Contract Formation
Proviso - generally defined
“Tracking the Proviso” in § 2-207(1)
Under UCC § 2-207(1), a written response operates as an acceptance even though it states additional or different terms, unless:
→ the acceptance is “expressly made conditional” on the offeror’s assent to the additional/different terms.
This clause is called the proviso.
Scope of Article 2 - generally defined & things to take into consideration
UCC Article 2 applies to 'transactions in goods" - contracts for the sale of goods.
Good are things that are moveable
Whether or not merchants are involved, no matter the dollar value (all buyers and sellers)
Any person who is not a merchant is a lay person
There is no requirement that the person be a professional buyer or seller
Generally Art. 2 applies if there is a 25c pen or $300 price, so long as it is a contract for a moveable good.
Between Merchants
Between Merchants " means in any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants .
Implied Warranties
Implied warranties are automatically part of the contract unless the seller (or the circumstance) does something affirmative to get rid of them. Implied warranties are implied as a matter of law; they are sometimes referred to as “children of the law.” Like express warranties, the seller’s intention to create any implied warranty is completely irrelevant.
Are advertisements offers - as a general rule?
No
Formation in General (3 things)
§ 2-204. Formation in General.
(1) A contract for sale of goods may be made in any manner sufficient to show agreement , including conduct by both parties which recognizes the existence of such a contract .
(2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
Predominant Purpose test
What is the main purpose for the contract? What's the sole purpose of the contract? Is it for the goods or is it for the services?
This is used when the contract is a hybrid contract and the contract involves part good(s) and part services.
You use the predominate purpose test to determine whether to UCC applies to the whole thing or none of it.
If it is for the goods, then the UCC rules will apply
If the predominate purpose of the transaction is for goods, then the UCC will apply to the whole transaction.
However, if the purpose of the transaction is for services, then common law will apply to the whole transaction, and the UCC will not apply to any of the transaction
Merchant
" Merchant " means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.
Express Warranties - how is it created by the seller
(1) Express warranties by the seller are created as follows:
(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
(b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
(c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.
(2) It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty.
An express warranty arises when the seller does something affirmative to create buyer expectations about the characteristics or performance of the goods. Typically, this means that the seller will make oral or written representations about the product in advertisements, the verbal sales pitch, or the written contract. These representations must have some substance to them (more than mere “puffing”) to rise to the dignity of an express warranty. In the Code’s words, they must “relate to the goods” (an obvious requirement) and become part of the basis of the bargain (a not- so- obvious or explainable requirement).
Wilson had the highest bid on eBay, the online auction site, for a painting, which the seller described as an original Jackson Pollock. After some email exchanges with the seller, Wilson sent a cashier’s check, and a few days later received a suspiciously fresh painting, although Pollock died in 1956. Unable to locate the seller, Wilson sued eBay for breach of express warranty under Article 2 of the UCC. Which is likely to be the best argument for eBay?
a.Fraud is legal, in order to encourage buyers to be careful.
b.Article 2 of the UCC does not apply to paintings.
c.Article 2 does not apply, because the transaction was not a sale of goods, rather was a service transaction (shipping a painting).
d.eBay is not liable, because it did not sell the painting.
D is the best answer. This question raises the issue raised in Problem 3, which Amazon has litigated: When does an online marketplace qualify as a seller of goods? As noted above, most courts have held that Amazon is not a seller, although some incisive commentary has argued for a different result. The case to hold eBay liable as a seller would seem to be weaker. eBay operates a site where buyers and sellers deal more directly, set the prices for transactions, and handle the shipping details. The other possible answers are deliberately way off. We have not gone through Article 2 yet, but fraud is never encouraged. Article 2 applies to goods, and we saw no exemption for paintings. C is off the mark, because the transaction was to buy a specific item of goods, a painting, not just to ship a painting.
Parol Evidence Rule (general definition)
bars extrinsic evidence of prior or contemporaneous terms/promises that would vary, contradict, or add to the parties' final writing
Gravamen Test- the Minority View
If the jurisdiction has adopted the 2022 version of the UCC, then the gravamen test will apply 2-102
Considers whether the harm resulted from the goods or the services in the hybrid transaction
If the problem is the goods, then you apply the UCC
Looks not at the whole contract, but at the part of the transaction that caused the harm or complaint.
Asks: “Did the problem arise from the goods or from the services?”
Sale
A " sale " consists in the passing of title from the seller to the buyer for a price (Section 2-401 ).
Define Fitness for a Particular Purpose
Where the buyer wants to use the goods for something beyond their ordinary purpose, a warranty of merchantability is not enough. But the buyer may be able to sue for breach of the implied warranty of fitness for a particular purpose if the buyer can satisfy all of the elements of §2- 315.
§ 2-315. Implied Warranty: Fitness for Particular Purpose.
Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.
4.Gately Construction faxes an order to Van Dyne Apps for 50 tablet computers. Van Dyne faxes back an acceptance, with the following provision: “THERE ARE NO WARRANTIES EXPRESS OR IMPLIED, INCLUDING NO WARRANTY OF MERCHANTABILITY FOR THE TABLET COMPUTERS.” The tablet computers are duly shipped, accepted, and paid for. Not long after, Gately Construction finds the performance of the computers to be sub-par. Did Van Dyne’s provision excluding warranties become part of the parties’ contract?
a. Yes, because Gately Construction did not object to the provision.
b. Yes, because Gately Construction’s offer did not expressly limit acceptance to the terms of the offer.
c. No, because the provision would materially alter the contract.
d. No, because an acceptance that is different from the offer is not effective to form a contract.
C is the best answer. The acceptance is effective, under the Battle of the Forms provision, §2-207(1). Unlike a stricter view under some common law cases, the UCC allows an acceptance to be effective even if it does not match the offer, contrary to D. But the additional terms become part of the contract only if they are not excluded by §2-207(2). The exclusion of all warranties would be excluded by §2-207(2)(b), because it is a material alteration. This would be the case even though Gately Construction did not object (contrary to A) or limit its original offer to its terms (contrary to B).
Battle of Forms
As long as there are merchant buyers and sellers of goods, there will be forms with self- serving boilerplate. And as long as the transactions proceed without incident — which may be after a long while and many sales — their forms will pass like ships on a foggy sea.
The “battle of the forms” is a much litigated problem that arises from two sources:
(1) the business practices of either negotiating deals orally and then exchanging printed forms that no one reads until a dispute arises, or dealing at arm’s length with non- matching purchase orders and acknowledgments, and (2) the complexities of §2- 207 and its Official Comment.
Subsection (1) to §2- 207 is meant to reverse the common law rule that an acceptance that was not the mirror image of the offer was (impliedly) both a rejection and a counteroffer.
Because there is acceptance of the contract even though additional terms have been added and different than what has been agreed upon
Under §2- 207(1), an acceptance adding new terms creates a contract based on the original offer, unless the acceptance very clearly states otherwise (is conditioned upon something). As to what happens to the additional terms, see §2- 207(2).
If, in spite of all logic and business judgment, the parties exchange documents that cannot be reconciled so as to produce a contract, no contract results, and either party may, on discovering this mishap, back out of the deal if that party acts prior to the beginning of performance. If performance has begun (with the parties wrongly believing a contract exists), subsection (3) of §2- 207 regulates the ensuing mess.
If the defect or injury arises from:
The goods, →
The services, →
→ apply the UCC (warranty law).
→ apply common law (negligence, contract).
Contract for sale
Contract for sale " includes both a present sale of goods and a contract to sell goods at a future time.
Disclaiming Express Warranties
The drafters of the Uniform Commercial Code thought that it was basically unfair for a seller to create an express warranty and then try to disclaim it, so they drafted §2- 316(1) in such a way as to make disclaimer of an express warranty virtually impossible. Read it. The proper way to avoid liability for an express warranty is to not make it in the first place. Note that express warranties are created by affirmative seller conduct. The seller must take out an ad, publish a booklet, say something orally about the product, or point to a sample or model, or the warranty will never arise. Having done one of these things and created buyer expectations that the product will comply with the representations made, the seller must live with the liability assumed.
3.Pemulis Auto signs a contract with Lyle for the sale of a 2007 Pluto automobile. Which of the following could be introduced as evidence of terms that were not included in the writing?
a.A common practice in the used car business that sellers would replace any parts that failed for the first year.
b.A practice between Pemulis Auto and Lyle, in their previous transactions, that Lyle could return the car within 30 days and get his money back.
c.An oral agreement between the two that Pemulis Auto would provide free service for the first two years.
d.All of the above.
3. D is the best answer. This question reminds us that the written contract may be explained or supplemented by usage of trade (as in A), course of dealing (as in B), and consistent additional terms (as in C), where writing is not shown to be the complete and exclusive statement of the parties’ terms.
Statute of Frauds
STATUTE OF FRAUDS - certain contacts must be in writing
§2-201
(1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.
(2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received.
(3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable
(a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or
(b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or
(c) with respect to goods for which payment has been made and accepted or which have been received and accepted (Sec. 2-606 ).
Example under Gravamen
A hospital installs a pacemaker.
If the device itself is defective →
If the installation or surgery was done negligently →
→ gravamen = goods → UCC applies.
→ gravamen = services → common law applies.
Goods
(1) " Goods " means all physical things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action. "Goods" also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (Section 2-107 ).
(2) Goods must be both existing and identified before any interest in them can pass. Goods which are not both existing and identified are " future " goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.
(3) There may be a sale of a part interest in existing identified goods.
(4) An undivided share in an identified bulk of fungible goods is sufficiently identified to be sold although the quantity of the bulk is not determined. Any agreed proportion of such a bulk or any quantity thereof agreed upon by number, weight or other measure may to the extent of the seller's interest in the bulk be sold to the buyer who then becomes an owner in common.
Merchantability -define & list how the goods to be merchantable must be at least such as:
The implied warranty of merchantability (which is easier to spell and pronounce if you think of it as two words — merchant and ability — tacked together) is not given a precise definition in the Code. The basic idea is that the item must be saleable and conform to the normal expectations of the parties.
§ 2-314. Implied Warranty: Merchantability; Usage of Trade.
(1) Unless excluded or modified (Section 2-316 ), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.
(2) Goods to be merchantable must be at least such as
(a) pass without objection in the trade under the contract description; and
(b) in the case of fungible goods , are of fair average quality within the description; and
(c) are fit for the ordinary purposes for which such goods are used; and
(d) run, within the variations permitted by the agreement , of even kind, quality and quantity within each unit and among all units involved; and
(e) are adequately contained, packaged, and labeled as the agreement may require; and
(f) conform to the promise or affirmations of fact made on the container or label if any.
(3) Unless excluded or modified (Section 2-316 ) other implied warranties may arise from course of dealing or usage of trade.
5.Joelle’s stay at the Ennet Hotel is marred by bedbugs. When the hotel refused to refund her payment, she sued for breach of the implied warranty of merchantability under §2-314. Will she succeed?
a.Yes, because a hotel room with bed bugs is not merchantable.
b.No. As long as someone could stay overnight in the room, it was merchantable.
c.No, because there was no express warranty about bed bugs.
d.No, because the Ennet Hotel did not make a warranty under §2-314.
5. D is the best answer. The question reminds us that UCC Article 2 applies only to sales of goods. This was a contract for services, lodging at a hotel. Article 2 does not apply, so §2-314 does not apply.