and Establish Terms of an Agreement
1. Express Terms—§ 1-102(3)—express terms of the K are supreme, to the extent they are w/in the limits of good faith and commercial reasonableness
2. Course of Performance—§ 2-208(1)—parties’ course of performance (for this transaction only) establishes an agreement by implication (think installment K).
3. Course of Dealing—§ 1-205—parties course of dealing (how they’ve done things in the past – think history) may establish certain standard terms by implication.
4. Usage of Trade—§ 1-205(2)—usage of trade (think industry customs)
5. UCC Gap-Fillers
6. Common Law—§ 1-103—UCC displaces any c/l to the contrary, but c/l supplements the UCC (can help define terms that are not defined in the UCC; provides concepts such as mitigation of damages, frustration of purpose for a buyer and intentional interference w/ K)
Exclusions (UCC NOT APPLY):
-Real Estate Transactions
§ NJ has adopted ONLY the revisions to Article 9
Duty of Good Faith: § 1-203—imposed in the performance of all Ks.
Definition of good faith: § 1-201(19) — honesty in fact in the conduct/transaction concerned
-Revised UCC § 1-201(20) sets forth an objective and subjective standard — honesty in fact and observance of reasonable commercial standards of fair dealing (NJ not applied)
III. ARTICLE 2—Most Prevalent Set of Default Rules for Sales of Goods
Scope: Adopted by all states except Louisiana; Fed. cts. apply it to sales Ks that are governed by fed. Law.
§ 2-102: Art. 2 governs transactions in goods (other than those intended solely for security), which is broader than just sales; also includes rent-to-own arrangements and gifts
§ 2-106(1): Art. 2 governs present or future sales of goods passing title from seller to the buyer.
*Article 2 does not apply to sales in the diamond or grain industries.
Sale: § 2-106(1)—passing title from seller to the buyer for a price.
Goods: § 2-105(1)—tangible things (including specially manufactured goods) that are movable at the time of their identification to the K for sale other than the money in which the prices is to be paid, investment securities (Art. 8), and “cause of action” (like court proceeding).
o Also INCLUDES unborn young of animals, growing crops, and other things attached to realty that could be severed.
-Things that are NOT goods: Money, stocks, bonds, patents, real estate, services
§ Water is a good: Court in Dakota Pork Indus. V. City of Huron held sale of water is a sale of goods governed by the UCC because water can be measured by a flow meter (tangible) and has movability.
Merchant – § 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 him/herself out as having knowledge or skill peculiar to the goods involved in the transaction.
-UCC frequently holds a merchant to a higher standard of conduct
· (1) Only merchants who deal in the goods of that kind must take the responsibility of the implied warranty of merchantability;
· (2) General duty of good faith and standards of fair dealing and trade (whether merchant or not, this is required)
-Comment 2 to § 2-104 set forth consequences of being a merchant
-Dentist: Court in Cook v. Downing held dentist was not a merchant and the dentures he furnished were not goods under the UCC.
Mixed Ks involving a goods/services combo
Mixed Contracts: Those involving a combination of goods and services, or goods and something other than services.
Two different tests to determine if Article 2 (UCC) applies, otherwise common law applies:
1. Predominant Purpose Test (focal point of the transaction): If the purpose of the transaction is predominantly for goods, then Art. 2 applies to the whole transaction, even the services part. If it’s predominantly for services, then Art. 2 does not apply to any part of the tr
er binding on the merchant
Elements of a (C/L) Contract:
(1) Agreement (offer/acceptance);
(3) Legality; and
· The UCC Contract Requirements: (1) Quantity terms; (2) Description of the good; and (3) Consideration
DON’T NEED: Price, delivery, payment, warranty, risk of loss, or choice of law—b/c once quantity and description of goods are established, all of the other terms can be worked out through the hierarchy (express terms, COP, COD, UT, gap-fillers, etc.)
-§ 2-204(3) is commonly referred to as the gap-filling rule
NOTE: A quantity term does not have to be expressed if it can be derived from the price term (“X dollars worth of Y”)
V. BATTLE OF THE FORMS
§2-207—Underlying Battle of the Forms Rule (contrary to c/l mirror image rule):
A communication that is either 1) a definite and seasonable (aka timely) expression of acceptance; OR 2) a written confirmation, which is sent w/in a reasonable time, operates as acceptance even if that communication states additional or different terms from those offered and agreed upon, UNLESS:
§ 2-207(1)—Two Exceptions where a purported acceptance is invalid:
1. The acceptance is not a “definite and seasonable expression of acceptance” OR
2. The acceptance is “expressly made conditional on assent to additional or different terms”
-In order to be expressly conditional, the qualifying language needs to be stated clearly in such a place and manner that the offeror will understand that no acceptance has occurred (because of the condition in place).
Additional terms: Those that raise issues not covered in the offer. See Slide 8 from Assignment # 3.
Different terms: Those that contradict terms in the offer.
3 Scenarios Where 2-207 Will Occur:
1. If there is no pre-existing K and buyer sends a purchase order (offer) w/ boilerplate language and seller sends an acceptance w/ boilerplate language that states different or additional terms.
2. If the parties reach an oral agreement and then one party sends a confirmation memo w/ boilerplate language that states different or additional terms from previous oral agreement.
3. If there is NO oral or written agreement, but through conduct the parties act as if there is an agreement.
K by conduct: § 2-207(3)—Conduct by both parties, which recognizes the existence of such a K; fact sensitive inquiry.
LAST RESORT: ONLY resort to K by conduct if the writings of the parties do not otherwise establish a K, meaning one of the two exceptions applies; If you don’t fit into either of those exceptions then there is a K by writing and you must determine its terms by using § 2-207(2), not § 2-207(3).