Ch 14

Fundamentals of Business Fundamentals of Business LawLaw

Summarized Cases, 8th Ed., and Excerpted Cases, 2nd Ed.

ROGER LeROY MILLERInstitute for University Studies

Arlington, Texas

GAYLORD A. JENTZHerbert D. Kelleher Emeritus Professor in Business Law

University of Texas at Austin

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

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Learning ObjectivesLearning 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?


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Scope of UCC Article 2--Scope of UCC Article 2--SalesSales

• Facilitates commercial transactions.

• UCC Article 2: – Governs contracts

for sale of goods.– UCC 2 preempts

common law.– Where UCC2 is

silent, common law governs.


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Common vs. UCC LawCommon vs. UCC Law


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What is a “Sale”?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”?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.


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Who is a “Merchant”?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-Scope of Article 2A-LeasesLeases

• 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 party-supplier).


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• 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.

Common Law vs. UCCCommon Law vs. UCC


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Open TermsOpen 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.


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Open TermsOpen 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 TermsOpen 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 OfferMerchant’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.


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AcceptanceAcceptance• ‘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 TermsAdditional Terms• If either party is a non-merchant, the

contract is formed according to original terms of the offer.


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Additional TermsAdditional 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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ConsiderationConsideration• 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 FraudsStatute 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.


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Parol EvidenceParol 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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UnconscionabilityUnconscionability• 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).


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CISG CISG • Applicability.• Comparison of CISG and UCC.

– Mirror Image Rule.– Irrevocable Offers.– Statute of Frauds.– Necessity of a Price Term.– Time of Contract Formation.

Documents

Ch 14