The Uniform Commercial Code
Adopted in whole or in large part by all fifty states.
This page is with regards to Article 2 of the UCC. The UCC relaxes many of the provisions of common law contracts.
Article 2 CONTRACT FOR SALE OF GOODS
Offer, Acceptance, Consideration, Legality, Sale of GOODS
– applies to the contract for sales of goods, identified when the contract is formed. Does not include real estate, services, or intangibles which would be common law contracts – definite terms etc.
Goods are tangible, moveable property
If goods AND services then use the “PREDOMINANT PURPOSE” test.
CONTRACTS UNDER UCC ARTICLE 2
Special rules for merchants. Specific types of products.
MERCHANTS FIRM OFFER
General rule- offer can be withdrawn at any time. But the agreement could be an option contract (must have consideration).
Common law- offer can be revoked any time before acceptance. but UCC says must remain open for a reasonable time (three months).
DISPENSES WITH THE NEED FOR CONSIDERATION. Cannot be revoked for a specific time.
- To buy or sell goods
- In writing and signed
- Specify that it will not be revoked for either a specific time or, if it does not specify the time, for a reasonable time.
A rule designed to facilitate commerce, allowing them to engage in other activities. FIRM OFFER allows making orders.
CONTRACT ACCEPTANCE
Battle of the Forms; Mirror Image Rule- non-UCC
- When there are additional terms
- Not the same then presumed unless specific to the change in additional terms, proposed additions, not part of the original contract, but if both parties are merchants, then the additional terms do become part of the contract unless:
- The original Offer limits acceptance to the terms of the original offer
- They are material changes to the offer
- The offeror objects to the terms in a reasonable time
Battle of the Forms is only for Merchants, common law – terms added- counter offer but under UCC any added terms are added unless the offer specifically forbids, or new terms materially alter, or offeror objects to the new terms within a reasonable time.
GAP FILLER RULE
The UCC encourages enforceability and the ability to contract quickly and reliably; the UCC allows contracts to become enforceable without agreement on all important terms.
For example
- Price
- Date of Delivery
- Payment Terms
When certain terms are left then Gap Filler terms are put in.
Must be done in good faith, may require writing. Common law requires consideration to be binding, not in UCC then consideration is not required.
When the place of delivery is not specified:
- The sellers’ place of business will be the default rule
If the time is not specified:
- The goods must be paid for at the time and place the buyer receives the goods
The contract is enforceable at a reasonable price.
If the party wants to be specific then must be put into the contract to avoid Gap Filler rules.
IDENTIFICATION V. TITLE V. RISK OF LOSS
Title and Risk of Loss can’t pass until the goods have been identified
Identification gives the buyer an insurable interest and right to recover from 3rd parties who damage the goods
Title passes when goods are delivered to the carrier or buyer.
Risk of Loss: Which party must pay for goods that are lost or damaged during delivery??
If the goods are not shipped by a common carrier the risk of loss passes to the BUYER when the goods have been DELIVERED.
Unless the seller is a merchant then the risk of loss passes to the BUYER when the buyer TAKES PHYSICAL POSSESSION of the goods.
If the goods are shipped by a common carrier, a third party that is contracted for delivery such as UPS or USPS, then there is a
Shipment contract – requires that the SELLER place the goods into the possession of the carrier passes the risk of loss to the BUYER when the goods are delivered to the carrier meaning that the Risk of Loss passes when goods are delivered to the carrier. Free on Board, sellers location
Destination contract – requires that the SELLER deliver the goods to the buyer at a certain location, the risk of loss passes to the BUYER when the goods arrive at the buyer’s location. The risk of loss passes when goods are tendered to the buyer at a specific destination, the seller holds on to risk.
GOODS HELD BY SELLER
Pick them up, then the buyer has to take physical possession.
NON CONFORMING GOODS– Risk of loss remains with seller
SALE BY NONOWNER – Buyer receives whatever ownership rights the seller had,
Void Title– sale of stolen goods, the original owner can recover against good faith purchaser.
Voidable Title – fraud or bad check, then subsequent good faith purchaser gets the title.
The Entrustment Rule – if goods entrusted to Merchant, are sold to a buyer in the ordinary course of business, the buyer obtains good title. Doesn’t seem just result. Must sue merchant.
ACCEPTANCE
Communicated by any reasonable means; Demonstrated by the promise to ship, shipping conforming goods.
Shipment of nonconforming goods with notice in a reasonable time than treated as a counteroffer. Without “Notice of Accommodation” then Acceptance and a Breach, the seller would be in breach without notice of accommodation.
STATUTE OF FRAUDS
Common law – contract for the sale of goods over $500 must be in writing but UCC says oral contract is good enough when specifically manufactured good, substantially started and not suitable for resale, admissions in court, partial payment or acceptance (separated goods)
Common law says no parole evidence, but…
UCC allows PAROLE EVIDENCE to clarify ambiguous terms in the final written contract.
- the course of dealing
- course of performance
- usage of trade
Performance
Good Faith underly honest and fair dealing
Sellers obligation – perfect tender rule, must be perfectly conforming goods at agreed upon time
exceptions
Sellers Right to Cure – if the buyer rejects then the seller has the right to cure, as long as not expired, and noticed within reasonable time and the seller completes corrected delivery in time to meet the original delivery date.
Right to cure
- prompt notice of intent to cure
- must deliver correct goods during the contract period
- after contract period – can cure if the seller had reasonable grounds to believe the buyer would accept nonconforming goods
Commercial Impracticability
- unforeseen circumstances
Buyer’s Right of Inspection – the buyer has the right to inspect the goods before paying for them to make sure they conform to the offer.
Latent defects- not discoverable until later, then reasonable time may differ
Acceptance is manifested in three ways
- Expressed in Word or Deed
- Presumed within a reasonable time
- the buyer acts inconsistently with sellers ownership
Buyer must give notice to seller if rejecting the goods and use reasonable care when holding or returning the goods.
UCC REMEDIES
The seller’s remedies-
Breach prior to delivery
- Cancel the contract, withhold delivery
- resell the goods and sue for deficient and incidental damages
- If unfinished goods- sell for scrap, sue for loss, finish then sell, sue for loss
- If unable to sell, then contract price plus incidental damages
The seller must act in Good faith and mitigate damages
Breach After the Delivery
- Sue for the contract price
- Reclaim the goods within 10 days if the buyer is insolvent
The Buyer’s Remedies
When Seller Refuses to Deliver the Goods
- Cancel the contract
- Obtain Specific performance – require the seller to deliver
- Cancel and Cover – buy substitute goods – must act in good faith, without unreasonable delay
- Buyer can recover – cover price – contract price
- Recover the goods
- Sue for damages
When Seller Delivers Non-Conforming Goods
- Reject, obtain cover
- Revoke Acceptance
- Substantial nonconformity and
- Seller Promised to cure but did not cure or
- nonconformity was difficult to discover
- seller made assurance goods were conforming
WARRANTY
Warranty of Title
Arises Automatically
- Good Title
- No Liens
- Right to Sell
Express Warranties
- Created by seller representations regarding the quality, condition, description, or performance of goods
- Promise or Stated Fact
- Description or Advertisement
- Display or Sample
Created orally or in writing or at the time of the sale
A statement of opinion or value does not create an express warranty unless the seller is an “expert”. Reasonable reliance is a factor.
Implied Warranty
Implied by law form the nature of the transaction or the circumstances of the parties.
IMPLIED WARRANTY OF MERCHANTABILITY
- arises automatically
- sale by merchant
- merchantable – reasonably fit for the ordinary purposes for which such goods are used
IMPLIED WARRANTY OF FITNESS FOR PARTICULAR PURPOSE
- arises when any seller knows the particular purpose buyer will use goods and knows buyer is relying on his/her skill and judgment to select suitable goods
- does not apply if buyer and seller have equal knowledge
Title – can only be disclaimed by specific language
Express – can be avoided if the seller doesn’t make promises and also can be avoided with specific written language at the time of the contract.
Implied – warranty of merchantability can be excluded with “as is” or “with all faults.” Particular purpose must be specific and in writin.
