1 CHAPTER 19 – STUDY GUIDE – INTRODUCTION TO SALES UNIFORM COMMERCIAL CODE (UCC) 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. ARTICLE 2 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. Mixed contracts involving sales and services: ◦ UCC will govern if the predominant purpose is the sale of goods. ◦ The common law will control if the predominant purpose is service. 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. GOOD FAITH AND 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. 2 ◦ 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. CONTRACT FORMATION UNDER THE UCC 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 when the contract was formed is not critical. ◦ One or more terms may be left open. Commercially reasonable terms will be assumed by the courts. UCC §2-201 (STATUTE OF FRAUDS) requires a writing for any sale for goods worth $500 or more. ◦ 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. 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. SPECIALTY GOODS EXCEPTION: An oral contract may be enforceable even without a written memorandum, if: 3 ◦ The seller specially manufactures the goods for the buyer, or ◦ The defendant admits in court that there was a contract, or ◦ The goods have been delivered or they have been paid for. ADDITIONAL AND DIFFERENT TERMS (SEE CHART ON INSTRUCTOR’S WEBSITE) Additional: Terms 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. OPEN TERMS Open Prices: Under §2-305(1), 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 ◦ UCC requires that the parties in an output or requirements contract make their demands in good faith. 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. .