SALES TOPIC OUTLINE 1

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1 SALES TOPIC OUTLINE 1 1. UCC Article 2 applies to (2-102) 2. Goods are (2-105)(1), (4) 3. Merchants are (2-104) 4. Goods to be severed from realty (2-107) 5. Statute of Frauds (2-201) 6. Parol Evidence rule (2-202) 7. Formation (2-204) 8. Firm Offer (2-205) 9. Offer and Acceptance; Accomodation (2-206) 10. Battle of the Forms (2-207) 11. Modification (2-209) 12. Gap-Fillers (2-305, 2-307, 2-308, 2-309) 13. Outputs & Requirements (2-306) 14. Implied Warranties (2-314, 2-315) 15. F.O.B. & F.A.S. (2-319) 16. Perfect Tender Rule (2-601) 17. Anticipatory Repudiation (2-610) 18. Installment Contract (2-612) 19. Seller s Remedies on Discovery of Buyer s Insolvency (702) 20. Seller s Damages (2-708) 21. Lost Profits (2-708) 22. Seller s Incidental Damages (2-710) 23. Buyer s Damages Cover (2-712) 24. Buyer s Damages (2-713) 25. Buyer s Damages Warranty (2-714) 1 Copyright 2007 Daniel J. Wilson. Revised Permission is freely given to use these materials for preperation for the Colorado bar exam. This material is drawn from a study of released MBE questions; released Colorado bar exam essay questions; released essay questions from the National Conference of Bar Examiners; released MBE questions from the Natinal Conference of Bar Examiners; and Emanuals Contracts outline and various other commercial outlines,. Grateful thanks to Burton F. Brody, Professor of Law Emeritus University of Denver. 1

2 WAYS THE UCC ARTICLE TWO CHANGES THE COMMON LAW OF CONTRACTS 1. INTRODUCTION a. Article 2 governs contracts for the sale of goods. Goods means all things that are movable at the time of identification to a contract for the sale of goods. The term includes future goods, the unborn young of animals, growing crops and other things attached to realty. Minerals, a structure or its materials are goods if they are to be severed by the seller. Growing crops or timber are goods no matter who severs. Goods does not mean information, the money in which the price is to be paid, investment securities, foreign exchange transactions or choses in action. SECS b. Sometimes the rules are different if one or both of the parties is a merchant. Merchants are those who deal in goods of that kind or who possess or profess special expertise in that area. This is particularly important for the bar exam, and in particular the MBE, because the MBE tends to test how the Code changes Common Law, and that happens most frequently with merchants. SEC c. Unless the Code specifically displaces them, principles of the Common Law and the Law of Merchants are imported into the Code. For instance offer as defined in the common law is the same, as is consideration and many other important C/L rules. 2. OUTPUTS, REQUIREMENTS AND EXCLUSIVE DEALINGS SEC a. The Code specifically recognizes such contracts. The Common Law had problems with them because it regarded them as illusory promises because the quantity term was indefinite. This is a consideration problem. b. An outputs contract is one where the buyer agrees to buy the seller s complete output. c. A requirements contract is one where the buyer agrees to buy all his requirements from the seller. d. A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate 2

3 or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded. e. An agreement for exclusive dealings imposes an obligation by the seller to use best efforts to supply the goods and the buyer to use best efforts to promote their sale. 3. GAP-FILLERS/MATERIAL TERMS SECS through 309 a. The Common Law required the agreement/writing to include parties, subject matter, price, quantity and time of performance. The Code gap-fillers can supply every missing term except quantity. b. This is derived indirectly from the Code Statute of Frauds, referenced below, which requires a writing for every contract for the sale of goods of $500 or more. The writing must have a quantity term. c. Open Price Term. If the parties wish they may form a contract with out deciding the price term. In such a case the price is a reasonable price. A price to be set by the buyer or seller means set in good faith. d. This is to be distinguished from the case where the parties set a price orally and it is not reflected in the writing. Parol evidence will be allowed to determine the price. e. Gap-filler for place of delivery is seller s place of business or if none seller s residence. f. Time for shipment is a reasonable time. g. Payment is at time and place buyer receives goods. Payment is in money. 4. TIME OF FORMATION SECS 2-204, a. The Common Law is very concerned with the exact time of formation. The Code specifically says that the exact sequence of offer and acceptance are not important if the parties intended to form a contract. A contract for the sale of goods may be made in any manner sufficient to show agreement including offer and acceptance and conduct which recognizes the existence of a contract. An agreement for the sale of goods may be found even if the moment of its making is undetermined. The contract does not fail for indefiniteness if the parties intended to make a contract and there is a 3

4 reasonable basis for giving an appropriate remedy. 5. MIRROR IMAGE RULE a. Common Law says that acceptance must exactly mirror the offer to be effective. Code says that offer may be accepted in any manner reasonable under the circumstances. An order for shipment may be accepted by shipment or a return promise. b. I think there are two aspects of the C/L Mirror Image Rule. First, the terms of the acceptance must exactly mirror those of the offer or the acceptance is a rejection or a counteroffer. That is mostly done away with by (1). 2 Second, the means of acceptance should be the same in C/L as the offer. That is completely done away with by BATTLE OF THE FORMS a. An acceptance that has different or additional terms is an acceptance, unless the acceptance is made expressly conditional on its terms. In that case the purported acceptance is not an acceptance but rather a counteroffer. b. The key is that the C/L mirror image rule does not apply. A communication that would be a rejection and a counteroffer under C/L is an effective acceptance unless the acceptance is made expressly conditional on its terms c. The additional or different terms become proposals for the contract. Unless both parties are merchants, the additional or different terms go away the terms of the offer control. d. However, if the parties are both merchants the additional or different terms become part of the contract unless: e. The offer was expressly conditional on its terms, i. the term materially alters the contract ii. or the offeror objects within a reasonable time f. If the writings do not establish a contract but the parties act like there is a contract there is one (3). g. In such case the terms are those on which the writings agree with any additional terms supplied by Article Section is drastically revised in the new Article Two, but is not yet in effect. 4

5 207(3) 7. FIRM OFFER RULE. SEC a. In C/L an offer was revocable at any time unless it was the subject of an option contract, or as it is often phrased, is supported by consideration. b. Under the Code a Firm Offer by a merchant is irrevocable. It requires words of firmness, in a writing signed by the offeror, and is irrevocable for the time stated or if no time stated for a reasonable time, but in no event more than three months. 8. STATUTE OF FRAUDS. SEC a. A contract for the sale of goods of $500 or more must be in writing to be enforceable. b. A writing is not insufficient if it omits or incorrectly states some terms but is not enforceable beyond the quantity shown c. If Between merchants Merchant A sends a writing sufficient to bind Merchant A to Merchant B, and Merchant B knows or has reason to know the contents of the writing, and Merchant B does not object within 10 days the writing is sufficient to bind Merchant B. 9. PAROL EVIDENCE RULE. SEC a. Terms with respect to which the writings of the parties agree in a writing intended as a final expression of their agreement with respect to such terms may not be contradicted by evidence of prior agreement or contemporaneous oral agreement but may be supplemented by evidence of consistent additional terms unless the court finds the writing to be a complete and exclusive statement of the terms of the agreement. b. This is a good expression of the C/L Parol Evidence Rule. Evidence of prior or contemporaneous agreements will not be allowed to change or contradict but will be allowed to explain, unless the writing is fully integrated. c. The Code, however does allow parol evidence of course of dealing, course of performance and trade usage, apparently without the restriction of completely integrated 5

6 or a finding that the writing is ambiguous. Trade Usage, Course of Dealing and Course of Performance are a part of every contract for the sale of goods. 10. MODIFICATION. SEC a. An agreement within Article 2 needs no consideration to be binding. b. This reverses the C/L rule that a modification needed to be supported by consideration to be enforceable. Preexisting duty rule. 11. ACCORD AND SATISFACTION. a. An Accord and Satisfaction is when one party to a contract agrees to accept less than full payment as full satisfaction of the other parties obligation. b. In C/L the debt must be disputed. It the debt is liquidated and undisputed the pre-existing duty rule makes the promise to accept less than full payment unenforceable. There is no consideration to make the promise enforceable. c. If the debt is disputed there is consideration to make the promise to accept less than full payment enforceable. The party offering less than full payment is foregoing a defense to performance mistake, breach, etc.,--in exchange for the promise to accept less than full payment. d. I Think the Code changes this rule in two ways. First, modification of an agreement does not need consideration to be enforceable. Second, Section holds that a claim arising out of breach may be discharged without consideration. 12. PERFECT TENDER RULE. SEC a. A seller must make a perfect tender of the goods. b. If the tender is not perfect the buyer may reject the whole; accept the whole; or accept any commercial unit and reject the rest. c. This rule seems to abolish the C/L distinction between minor and material breach. d. The rule is different if it is an installment contract. 6

7 Installment contract means one in which more than one delivery is made. A buyer may reject a non-conforming installment and repudiate the contract only if the nonconformity substantially impairs the whole contract. e. This area is a good example of the bar exam simplifying a complex area. In practice the perfect tender Rule is not strictly enforced; on the quiz it is. 26. ACCOMODATION SHIPMENT SEC f. A shipment of non-conforming goods that is accompanied by notice that it is an accommodation shipment is not acceptance. g. If the buyer thinks the non-conforming goods will work he can accept them and thereby form a contract. Otherwise he may return the non-conforming goods and there is no contract. 13. BUYER S AND SELLER S REMEDIES CHAPTER 7 a. Seller's remedies on discovery of Buyer's insolvency b. Seller s lost volume profits c. Seller's incidental damages d. Right to adequate assurance e. Cover f. Other buyer's remedies g. Breach of Warranty h. Seller s incidental and consequential damages. 7

UCC ARTICLE 2: SCOPE

UCC ARTICLE 2: SCOPE UCC Article 2 governs sales, and contracts for the sale, of goods, pursuant to which a seller transfers to a buyer (1) title (ownership) to (2) goods, including (a) growing crops and