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All or Nothing Rule.
- A contract is governed by either the UCC or the common law, but not both.
- An exception is a divisible contract which is composed of distinguishable contracts.
Predominant Purpose Rule.
The predominant purpose for contracting will determine whether a mixed contracts is governed by the UCC.
UCC Gap Filling.
- The essential terms of a contract need only state the parties, the subject matter and an objectively definable quantity, and the courts will fill the gaps for the remaining terms.
- Any absent term, such as price, will be filled into the contract as what is reasonable.
- Output and requirement contracts. Despite not defining the quantity, these contracts will be enforceable under the UCC because the quantity can be objectively defined by the court.
Merchants Firm Offer.
- When a (1) merchant makes a (2) signed (3) written offer (4) with an explicit promise not to revoke the offer, the offer is irrevocable for the period of time stated in the offer, or a reasonable time not to exceed 90 days.
- If a firm offer expires but the merchant has not revoked the offer and it is still a reasonable amount of time for the offer, the offeree may still accept the offer.
If not otherwise specified in the offer, the offeree may accept through any reasonable method, and acceptance may take place by return promise or return performance, such as shipping of the goods.
Wrong Goods Shipped.
If a seller tries to accept by shipping the wrong goods, the UCC treats this as acceptance of the contract along with a breach of the same contract.
However, if the seller seasonably notifies the buyer that the wrong goods are being shipped as an accommodation, no acceptance has occurred and this is a counteroffer.
Counteroffer and UCC 2-207 - Between a non-merchant party.
A new term in the acceptance of a contract does not affect the formation of the contract. A new term will be treated as a counteroffer unless the offer is expressly conditioned upon the addition of no new terms.
Counteroffer and UCC 2-207 - Between merchants.
A new term in the acceptance of a contract will control only when (1) both parties are merchants, (2) the new term does not materially alter the deal, (3) the initial offer did not limit acceptance to its terms, and (4) the offeror does not object within a reasonable time.
Counteroffer and UCC 2-207 - Estoppel
When no contract has been formed but the parties have acted like there is an agreement, all terms will drop out except for those which the parties have agreed to in writing, and the court will use gap filling provisions in interpreting the remainder of the contract.
- Each individual bid is considered an offer which is terminated by subsequent bids, and acceptance occurs with the fall of the hammer.
- Bidders may retract offers provided that the auction is not finished.
- When someone bids exactly when the hammer falls, the auctioneer has discretion to reopen the bidding or declare the auction final. For auctions with no reserve, the seller may not withdraw once a bid has been receive.
- For auctions with a reserve, the seller may withdraw until the reserve has been met.
Pre-existing Duty Rule.
The pre-existing duty rule does not apply to the UCC, and a good faith modification can be binding in the absence of any new consideration.
- Under the UCC, a contract is unconscionable when no reasonable person in the position of the party would have agreed to the deal.
- Procedural unconscionability is a fundamental flaw in the negotiation of the contract, such as a hidden term or absence of meaningful choice. Substantive unconscionability shocks the conscience.
Statute of Frauds - Purchase of Goods $500 or More.
Any contract for the sale of goods $500 or more must satisfy the SOF through either a writing or by performance.
SOF - Writing.
- A writing memorializing the parties, the subject matter and the quantity that is signed by the person against whom enforcement is sought.
- The contract is enforceable to the amount listed in the writing.
SOF - Performance.
- Partial performance on a goods contract satisfies the SOF, but only for the quantity which is delivered and accepted.
- (1) Custom-made or specially manufactured goods satisfy the SOF as soon as the seller substantially begins to perform.
- (2) A judicial admission will satisfy the SOF.
- (3) If both parties are merchants, the failure to object to a confirming memo within 10 days of receipt will satisfy the SOF.
Statute of Frauds and Modifications.
- If a modification will bring or keep you into the SOF world, the modification must satisfy the SOF.
- If a modification takes you out of the SOF world, it need not satisfy SOF.
Parol Evidence and Integration of the Writing.
Under the UCC, there is a rebuttable presumption that any agreement is partially integrated unless the parties would have certainly included the disputed term in the writing.
- A warranty is a promise about a term of a contract that shifts risk to the party making the promise.
- Four warranties can be made under the UCC.
Warranty of Title.
- All seller warrant that title is good and transfer of title is rightful.
- This warranty can be disclaimed.
- A promise which affirms or describes a good that is part of the bargain is an express warranty, unless it is merely the sellers opinion or puffery.
- The use of a model or sample creates an express warranty that the goods sold will be like the sample.
- This warranty can be disclaimed.
Implied Warranty of Merchantability.
A merchant makes an implied warranty that goods will be fit for their ordinary commercial purpose at the time of sale. This warranty may be disclaimed.
Implied Warranty of Fitness for a Particular Purpose.
When a buyer relies on the sellers expertise to select a particular good for a particular purpose that the seller is aware of, the seller has made an implied warranty that the goods will satisfy the particular purpose.
Disclaimer of Warranty.
Must be clear and conspicuous.
Perfect Tender Rule.
The UCC requires perfect tender in both the goods and the delivery.
The seller must provide the correct goods in the correct quantity.
Rejection of Goods.
The buyer can reject the goods by (1) notifying the seller of the particular defect (2) within a reasonable time and (3) hold the goods for a reasonable time for the seller to get them back. A buyer who has paid for part or all of the contract has a security interest in the rejected goods.
Failure to Give Instructions about Rejected Goods
If the seller fails to give reasonable instructions as to what the buyer should do with the rejected goods, the buyer may continue to store the goods on the sellers account, ship the goods back or resell the goods for the seller.
A seller may revoke acceptance of the goods if the goods seemed okay at delivery but the defect is discovered within a reasonable time. A buyer must notify the seller of any breach within a reasonable time or is barred from recovering any remedy.
Right to cure.
If a seller sends imperfect goods while there is time left on the contract or the seller had reasonable grounds to believe that the buyer would accept, the seller is given a chance to cure.
The default method of delivery is a single delivery of the goods, and when the seller fails to deliver all the goods at the same time, the buyer may reject the goods.
When an agreement authorizes or requires delivery in separate lots, a buyer cannot reject an imperfect specific delivery unless there is substantial impairment in that installment that cannot be cured.
Method of Tender/Delivery - Sellers place of business.
If goods are tendered at the sellers place of business, the seller needs to give goods to the buyer.
Method of Tender/Delivery - Shipment contract.
Default assumption in UCC. (1) Get goods to a common carrier, (2) make arrangements for delivery and (3) notify the buyer.
Method of Tender/Delivery - Destination contract (FOB Buyers Business).
Get the goods to the buyers business and notify the buyer.
Risk of Loss.
- A four step analysis.
- 1. Agreement will control risk of loss. If no agreement, then
- 2. If a party has breached the contract, then the breaching party bears the risk of loss. If no breach, then
- 3. Delivery contract controls. Shipment contract ROL buyer, destination contracts ROL seller. If no shipment, then
- 4. Merchant. If seller is a merchant, ROL with seller until buyer receives goods. If not a seller, ROL moves to buyer upon tender of the goods.
- A seller has an insurable interest as long as he has title or a security interest.
- A buyer has an insurable interest when the goods are specifically identified.
Buyers Performance Obligations.
- Payment is due at the time and place where the buyer is to receive the goods.
- Tender of payment is a condition to the sellers duty to complete its obligation.
- A seller may ship under reservation, which means it is entitled to hold the goods until the buyer pays.
- Tender of payment is any reasonable manner but the buyer can demand a reasonable amount of time to procure cash. Installment contracts can be paid or demanded for each installment.
- Buyer enjoys a right to inspect prior to the payment except for COD contracts.
- The buyer pays for any expenses associated with buyer inspection unless goods do not form and are rejected.
- When a contract may only be performed with great difficulty.
- Performance becomes illegal, a particular source of supply fails. NOT just more expensive to perform.
- The act of performance, not the cost of performance.
- A partial inability to perform due to a supply deficiency does not excuse the seller from performing, and the seller must allocate available supply among customers in a fair and reasonable manner.
- If agreed-upon method of delivery becomes impracticable without the fault of either party, any commercially reasonable method of delivery must be tendered and accepted.
- When the opposing side informs you clearly and unequivocably that it will not perform when performance is due, the nonbreaching party has two options.
- 1. Breach and sue immediately for damages. You may only sue for damages that exist at the time of the repudiation. If you have completed your entire performance and are waiting for the other side to pay, you cannot sue early.
- 2. Ignore repudiation and see what happens. A party can retract its repudiation as long as the other side has not commenced a lawsuit or acted in reliance on that repudiation by changing its position. If the breach truly happens, then the nonbreaching party can sue for all damages.
Adequate assurance of performance.
- When there are reasonable grounds for insecurity about the other sides performance, a party may demand an adequate assurance of performance.
- If the other party fails to respond within a reasonable time, the requesting party can treat it as repudiation of the contract.
- Expectation damages put the nonbreaching party in the same economic position had the contract been performed as promised.
- Must be proven with a reasonable certainty.
- Must be foreseeable consequential damages must be foreseeable or known at the time of contracting, and such damages can be limited or excluded (per se unconscionable for personal injury).
- Must be mitigated.
Lost Volume Profits.
A seller who is a merchant and in the business of selling a type of product may recover lost profits when he sells in volume and has product available. Mitigation will not serve as a defense to damages.
Liquidated damages are permissible when the amount is not a penalty because damages are unreasonably large.
If goods are unique, a buyer may request a writ of replevin.
A buyer can assert replevin when partial payment is made and the seller goes insolvent within 10 days of the payment.
Right of Reclamation.
An unpaid seller may reclaim goods when the buyer goes insolvent if (1) buyer is insolvent at the time of the purchase, (2) seller demands return of the goods within 10 days of receipt or within a reasonable time if misrepresentation, and (3) buyer still has the goods.
Goods in transit.
If a seller learns that the buyer is insolvent or the buyer fails to make payment on time, the seller may stop goods in transit.
Statute of Limitation.
SOL for UCC is typically four years, but may be modified by contract down to 1 year (no less).