PART ONE: INTRODUCTION TO COMMERCIAL TRANSACTIONS

Lecture 1/10/2011 Exam: multiple choice and essay, can use annotated UCC

o Essay part of exam should be reasonable, multiple choice will be difficulto Pay attention to the multiple choice questions given out during semestero *note exceptions (will be tested on for multiple choice)

2010 UCC (but anything after 2004 is good)

#1 – PP. 1-20 THE STUDY OF COMMERCIAL LAW

Transactional Law and the Commercial Lawyer 2 stages: pre-transactional and the performance stage Sometimes, 3rd stage: dispute resolution

UCC: Structure and ScopeShort History

1896: Negotiable Instrument Law 1906: Uniform Sales Act and other Uniform Acts 1940s: too much gloss by states frayed uniformity, also new commercial practices and changes so that 1906

provisions no longer applicable Originally drafted in 1950s, by 1968, adopted every state but Louisiana. Recent revisions began in 1987→ added 2A and 4A, other major revisions.

Controversy about consumer protection, software ks, warranties, remedies 2003 amendments have not been adopted by any state.

No states have adopted revised Article 2→ which suggests no state will adopt revised We will not be using revised Article 2

Structure of UCC Art.1: General Provisions→ Book refers to 2001 revisions

Definitions and general rules 46 states have adopted revised

Art.2: Sales→ Book refers to pre-amended (no state has enacted 2003 amendments) Applies to “transactions in goods” (UCC §2-102) [our focus], 104 provisions, 7 parts Part 1: General construction and subject matter/scope Part 2: Form, Formation and Readjustment of Contract [has k been formed?]

Talks about offers and acceptance §2-207: battle of forms→ has someone accepted?

Part 3: Interpretation/construction/obligation warranties

Part 4: 3rd Parties [we’ll do little with] Part 5: Performance Part 6: Breach, Repudiation, and Excuse Part 7: Remedies

Art.2A: Leases→ Book refers to pre-amended [we will touch on it to distinguish lease from sale] Art.9: Secured Transactions [limited discussion just for distinguishing]

Revised in 1991 which every state has adopted

Other Law UCITA: uniform computer transactions act

Complaints about keeping in art 2 so moved separate. We won’t talk about it because only 2 states have adopted

CISG We will talk about slightly. Art 2 in international context. When applies will supplement art 2.

Overarching questions: Why codify commercial law at all? Why not leave to c/l process? Why not codify all business transactions? Why was UCC promulgated by NCCUSL and ALI rather than Congress? How successful has the revision efforts been?

STATUTORY INTERPRETATION 1. Statutory language

Start with text: syntax, cadence (where to pause), context Note language may be found in more than one section Look at statutory cross-references

2. Define Key Terms §1-201 contains 43 definitions Definitions in beginning of each article Art. 2 and 2A have cross-references at end of Official Comment section

3. Determine Meaning of Statutory Language in reference to purposes of the entire statute or particular provision

§1-103: Liberally construed and applied to promote underlying purposes: (1) simplify, clarify, modernize; (2) to permit the continued expansion of commercial practices through custom, usage, and

agreement of parties, (3) to make uniform law among the various jurisdictions

ASK: Does interpretation run contrary to stated objectives? Does it frustrate parties’ reasonable expectations?

How does it fit in with statutory scheme of UCC 4. Legislative History: 4 types

Official comments* READ b/c extremely helpful! Prior versions of UCC State legislatures Books and treatises

UCC IN CONTEXT: UCC NOT COMPREHENSIVE 1) Parties can make their own law:

Expressly through agreement: §1-302: Variation by Agreement (old 1-102): Freedom of contract as controlling principle

EXCEPT when obligations of good faith, diligence, reasonableness and care prescribed by Act (may not be disclaimed by agreement)

Implicitly: (can supersede) course of performance (between same parties), course of dealings (with other parties), usage of trade (custom in industry) See §1-303: Course of Performance, Course of Dealing, and Usage of Trade

2) State statutes can supplement or supersede: eg usury law or lemon law 3) Since UCC is state law, Fed law can supplement or supersede

CISG UNIDROIT

4) Often resort to C/L, §1-103 5) Not one legal regime – tort, property, agency

What should UCC “default” rules look like? Reasonable, balanced, meet reasonable expectations of both parties?

Other Law as Gap Filler for UCC Unless displaced by the particular provisions of [the Uniform Commercial Code], the principles of law and

equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating and invalidating cause supplement its provisions. (Rv. 1-103(b))

C/l, other state law

Freedom of K→ UCC→ C/L

Does Ucc apply to non-merchants? YES IT DOES!

#2 – PP. 20-31 STATUTORY INTERPRETATION AND TRANSACTION TYPES THE STUDY OF COMMERCIAL LAW

TRANSACTION TYPES (P.19)First task: What law/laws govern?

Four principal factors: 1) The type of property or other subject matter of the transaction

- First: read scope provisions of possibly applicable statutes to see if transaction falls into 2) The nature or extent of rights transferred 3) The location of parties to the transaction 4) What, if anything, the parties’ agreement says about the governing law.

WHAT IS SCOPE OF ARTICLE 2?

§2-102: “Unless the context otherwise requires…this article applies to transactions in goods; …doesn’t apply to security transactions…

Define terms: “Goods” : §2-105(1): "Goods" means all 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).

Goods must be movable @ time of identification of contract for sale (fairly identifiable as movables before contract is to be performed)

Manner of Identification in goods : §2-501: Buyer obtains property and insurable interest in goods by identification of EXISTING goods…identification can by explicitly as parties agreed, or in absence: (a) when K is made if goods existing and identified, (b) if k is for sale of future: when goods are shipped, marked, or designated by seller to which refer (c) when crops planted or otherwise conceived, or if for unborn, within 12 months of next harvest

GOODS MUST BE MOVABLE AND TANGIBLE (exclusion of things in action - intangibles) Things in action/”chose in action”, an “incorporeal right” not reduced to possession but recoverable

by bringing and maintain an action. No tangible form. Examples: contract rights, rights to sue, intellectual property rights

Can be “specially manufactured”

Article 2 of UCC applies to all contracts for sale of goods, whether those goods be existing at time of sale or whether they are to be specially manufactured.

Problem 1-1A (p.22) A. Does Art. 2 apply to:

Selling radioactive isotopes suspended in solution for nuclear imaging?- Yes, a good. Movable at time of identification to the contract. The fact that isotopes are microscopic

should not matter.- Goods can be microscopic, also can ne liquids (need not be solids)

Selling oxygen to fill hospitals tanks- Yes, applies to sale of gas. Movable.

Selling to local utility the excess electricity generated by solar panels? - Somewhat unsettled: is it good or service? It moves – at the speed of light. Treat similar to

isotopes? Public policy?- Good: YES b/c movable at time of identification of k.

- Courts have held that furnishing electrical energy for household use is a sale of "goods" rather than a service transaction.

- In support of the conclusion that electricity is a good, courts point out that while the distribution of the electricity through a system may be considered a service, the electricity itself is a consumable product, the charge for which is determined by how much current has passed through the meter, and whatever can be measured to establish price would seem to be both existing and movable.

- Others, sale of service

Money is a good when treated as a commodity, the subject matter or object of the transaction. Money as the “medium of payment” is excluded. [2-105(1)] see definition of money 1-201(24)

→ TEST IS “IS MONEY THE OBJECT OF THE TRANSACTION?”

Problem 1-1B B. Ben makes following 4 purchases, does Art. 2 apply to any of following transactions:

Sale of antique coin?- Yes b/c treated as commodity [§2-105 comment]- (1) doesn’t fit into §1-201 money definition- (2) b/c object of transaction rather than “the price to be paid”

500 euros from Bank for use on an upcoming vacation. TRICKY!- Yes, Goods, b/c from Ben perspective, commodity sought rather than “price to be paid” even

though Euros are “money” as defined by §1-201(24)- When foreign currency is being treated as a commodity, it’s the subject of a sales transaction

(comment 1) 100k yen through investment broker; yen credited to Ben’s brokerage account.

- NO! Same currency exchange as above, but electronic funds transfer, so not a good and Art. 4A – funds/wire transfer. (Gen majority rule, at least 1 case→ In re Koreag, found that such currency trades were covered by Article 2)

- Amended Art. 2 makes clear that foreign exchange transactions are excluded (seeks to overrule Koreag).

- Policy reason: to keep out and not have warranties of 2 apply 1k shares of Microsoft stock in certificated form. Ben in possession of the certificate.

- No, not tangible, covered by Article 8 → Investment securities.

§2-107: Goods to be severed from realty: Recording Minerals or the like (oil & gas) or a structure, or its materials to be removed from realty → contract for sale of goods if to

be severed by the SELLER Things other than crops attached to the realty and CAPABLE OF SEVERANCE WITHOUT MATERIAL HARM: → contract

for sale of goods if severed by SELLER or BUYER

Transaction in Goods“Transaction”

– This Article shall be known and may be cited as Uniform Commercial Code – Sales.” UCC § 2-101; see also Comments.

– “In this Article unless the context otherwise requires ‘contract’ and ‘agreement’ are limited to those relating to the present or future sale of goods.” UCC § 2-106

– Transactions => Sales

Problem 1-1C C. Cheyenne Ind. Inc. (buyer) purchased following items for separate transactions. Does Art. 2 apply to these

transactions? Building from Lumbar Yard & lumber yard responsible for removing the building from concrete foundation

and putting it on skids. Cheyenne responsible for hauling away. See 2-107(1):- Yes, if seller severs then a good 2-107(1)→ why? b/c of contemplation of k- Otherwise real estate…

All timber from Forester’s land – yes 2-107(2) – doesn’t matter who severs- What if Cheyenne leased the land?- We read transactions as sales not leases

- But removing timber? Policy orientated approach / transaction orientated approach Oil and gas under Clampett’s property that Cheyenne can find and remove

- No b/c not good unless seller severs 20 gal. of gas from gas station for truck – goods, movable no different than other liquids 2-105, not part of

land so 2-107 doesn’t apply

Other Goods? Goods also include the unborn young of animals and growing crops and other identified things attached to realty. See

2-105, 2-107. Real property is excluded, as is tangible personal property, e.g.., intellectual property (not movable).

MIXED TRANSACTION OF GOODS AND SOFTWARE Some courts, software is a good and thus transfer Art 2; others disagree “smart goods”: goods with one or more computer chips and integrated software Even under a predominant purpose test, if the software is provided on tangible media, the question should be

whether the predominant purpose was to obtain diskettes (or other media) or a right (license) to distribute or use information (software, the program, not the diskette).

Nonetheless, an important factor seems to be the significance that a court might assign to the fact that something tangible is delivered as part of the transaction. If the contract does not require that the provider (seller, lessor, licensor, serviceperson) deliver something tangible to the other party, courts will not treat the transaction as a contract in goods because there is no corpus to which the idea of "goods" can attach. Thus, when courts are faced with the issue of whether data, software, or other material downloaded from the Internet constitutes a transaction in goods, the answer should be "no." If there are no tangible "deliverables," then the transaction does not even rise to the level of being a “mixed transaction”—there are no goods involved. This is even more clear where the contract entails access to online sites.

Problem 1-2 A. New book from bookstore

o good B. A new music cd from Music Retailer→ is it like a book or are you buying information on cd and thus not good?

o NOT DETERMINEDo UCITA for music transactions

C. Music download onto MP3 player → o NOT good, not movable. UCITA might apply.

D. Word processing software that comes on 3 CDS → o NOT DETERMINEDo considerable debate with softwareo CD movable at time of purchase…o Are you buying cd or license to use software? Most say buying license.

NOTES

2 doesn’t apply to things in action: contract rights, intellectual property rights, intangible things with goods, thinking of tangible movable real property and intangible excluded Amended goods defn R 2-103k → doesn’t govern, deal with certain transactions…

o The term does not include information, the money in which the price is to be paid, investment securities under Article 8, the subject matter of foreign exchange transactions, or choses in action

Impact of software? Is it good, or information? What jurisdiction? Is it a sale or license to use? Revised article excludes information

MIXED TRANSACTIONS OF GOODS AND SERVICES: Predominant purpose test (majority):

Was the predominant purpose of the transaction/contract the provision of goods? FACTORS:

- Contract language- Nature of the SUPPLIERS biz- Value of the materials and services provided under the K

Problem: Could protect buyer of goods less when incidental to service. Gravaman of the claim test: Formulated by Sheehan

Does claim relate to goods or services? Even if predominantly services, art 2 applies if claim arises from un-merchantability and caused personal

injuries… but has to be commercial transaction (not k for professional services) and must retain character after performance promised

Problem: have to wait until claim filed

IMPORTANT:  Under both tests if it is found that Article II applies to a hybrid transaction then it will apply to everything contained within the contract.

However, there seems to be at least some courts that will separate and apply as such (Sheehan approach)

"Component Part Test" (Minority rule) -- Dissect the transaction and examine the character of component parts.

Problem 1-3 (p. 26) Steadman Steadman’s ks w/ US customers governed by Art 2? Mixed goods and services.

We will use predominant test? What is predominant purpose of K Factors:

- Language of K- Nature of supplier biz- Value of the materials and services provided under the K

Robotic problem 1-3b – gray area Designing/building →service? Still goods, b/c s2 says custom so don’t take into account for predominant test

REMAINDER OF SCOPE LANGUAGE, 2-102 AND 1-103, C/L §2-102: Unless the context otherwise requires, this Article applies to transactions in goods . . . . this Article [does not]

impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers. §1-103: Unless displaced by the particular provisions of this Act, the principles of law and equity, including the law

merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.

Problem 1-4 (p.27) Blood bank →Good

o Alaska statute doesn’t sya not good just cant get warranties Other statutes: limit warranties, fitfulness for purpose, but doesn’t explicitly say article 2 not going to apply Says provision of services… but limits, says in this circumstance Sale of Oregon

o Ky, says no saleo Ca says they cano Doesn’t say art 2 doesn’t appl but adds other rules

Has limited conflict of laws 1-105

CISG: UN CONVENTION OF THE INTERNATIONAL SALE OF GOODS Ratified by US and 70 other countries, including Canada and Mexico CISG very limited, leaves out consumer sales, 3rd parties, has lots of gap fillers with domestic law Art. 1: Unless otherwise agreed, CISG applies to contracts for goods

Between commercial parties (not consumers) Whose places of business are in different nations If both nations have ratified the convention.

Ex.: CISG would apply when Ill. Corp buys goods from Canadian supplier or sells to Mexican buyer

Part 1(b) Cisg: when the rules of private int law lead to the application of the law of a contracting state: looking to conflicting state of law rules, and if points to state law of contracting state

Art. 95, at time of ratification can say no be bound, us has said so

Scope: Article 2, CISG DOESN’T APPLY TO: (a) consumer goods not covered, unless seller had no reason to know used for such use (b) by auction; (c) on execution or otherwise by authority of law; (d) of stocks, shares, investment securities . . . or money; (e) of ships, vessels, hovercraft or aircraft; (f) of electricity.

Problem 1-5: CISG A. US resident who buys a telephone order for pc from Canadian manufacturer and shipped to Mi. → Art. 2 B. Bethlehem Steel agrees to sell 500 frames to Canadian contractor.

o Yes: CISG Parties from different countries Both ratified

o BUT PC MAYBE CONSUMER GOOD! C. NY company agrees to manufacture and install heating units for Canadian company at their Detroit office.

o 2 arguments that CISG wouldn’t apply: Place of biz, one closest relation to k and its performance, p/b disregarded if unknown by k Or b/c or circumstances may not have known diff place of biz

D. If Bethlehem Steel and Canadian contractor expressly agreed? o 1-301(c): to extent permitted by law so specified.o But CISG? Art 6 can opt in/outo Case law says must be EXPRESS, b/c if says pa law, pa law includes CISG, must say CISG doesn’t apply

Mixed transactions: Ucc doenst say: either predominant or gravamen test CISG, Art 3, says – language, amt of money allocated to goods or services

CISG v. UCC Cisg no consumer goods, Art.2(a) CISG doesn’t apply to liability of seller for death or personal injury of goods sold, Art.5 CISG excludes issues of whether the sale to the buyer cuts off property interests of third parties in the goods sold, Art.

4(b)

FOR EXAM: need to know when applies, when excludes, electricity, auction Does convention apply by virtue of art 1? Is sale of goods (Art. 2-3) Have parties exercised freedom to opt out (Art. 6)?

STRUCTURING TRANSACTIONS

Hallmarks of good drafting:(1) Understand the deal: understand clients biz, what client hopes to achieve, and relevant usage of trade. Know

differences btwn the representations, warranties, covenants, and know which should be used for each term of deal(2) Know the legal rules and options available for allocating risks of the transaction in accordance with the legal rules(3) Close attention to every word used to make sure point expressed id the point intended

a. Avoid ambiguityb. Use consistent language: use same words when you mean the same thingc. Provide a logical structure for the documents to help avoid contradiction.d. Clearly identify and distinguish general rules from exceptions.e. Avoid legalese and convoluted structure. Use short sentences with simple sentence structure.f. Use active voice.

Problem 1-6 (p.31) Drafting Choice of Law Clause

Draft choice of law clause for inclusion in a form agreement that will make Washington’s UCC Art. 2 apply to the transaction in its entirety, no matter which the customers are and no matter how the transaction is structured.

UCC 1-301(a): …parties may agree

Good idea to have merger clauses Predominant purpose of K, for sale of goods Art 2 as adopted by Washington State Expressly opting out of CISG

PART TWO: CONTRACT FORMATION AND BASIC TERMS

#3 – PP. 33-40 CONTRACT FORMATION PRINCIPLES

#1: Determine what law governs (Art. 2, CISG, C/L)#2: Three issues:

Formation: Determine whether an agreement was formed, if the parties have already dealt with one another; or how to form one, if you are planning a future transaction.

Enforceability: If was or will be formed, will it be enforceable? Terms: Need to ascertain what the terms of the agreement are.

CONTRACT FORMATION UNDER UCC ART.2

In theory don’t need offer/acceptance; conduct is enough

Basic Concepts: Agreement v. Contract

What is an agreement [1-201]? o “bargain of the parties in fact”o Evidenced by parties’ communication (express/oral)o Or inferred from circumstances, including course of performance, course of dealing or usage of trade as

provided in 1-303 (CONDUCT)

What is a contract [1- 201]? o consists of “total legal obligation that results from the parties’ agreement as determined by UCC, as

supplemented by other law”o Can be less or more than agreement →Encompasses more than agreement whenever law adds a term to

parties’ bargain. Ex. warrant of merchantability if seller is a merchant w/ respect to goods sold in transaction [2-314, 2-316]

o Other gap filler rules: 2-307-310, 2-312-316o Can be less if part of agreement is unenforceable; ex. sale of contraband, failure to satisfy statute of frauds ucc

2-101. Agreement w/ unconscionable term 2-303(1).

Both terms broader than c/l contract (promise or set of promises for which law gives a remedy) b/c a bargain can also include parties’ consummated transaction → tendering payment at store is bargain for UCC but not K for c/l b/c no promise.

Rules of Contract formation: UCC 2-204 thru 2-207, 1-103 Art 2 relies on c/l principles of offer and acceptance; then builds on providing different rules on a few points in part to

account for broader bargain concepto Common Law Principles of Offer and Acceptance

Offer must address all material terms “Mirror image” rule Court must identify the moment of contract formation

Offers revocable (two exceptions)

2-204: Formation in Generalo (1) k can be formed in any manner sufficient to show agreement: no need to follow formalities of

offer/acceptance, o (2) no need to know precise moment of formation, o (3) k can be formed even though one or more terms are left open if parties intended to form k and reasonably

certain basis for providing remedy → substantial deviation from c/l which requires agreement on all material terms, but UCC has gap fillers

2-205: Firm Offero Under c/l, can revoke offer any time before accepted and can be held open only w/ consideration, but under

UCC, no consideration needed if OFFER TO BUY/SELL BY MERCHANT & signed writing. If no time stated, open for reasonable time, but not more than 3 months

o Relies on c/l concept of offer

o Hypo S advertises car for $4K online. B expresses interest, wants more time, gives $20 to hold until end of

day. B comes back and tenders $3K but S has $3.2K offer from another -2-205 doesn’t apply to transaction b/c 1) not merchants, and 2) involves consideration Resort to consideration: firm offer b/c consideration given Note: under common law we can extend firm offer time period beyond 3mo

2-206: Offer and Acceptanceo (1) unless otherwise unambiguously indicated by the language or the circumstances

(a) an offer to make a K shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances →Relies on c/l concept but contradicts c/l rules on acceptance – doesn’t have to be same manner/medium of offer but ACCEPTANCE IN any MANNER REASONABLE in circumstances. Offeror can still specify though.

(b)an order or other offer to BUY GOODS for prompt shipment shall be construed as inviting acceptance either by prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods, but such a shipment of nonconforming goods doesn’t constitute an acceptance if the seller reasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.

Allows order or offer to buy goods for prompt/current shipment to be accepted by promise to ship or PROMPT shipment

even shipping nonconforming unless seller “seasonably notifies” buyer that shipment offered only as accommodation [slight modification of c/l counter offer]

o (2) Where the beginning of a requested performance is reasonable mode of acceptance an offeror who is not notified of acceptance is within a reasonable time may treat the offer as having lapsed before acceptance.

Gives offeror ability to treat offer as lapsed before acceptance if not notified of acceptance w/in reasonable time, even where beginning of requested performance is a reasonable mode of acceptance

Comment 3: The beginning of a performance by an offeree can be effective as acceptance so as to bind the offeror ONLY if followed within a reasonable time by notice to the offeror. Also, C/l, beginning of performance may bar revocation.

Contract Formation Principles 2-204(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. 2-206(1) Unless otherwise unambiguously indicated by the language or circumstances

o (a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;

2-206 contemplates three methods of acceptance: promise, performance, beginning of performance

Gap filler: only after bargain supplemented by app usage of trade, course of dealing, and course of performance doesn’t deal with particular term

Can still vary by agreement 1-302

Under C/L: communications that don’t constitute offer:o 1)opinions about future results, including professional opinions o 2) statements of intention (including letters of intent which merely memorialize negotiations) o 3) invitations to submit a bid o 4) price estimates – However, where the estimate is deemed to be a factual misrepresentation because it was

made by an expert, estoppel may be invoked if the offeree relied to his detriment on the estimate. o 5) advertisements, catalogs and mass mailings – Courts have ruled that it is unreasonable for one to believe

that the merchant intends to be bound with all whom receive or read such literature unless the power of acceptance is clearly limited to the first person(s) that fulfills the act for which the incentive is offered.

o 6) auctions with reserve – An auction is "with reserve" unless announced to the contrary. In an auction with reserve, the auctioneer solicits offers in the form of bids. However, if the auction is announced to be "without reserve," the auctioneer's request for bids or his statement that an item will go to the highest bidder will be deemed an offer

Problem 2-1A. After reading Seller’s catalogue of hi-fi equipment, Buyer orders a $470 amplifier by completing the order form

included in the catalogue and faxing it to Seller. Upon Seller’s receipt of the fax but prior to acknowledgment or shipment is there an agreement?

Identify the offer ? Is catalogue, advertisement, offer? Look to c/l rules→ unlikely, rather an initiation to make an offeror

No, not contract, b/c order is the offer and we don’t yet have acceptance. Although Article 2 does not require an offer and acceptance analysis, and a contract can be formed by

the conduct of both parties that is sufficient to indicate a contract, here such conduct is lacking.

B. Buyer faxes Seller order for 1k lbs of Grade A bananas at 25¢/lb., delivery by 11/15, payment w/in 30days after delivery.

1. Seller faxes back response: received order. Expect to ship for delivery on 11/10. Is there agreement, when payment due?

- Acceptance 3 ways: promise, performance, beginning of performance - 1st: is there an offer: buyer’s order is offer- 2nd: Is response an acceptance? Although seller’s responsive fax doesn’t expressly promise to

perform, but Liberally viewing this from the standpoint of reasonable person, someone in the buyer’s (offeror’s) position would understand the seller’s response as a promise despite absence of promising language

- Seller’s response said nothing about payment, so payment within 30 days after delivery.

2. Instead of sending response, seller shipped bananas, for 11/10 delivery. Prior to delivery, is there agreement, what are payment terms, what if seller shipped apples instead of bananas?

- See 2-206(1)(b) – an order for shipment invites acceptance by shipment- When is acceptance effective? Shipment or delivery? C/L approach (54, 56)

- Yes, acceptance when began performance of shipping. (shipment not delivery)? But notice? If not notified, can be treated as lapsing b4 acceptance.

- Payment terms same as original offer.- Apples? Nonconforming, maybe; BUT BREACH

C. Seller faxes Buyer the following: Please to offer you 1,000 lbs. of Grade A cherries at 43¢/lb., delivery by November 15, payment within 30 days after delivery. E-mail me or call me by end of the day if that’s okay. Buyer accepts 2 days later. Is there agreement? What if after receiving response, ships? Offeror is still master →2-206 states “unless otherwise unambiguously indicated by the language . . . .”

o The seller’s e-mail offer asked for a response by the end of the day. Buyer’s response is too late. Nothing in § 2-206 alters the common-law rules on this.

But if ships, acceptance of counter/or new offer If the seller ships the cherries, that is an indication that the seller did not intend a strict time limit for the

buyer’s acceptance and thus an agreement was formed when the buyer sent the response. Even if the buyer’s response does not qualify as an acceptance, there would still be an agreement -- buyer’s response is now an offer which the seller would have accepted by performance.

D. Seller faxes Buyer: Pleased to offer you 500lbs. of dates at 94cents/lb delivery by 11/13, payment within 30 days after delivery. Buyer responds: price too high, cant buy for more than 68cents. Is there agreement? What is seller ships dates?

Buyers response not CLEARLY an ACCEPTANCE, doesn’t contain or reflect an indication of agreement, rather buyer and seller negotiating.

Was this counteroffer? If yes, shipment is acceptance of lower price. If Not counter but buyer keeps dates, clear indication of agreement.

Problem 2-2 Firm OfferA. Firm offer, but needs to be (1) MERCHANT, and (2) signed in writing by seller, (3) assurance by terms

Sign may be email, letterhead

B. Sedgwick merchant, seller of bolts. Sent signed offer to Barker that will sell at price open until 4/15. Barker signed form and mailed 4/6. 4/10 left message not buying from Sedgwick. K?

Contract formed? was signing form acceptance of offer? Yes, Barker’s signature at the bottom of the page signified an acceptance of the offer to sell , effective upon

dispatch assuming it was properly addressed. Thus, Barker’s attempted rejection of the offer is probably ineffective.

Common-law rules on the timing of offer and acceptance remain operative under Article 2, unless there is some specific rule in the Code that provides a different result

C. Sedgwick sent Baxter for, standard sales terms, and firm offer of Baxter to buy until May 15. May 6, Baxter revoked, Sedg purported to accept May 11

When on offeree’s form, firm offer must be separately signed, so no. Also, Baxter may not be merchant. See comment 4

D. After negotiating with Baker re bolts that Bakter needed for the type of plane that Baker makes, Sedgwick started to retool her manufacturing process to produce the blots. About a week after that retooling process started, Baker called Sedgwick to say buying blots from someone else. S sued B for breach of k, arguing by retooling process she has begun the requested performance and thereby accepted the buy during course of negotiations.

Need to notify of performance in reasonable time. (Under 2-206(1)(b), performance involves shipping the goods (narrow range of actions)-BUT:

beginning performance? Depends on whether we describe performance as delivery or preparation for manuf (prob not). If we say that there was performance, we still need notification w/in reasonable time)

2-206(2): Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

2-206(1)(a) and 2-206(2) allow beginning of performance to act as acceptance.- Is this beginning of performance?- If so, was there notification within reasonable time?

2-204: - (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.

Firm Offers What is the maximum time limit a firm offer can remain irrevocable? What if the promise is made for longer than three months? What is an “assurance”? What is a signature? (See 1-201(39))

HypoSeller advertises a car for sale for $3,000 on craigslist. Buyer comes to look at the car, expresses interest, but asks for time to get the money. Buyer pays Seller $20 to hold the car for Buyer until the end of the day. Buyer comes back at the end of the day and tenders the $3,000 but Seller, who has now had an offer for $3,200 from someone else, refuses to sell for the $3,000 price. Did the parties form an agreement?

Yes c/l option

Problem 2-3 - Conduct Stable Earth, Inc., a manufacturer of fertilizer, and Brittany, a farmer, had done business with each other for 5 years. When fertilizer was needed, Brittany would call the Stable Earth order desk and order a specific quantity and

quality of fertilizer. Stable Earth’s order desk would send that order to the warehouse, where personnel would ship the goods to Brittany by carrier, accompanied by a bill based on Stable Earth’s current wholesale price.

Frequently, Stable Earth would ship less or more than what Brittany ordered, depending upon what Stable Earth had on hand in the warehouse, but the deviation would never exceed 15%. The bill reflected the quantity actually shipped and Brittany invariably accepted and paid for what was actually shipped without objection.

On July 10, during a time of price instability in the fertilizer market, Brittany used the Web site to order 500 bags of a specified fertilizer “for prompt shipment.” The wholesale price on that date was $18 per bag.

On July 12, Stable Earth shipped 400 bags of fertilizer to Brittany and mailed an invoice for the wholesale price on that date, $20 per bag.

On July 15, while the goods were still in transit and the wholesale price was $25.00 per bag, Stable Earth notified Brittany that the order had been rejected and diverted the shipment to Carl, who agreed to pay $26 per bag. Brittany sued Stable Earth for breach of contract. Is there a contract between Brittany and Stable Earth? If so, what is the price per bag under the contract?

Prof: Offer by B is 500bags +/- 15% at $20. No acceptance by S b/c although performance, outside course of dealing (new amt exceeds 15%). Counteroffer is 400bags at $20?

- 2-206(1)(b): shipment of non-conforming goods is acceptance unless notification that shipment is accommodation (then it would be counteroffer).

Stable Earth’s shipment of 400 bags when 500 was ordered could be both an acceptance and a breach (nonconforming goods). NOT WITHIN PREVIOUS DEVIATION, SO CANNOT AVOID BREACH.

Price was at time of shipment, $20 per bag.

2-206(1)(b): avoids unilateral contract trick of seller denying contract formation if buyer rejects goods, and insisting on contract price if buyer accepts goods.

The University called the Jolly Jelly Donut Co. late Friday night left an order for 100 jelly donuts for delivery the following day on their answering machine. While making the donuts, Jelly employees realized that they did not have enough jelly for all 100 donuts, and so it delivered only 50 jelly donuts, and 50 cake donuts. The University sued for breach. At trial, Jolly denied existence of a contract because they had not accepted the offer. Specifically, Jolly argued that “we did not give them what they ordered, and so we never accepted the offer.” What result?

Jelly is attempting to pull the “unilateral contract trick.” 2-206(1)(b) provides that “an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance...by the prompt or current shipment of conforming or non-conforming goods.” Here, the shipment by Jelly of non-conforming goods does not preclude acceptance because the order invited prompt shipment. Thus, Jelly is bound by contract and has breached by shipping non-conforming goods.

Problem 2-4 Sellers catalogue of unique and expensive items, Buyer telephones to order eagle for top of flagpole, $675. Buyer pays

by giving credit card. Sellers catalogue says, customer must notify problem w/in 20 days. Prior to shipment, agreement? Catalogue clause part of agreement?

Buyer’s telephone order was an offer to purchase. Seller’s taking of the credit card number and charging the card would be acceptance.

- There is agreement prior to shipment b/c under 2-206(1)(b) accepting credit card is promise to perform.

- Ad is invitation to make an offer (not an offer b/c indefinite as to #) Is the catalogue term is part of the agreement? Article 2 does not answer that question. If the catalogue itself

was an offer, then the term would be included in the offer and accepted when Buyer ordered the item. If, as is more likely, Buyer’s telephone order was the offer, the issue is whether it is a term implied into the offer.

- Difficult to see how the terms in catalogue are part of agreement b/c buyer ordered over the phone and not using the order form: not part of offer.

- Good argument that doesn’t quite work: parties use info in catalogue in order to make the offer/acceptance of transaction (counterargument is that not everything in catalogue, or even same page, is factored into the offer). No custom of trade here, but could apply in other

situations. If terms were to come in as part of acceptance (which they don’t), this would lead to host of problems b/c “additional terms” (2-207)

#4 - PP. 40-59 CONTRACT FORMATION: “BATTLE OF THE FORMS”

Common Law Approacho Mirror image ruleo “Last shot” doctrine

Article 2 Approacho Eliminate the last shot doctrineo Preserve the contracto Determine the appropriate contract terms (real exercise in statutory interpretation)o Underlying assumption?

Illustration Buyer sends seller an order which is an offer to buy. The form has on it numerous terms, including the description,

quantity, and price of the desired goods. Seller responds by sending an order acknowledgment form which contains numerous terms, some different from those on the Buyer’s form and some additional terms. The two forms match on the major transaction-specific terms: the description of the goods, quantity and price.

At c/l: would be counter-offer, not acceptance. And then based on SEQUENCE→ (last shot rule) If Buyer sent payment, would be deemed to accept counter and a contract formed on Seller’s terms. If seller shipped and buyer accepted, Buyers conduct would be acceptance and Sellers term control.

Each of 3 sections deals with something different: 1) deals w/ the parties’ communication from an agreement. Abrogates the c/l mirror image rule by allowing

w/add or diff to still function as acceptance 2) only after there’s an agreement under (1)

- For who is merchant, §2-104 3) for situations if no agreement under (1) – no writing but thru conduct

§2-207(1): The Basic Rule (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable

time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

Effect of 2-207 (existence and terms) Definite and seasonable expression of acceptance Written confirmation Additional or different terms Expressly made conditional

Definite and seasonable expression of acceptance The expression is “intended as an acceptance or the closing of an agreement.” (Comment 1.)

Written confirmation Applies to situations “where an agreement has been reached either orally or by informal correspondence

between the parties and is followed by one or both of the parties sending formal memoranda embodying the terms so far as agreed upon and adding terms not discussed.” (Comment 1.)

Steps for Battle of the Forms:1) Do communications form agreement (sec 1)2) If yes, determine terms of agreement (sec 2)3) If no, does conduct form agreement, determine terms of agreement (sec 3)

§2-207 (1) K FORMATION:

o Expression of acceptance or confirmation w/in reasonable time, is acceptance even if it has ADDITIONAL/DIFFERENT TERMS, unless acceptance expressly stated as CONDITIONAL on those terms

o Definite and seasonable expression of acceptance The expression is “intended as an acceptance or the closing of an agreement.” (Comment 1.)

o Written confirmation Applies to situations “where an agreement has been reached either orally or by informal

correspondence between the parties and is followed by one or both of the parties sending formal memoranda embodying the terms so far as agreed upon and adding terms not discussed.” (Comment 1.)

(2) TERMS:o ADDITIONAL terms construed as proposals for addition to K.o BETWEEN MERCHANTS, terms become part of K unless (1) offer limits acceptance to terms of offer, (b) they

materially alter it, or (3) notification of objection has already been given or is given w/in reasonable notice

(3) K FORMATION by Conduct

DAITOM, INC. (BUYER) V. PENNWALT CORP. (SELLER), 1984 Shipping not likely to be acceptance under UCC, under c/L probably Facts:

o 9/7/1976: seller-Pennwault, after negotiations sent proposal for sale of 2 rotary vacuum dryers w/preprinted forms, terms (1yr limitation from delivery to bring suit)

o 10/5/1976: buyer-Daitom sent purchase order w/pre-printed form and terms (reserve all rights under law) on back of form

o 5/1977: Pennwault delivered, but left crates outsideo 6/15/1978: when goods installed and serious defects realizedo 6/17/1978: Daitom notified seller, but seller unable to repairo 3/7/1980: Daitom-buyer suedo TC: exchanged writings formed a K, thus not formal single document. Seller proposal was offer, purchase

order acceptance. 1 year limitation became part of k and since law suit was brought more than year after delivery, granted summary judgment against Daitom

Buyer’s boilerplate make acceptance conditional under 2-207(1)?o No: doesn’t preclude formation of K based on writings

1. Objective manifestation of assent on essential terms 2. Provision drafter like offer inviting acceptance, imprecision of language detracts 3. Courts split on 2-207(1) → TESTS FOR WHETHER EXPRESSLY CONDITIONAL

Extreme: Roto-Lith v. FP Barlett: offerees response stating a term materialy alerting the contractual obligations solely to the disadvantage of the offeror constitutes a conditional acceptance. [eventually rejected]

Middle: Construction Aggregates Corp. v.Hewitt-Robins, Inc: a response merely “predicating” acceptance on clarification, addition or modification is a conditional acceptance. But people don’t read their forms, like mirror image rule which 2-207 tried to reject

Other Extreme: Dorton v. Collins & Aikman Co.: conditional nature of the acceptance should be so clearly expressed in a manner sufficient to notify the offeror that the offeree is unwilling to proceed with the transaction unless the additional or different terms are included in the contract. MUST EXPLICITLY COMMUNICATE WILL NOT PROCEED.

o Best and one PA likely to adopt. Someone doesn’t get undue advantage of mirror image rule

What effect of additional/different terms?o 1) Different terns treated as additional under 2-207(2): then never become part o K b/c by definition

“materially alter” o 2) IGNORE: b/c 2-207(2) doesn’t talk of additional terms, different terms never become part of K →offerors

terms control b/c different terms merely fall out . why b/c of comment 3o 3) knockout rule: conflicting terms cancel eachother out and gapfiller: ucc in absence of course of

performance, course of dealing, or usage of trade. why b/c of comment 6, and looks at 2-207(3). Criticism is not textually supported. Why do they choose? b/c seems to be most fair.

How this construed:o Reserve all rights v. 1 yrs statute of limitation

UCC says 4yrs, which would be reservedo Court knocks out terms, and replaced with UCC 4

Criticism is that no “EXPRESS” terms conflicting

How does dissent analyze 2-207(2) different term issue?- Nothing conflicting, so 1 yr would be in

Is knock-out best approach?

How should we view materiality?- Comments 4&5: surprise, hardship, industry custom

2-207(2) – offer expressly limits → treat as with not willing to proceed otherwise

Illustration Savage company acquires goods from Insurer, some possibly defective. Salvage offers to sell to Wholesaler without

any warrant of merchantability or warranty of quality. Wholesaler sends purchase order on standard form with provision that seller warrants goods are merchantable.

o If knock out applies: UCC warranty of goods merchantable applies §2-314(1) WOULD BIND EVEN IF SALVAGE IMMEDIATELY READS AND CALLS TO OBJECT, CAN ONLY CHANGE

WITH CONSENT

Merchants- 2-104: definition of merchants, comment 2 IMPORTANT EXPLANATIONS

o Specialized knowledge- Practices merchants- Goods merchants- Which kind? Look at specific provision

Hypo: frank a third year law student sells car?- Art 2 applies- Merchant warrantability doesn’t

Hypo: Zebra Univ sells excess office? Zebra merchant?- Merchant for somethings, but not for selling excess office furniture.

Problem 2-5A. Yes agreement b/c not expressly conditioned.

a. Doesn’t state additional or different terms re arb clause. b. But delivery date is additional term→just proposal (buyer isn’t merchant).

B. Offer to buy via phone, acceptance by taking credit card. Seller mails acknowledgment describes item and price & subject to terms on back of form

a. Prior to shipment is there agreement? Yes: by accepting credit card. Acknowledgment w/ additional terms either counter or proposal?

b. If merchants: part of k unless materially alter → i. custom of 20 days? Surprise/hardship

ii. Governed law Illinois, in Illinois so wont materially affectiii. Arbitration? Probably does materially alter?? Affecting right to jury/trialiv. Ship by Careful Carriers, wont materially affect

C. Purchase order (offer to buy) w/ clause saying in advance wont accept additional or different terms; seller. Acknowledgment sent that interest accrue on balance after due date.

a. Agreement: acceptance as long as it looks like it and not expressly conditionalb. Different or additional term?

i. If additional: If merchants, offer had expressly limited to terms so not added? HERE NOT ENOUGH, NEEDS TO BE PUT IN COVERLETTER

D. No agreement till shipment since conditioned, and then arb class includedE. Arb clause not includedF. Prior to shipment, contract. Neither acknowledgement conditioned.

a. Same term includedb. Add term included unless materially alters (if merchants)c. Diff term: depends jurisdiction, knockout, falls out, or if materially alters

G. Gray area??? arb clause b/c didn’t return

Problem 2-6

#5 – PP. 59-76 CONTRACT FORMATION: STATUTE OF FRAUDS

ELECTRONIC CONTRACTING AND ASSENT- Click-wrap agreements: click agree after terms of agreement displayed- Browse-wrap agreements: just description of goods with link to other terms

Problem 2-7A. Pop-screen before completion of order, Bound, yes?B. Instead, hyperlink that says click here for terms, Abel doesn’t click and completes. Bound?C. What reasons for browse wrap rather than click wrap?

Contract Formation in International Transactions1. CISG

- Art. 19: another approach to battle of formso 1: like c/l mirror image rule, reply w/ additional term is rejection and counter-offero 2: if add/diff terms don’t materially alter terms of offer, then reply acceptanceo 3: most conceivable terns are material

- Adopts something like last shot rule that 2-207 tried to avoid- Commercial parties under CISG must read and object to terms in the forms or risk agreeing to them.

Problem 2-8

Revisit 2-5

2. UNIDROIT Principles

- Closely analogous to UCC2, offer and acceptance as well as conduct can show k.- Response that purports to be acceptance but contains non-material add or diff terms is treated as acceptance.- Non material become part of agreement.- If term is a standard term, not effective if not reasonably expected by other party or other party hasn’t expressly

accepted it- If both have terms “common in substance” partied have K with tem unless other indicates in advance or without

undue delay that it doesn’t intend to be bound to the K

BARRIERS TO ENFORCEABILITYA. Statute of Frauds

§ 2-201. Formal Requirements; Statute of Frauds.(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 subsec-tion (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 en-forceable(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).

If can’t prove compliance w/ statute of frauds, s claim will fail. Lawsuit will follow 2 patterns:Π Π- (1) submits motion to dismiss alleging has failed to plead satisfaction of the statute of frauds, orΔ Π- (2) Plead the statute of frauds as an AFFIRMATIVE DEFENSE in its answer, and later moves for summary judgment on

basis that the hasn’t been able to produce a writing or other sufficient evidence to satisfy the statute of fraudsΠ

Statute of frauds just unlocks door to courthouse, still need to prove that K existed, what terms of K were, and breach

Article 2 approach:- Relaxing writing requirement 1-102(46)- Relaxes signature requirement 1-201(39)

Two justifications for statute of frauds:- Avoids fraudulent or perjured claims that agreement was made

o Note CISG doesn’t have statute of frauds, and UNIDROIT doesn’t require a writing of any sorto even if prevent one type of fraud, increase fraud of denying existence of agreement

- Encourages the useful biz habit of making a writingo Presumes encouraging individuals and businesses to memorialize their agreements is WORTH ADDED COST

and that individuals and biz will in fact modify their behavior b/c of the law.

Problem 2-9- To be in compliance with 2-201(1): see cmt 1

o (1) A Writing that’s sufficient to indicate a contract exists Can use multiple writings, if together *SOME COURTS SAY SIGNATURE MUST BE ON QUANTITY WRITING, BUT OTHERS DISAGREE

o (2) Signed by defendant (party to be enforced against)o (3) Indicating quantity

- Why need quantity term but not other terms? No gap filler for quantity

#6 – PP. 76-91 CONTRACT FORMATION: UNCONSCIONABILITY; CONTRACT TERMS

Class 7 slides: Statute of Frauds II

Questions: - Always decide whether sufficient writing b4 going to exceptions- Relationship to 2-207: KEEP SEPARATE EVEN IF SAME QUESTION- Yes applies to mix, if ucc applies then statute of frauds applies- Yes applies if aggregate 500

Modifications and Statute of Frauds- 2-209(1) no consideration needed- 2-209(3) requirements of statute of frauds mys be satisfied if contract modified within its provisions

o Proper interpretations Change of money over 500, or within Quantity change, maybe

Modification itself 500o Are we allowed exceptions? Yes

Multiple choice sample problem, doug and sara- 1) Yes – b/c memo sufficient and didn’t explicitly deny- 2) check for 20k – yes, b/c exception but only to extent of 20k

Exceptions

4 exceptions to 2-201(1):1) Merchants must read their mail rules (2-201(2))

a. Who qualifies as merchant under rule, see 2-104, cmt22) 2-201(3)(a)3) 2-201(3)(b)4) 2-201(3)(c)5) Fifth? Promissory estoppel

Problem 2-10A. Sufficient against sender?

a. Meaning? Sufficient to satisfy statute against sender means as to satisfy 2-201(1) against that party– SIGNATURE, QUANTITY, WRITING SUFFICIENT TO INDICATE K

b. How limit scope?B. Can Silas raise statute of frauds?

a. Brittany will argue Silas email is evidence of K just disagreement of termi. Silas will argue: his writing said rejection.

b. Brittany might argue written confirm between merchantsi. Silas objection adequate??

1. Within 10 days2. Object to contents – existence of k or to terms??

C. Brittany and Silas merchantsa. Almost anyone conducting a biz is merchantb. Brittany a witness as soon as holds out, puts sign up

Casazza v. Kiser, 2002- Facts: Casazza tried to buy 52-ft sailboat from Kiser. Casazza sued for breach and promissory estoppel for Kiser’s

failure to sell.- Disposition: Casazza complaint dismissed.- I. Statute of Frauds defense

o B/c Kiser raised defense, Casazza must affirmatively show existence of writing or exceptiono argues TC erred in dismissing for being barred by statute of frauds: (1) partial performance, (2) sufficient Π

writing, (3) possibility that may have sufficient writing:Δ Partial Performance Exception (2-201(3)(c))

Acceptance of software, part performance? 2-606(2): [commercial unit provision] acceptance of a part of commercial unit if acceptance of entire unit

Court response:o Question applicability of 2-606(2)o Even if applicable, under no circumstances could software and the ship be

considered a single “commercial unit”; b/c not “single whole” Sufficient Writing

Court response: No document signed by Kiser, no connection between forms Admissions Exceptions (2-201(3)(b)

Court response: He had 6 months, and had no admission; not going to have trial, that’s point of statute of frauds. Should get it in pleadings.

- II. Promissory Estoppelo Does Promissory estoppel apply under 2-201(1) and 1-103??

Look at comments 1-103, unless “explicitly displaced”, and not by name explicitly displaced in 2-201

o 3 approaches: 1: Restatement approach: defeat stf only when promise relied upon is promise to reduce to writing

No specific allegation, just one line in amended 2: rejection, can’t rely on promissory estoppel 3: Least restrictive approach: only when detrimental reliance is of such a character and magnitude

that refusal to enforce the contract would permit one party to perpetuate a fraud No fraud alleged in amended complaint No detrimental reliance of sort required to take out of statute of frauds NEED SOMETHING LIKE UNCONSCIONABLE CONDUCT

Problem 2-11- What should Casazza have done in interaction with Kiser?

o HE SHOULD HAVE HAD WRITING SIGNED BY KISER- Could he have done memo under 2-201(2)?

o Doubtful both merchants- If merchants, what advise Casazza? Send memo, terms, signed- If merchants, what advise Kiser? Object w/in ten days: NOT JUST TO TERMS BUT TO EXISTENCE OF CONTRACT

Problem 2-12- Alleged K for 50k integrated circuits, specially manufactured.- Problems with relying on purchase order as writing;

o Quantity not of 50ko Offer, and offer isn’t a contract

- So best arguments on exceptions:o Specially manufactured

COURT REJECTED FOR MORE THAN 7Ko Part performance:

Only 4K b/c that’s only amount accepted

More on Electronic Contracting

UnconscionabilityFreedom of k?2-302How do we define?

- Not just unfair or adhesion

Fisher v. Dell (NM 2008)- Choice of law clause- Arbitration clause- Class action ban

Did arb clause even get in??Under new mexico…Court

- Concerned that will give some consumers NO ACCESSUnconscionability

- Factorso Parties relative age, status, intelligence, biz sophistication, rel bargaining power, availability of alternatives in

the marketplace- Substantive: content

o Monstrously harsho Exceedingly callousedo Shocking to the conscience

- Procedural: k formationo Adhesive k factorso Relative bargaining power, gross inequality

o An atmosphere of take it of leave ito Use of confusing language

Unconscionability → determined at time of contract formationPolicing mechanism, goes further than other c/l doctrines

FOR COURTS THAT JUST NEED ONE ASPECT ITS GOING TO BE SUBSTANTIVE UNCONSCIONABILITY

Note materiality in 2-207 is DIFFERENT ANALYSIS

Problem 2-13- Anything substantively unconscionable?

o Looking at fees paid – at least half maybe all. Seller gets full discretion of arbitrator and no requirement of qualifications → but raise to level of substantive unconscionable?

o Hard for prof: hard standard- Anything procedurally unconscionable?

Problem 2-14- Choice of forum clause

o Both merchants so would weigh against! Presumption savvy about contracts termso Substantive?

Litigating I distant for small claim (Fiser?) Should unconscionability apply in non-consumer context?

o Procedural? Cant a merchant object 2-207(c)?

Problem 2-15- Price- Substantive:

o Price value comparison, price sost comparison- Procedural

o Can buy from others or not at all

#7 – pp. 79-94 Scope: Merchants

PART THREE: TERMS OF THE CONTRACT

#7 – PP. 91-112 CONTRACT TERMS: GOOD FAITH; MODIFICATION

TERMS OF THE AGREEMENTCourse of performanceCourse of dealingUsage of tradeHierarchy:

- Express- Course of performance – these parties this contract- Course of dealings- these parties BUT not this contract- Usage of trade

GOOD FAITH- Doesn’t come into play before the contract,

Freedom of K? UCC 2-102(3)

What do we mean by good faith?

- Non merchants: honesty in fact, purely subjective- Merchants 2 standards: (1) honesty in fact, (2)observance of reasonable commercial standards in fair dealing

MARKET STREETS ASSOCIATES LTD. PARTNERSHIP V. FREY- What good faith means – is look at parties at time of contracting, had they thought about this, what they would have

expressly- Trying to avoid OPPORTUNISTIC BEHAVIOR

PROBLEM 3-2- Master agreement?- And what does good faith require, for merchants the 2 standards

MODIFICATION BY AGREEMENT §2-209

UCC 2-209 – good faith rather than consideration as a policing mechanism- Is it adequate safeguard?

ROTH STEEL V. SHARON STEEL, 1983- Modifications- c/l for modifications: need consideration; but ucc: need good faith but no consideration- Holding:

o commercially reasonable b/c unforeseen exigencies to prompt ordinary merchant to seek modificationo honesty in fact?

Coercive conduct is evidence that modification is sought in bad faith but prima facie showing can be rebutted by party seeking to enforce the modification

Sharon argues k allowed to make price agreement → but why not make argument earlier?o CONCLUSION: CONTEMPORANEOUS COMMUNICATION CONTAINING JUSTIFICATION

How do we know modifications?- Agreement- Good faith

o How determine reasonableness, merchant in trade? Look to people in trade, ask

MODIFICATIONS: STATUTE OF FRAUDS

Even if modification in good faith, may not be enforceable b/c of statute of frauds.

#1 option follow thru: if satisfies 2-201: follows thru with modifications, only if quantity increases need new wrting

#2 option: if satisfies 2-201: need new writing FOR any modification.

PROBLEM 3-3

A. Need writing, now 800B. Need writing, change in quantityC. Depends on jurisdiction.D. Depends on jurisdiction.

PROBLEM 3-4

A. SINGLE TIME doesn’t modify agreement. But waiver (voluntary relinquishment of a known right), maybe silence & reasonable time passes. (delivery change date) Can change? Not if reliance.

Modification or waiver?- Is there an agreement to modify (offer/acceptance)?- Is there a voluntary relinquishment of a known right?

o 2-208 comment 3: “Where it is difficult to determine whether a particular act merely sheds light on the meaning of the agreement or represents a waiver of a term of the agreement, the preference is in favor of "waiver" whenever such construction, plus the application of the provisions on the reinstatement of rights waived (see Section 2-209), is needed to preserve the flexible character of commercial contracts and to prevent surprise or other hardship.”

B. Can course of performance qualify as a modification?- B may have waived its rights, but if S hasn’t relied…

2-209(2) – private

Waiver 2-209(4)(5)

(4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3), it may operate as a waiver.(5) A party that has made a waiver affecting an executory portion of a contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

- Posner –modifications, will waive if reliance even if doesn’t satisfy 2-209(2)-(3)- Easterbrook – some waivers require reliance, if some instances that require reliance, must be instances that don’t

require reliance- Sometimes modifications ineffective, but might still say waive (sec. 4) - Majority view: modification is a waiver when reliance [ probably going to be on exam]

C. Change analysis of initial agreement provided no modification binding unless made in writing and signed?o All jurisdictions effectiveo All for modifications, but not for waivers!

#8 – PP. 112-130 CONTRACT TERMS: EXPRESS WARRANTIES

ADDING TO THE AGREEMENT: EXPRESS WARRANTIES

UCC no caveat emptor→ “let buyer beware” [use to need language, intent, reliance, not presumed]1) Not mere opinions or commendations

a. Need affirmation of fact or promiseb. Supplied description of goodsc. Provided sample/model of goods

2) Must be basis of bargain: 3 versions for reliance

Express warranty = affirmation + BB- Ucc had been moving away from reliance, etc…- Uniform Sales Act - precursor, took out reliance

AFFIRMATION OF FACT OR OPINION- Test:

o Objective v. subjectiveo Knowledge of partieso Facts, verifiable, specificity

- Factors:o Knowledge of partyo Factso Specifico Usage of tradeso Verifiable?o Vagueo expectations

- Affirmation of fact v. puffery??o General rather than specifico Hedged rather than unqualifiedo Phrased as opinion rather than facto Medium of communication (oral rather than written, or in informal statement rather than in formal written

contracto Experimental rather than standard goodso Claim not capable of objective measurement or being adjudged as true or facto Unreasonableness of buyers…

Problem 3-5A. opinionB. opinionC. ..D. Whether true or false doesn’t matter for warrantyE. Comparison to what?

BASIS OF THE BARGAIN2-313, comment 3 may suggest that buyer must demonstrate reliance.

3 options:- (1)Strict showing of reliance, similar to UCC precursor, “but for”, or at very least, affected – why these jurisdictions?

b/c must say something [only 10 jurisdictions]Split between these 2:

- (2) Rebuttable presumption of reliance/comment 3 approach- (3) No reliance requirement, just affirmation of fact, just look to see if its been breached

Comment 4: seller’s conduct, not view point of buyer – maybe support comment 3Comment 8: All statements of the seller become part – so maybe no reliance neededComment 3: first sentence, seems like no reliance, 2nd sentence – maybe rebuttable presumption

What about when buyer dowsnt know – but some representation – manual, brochure, etc.

Rogath v. Siebenmann, 1997 – reliance on truth or reliance on existence of promiseWhat do we need for express warranty → affirmation of fact +Basis of Bargain

- Why affirmation of fact?o Factual, specific, verifiableo Help: usage of trade terms, knowledge of parties

- Facts: “Self portrait” supposedly painted in 1973 by Francis Bacon.o July 1993: , Siebenmann sold to David Rogath for $570k. In Bill of Sales, described origin, warranted that he Δ

was sole owner, that it was authentic, and not aware of challenges to authenticityo 3 months later, sold to Acquabella for $950k, but found challenge of authenticity and asked for refund. Rogath

did and than sued Siebenmann for breach of K and fraud.o TC: awarded $950k of damages, court dismissed sua sponte the remaining claims in light of full recovery.o Appeal by of grant of partial summary judgment, cross appeals denial of motion for attachment and Δ

dismissal of fraud/breach of k claims

o claims: was fully aware when bought painting of authenticity and origin had already been raised and underΔ Π NY UCC can’t rest claims of warranty on reps made in Bill of Sale

- Breach of warranty under NY law?o 3 options for basis:

Buyer must have relied upon accuracy of sellers affirmations/promises Requirement met if buyer relied on sellers promise as part of basis, buyer need not show he relied on

the truthfulness Reliance requirement only when dispute as to whether warranty in fact given, no reliance required

when warranty is concede to existence of warranty – only need establish breach of warrantyo In 1990, NY in CBS v. Ziff chose the view of requiring no more than reliance on the express warranty as being

a part of the bargain between the parties – breach of express warranty no longer grounded in tort but K. Critical question: not whether the buyer believed truth of warranted info, but whether he believed he

was purchasing the sellers promise as to the its truth.o In, 1992, Galli v. Metz:

Court must determine extent and source of buyers knowledge (what he knew and what source): if buyer closes K knowing facts disclosed by seller that would otherwise breach, buyer is

foreclosed upon asserting breach UNLESS expressly preserves by stating that dispute disputes, buyer doesn’t waiver any rights.

Can prevail however, if from common knowledge or 3rd party knowledge; b/c buyer purchased sellers warranty.

- What Siebenmann knew:o 1) admits told that Marlborough Gallery troubledo 2) admits that Barran, had earlier refused to buy b/c of Marlborough doubtso 3) attempted sale to Miller aborted b/c of Marlborough and David Sylvester, art critic, advised Miller not to

proceedo 4)Fax from Goldstein, art dealer, in 1993 stating everybody afraid of authenticity

- What Siebenmann told Rogath: Reasonable Inferenceso Mentioned the Marlborough issue, Rogath brushed aside.o Curator of Tate told impossible to check, said convinced genuine.

- Summary judgment inappropriateo Rogath denies aware of challengeso Bill of Sale doesn’t expressly preserve his rights, so what seller told buyer. What curator told Rogath is

immaterial, only is seller informed Rogath of doubts or challenges to authenticity will Rogath be deemed to have waived and claims.

o But b/c of material issue as to what buyer told seller, and reasonable inferences, summary judgment inappropriate.

- What Sylvester said?o Siebenmann’s nondisclosure could constitute a breach of warranty-but only if Sylvester’s statement was a

“challenge” to authenticity.o When a contract is ambiguous, its interpretation becomes as question of fact and summary judgment

inappropriate.o Even though parties agree as to what was said, reasonable minds could differ as to whether what he said

constitutes a challenge apart from the Marlborough challenge. Reasonable jurors could disagree – merely advice to heed, ambivalence, or objection.

o What does challenge mean? Every mention by a person that a challenge has been made?, expressions of uncertainty?

o NEED ART INDUSTRY/OTHER EVIDENCE OF THE MEANING OF THE K TERM

Why allow seller to do this?

Problem 3-6

- Oral: Printer: 35pgs/min of b/w, 20pgs/min for color → but not “will be very happy”- Brochure: 60k per month duty cycle - Owner’s Manual: free from defects for one year

- 2 different jurisdictions: some after purchase can be, some cant, some while deal is “warm”o Comment 7, 2-313

- Disclaimer of warranty, if say modification, than may not operate on new term

WARRANTY ISSUES- Remote sellers and Privity?

o Ucc doesn’t say, comm. 3

- 2-313 still for 3rd party… see also 2-318

ADDING TO THE AGREEMENT: GAP FILLERS

- 2 conditions for having an enforceable contract. §2-204(3), only need (1) intent of parties, and (2) reasonable certain basis for remedy

- Intent: o Parties conducto Relative completeness of K (more terms, more likely wanted to be bound)

- Remedy:o If buyer breached by failing to pay when goods delivered: remedy is recover price of goods (2-709)o If buyer breaches by refusing conforming goods, seller is damaged if price of goods is less than market value .

(2-708)o If seller tenders nonconforming goods and buyer rejects, the buyer is damages if market value price for

conforming goods is higher than K amount. (2-713)o If seller tenders nonconforming goods and buyer accepts, buyer is damages by the difference in value of the

goods which the buyer got and the buyer contracted for (2-714)

- Analytical steps in determining terms of a sale of goods transactions:o 1) determine whether parties have reached an agreement –

Consult contract formation rules in chap 2o 2) identify express terms of agreement, ask whether parties intended to contract (2-204)

Completeness relevant but not determinativeo 3) identify the remaining terms of the parties agreement by considering any applicable

Course of dealing Course of performance Usage of trade

o 4) Any gaps? If there are and not precluded by agreement, look to Article 2 to fill

o 5) appropriate basis for providing appropriate remedy for breach of K?

PROBLEM 3-7A. 20k skid loader?

1) Enforceable k? intent? Gap fillers by UCC, i. 2-308: absence of specified place for delivery → place for delivery of goods is the sellers place of biz

or if he has none his residenceii. 2-310: unless otherwise agreed, payment due at time and place at which buyer is to receive the

goods2) so buyer breached??

B. Brad and StephanieC. …

Policies underlying gap fillers

#9 – PP. 130-146 CONTRACT TERMS: GAP FILLERS

EXAMINING PARTICULAR GAP FILLER PROVISIONS: WARRANTIES

Don’t confuse IWM (implied ordinary purpose) with IWFPF (fitness for particular purpose)- In some cases, may have to disclaim in different ways

IMPLIED WARRANTY OF MERCHANTABILITY §2-314

(1) Unless excluded of modified (2-316), a warranty that the goods shall be merchantable is implied in a K for sale if o the seller is a merchant with respect to goods of that kind. (Serving for food/drink to be consumed on

premises or elsewhere is a sale)o UNDER COMMENT 4 – if expressly warrants doesn’t matter if not merchant

(2) Goods to be merchantable, must be such as

Who is a merchant under this section?- 2-104 comment: requires a professional status as to particular kinds of goods- 2-314, com. 3: person making isolated sale is not merchant

Problem 3-8 merchant with respect of goods of that kind

A. Maybe, is he a professional artisan or just side job?B. In rental biz, is he car salesman?C. Caterer?D. Antiques?

What does merchantable mean? See 2-314(2)

- (a) pass without objection in the trade under the contract description; ando Need proof of what relevant trade standards are; may not help if nnew product an dno average or usual

standards- (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; ando REASONABLE EXPECTATION OF THE AVERAGE PURCHASER OR USER AS TO HOW THE GOOD

WILL PERFORM WHEN PUT TO ITS ORDINARY USE- (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.

Scope may be reduced for used goods, comment 3:- Cant be expected to have quality as new- To determine standards: buyers knowledge that goods used, extent of prior use, and whether the goods are

signifigantly discounted

Buyer misuse?- May mean product didn’t breach or may reduce damages

Problem 3-9A. 4th use, ignition malfunctioned so motor wouldn’t start.

a. Yes?B. Choked on bone in salmon?C. …

Rationale for imposing implied warranty of some merchant sellers but not others?

- Seller made misrepresentation of fact that buyer relied on- Warranty agreed upon, warranty inferred from language, conduct, circumstances and was pure contract- Warranty imposed as a matter of policy. Loss should be placed on seller b/c better able to bear and distribute.

Privity- 2-318: third party beneficiaries

IMPLIED WARRANTY: FITNESS FOR PARTICULAR PURPOSE, §2-315

§2-315: 4 requirements for implied warranty to arise:1) Seller must have reason to know of buyers particular purpose2) Buyer must have a particular purpose (INFERRED FROM 1st CLAUSE)3) Seller must have reason to know that the buyer is relying on the seller’s skill or judgment to select or supply suitable

goods4) Buyer must in fact rely on the sellers skill or judgment (INFERRED)

- Things not required:o *SELLER NEED NOT BE MERCHANT. (BUT 3 &4 UNLIKELY TO BE SATISFIED OTHERWISE)o Buyer’s reliance need not be “reasonable,” but if unreasonable no reason seller to know buyer in fact

relying.- Warranty of fitness arises ONLY IF BUYER HAS PARTICULAR PURPOSE

o Particular purpose v. ordinary purpose? Need not be one of a kind, or unique Comment 2: inquiry is whether buyer’s use is sufficiently different from the customary use of

the goods to make it not an ordinary use of the goods Turns on factual context in which buyer/seller bargain is interpreted

o Reliance – know not reliance if buyer brings own expert or asks for specifications- Privity

o Because of reliance requirement, liability usually restricted to seller from whom buyer purchased goods; some circumstances however, may be able to demonstrate reliance on manufacturer’s specific assurances to the buyer regarding a product

PROBLEM 3-10

A. Construct a scenario….B. 30 k car, needed car very safe??

WARRANTIES OF TITLE AND NONINFRINGEMENT, §2-312

- UCC moving away from title, obligations arising from K

Unlike the other warranties that are concerned with quality, §2-312 concerned with whether someone other than the buyer/seller will be able to interfere with the buyer’s use or possession of the goods, or will put the buyer to the time and trouble of defending the buyer’s right to use and possess the goods.

- §2-312(1): warranty of title and free form security interest/lieno Other sections:

Definition of title, §2-106(1): passing of title from seller to buyer for a price §2-401: passing of title §2-403(1): Rights of Transferee: Transfer of voidable title to a good faith purchaser for value (if

fraudulently induced seller, buyer gets voidable b/c can be rescinded at court) Johnson& Johnson Products v. Dal International Trading Co: seller said only would sell in

Poland, but sold on gray market to buyers in US, supplier was a buyer who was a good faith purchaser for value → supplier had no reason to believe it purchased gray goods and thus no duty to investigate or inquire as to whether there might have been misrep.

Buyer honest in fact b/c didn’t subjectively suspect title flawed and proceeded with purchase despite suspicions

Thief steals goods from rightful owner → no voluntary transfer of possession; a buyer gets no protection from §2-403.

§2-403(2), (3): Entrustment: transferee receives only those rights that the transferor has or has power to convey

Allows merchant to whom good have been entrusted to transfer good title to a buyer “in the ordinary course of biz”

o Person gives necklace for repair to jewelry store, jeweler sells same kind and resells, buyer gets title

Designed to enhance reliability of commercial sales by merchants who deal in the kinds of goods sold, shifts risk to person who leaves property with the merchant

o Colorable claims against the title Split:

Breach only when an outstanding superior title exists – comment 1, warranty of quiet possession abolished

Mere initiation of a colorable challenge, one which is not spurious, regardless of the outcome is sufficient to violate the warranty of title

- §2-312(3): merchant’s warranty of noninfringemento 3rd party claim must cast a shadow of substantial shadow on the buyers ability to make use of goods in

question in order to constitute breach, but don’t have to prove balidity of infringement claimo Lenient test: not limited to claims of infringement that have any signifigant and adverse effect on the

buyers ability to make use of the purchased goods, excepting only frivolous claims, completely devoid of merit

PROBLEM 3-11

Factors relevant to whether purchaser acting in good faith for purposes of 2-403?

PROBLEM 3-12

A. Seller stole diamond necklace, sold it to buyer; cant passes goods when stolen title b/c not voluntary →§2-312; why risk on buyer? Policy and risk on buyer b/c better able to protect themselves

B. still stolen, breached warranty of title- seller doesn’t have to know

C. Seller acquired with check that was later dishonored, sold and delivered to buyer. Voidable title→ 2-403(1), good faith purchaser. Good faith purchaser see 1-201 – no knowledge of wrongdoing.

D. Seller borrowed diamond necklace from friend to wear at a party

E. Entrustment

F. must be in ordinary course of bix, but good faith purchaser, voidable? Probably not. See slide

We can think of title in 3 ways; Void (breach of warranty) Voidable Good title

#10 - PP. 146-160 CONTRACT TERMS: QUANTITY, PRICE

SECTION 1. QUANTITY

LEAST SUSCEPTIBLE TO BEING SUPPLIED BY GAP FILLER.- 2 situations for implying, both under §2-306:

o 1) fixed % of sellers outputo 2) fixed % of buyers requirements

- More a rule on how to interpret that a true gap filler, never implies where parties haven’t agreed- Whether output/requirement is enforceable if arrangement not exclusive → concern that there may be no

enforceable commitment (mutuality of obligation) and just optiono But as long as agreement calls for q quantity measured by output or requirements, the lack of exclusivity

shouldn’t matter

§2-306 (1): actual output/requirements that may occur in good faith, except any amount “unreasonably disproportionate” to

any stated estimateo Com 1: requires reading of commercial background and intent into language of any agreement and demands

good faith in the performanceo Split: most→ if goes out of biz not in breach, but not universalo Factors if greatly exceeds:

1) amt that exceeds 2) whether seller had reasonable basis on which to forecast or anticipate increase 3) amt market value exceeds K price 4) whether increase in mrkt price fortuitous 5) reason for increase in the requirements

(2): for exclusive dealings, obligation by seller to use best efforts to supply, and buyer to buyo Com 5: reasonable diligence and good faith

Comment 2: o doesn’t lack mutuality b/c requires conduct in good faith and according to commercial standards of fair

dealing in the trade so that the output/requirements will approximate a reasonably foreseeable figureo reasonable elasticity expressly envisagedo essential test is good faith

If no estimate, any prior comparable?

PROBLEM 4-1

7/1/2005: Seller, wholesaler in plywood, Buyer, producer of pine veneer, 5 yr agreement for 50k sqft of plywood per yr. @ $1.00 per sqft.

A. Market price increase to $4.00, seller wants to get out of k, 3 years in. Argument? This is a fixed quantity, so 2-306 doesn’t apply. Should argue modifications 2-209

B. Same facts but buyer agreed to annual requirements, but didn’t say exclusive or estimates, requirements first 3 years: 25k, 32.5k, 35k, during 4th year→ 60k, capacity of production facility. Seller basis for objecting?- Done in good faith? Honesty in fact and commercial reasonableness- Com.2, sudden expansion and market price rise when contained fixed- How do we know unreasonably disproportionate?

o Factors if greatly exceeds: 1) amt that exceeds 2) whether seller had reasonable basis on which to forecast or anticipate increase 3) amt market value exceeds K price 4) whether increase in mrkt price fortuitous 5) reason for increase in the requirements

C. Or 5k only b/c of depression due to economic depression. Seller objected. Arguments on behalf of seller?- Shut down for lack of orders or to avoid losses?- MAJORITY COURTS SAY NO UNREASONABLE DISPROPORTIONATE REQUIREMENT WHEN LESS, SO JUST GOOD

FAITH REQUIREMENT → WHY? B/C UNREAS DISPROPORTIONATE WORRIED ABOUT GOING BEYOND CAPACITY, BUT NOT SAME WORRY AND USUALLY LEGITIMATE REASON, SO GOOD FAITH SUFFICIENT

PRICE: §2-305

Can set indefinite, indeterminate if “there is a reasonably certain basis for giving an appropriate remedy” [§2-204(3), 2-305(1)]

- But if didn’t intend, then no k and each party entitled to restitution (§2-305(4))

§ 2-305. Open Price Term.(1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is

a reasonable price at the time for delivery if(a) nothing is said as to price; or(b) the price is left to be agreed by the parties and they fail to agree; or(c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or

agency and it is not so set or recorded.(2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.(3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the

other may at his option treat the contract as cancelled or himself fix a reasonable price.(4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is

no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account.

Comments:1. This section applies when the price term is left open on the making of an agreement which is nevertheless in-tended by the parties

to be a binding agreement. This Article rejects in these instances the formula that "an agreement to agree is unenforceable" if the case falls within subsection (1) of this section, and rejects also defeating such agree-ments on the ground of "indefiniteness". Instead this Article recognizes the dominant intention of the parties to have the deal continue to be binding upon both. As to future performance, since this Article recognizes remedies such as cover (Section 2-712), resale (Section 2-706) and specific performance (Section 2-716) which go beyond any mere arithmetic as between contract price and market price, there is usually a "reasonably certain basis for granting an appropriate remedy for breach" so that the contract need not fail for indefiniteness.

2. Under some circumstances the postponement of agreement on price will mean that no deal has really been con-cluded, and this is made express in the preamble of subsection (1) ("The parties if they so intend") and in subsection (4). Whether or not this is so is, in most cases, a question to be determined by the trier of fact.

3. Subsection (2), dealing with the situation where the price is to be fixed by one party rejects the uncommercial idea that an agreement that the seller may fix the price means that he may fix any price he may wish by the express qualification that the price so fixed must be fixed in good faith. Good faith includes observance of reasonable commercial standards of fair dealing in the trade if the party is a merchant. (Section 2-103). But in the normal case a "posted price" or a future seller's or buyer's "given price," "price in effect," "market price," or the like satisfies the good faith requirement.

4. The section recognizes that there may be cases in which a particular person's judgment is not chosen merely as a barometer or index of a fair price but is an essential condition to the parties' intent to make any contract at all. For example, the case where a known and trusted expert is to "value" a particular painting for which there is no market standard differs sharply from the situation where a named expert is to determine the grade of cotton, and the difference would support a finding that in the one the parties did not intend to make a binding agreement if that expert were unavailable whereas in the other they did so intend. Other circumstances would of course affect the validity of such a finding.

5. Under subsection (3), wrongful interference by one party with any agreed machinery for price fixing in the con-tract may be treated by the other party as a repudiation justifying cancellation, or merely as a failure to take cooperative action thus shifting to the aggrieved party the reasonable leeway in fixing the price.

6. Throughout the entire section, the purpose is to give effect to the agreement which has been made. That effect, however, is always conditioned by the requirement of good faith action which is made an inherent part of all contracts within this Act.

MATHIS V. EXXON, CORP., 2002 Facts: 54 franchisees Issue: Exxon appeals - b/c charged franchisees a DTW price comparable to that charged by its competitors, breach of

K precluded as a matter of law → evidence permitting jury to conclude Exxon breached? Disagreement over what is bad faith for breach?

Good faith in fixing price?o Com 3: Good faith includes observance of reasonable commercial standards of fair dealing in the trade if the party

is a merchant. (Section 2-103). But in the normal case a "posted price" or a future seller's or buyer's "given price," "price in effect," "market price," or the like satisfies the good faith requirement.

o Exxon arguesΔ : satisfied duty b/c within range of its competitors’ DTW prices thus commercial reasonableness meaning of good faith

Argues that com.3 speaks directly to prices set by a fixed schedule and consecrates them as good faith per se

o MathisΠ : good faith has objective and subjective, so subjective intent to drive out of biz would abridge good faith term

Argues that §2-103 good faith has subjective “honesty in fact” test Holding: Comment 3 reference to normal case – coextensive with merchants residual honesty in fact of §1-201(19)

and §2-103, thus objective and subjective senses of good faith. Objective good faith satisfied by a “price in effect” as long as there is honesty in fact (a normal case).

o acted in bad faith, lower court affirmed.Δ Reasoning:

o Comment 3 doesn’t create exception to honesty in fact Bare text implies encompasses obj/subj, also creates a good faith safe harbor for fixed price terms →

but only in the “normal case” General structure of UCC: nothing inconsistent to read 3 as requiring object and subjective History of comment bolsters: nothing that subjective was to be supplanted, see rejected provisions,

but clear price discrimination is not within “normal case”. Court decides just subset and any lack of subjective honesty in fact is abnormal, price discrimination just most obvious.

Caselaw has consistently held that lack of subjective good faith takes a challenge outside the bounds of what is normal.

o But not mere allegation →here produced enough evidence that not within normal. Showed Exxon planned to replace franchises with CORS DTW price higher than sum of rack price and transportation Exxon prevented francisees from purchasing from jobbers after 1994 Number of franchisees were unprofitable or non competitive [but must be more than mere

unprofitability, see Meyer v. Amerada Hess]o Also docs of strategy and proof of plan

Exxon argues docs don’t say using price to accomplish plan Court: sufficient evidence to go to jury and draw inference connecting proceing to elimination of

dealer-lessees.o Content of duty of subjective good faith?

Tx courts – honesty in fact tied to actual belief of the participant in the transaction Version of facts accepted by jury takes case out of normal for comment 3 and also satisifies criteria

for bad faith Loss of competitive position and profit to franchisees was inevitable and forseeable to Π

Exxon

However, Shell v. HRN: wholesaler’s price that was on high end but within range of prices & applied in non-discriminatory basis was fixed in good faith.

- Difference with Mathis:o 1) no evidence on point comparable that wholesaler trying to put franchisees out of bizo 2) 6th circuit rejected Mathis interpretation of good faith, rather honesty in fact and reasonable

commercial standards of fair dealings – objective meaningBut 1st cir: like Mathis → if obligation just nondiscriminatory, would have phrased different

PROBLEM 4-2A. 2/1: seller and buyer agreed buyer to sell 1k potatoes to buyer at Buyer’s plant 3/15, price to be agreed at delivery.

Market 2/1 $7, Seller requested $15, market on 3/15 was $12. Buyer rejected and obtained for $13. Buyer claims breach, seller claims no k. - Did they intend to be bound? Yes, falls into section 1. Reasonable price at delivery?

B. 2/1, Seller agreed in writing to sell 1k sacks potatoes to Buyer to delivery at Buyer’s plant by 3/15 at price on the Chicago commodities board of trade on 3/15. Market price 2/1 $7, 3/14 board shut down. 3/13, $12, seller demands that price, Buyer rejects and gets for $11. Seller claims breach, Buyer says no K.- What does 3/13 signify?- Board just barometer rather that essential- Should be reasonable price at delivery under (1)(C), reasonable price usually market value- Yes K?

C. Independent third party?

#11 PP. 160-170 CONTRACT TERMS: DELIVERY AND PAYMENT

SECTION 3: DELIVERY AND PAYMENT

§2-301: General Obligations of Parties seller obligation to transfer and deliver buyer obligation to accept and pay in accordance with k but how obligations fulfilled or who tenders first?

Concurrent, absence of agreement to tender simultaneously; failure of one excuses other from further performance. If neither tenders, no breach, implicitly agreed to terminate

§2-507: Effect of Seller’s Tender; Delivery on Conditiono (1) sellers tender of goods that conform to the k, buyers general obligation to accept and pay

§2-511: Tender of Payment by Buyero (1) buyers tender of payment a condition to the sellers obligation to tender the goods

Seller tender what, where, when? What? Conform to K description, and all goods in one lot

o 2-106(2): conforming when in accordance with Ko 2-601: must conform to Ko 2-307: all goods called for by the K

Where?o 2-308: delivery is seller’s place of biz or if none, his residence; unless known by both parties to be located in

some other place, than its that place When

o 2-309: reasonable time [EXTREMELY FACT SPECIFIC DETERMINATION] Nature of goods, purpose of the goods, extent sellers knowledge of the buyers intentions,

transportation conditions, and nature of the market

In all 3 scenarios: (1) what must seller due to fulfill tender (2) what extent may buyer inspect the goods prior to deciding whether to accept or reject, (3) when is buyer’s obligation to tender price due?-also when risk of loss passes?

SELLERS’S DIRECT TENDER OF THE GOODS1. Tender of Delivery

§2-503: Manners of Seller’s Tender or Delivery: (1) Tender of delivery requires that the seller put and hold conforming goods at the buyer's disposition and give the buyer any notification reasonably necessary to enable him to take delivery. The manner, time and place for tender are determined by the agreement and this Article, and in particular

(a) tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably necessary to enable the buyer to take possession; but (b) unless otherwise agreed the buyer must furnish facilities reasonably suited to the receipt of the goods.

Problem 4-3A. Seller agreed to tender 100 bushels to Buyer for $4 per.

1. Only 95, and no auger→ should be whole lot and should notify buyer no auger2. Non conforming?3. Not reasonable time?4. Seller did what was necessary, but buyer?5. Only if buyer had known6. Buyer must reasonably furnish for receipt7. Buyer must be ready for receipt

B. Draft a term???

2. Buyer’s Inspection

3. Buyer’s Payment

Problem 4-4Problem 4-5

1. Risk of LossProblem 4-6

B. Seller’s Tender of the Goods through Shipping the Goods1. Tender of Delivery and Risk of Loss in a Shipment Contract2. Tender of Delivery and Risk of Loss in a Destination K3. Shipment or Destination K

Problem 4-7

#12 – PP. 170-184 CONTRACT TERMS: SELLER’S TENDER OF THE GOODS THROUGH SHIPPING

#13 – pp. 185-190 Contract Terms: Overriding Gap Fillers

#14 – pp. 190-216 Contract Terms: Remedies Limitations/Parol Evidence

#15 – pp. 224-241 Insecurity and Repudiation

#16 – pp. 241-252 Excuse from Performance