CHAPTER 18

1. CHAPTER 18 Introduction to Sales

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3. Quote of the Day “A commodity appears at first sight an extremely obvious, trivial thing. But its analysis brings out that it is a very strange thing, abounding in metaphysical subtleties and theological niceties.” Karl Marx, German political philosopher

4. Development of Commercial Law • As trade increased throughout history, the need for a uniform, modernized business law grew greater. • In 1952, the Uniform Commercial Code was published by a group of scholars whose goal was to draft a modern law of commerce. • The UCC has been revised several times, most recently in 2003.

5. The Uniform Commercial Code (UCC) • The UCC is the single most important source of law for commerce and contracts. • The UCC is “ancient in origin, contemporary in usage, admirable in purpose, and flawed in application.” • The UCC is the creation of scholars, and has no legal effect until a state legislature adopts it. • All50 states and the District of Columbia have adopted the UCC, but not all have used identical versions.

6. UCC Basics • Code’s Purpose • To simplify, clarify and modernize the law governing commercial transactions, • To permit the continued expansion of commercial practices through custom, usage and agreement of the parties, • To make uniform the law among the various jurisdictions.

7. Scope • Article 2 • UCC §2-102: Article 2 applies to the sale of goods, things that are movable, other than money and investment securities. • Article 2A • Article 2A governs the leasing of goods. • In a mixed contract involving sales and services, the UCC will govern if the predominant purpose is the sale of goods, but the common law will control if the predominant purpose is service.

8. Merchants • UCC §2-104: A merchant is someone who routinely deals in the particular goods involved, or who appears to have special knowledge or skill in those goods, or who uses agents with special knowledge or skill in those goods. • The UCC frequently holds a merchant to a higher standard of conduct than a non-merchant.

9. Good Faith & Unconscionability • Good Faith • The UCC imposes a duty of good faith in the performance of all contracts. • For non-merchants, good faith means honesty-in-fact. • For a merchant, good faith means honesty-in-fact, plus the exercise of reasonable commercial standards of fair dealing. • Unconscionability • UCC §2-302: A contract may be unconscionable if it is shockingly one-sided and fundamentally unfair.

10. Formation Basics: §2-204 • UCC §2-204 provides three important rules: • The parties may make a contract in any manner that sufficiently shows that they reached an agreement. • Knowing the moment of making of the contract is not critical. • One or more terms may be left open. Commercially reasonable terms will be assumed by the courts.

11. Statute of Frauds • UCC §2-201 requires a writing for any sale for goods worth more than $500. • Contracts for Goods over $500 • Writing Sufficient to Indicate a Contract • In general, the writing must be signed by the defendant. • Incorrect or Omitted Terms • Under the UCC, a court may enforce a bargain even though one or more terms were left open. • Enforceable Only to Quality Stated • The Code will enforce the contract only up to the quality of goods stated in the writing.

12. Merchant Exception • When two merchants make an oral contract, and • one sends a confirming memo to the other within a reasonable time, and • the memo is sufficiently definite that it could be enforced against the sender, then • the memo is also valid against the merchant who receives it, unless he objects in 10 days. • An oral contract may be enforceable if the seller is specially manufacturing the goods, the defendant admits in court that there was a contract, or the goods have been delivered or paid for.

13. Added Terms: Section 2-207 • Under §2-207, an acceptance that adds or alters terms will often create a contract. Click once to start self-building graphic. Offeree does NOT intend to accept Offeree intends to accept OFFER Accepts terms Adds terms Changes terms Accepts IF offerer accepts new terms NO CONTRACT Usually forms a contract Usually forms a contract Contract NO contract (is a new offer)

14. Additional or Different Terms • Additional: those that raise issues not covered in the offer. • When both parties are merchants, additional terms generally become part of the bargain. • Different: contradict terms in the offer. • Cancel each other out; if there is no clear oral agreement, the Code supplies its own terms to cover prices, delivery dates and places, warranties, and other subjects.

15. Open Terms: § 2-305 & 2-306 • Open Prices: Under §2-305, the parties may conclude a contract even though they have not settled the price. • Under the Code, if the parties have not stated a price, it is to be a reasonable price at the time of delivery. • Output and Requirements Contracts • The UCC requires that the parties in an output or requirements contract make their demands in good faith.

16. Modification • UCC §2-209: An agreement modifying a contract needs no consideration to be binding. • The parties may agree to prohibit oral modification and insist that all modifications be in writing and signed. • Between merchants, such a clause is valid. • If either party is not a merchant, such a clause if valid only if the non-merchant separately signs it.

17. “The Uniform Commercial Code enables merchants to form contracts more quickly and easily. But along with this increased facility goes greater responsibility, since informal discussions may suddenly turn into… a contract.”