Fundamentals of Business Law
Summarized Cases, 8th Ed., and Excerpted Cases, 2nd Ed.
ROGER LeROY MILLER Institute for University Studies Arlington, Texas
GAYLORD A. JENTZ Herbert D. Kelleher Emeritus Professor in Business Law University of Texas at Austin
Learning Objectives • How do Article 2 and 2A of the UCC differ? What types of transactions does each article cover? • What is a merchant’s firm offer? • If an offeree includes additional or different terms in an acceptance, will a contract result? • Article 2 and Article 2A of the UCC both define several exceptions to the writing requirements of the Statute of Frauds. What are those exceptions? • What law governs the international sale of goods? Copyright © 2010 South-Western
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Scope of UCC Article 2--Sales • Facilitates commercial transactions. • UCC Article 2: – Governs contracts for sale of goods. – UCC 2 preempts common law. – Where UCC2 is silent, common law governs. Copyright © 2010 South-Western
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Common vs. UCC Law
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What is a “Sale”? • UCC Article 2 applies to the “sale of goods.” A “sale” is the passing of title of “goods” to/from a “merchant” (seller or buyer) for a price (money, goods, services,etc). – “Goods” are tangible and movable. – A “merchant” has special business expertise and is not a casual buyer/seller.
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What are “Goods”? • A good is both tangible and movable. • “Predominant Test” with goods and services combined. – CASE 14.1 Jannusch v. Naffziger (Illinois, 2008).
• UCC does not apply to real estate unless there is a “good” that can be severed by the Seller. If the good is severed by the Buyer, then UCC does not apply. Copyright © 2010 South-Western
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Who is a “Merchant”? • Generally UCC 2 applies to all buyers of sellers of goods. • In some instances, sales by/for a merchant imposes special duties. • A Merchant: – Deals in goods of the kind being sold. – Holds himself out with special knowledge or skills. – Is employed as a broker or agent in a transaction.
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Scope of Article 2A-Leases • Contract for lease of personal goods between a lessor and a lessee. • Consumer Leases (primarily for family or personal use). • Finance Leases (involves a 3rd partysupplier).
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Common Law vs. UCC • At common law once a valid offer is unequivocally accepted, a binding contract is formed. • UCC is more flexible, and allows for open pricing, payment, and delivery terms.
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Open Terms • Article 2-204: even if terms of uncertain, a contract may still exist. • Open Terms: “Indefiniteness” is OK as long as the parties intended to make a contract and there is a reasonable basis for a court to grant a remedy. – Open Price Terms: “reasonable price” at time of contract. – Open Payment: Payment due at time-place Buyer receives goods. Copyright © 2010 South-Western
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Open Terms • Open Terms: – Open Delivery: Buyer takes delivery at Seller’s place of business. – Open Duration: Either party can terminate with reasonable notice.
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Open Terms • “Open Quantity” (UCC2-306): generally courts will NOT impose a quantity, UNLESS: – Requirements Contract: buyer agrees to purchase what the buyer needs or requires. – Output Contract: buyer agrees to buy all of seller’s production or output.
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Merchant’s Firm Offer • Common law: An offer could be revoked any time prior to acceptance, unless there was some consideration. • Article 2: An offer made by a merchant is irrevocable for reasonable period of time if a written assurance is given. No consideration necessary. Copyright © 2010 South-Western
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Acceptance • ‘Any reasonable means’ under the circumstances is permissible. • Promise to ship or prompt shipment is acceptance. – Shipment of non-conforming goods is both an acceptance and a breach unless goods sent as an “accommodation” to buyer.
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Additional Terms • If either party is a non-merchant, the contract is formed according to original terms of the offer.
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Additional Terms • If both parties are merchants, the contract incorporates new terms unless: (1) original offer expressly limits terms or (2) material alteration or (3) offeror objects within reasonable time. – CASE 14.2 Sun Coast Merchandise Corp. v Myron Corp. (New Jersey, 2007).
• Additional terms may be stricken if both parties acted inconsistent with the terms
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Consideration • Article 2 requires consideration and modifications must be made in good faith. • Modification must be in writing if required by Statute of Frauds.
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Statute of Frauds • Sale of goods over $500 must have a signed writing to be enforceable ($1,000 in leased goods). • Exceptions to this rule: – Contracts between Merchants (no objection with 10 days). – Specially manufactured goods. – Admissions by breaching party. – Partial performance. Copyright © 2010 South-Western
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Parol Evidence • Terms of a written agreement intended to be the final expression of parties’ intentions, cannot be contradicted by prior or contemporaneous agreements. • Exceptions: consistent terms, course of dealing and trade.
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Unconscionability • Contract is one that is so unfair and one-sided it is unreasonable to enforce it. • Court can: set it aside, refuse to enforce the unconscionable provision, limit the contract. • CASE 14.3 Jones v. Star Credit Corp. (1969). Copyright © 2010 South-Western
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CISG • Applicability. • Comparison of CISG and UCC. – Mirror Image Rule. – Irrevocable Offers. – Statute of Frauds. – Necessity of a Price Term. – Time of Contract Formation.
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