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Contracts II
University of Kansas School of Law
Drahozal, Christopher R.

I. Contract Formation
A. Scope of Article 2
1. §2-102 – Applies to transactions in goods
a. Transactions
(1). UCC does not specifically define transaction
(a). Most of the substantive provisions are codified in terms of “buyer” and “seller,” thus indicating that the thrust of Art. 2 is limited to the sales of goods.
(b). §2-101: Short title of Art. 2: short title of UCC “-Sales”
(2). Includes applicability to transactions like gifts, leases, bailments, transport of goods, production of goods, loans to purchase goods, secured transactions.
(3). Executory and executed sale of goods transactions are covered.
(a). I.e. Art. 2 applies to both the sale of goods and contracts for the sale of goods §2-106(1)
b. Goods
(1). §2-105: Definitions.
(a). “Goods” means all things which are moveable at the time of identification to the K. §2-105(1).
(i). In the absence of explicit agreement, “identification” occurs when the K is made if the goods already exist and if they have been designated as the goods to be tendered under this K.
(ii). Otherwise, they are “identified” in essence at the earliest point in time at which they are designated in some manner by the seller as the goods that will be tendered under this K.
(b). Must be tangible things.
(c). Does not include securities, future “rights,” houses, real estate, services or things in action.
(d). Sale of minerals (oil & gas) is sale of goods (if they are to be severed by the seller, otherwise they are realty), but pipeline is not covered b/c only providing transportation service. §2-107(1).
c. Not anything in UCC that allows parties to contract Art. 2 into their agreement when it otherwise wouldn’t apply
2. §1-103: Supplementation by Common Law
a. Code overrules common law, but if the Code does not answer or cover the situation, the common law applies. Used as a “back-up” gap filler. §1-103.
b. Role of common law in Code:
(1). No definition in UCC for “breach,” “offer,” or “possession.”
(2). Where UCC and Comments make it clear that UCC provision in question is not intended to affect certain related common-law doctrines, the parties must still look to the common law to define the parameters of that related doctrine.
3. UCC as a Gapfiller – When not used as a gap filler (UCC superceded)
a. §1-102: By agreement of the parties
(1). §1-102(3): The effect of provisions of the UCC “may be varied by agreement, except as otherwise provided in this Act and except that the obligations of good faith, diligence, reasonableness and care prescribed by this Act may not be disclaimed…”
(2). §1-201(3): “Agreement” means the bargain of the parties in fact as found in their language or by implication from other circumstances, including course of dealing, usage of trade or course of performance.
b. §2-208: Course of Performance
(1). §2-208(1) Requirements for course of performance to be relevant to determine the meaning of the agreement:
(a). Repeated occasions for performance
(b). knowledge of nature of performance
(c). opportunity for objections to it by the other
(d). accepted or consented to without objection
c. §1-205(1): Course of Dealing
(1). §1-205(1): Course of dealing definition. Sequence of previous conduct b/w parties conduct is fairly to be regarded as establishing a basis of understanding for interpreting their expressions and other conduct.
(2). §1-205(3): Course of dealing may be used to understand or supplement agreement.
d. §1-205(2): Usage of Trade
(1). §1-205(2): Usage of trade definition. Any practice or method dealing having such regulatory of observance in a place, vocation or trade as to justify an expectation that it will be observed w/ respect to transaction in question.
(2). §1-205(3): Usage of trade in which parties are engaged or of which they are or should (if in industry) be aware may be used to understand or supplement agreement. I.e. if you are engaged in the trade, you are expected to know/follow the usage of trade.
e. §1-205(4): Hierarchy of terms and dealings
(1). If buyer comes and picked up the lumber as agreed upon but the usage of trade was that the seller delivers the lumber, look to §1-205 for hierarchy of what governs. I.e. express terms, usage of trade, etc.
(2). Order of importance:
(a). Express terms of agreement
(b). Course of performance
(c). Course of dealing
(d). Usage of Trade
4. Merchants and Consumers under UCC
a. Merchant
(1). §2-104(1): Merchant defined
(a). “Merchant” is a person
(b). who deals in goods of the kind involved in the sale, or
(c). who by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the sale, or
(i). Cmt. 2 to §2-104: many professionals may have knowledge of certain business practices (i.e. answering letters), but will not be considered a merchant unless engaged in the business practices in their “mercantile capacity”
(d). to whom such knowledge or skill may be attributed by his employment of an agent or broker or other person who by his occupation holds himself out as having such skill.
(e). Any business person who conducts a business transaction (e.g. opening the mail) is a merchant
(f). Any business person who is acting out of their business capacity (for personal reasons) is not a merchant
(2). Relevance of “merchant” distinction
(a). Some provisions of Art. 2 apply only to merchants. E.g., 2-314(1) (implied warranty of merchantability); 2-201(2) – statute of frauds.
(b). The merchant is held to a higher standard of good faith than the non-merchant throughout Art. 2. §2-103(1)(b) (definition of “good faith”).
(3). Case example where attorneys = merchant, see page 8 of notes.
5. Misc. Gap-fillers
a. §2-305: Price
(1). K can exist, even though price hasn’t been settled on.
b. §2-308: Absence of Specified Place of Delivery.
(1). Unless otherwise agreed upon, place for delivery of goods is seller’s place of business.
c. Quantity must be specified!
(1). There is no gap-filler for quantity, so it must be part of the K
6. Mixed Contracts – Involving a Combination of Goods and Services
a. UCC Problem
(1). UCC §2-102: UCC applies to “transactions in goods”
(2). UCC §2-105(1): Defines goods as “all things which are movable at the time of identification to the K for sale.
(3). Nowhere in UCC suggests how to treat a K that includes both goods and non-goods.
b. Courts Approach to Mixed Contracts
(1). Predominant Purpose Test
(a). Ct. decides whether the predominant purpose of the transaction is to sell goods or services.
(i). Pred. purpose = goods: Art. 2 applies to the whole transaction, even the services or non-goods portion.
(ii). Pred. purpose = services: Art.2 does not apply to any part of the transaction, not even the goods portion.
(b). Dissent in Cook v. Downing offers us this test.
(c). K is not outside the scope of Art. 2 if it involves services only incidentally (e.g. setting up a purchased mobile home).
(2). Gravamen of the Action Test
(a). Ct. determines whether the gravamen of the action (i.e. the source of the complaint) is with the goods or the services portion of the transaction.
(i). Problem = goods: Art. 2 applies

ormance is a reasonable mode of acceptance an offeror who is not notified of acceptance within reasonable time may treat offer as having lapsed before acceptance.
e. §2-207: Additional Terms in Acceptance or Confirmation
(1). Changes common law rule under which a purported acceptance had to be the mirror-image of the term of an offer or it would be characterized as a counteroffer.
(2). §2-207(1): An acceptance (can be a verbalized statement of acceptance) that states different or additional terms than those offered will operate as an acceptance as long as:
(a). it is “definite and seasonable” AND
(i). Must agree on bargained-for terms – price, quantity, etc., otherwise, it is just a counteroffer
(b). it is not made expressly conditional on assent to the additional or different terms (“well I guess so” has usually been held not to be an express assent to the proposed additional terms.)
(3). §2-207(2): Determines what to do with additional or different terms in K.
(a). Additional Terms
(i). Additional terms are seen when the offer is silent and the acknowledgment/acceptance adds something.
(ii). Non-merchants: additional terms to be construed as proposals for addition to K.
(iii). Merchants [See def. of merchant under §2-104]: additional terms become part of the K unless:
· (a): the offer expressly limits acceptance to the terms of the offer
· (b): the additional terms amount to a material alteration of the offer
* Cmt. 4 & 5 – include clauses which normally do and do not “materially alter.”
* Split on arbitration clauses whether these “materially alter”
* “Consequential damages” disclaimer usually alters.
· ©: the offeror has objected in advance to the additional terms or objects to them within a reasonable time.
(b). Different terms
(i). Different terms are harder because statute does not deal w/ it.
(ii). Possibilities:
· Use §2-207(2) only speaks of additional terms but use it anyway as suggested in Cmt. 3. Thus, additional terms IN THE ACCEPTANCE are only proposals unless between merchants.
· Look to Cmt. 6 of §2-207: Courts have viewed different terms as objections and thus use “knock-out” doctrine. Thus, “knock-out” each different term and use UCC as a gap-filler. Look to both the offer and the acceptance. This is the majority approach.
* NOTE: Don’t always use “knock out” doctrine in situation where it would essentially allow party accepting offer to rewrite the offer.
(4). §2-207(3): Use when writings of parties do not otherwise establish a K under §2-207(1) but buyer and seller act as if there is a K.
(a). Conduct of parties which recognize existence of K is sufficient to establish a K even though writings of parties do not otherwise do so.
(b). Statutory “knock-out” rule: contract by conduct will use only those terms on which the writings agree, but knock-out any additional and different terms and use UCC as gap-filler.