SCOPE OF UCC ARTICLE 2

n Article 2 of the UCC governs contracts for the sale of goods, pursuant to which

(1) title (formal right of ownership) of

(2) goods (tangible, movable property) is transferred from the seller to the buyer

(3) in exchange for money.

n Article 2 governs only contracts for the sale of tangible, movable property – that is, property that

(a) has inherent physical value and

(b) can be moved from place to place.

n Article 2 does not govern:

n contracts for services, real property, or intangible personal property (e.g., intellectual property, stocks and bonds), or

n barter contracts, where goods or services are exchanged for other goods or services.

“MIXED” CONTRACTS

n A large number of disputes involving goods also involve services, real property, or intangible or immovable personal property – none of which are within the scope of Article 2. In such cases, courts decide whether to apply Article 2 to the dispute using one of two tests:

n Predominant Purpose: What was the predominant purpose of the underlying transaction; that is, what was the buyer most interested in buying?

n If goods, then Article 2 applies to the whole transaction (including the non-goods part of it).

n If non-goods, then Article 2 does not apply to any part of the transaction.

n “Gravamen of the Action”: What part of the underlying transaction gives rise to the dispute?

n If goods, then Article 2 applies to the dispute, even if the predominant purpose of the transaction was to sell or buy non-goods.

n If non-goods, then Article 2 does not apply to the dispute, even if the predominant purpose of the transaction was to sell or buy goods.

MERCHANTS

n Merchant: A person who

(1) regularly deals in goods of the kind involved in the sales or lease contract;

(2) holds herself out as having unique knowledge and skill; or

(3) employs a merchant as a broker, agent, or other intermediary.

SCOPE OF UCC ARTICLE 2A

n Article 2A of the UCC governs contracts for the lease of goods, the sale of which would be governed by Article 2. Namely, an agreement whereby

(1) one person (the lessor)

(2) transfers the rights of possession and use of tangible, movable property

(3) to another person (the lessee)

(4) in exchange for rental payments.

TYPES OF LEASES

n Consumer Lease: A lease involving

(1) a lessor who regularly engages in the business of leasing or selling goods,

(2) a lessee who leases the goods primarily for personal, family, or household use, and

(3) total lease payments less than a statutory cap.

n Finance Lease: A special leasing arrangement involving:

(1) a supplier of the leased goods,

(2) a finance lessor, who buys or leases the goods from the supplier, and then leases them to

(3) the finance lessee, who pays the finance lessor to use the goods.

n The finance lessee’s obligation to pay the finance lessor is generally unaffected by whether the finance lessor keeps its bargain with the supplier and whether the supplier’s goods satisfy any relevant warranty or otherwise conform to the lessee’s requirements.

OFFER: OPEN TERMS - PT. I

n According to common law, an offer must be definite enough for the parties to ascertain its essential terms.

n Under the UCC, a sale or lease contract is sufficiently definite, even if one or more terms remain open, provided that

(1) the parties intended to be bound, and

(2) there is a reasonably certain basis for a remedy.

n Open Price Term: As a general rule, if the parties have not agreed on a price, the court will determine a reasonable price at the time of delivery. However,

n If one of the parties is permitted to set the price, she must do so in good faith.

n If the the parties have not agreed on the price due to the fault of one of the parties, the other party can treat the contract as canceled or fix a reasonable price.

OFFER: OPEN TERMS - PT. II

n Open Payment Term: As a general rule, if the parties do not specify otherwise, payment is due at the time and the place that the buyer receives the goods. Moreover,

n The buyer can tender payment using any commercially acceptable means; however

n If the seller demands payment in cash, the buyer must be given a reasonable time to obtain it.

n Open Delivery Term: As a general rule, if the parties do not specify

(1) the place of delivery, the buyer will take delivery at the seller’s place of business, or (if none exists) at the seller’s residence; or

(2) the time of delivery, the seller will deliver within a reasonable period of time.

n Open Duration Term: If a contract does not indicate how long the parties are to deal with one another. In such a case, either party may terminate with reasonable notification.

OFFER: OPEN TERMS - PT. III

n Assorted Goods: If the terms specifying what mixture of assorted goods are to be delivered, the buyer may specify the assortment.

n Open Quantity Term: Failure to specify the quantity of goods to be bought and sold is fatal at common law. However, the UCC recognizes two exceptions:

n Requirements Contract: An agreement by which the buyer agrees to purchase and the seller agrees to sell all or up to a stated amount of what the buyer needs or requires.

n Output Contract: An agreement by which the seller agrees to sell all or up to a stated amount of what the seller produces.

n The UCC imposes a good faith requirement on requirements and output contracts, such that the actual quantity purchased or sold cannot be unreasonably disproportionate to normal or comparable requirements or output.

MERCHANT’S FIRM OFFER

n At common law, an offeror may revoke her offer at any time prior to its acceptance by the offeree. The only exception recognized at common law is an option contract, in which the offeree pays consideration for the offeror’s irrevocable promise to keep the offer open for a stated period of time.

n The UCC creates a second exception for firm offers to sell or lease goods made by a merchant.

n Firm Offer: A written, signed offer that is irrevocable, without the payment of consideration required to keep an option open, for

(1) a stated period of time, or

(2) if no period is stated, a reasonable period of time, but

(3) in any event, no more than three (3) months.

ACCEPTANCE

n Common-Law Acceptance: At common law, an offeror can specify a particular method of acceptance; however, any method of communicating acceptance is effective as long as the offeror receives the acceptance before her deadline.

n UCC Acceptance: When the offeror does not specify a method, acceptance may be communicated by any method that is reasonable under the circumstances – even if the offeror does not received it before her deadline.

n Accepting an Offer to Buy Goods: A seller may accept an offer to buy goods for current or prompt delivery by:

(1) a promise to ship to the buyer, or

(2) shipment of conforming goods (i.e., goods that fit the buyer’s description) to the buyer.

n A seller who chooses to accept by shipping must give the offeror notice to keep the offer open.

n A prompt shipment of nonconforming goods constitutes both an acceptance and a breach by the seller, unless the seller notifies the buyer that the nonconforming goods are an accommodation, not an acceptance.

ADDITIONAL TERMS

n The UCC dispenses with the common-law mirror image rule (i.e., an acceptance must match the terms of the offer exactly), taking the position that a contract is formed if the offeree’s response indicates a definite acceptance of the offer, even if the acceptance includes additional or different terms.

n If one or both parties are non-merchants, the contract is formed according to the terms of the original offer, and the additional terms of the acceptance are ignored unless separately agreed to by the offeror.

n If both parties are merchants, the additional terms automatically become part of the contract unless

(1) the original offer expressly limits acceptance to the terms of the offer,

(2) the new or changed terms materially alter the contract, or

(3) the offeror objects to the new or changed terms within a reasonable period of time.

n Any purported acceptance that is conditional on the offeror’s agreement to the new or changed terms is not an acceptance but a counteroffer.

MODIFICATION

n Unlike common law, the UCC requires no additional consideration to support a contractual modification, subject to the following caveats:

n Good Faith Required: Any modification of the terms or conditions of a contract must be sought in good faith.

n Writing Required: Certain modifications must be written to be effective. For example, a writing is required if

(1) the contract provides that any subsequent changes be in writing;

(2) a non-merchant seeks to modify a merchant’s form contract containing a “no oral modification” clause; or

(3) the proposed modification would bring the contract under the statute of frauds.

UCC STATUTES OF FRAUDS

n The UCC requires that a contract be evidenced by a writing to be enforceable if it is

(1) for the sale of goods for $500 or more, or

(2) for the lease of goods for which scheduled lease payments (exclusive of renewal option fees) total $1,000 or more.

n The writing must

(1) indicate the parties’ intent to agree,

(2) be signed by the party against whom enforcement is sought, and

(3) (a) in the case of a contract for sale, state the quantity of goods to be sold or,

(b) in the case of a lease contract, reasonably describe the goods leased and the lease term.

STATUTES OF FRAUDS EXCEPTIONS

n Merchant’s Written Confirmation: If the contract is between two merchants, a written confirmation signed and sent by one merchant and sufficient to enforce the contract against the sending merchant is also sufficient to enforce the contract against the receiving merchant unless she objects in writing within 10 days of receiving the confirmation.

n Specially Manufactured Goods: An oral contract is enforceable if it is for (1) goods that are specially manufactured for the buyer, (2) not suitable for sale or lease to others in the seller’s ordinary course of business, and (3) the seller has substantially started to manufacture or otherwise obtain the goods.

n Judicial Admission: An oral contract is enforceable if the party against whom enforcement is sought admits its existence in pleadings, testimony, or other court proceedings, but only to the extent of the quantity of goods so admitted.

n Partial Performance: An oral contract is enforceable if (1) the buyer has made and the seller has accepted payment for the goods, or (2) the buyer has received and accepted the goods – but, only to the extent of the quantity paid for or accepted, respectively.

PAROL EVIDENCE AND THE UCC

n Parol Evidence Rule: If the parties to a contract set forth its terms in a writing intended to be the final expression of their agreement, the terms of the writing cannot be contradicted by evidence of any prior agreement or contemporaneous oral agreement. However, the written terms may be explained or supplemented by evidence of:

n Course of Performance: The conduct of the parties to the agreement under this agreement;

n Course of Dealing: Prior conduct between the parties to the contract that establishes a common basis for their understanding;

n Usage of Trade: Any term, practice, or method of dealing having such regularity of observance in a place, vocation, or trade that it is reasonably expected to be observed by the transaction in question; and, if the written contract does not constitute the final and complete (a.k.a. “exclusive”) agreement of the parties,

n Consistent Additional Terms: Terms which do not contradict and which help explain the writing, but are not such that the parties would have necessarily included them in the writing had they agreed.

RULES OF CONSTRUCTION

n The express terms of the writing, the parties’ course of performance and course of dealing, relevant usages of trade, and any consistent additional terms are to be construed together when the do not contradict one another. However, should a conflict arise, the UCC provides the following order of priority among conflicting terms:

n express terms take priority over

n course of performance; which, in turn, takes priority over

n course of dealing; which, in turn, takes priority over

n any relevant usage of trade; which, in turn, takes priority over

n any consistent additional terms.

UNCONSCIONABILITY

n An unconscionable contract is one that is so unfair and one-sided that enforcing it would be unreasonable.

n The UCC permits a court to evaluate any contract or contractual provision and, if the court determines it was unconscionable at the time it was made, the court may

(1) refuse to enforce the contract in its entirety,

(2) sever the unconscionable clause and enforce the remainder of the contract, or

(3) permit the unconscionable clause to be applied only if its effect is not unconscionable.

INTERNATIONAL SALES CONTRACTS

n The 1980 U.N. Convention on Contracts for the International Sale of Goods (“CISG”) governs international sales contracts between firms or persons located in different countries as long as:

(1) the countries in which the parties to the contract are located have ratified the CISG;

(2) the parties to the contract have not otherwise agreed that some other law will govern their contract; and

(3) the contract is not for the sale of consumer goods (i.e., goods intended primarily for personal, family, or household use).

IMPORTANT DIFFERENCE BETWEEN

THE CISG AND THE UCC

n Statute of Frauds: The CISG contains no requirement that a contract for the sale of goods be in writing.

n Irrevocable Offers: The CISG permits an offeror to simply state orally that the offer is irrevocable. Moreover, the CISG deems an offer to be irrevocable if the offeree reasonably relies on it being so.

n Necessity of a Price Term: In the absence of a fixed price or agreed provisions allowing the price to be unequivocally determined, no contract exists under the CISG.

n Qualified “Mirror Image” Rule: The CISG provides, subject to certain exceptions, that any purported acceptance containing terms that materially alter those in the offer is a counteroffer, rather than an acceptance. Otherwise, additional or different terms in the acceptance do not keep it from being treated as an acceptance.

n Time of Formation: A contract is formed under the CISG at the time of the acceptance’s receipt by the offeror – i.e., the CISG does not recognize a “mailbox rule.”

SPECIAL PROVISIONS IN INTERNATIONAL SALES CONTRACTS

n Choice of Language Clause: Designates the official language by which the contract will be interpreted in the event of a disagreement as to meaning or effect.

n Choice of Forum Clause: Designates which country has jurisdiction over any contractual dispute.

n Choice of Law Clause: Designates which country’s law will be applied to resolve any contractual dispute.

n Force Majeure Clause: Excuses a party from liability for nonperformance due to circumstances beyond the non-performing party’s control.