Lecture 11: Ucc Article 2 Sales Contracts Part I

Front 1

What does UCC Article 2 govern?

Back 1

All contracts for the sale of goods.

Front 2

Goods are defined as "all things which are moveable at the time of identification to the contract for sale" and include what 5 things specifically?

Back 2

1. New or used products
2. Food whether consumed on or off the premises
3. Living or unborn animals
4. Growing crops or timber regardless of whether the buyer or the seller removes them from the land and
5. Minerals (gravel, coal, or sand) or even a structure, but only if it is removed from the land by the seller. If the buyer is to remove the goods, then that contract is governed by the law of real property and not UCC Article 2.

Front 3

Under the "predominant factor test", when a contract involves both goods and services, Article 2 applies to what?

Back 3

The entire contract if the contract is predominantly for the sale of goods and the services are merely incidental to the contract.

Front 4

The Code frequently imposes higher standards on buyers and sellers of goods who are merchants and defines them as persons who do what 2 things?

Back 4

1. regularly deal in goods of that kind or 2. by their occupation, hold themselves out as possessing knowledge or skill concerning the goods involved in the transaction. Almost every person in business is deemed to be a merchant. However, the implied warranty of merchantability is only given by merchants who regularly deal in goods of that kind.

Front 5

All contracts under the UCC require what in terms of honesty, faith, and rights?

Back 5

The observance of good faith such that neither party will do anything to impede the rights of the other party to receive all the benefits of the contract. The Code specifically requires merchants to behave honestly and observe commercial standards of fair dealing in the trade.

Front 6

What is “tender?

Back 6

"Tender" is the seller's act of placing and holding conforming goods and then giving the buyer any necessary notification of the seller's readiness to perform under the contract terms to enable the buyer to take delivery. The time, place, and manner of tender are determined by the parties' contract and the provisions of Article 2.

Front 7

An action for a breach of a sales contract must be commenced in how many years?

Back 7

Within 4 years after the cause of action accrues.

Front 8

Breach of warranty claims begin accruing when?

Back 8

On the date the seller first tenders the goods except where the seller’s warranty expressly extends to the future performance of the goods (5 years or 5,000 miles), which gives the buyer time to discover the breach within the extended period.

Front 9

The s/l on such extended express warranty claims begins accruing when?

Back 9

When the breach is or should have been discovered during that warranty period. It is not measured from the date of tender.

Front 10

The Perfect Tender Rule (PTR) permits what?

Back 10

The PTR permits the buyer to reject goods and sue for breach of contract if the seller's goods or tender fail to conform to the contract in any respect (quantity, quality, or timeliness of the seller's delivery).

Front 11

The PTR does not apply to ICOP. What does ICOP stand for?

Back 11

I - installment contracts (aka divisible contracts)
C - where timely delivery was made commercially impracticable by an event that was not considered by the parties when the contract was executed (floods, snowstorms, or civil unrest).
O - if a seller in good faith
P - if the buyer rejects non-conforming goods prior to the date for performance that is fixed in the contract, then the seller will not be in breach if the seller seasonably notifies the buyer of its intention to cure and cures the tender before the performance date expires.

Front 12

Under the I from ICOP, what is an installment contract?

Back 12

An installment contract is one in which separate lots are to be delivered and separately paid for and accepted.

Front 13

Under the I from ICOP, what is a non-sale of goods contract?

Back 13

A divisible contract if performance by one party is divided into multiple parts and the other party’s performances are agreed exchanges for the corresponding performances of the 1st party.

Front 14

Under the I from ICOP, when and why can a buyer reject an installment?

Back 14

Only if the non-conformity "substantially impairs" the value of that installment and the non-conformity cannot be cured. A buyer cannot reject an installment for trivial defects. Courts use the Restatement's HAIL factors to help determine whether a substantial impairment exists.

Front 15

Under the I from ICOP, what can the buyer do to recover damages due to non-conformity? What can the buyer not do?

Back 15

A buyer can sue the seller to recover damages due to the non-conformity of one installment, but cannot treat the entire contract as breached unless a non-conformity in one or more installments substantially impairs the value of the whole contract. (very rare)

Front 16

Under the I from ICOP, in a divisible contract the performing party has to do what?

Back 16

The preforming party doesn’t have to prove substantial performance of the entire contract to recover for any divisible portion of the contract that has been performed.

Front 17

Under the O from ICOP, what 3 things can the seller do to show that it’s in good faith?

Back 17

1. sends non-conforming goods "objectively and reasonably" believing that such goods would be acceptable to the buyer and 2. when notified of the non-conformity, the seller indicates to the buyer its intention to cure the breach then 3. the buyer must give the seller additional reasonable time to tender conforming goods even beyond the date fixed in the contract for performance. If the buyer does not give the seller this additional reasonable time to cure. but instead invokes PTR and repudiates the contract based on the seller's breach, then it is the buyer who has wrongfully breached the contract.

Front 18

Under the UCC, what is a formation of a sales contraction?

Back 18

The UCC has modified the common law technical rules of offer and acceptance by stating that unless otherwise unambiguously insisting on a specific type of acceptance, a unilateral or bilateral contract offer can be accepted by a promise or performance.

Front 19

Under the UCC, a seller can accept a buyer's offer by doing what 3 things?

Back 19

1. a return promise accepting the offer
2. shipping conforming or non-conforming goods or
3. by beginning performance provided the buyer is given notice within a reasonable time. Thus a seller who ships goods to a buyer cuts off the buyer's right to revoke the offer even though the seller never communicated an acceptance to the buyer prior to the buyer's attempted revocation.

Front 20

What is constituted from shipping non-conforming goods/?

Back 20

It constitutes an acceptance, but also gives rise to a buyer's cause of action for breach of contract.
If, however, a seller notifies the buyer and intentionally ships non-conforming goods "as an accommodation" (as a courtesy), then the seller will not be liable for breach of contract.

Front 21

Under common law contract rules, an offeree (usually the seller) could do 3 things with the offeror's offer, what are these 3 things?

Back 21

1. accept it
2. expressly reject it or
3. accept certain terms in the offer, but add additional or different terms to the acceptance. Such an acceptance was a mere counteroffer, which could be impliedly accepted by a buyer if the buyer accepted those goods when they were shipped. This is referred to the last shot doctrine because the terms of the last document (the counteroffer) controlled the terms of the contract once the delivered goods were accepted by the buyer creating a binding contract. This unfairly gave the sender of the last form the power to rewrite the contract.

Front 22

UCC Article 2 changed these common law rules through the Battle of the Forms doctrine. When does this arise and what does it cover?

Back 22

It arises from the usual business practice of sending and receiving unread purchase forms containing different or additional terms. Under the Code, a contract can arise from an acceptance containing different or additional terms if the document is a definite and seasonable expression of acceptance.

Front 23

For every battle of the forms problem, you should ask yourself what 2 questions?

Back 23

1. Was there a definite and seasonable expression of acceptance and if yes
2. What are the terms of the contract?

Front 24

Additional terms in a definite and seasonable acceptance (or merchant memo confirming an oral agreement) become part of the parties' agreement unless OCAN. What does OCAN stand for?

Back 24

O - the offeror objects to the additional terms within a reasonable time
C - the original offer expressly conditioned acceptance exclusively to those terms contained in the offer. In such situations, any additional terms must be expressly accepted in writing by the offeror to become binding.
A - the additional terms materially altered the contract offer
N - where either or both parties are non-merchants, then the offeror can remain silent and is not bound to accept either material or non-material additional terms that have been added to the acceptance. The Code considers them mere proposals that do not become part of the contract.

Front 25

An additional term in the acceptance materially alters the offer if it would cause surprise or hardship if the offeror was not made aware of its existence. J STRAW. Define J STRAW.

Back 25

J – bestowing jurisdiction on a particular court or requiring offeror to consent to jurisdiction.
S – shortening the statute of limitations to sue for non-conforming goods
T – limiting tort liability or limiting a buyer’s right to sue for consequential damages
R – altering UCC laws for risk of loss
A - adding an arbitration clause into the acceptance (unless facts indicate it’s not surprising)
W – adding a clause negating a warranty

Front 26

Commonly added additional terms that do not materially alter the offer include what 4 things?

Back 26

1. sales taxes
2. fixing a seller's standard credit terms if within the practice in the trade provided they do not alter any bargained for credit
3. charging interest on overdue invoices
4. restricting the buyer's right to reject defective goods falling within trade tolerances (limiting the perfect tender rule).

Front 27

What does UCC 2-207 Contract Formation Chart Handout pg. 1 and 2 cover?

Back 27

Unless an offeror expressly conditions acceptance to the terms contained in the offer, a definite and seasonable acceptance (or merchant memo confirming an oral contract) containing different terms creates a contract. However, the Code is unclear about what the terms of the resulting contract should be. The majority of courts in the US hold that the resulting contract consists of those terms on which the 2 forms agree, but any different conflicting terms knock each other out and the terms of Article 2 are used to replace the conflicting provisions. NY's appellate courts have never directly addressed the controversy of how to treat different terms, but have implicitly treated different terms the same as additional terms (an OCAN analysis).

Front 28

What does UCC 2-207 Contract Formation Chart Handout pg. 3 cover?

Back 28

Under the Code, there is no definite expression of acceptance if a PDQ (price, delivery, quantity or quality) term in the acceptance form conflicts with the offer. Such an acceptance is considered a counteroffer and neither party is liable for non-performance of this attempted contract if a dispute arises before either party partially or fully performs.

Front 29

What does UCC 2-207 Contract Formation Chart Handout pg. 4 cover?

Back 29

If the seller accepts the offer, but includes different PDQ terms in the acceptance and the buyer subsequently physically accepts the goods, then even though the parties' different writings do not establish a contract, the Code recognizes a contract through the conduct of the parties. Using the knock-out rule, the sales contract resulting from the buyer's acceptance of the goods consists of those terms on which the writings agree together with the provisions in Article 2 (as to price, risk of loss, delivery, or warranties) on those terms that the parties disagree.

Front 30

What does the statute of frauds code require from all contracts for the sale of goods for $500 or more?

Back 30

The Code requires all contracts for the sale of goods for $500 or more to be contained in a writing "sufficient to indicate that a contract has been made" and "signed by the party to be charged".

Front 31

Under the statute of frauds, a signature is defined as what?

Back 31

The Code defines a signature as any authentication, which identifies the party to be charged. For example, a letterhead or invoice.

Front 32

A writing is sufficient even if it omits or incorrectly states an agreed term. What is the only indispensable term required?

Back 32

The only indispensable term required in a signed writing is quantity and the contract is not enforceable beyond the quantity of goods shown in the writing.

Front 33

A contract is enforceable and the Code will apply a reasonable price at the time of delivery if 1 of 4 things exists, what are these 4 things?

Back 33

1. no price term was considered
2. the price was left to be agreed upon, but the parties failed to do so
3. the price was to be fixed by a third party, but was not set or
4. different price terms were written on the parties' forms and the parties performed the contract.

Front 34

T OR F: If the price is to be fixed by the buyer or the seller, then it must be fixed in good faith.

Back 34

True

Front 35

.
There are 5 exceptions to the S/F requirement: SWAMP. What does SWAMP stand for?

Back 35

S - contracts for specially manufactured goods
W - Waiver. The S/F is an affirmative defense that the defendant must assert in the answer.
A - Judicial admission of the contract.
If the party against whom enforcement is sought judicially admits the existence of the oral contract in her pleadings, her deposition, or her trial testimony, then this waives the S/F, but only to the extent of the quantity admitted.
M - Merchant memorandum.
Oral contracts between 2 merchants are enforceable if within a reasonable time after contracting, either merchant confirms the oral contract in writing and the other merchant does not object within 10 days from its receipt. The written memo must state the quantity, but it does not have to expressly refer to the prior oral agreement.
If the merchant's memo contains additional terms that would materially alter the original contract, then those terms do not become part of the contract. Essay 3, February 2006. Essay 1, February 2012.
P - Part-performance.
A party cannot assert the S/F if payment for the goods has been made or if the goods have been accepted.
If the alleged oral contract requires additional deliveries, the part-performance exception only applies to goods and payments that have been accepted. (not future installments).

Front 36

Under the S from SWAMP, what are the 3 elements that make up a contract specifically for manufactured goods?

Back 36

1. circumstances indicating the goods were made for the buyer
2. the seller has made a substantial beginning or has made a commitment for their procurement and
3. the goods are not suitable for resale to others in the ordinary course of the seller's business.
A manufacturer ordering raw materials is not a substantial beginning if the materials can be used by the manufacturer for other orders.

Front 37

Output and Requirements Contracts
What is required under the code for output and requirements contracts?

Back 37

Under the Code, a buyer may enter a requirements contract to exclusively purchase from a seller all of a particular product that the buyer needs in its business. Similarly, a seller may enter an output contract to exclusively sell its entire output of a product to a buyer.

Front 38

What does each type of contract require?

Back 38

Each type of contract requires the parties to use their best efforts to produce and promote the sale of the goods.

Front 39

What can render a contract illusory and unenforceable?

Back 39

A lack of exclusivity in either contract.

Front 40

In a requirements contract, what is not considered an act of bad faith or a breach of contract?

Back 40

It is not bad faith or breach of contract for a buyer to reduce its orders to nothing, when the buyer's business falls off, but it would be bad faith for the buyer to purchase the goods elsewhere more cheaply when the price drops.

Front 41

Can a seller get out of an output contract by refusing to manufacture any further?

Back 41

A seller cannot get out of an output contract simply by refusing to manufacture any further because the seller was not making a profit since this would be contrary to a merchant's obligations of good faith.

Front 42

A seller can, in good faith, cease production when?

Back 42

If further production would financially imperil the seller's business.

Front 43

All quantities demanded or tendered in an output or requirements contract must be what?

Back 43

Must be reasonably proportionate to any stated estimate. If there is no estimate, the quantity demanded or tendered may not be unreasonably disproportionate to any normal prior output or requirement.

Front 44

When is parol evidence admissible?

Back 44

Parol evidence will be admissible to explain what the parties intended as a reasonable output.

Front 45

Even though goods are conforming and were perfectly tendered by the seller to the buyer, they may nevertheless be returned to the seller under what 2 types of written contracts?

Back 45

1. "A sale or return contract", which is usually made by a manufacturer or wholesaler for goods delivered to merchants primarily for resale. The goods are delivered with the understanding that the buyer can resell them, retain them, or can elect to return the goods to the seller even though the goods are conforming.
Under a sale or return contract, risk of loss and title vest immediately in the buyer even though the buyer has the right to rescind the contract. SORE V. (sale or return early vesting).
In a sale or return contract, a seller cannot avoid the claims of the buyer's creditors by expressly reserving title until payment or by using terms like "consignment". In order for a seller to protect itself from the buyer's creditors, the seller should comply with UCC Article 9 by filing a financing statement.
2. "A sale on approval contract" is used when goods are delivered primarily for use, not for resale. Risk of loss and title do not pass to the buyer until the buyer accepts title to the goods either in writing or by the buyer failing to timely return the goods under the contract terms.
Goods held by the buyer under a sale on approval contract are not subject to the claims of the buyer's creditors. SOAL V. (sale on approval late vesting).

Front 46

Delivery Terms
A contract requiring a seller to ship goods to a buyer can be classified as 1 of 2 things, what are they?

Back 46

1. a shipment contract under which the seller's risk of loss transfers to the buyer when the seller puts the goods into a carrier's possession or
2. a destination contract under which the seller's risk of loss only transfers to the buyer when the goods are tendered to the buyer at a particular destination.

Front 47

What is FOB?

Back 47

The most common of these contracts are abbreviated FOB (Free on Board), seller's city or seller's place of business (a shipment contract) or FOB, buyer's city or buyer's place of business (a destination contract).

Front 48

How are shipping costs born?

Back 48

Shipping costs are born by the buyer in a shipping contract and by the seller in a destination contract.

Front 49

The contract is a shipment contract unless what?

Back 49

Unless the parties expressly use terms equivalent to FOB buyer's place of business.

Front 50

What does the term FAS Vessel mean?

Back 50

It means free alongside and only requires the seller to place the goods alongside a vessel at a port without having to load them "on board".

Front 51

Adding terms implied by the UCC to the acceptance of an offer (even implied PDQ terms) does not constitute a what?

Back 51

A counteroffer because the Code would put them in anyway.

Front 52

If the contract is silent, the UCC implies the rules of CIDER, what does CIDER stand for?

Back 52

C - the seller is not obligated to extend credit.
The buyer must tender payment when the goods are tendered unless the seller has agreed to sell the goods on credit.
I - a buyer has the right to inspect the seller's tendered goods unless the contract expressly provides otherwise or the contract involves an order bill of lading, in which case there is no right to inspect.
D - the seller's tender of delivery is implied to be at the seller's place of business unless both parties know that the goods are located elsewhere.
Under the Code, a seller is not obligated to ship the goods absent express delivery terms in the contract.
In class question 32, pg. 50.
The Code defines "a lot" as a parcel, which is the subject of a separate sale or delivery. Unless otherwise agreed (i.e. in an installment contract), all goods called for in a contract must be tendered in a singled lot delivery and payment is due only on such tender. However, where the circumstances impliedly give a party the right to make or demand delivery in lots (plural), then the price may be apportioned for each lot.
E - the buyer and seller must exchange performances concurrently.
Thus, for the buyer to put the seller in default, the buyer must tender the purchase price or show that tender was excused by the seller's repudiation.
R - risk of loss.
The UCC puts risk of loss on the party who is in the best position to bear that risk. (i.e. the party who most likely has taken precautions to protect the goods from loss by insuring them).

Front 53

The parties' contract also includes terms generated by what 3 things?

Back 53

1. their course of dealings (behavior on more than one previous transaction)
2. course of performance (behavior subsequent to entering the agreement and
3. trade usage (any common practice in the industry that would justify an expectation that such practice would be observed in the parties' contract).

Front 54

What happens to the buyer of stolen goods?

Back 54

A buyer from a thief gets void title because the thief has no title to transfer.

Front 55

Under the UCC's entrusting rule, whenever the owner of goods entrusts the goods to a merchant who regularly deals in goods of that kind (a bailment), then the entrusting rule gives the merchant the power, but not what?

Back 55

The right to transfer whatever title the entrustor had to a good faith buyer who purchases those goods in the ordinary course of the seller's business. This entrusting rule does not apply to pawn brokers.

Front 56

What are remedies for buyers and sellers?

Back 56

Buyers and sellers are precluded from recovering damages that could have been avoided.

Front 57

A buyer breaches a contract for the sale of goods by doing 1 of 3 things, what are they?

Back 57

1. wrongfully repudiating the contract
2. rejecting conforming conforming goods or
3. by failing to pay the contract price for delivered goods.

Front 58

A seller's remedies against a breaching buyer are SPARKLE. What does SPARKLE stand for?

Back 58

S - stopping goods in transit
P - Suing for the entire contract price.
A - Demanding assurances of performance.
R - Reselling goods to another buyer.
K - Keeping part of the buyer's deposit.
L - suing the buyer for lost profits.
E - exercising the right to reclaim goods sold to an insolvent buyer.

Front 59

Under S from SPARKLE, stopping goods in transit occurs when? 3 things.

Back 59

When a buyer 1. wrongfully repudiates the contract, 2. fails to make a timely required payment, or 3. has received a proper demand for assurances from the seller, then the seller can refuse further delivery of goods in the seller's possession.

Front 60

Under the S from SPARKLE circumstances, the seller can contact the carrier and demand that a delivery be stopped in transit if what? 2 things

Back 60

1. the shipment is in bulk (a carload or truckload) or 2. the breaching buyer is insolvent (cannot pay its debts as they become due).

Front 61

Under S from SPARKLE, when is the seller’s remedy lost?

Back 61

This seller's remedy is lost once the carrier acknowledges the buyer's right to those goods (i.e. upon delivery).
This seller's remedy is lost once the carrier acknowledges the buyer's right to those goods (i.e. upon delivery).

Front 62

Under S from SPARKLE, the seller can do what whenever a breaching buyer is insolvent?

Back 62

The seller may refuse to deliver unless the insolvent buyer pays for the goods and any prior deliveries in cash.

Front 63

Under P from SPARKLE, there are just 3 situations in which the seller can sue the buyer for the entire contract price, what are they?

Back 63

1. When the buyer accepts conforming goods on credit, but fails to pay for those goods.
2. When conforming goods are destroyed after risk of loss passed to the buyer.
3. When the buyer wrongfully fails to accept conforming goods and the seller cannot resell them. (i.e. obsolete items no longer useable by anyone except the buyer).
In every other situation, the seller can resell the goods to another buyer and recover any loss from the breaching buyer.

Front 64

Think A from SPARKLE. If reasonable grounds exist for the seller's insecurity, the seller can suspend further performance and in writing, demand adequate assurances of the buyer's future performance requiring the buyer to tender proof that the buyer can and will pay the contract price. Reasonable grounds include what 3 things?

Back 64

1. good faith rumor's of the buyer's inability or unwillingness to pay
2. a buyer's statement that he does not feel bound to perform the contract or
3. a buyer's anticipatory repudiation that was retracted.

Front 65

Under A from SPARKLE, adequate assurances include what 3 things?

Back 65

1. a surety, 2. an audited financial report that clearly shows the buyer's solvency, or 3. a credit report prepared by the buyer's bank.

Front 66

Think A from SPARKLE. If adequate assurances of future performance are not given by the buyer within a reasonable time (not to exceed 30 days from the seller's written demand), then the seller can do what?

Back 66

Treat the contract as repudiated (anticipatory breach) even though the buyer was not insolvent.
A buyer can also demand reasonable adequate assurances of the seller's future performance.

Front 67

Under A from SPARKLE, parties to a contract not involving the sale of goods may also demand what?

Back 67

Demand assurances of performance under the Restatement 2nd of Contracts (MBE) and NY law.

Front 68

Think R from SPARKLE. When a buyer breaches a contract on goods not yet delivered, on goods that the seller has stopped in transit, or on goods that the buyer has wrongfully rejected, the seller can resell those goods and then sue the buyer for the resulting damages, which generally is the difference between what 2 things?

Back 68

1. the breaching buyer's contract price and
2. the lower resale price plus any incidental damages suffered by the seller.

Front 69

Think R from SPARKLE. The resale must be performed in a commercially reasonable manner (good faith) at an auction or private sale and it should be with notice to the breaching buyer. If notice is not given to the breaching buyer, then the seller can recover only the difference between what 2 things?

Back 69

1. the breaching buyer's contract price and
2. the fair market price at the time and place of tender.
This measure of damages is similar to a deficiency judgment after a mortgage foreclosure sale where the courts always disregard the price paid and instead look to the fair market value of the real property sold.

Front 70

Think R from SPARKLE. When a buyer repudiates a contract before the seller has completed production, then in good faith, the seller may do anything likely to mitigate the breaching buyer's damages including what 2 things?

Back 70

1. completing the goods and reselling them or 2. selling the unfinished goods for scrap.

Front 71

What does K from SPARKLE stand for?

Back 71

Keeping part of the buyer's deposit.
If a breaching buyer paid a deposit on the contract, the seller can keep from the deposit 20% of the total purchase price or $500 (whichever is less) plus any damages caused by the buyer's breach.

Front 72

What does L from SPARKLE stand for?

Back 72

Suing the buyer for lost profits.
When the difference between the contract price and the resale price fails to put the seller in as good a position as performance by the buyer would have put him in and the seller has an unlimited supply of goods, the measure of damages is the seller's lost profit on that contract.

Front 73

What does E from SPARKLE stand for?

Back 73

Absent a perfected UCC Article 9 Security interest, a seller of goods on credit is merely a general unsecured creditor of the buyer.
If the seller has delivered goods on credit and discovers that the buyer was insolvent at the time of delivery, the seller can commence an action for the entire contract price. However, executing the resulting judgment against an insolvent judgment debtor probably will result in the judgment being returned unsatisfied by the sheriff because of the buyer's insolvency. Alternatively, the seller can demand a return of the delivered goods within 10 days after delivery provided the buyer received those goods on credit while insolvent. The same rule applies when an insolvent buyer pays for the goods with a check that bounces.

Front 74

Think E from SPARKLE. What does UCC Article 2 give to the seller?

Back 74

It gives the seller priority to reclaim the goods over the buyer's other judgment or lien creditors, but the seller's right to reclaim is defeated by a good faith purchaser of those goods who purchased in the ordinary course of business.
This provision gives the seller a narrow window to beat creditors except bona fide purchasers have priority.

Front 75

If the seller successfully reclaims its goods, then what’s precluded? Think SPARKLE

Back 75

It is precluded from all other SPARKLE remedies on the breached contract.