UCC Contract Formation

• These notes cover contract formation for sales of goods, focusing on key aspects of the Uniform Commercial Code (UCC).

Contract Formation (UCC 2-206 & 2-207)

• A promise or shipment of goods can constitute acceptance of a sales contract offer.
• UCC 2-207 addresses situations where the acceptance includes different or additional terms, moving away from the strict "mirror image rule".
• The "knockout rule" in UCC 2-207(3) applies when the offer and acceptance terms conflict; the contract includes agreed-upon terms and supplementary UCC terms.
• When terms disagree, the default code is consulted to resolve the discrepancies.
• Purchasers can be bound by terms included in product packaging if they have the opportunity to review and reject by returning the product.

UCC Provisions on Contract Formation

• UCC 2-204 allows sales contracts to be made in any manner that shows agreement, including conduct.
• UCC 2-205 states that firm offers from merchants are binding even without consideration if the offer is written, but these offers cannot last longer than three months.
• UCC 2-206 permits acceptance of sales contract offers in any reasonable manner.
• UCC 2-207(1) states that unlike the mirror image rule, acceptance with different terms can still be valid unless acceptance is conditional on accepting the new terms.

Belden, Inc. v. American Electronic Components

• Under UCC § 2-207, acceptance with new terms still creates a contract unless it's expressly conditional on those terms.

Statute of Frauds (SOF)

• Contracts for the sale of goods priced at $500 or more must be in writing and signed by the party against whom enforcement is sought.
• The contract does not need to be perfect, but it should include key terms.
• Exception: If one merchant sends written confirmation of a contract to another merchant within a reasonable time, and the receiving party doesn't object in writing within 10 days, the contract is enforceable.
• The confirmatory writing must detail key aspects like price, quantity, or other essential terms to satisfy the Statute of Frauds as per UCC 2-201(2).
• Non-compliance exceptions exist for specially manufactured goods, admissions in court, and partial performance (payment accepted).
• Promissory estoppel may serve as a non-statutory exception if a promise leads to foreseeable action/forbearance and injustice can only be avoided by enforcement.

Contract Formation Review (UCC 2-207)

• UCC 2-207 addresses discrepancies between offer and acceptance, determining contract validity and governing terms.
• A contract is valid even if the acceptance includes additional or different terms.
• UCC 2-207(2) allows for written confirmation with differing terms to be treated as acceptance, especially if there was a prior oral agreement.
• "Battle of the forms" refers to conflicting documents; UCC 2-207 guides resolution.
• Merchants have 10 days to object to new terms in a confirmation; otherwise, those terms may become part of the contract.

Parol Evidence Rule

• The parol evidence rule states that a final written agreement cannot be contradicted by prior oral or written agreements.
• UCC § 2-202 states that written terms intended as a final expression of agreement cannot be contradicted by prior agreements but may be supplemented.
• Parol evidence can supplement a contract if the writing isn't a complete and exclusive statement of terms (UCC § 2-202).
• Restatement (Second) of Contracts § 214 allows evidence of prior agreements to determine if the writing is integrated, its meaning, and defects like fraud.
• UCC § 1-103(b) clarifies that principles of law and equity, such as fraud and duress, apply unless displaced by the UCC.

Modification Without Consideration (UCC § 2-209)

• UCC § 2-209(1) states that contract modification doesn't require new consideration, unlike common law.

Course of Performance, Dealing, and Usage of Trade (UCC § 1-303)

• These can be used to interpret agreements.
• Course of Performance: How the parties perform under the current contract.
• Course of Dealing: Conduct between the parties in previous contracts.
• Usage of Trade: Accepted norms in a particular industry or market.

Battle of the Forms: Last-Shot vs. Knock-Out Rule

• Last-Shot Rule (Common Law): The last terms proposed and not rejected become the contract terms.
• Knock-Out Rule (UCC § 2-207): Conflicting terms are knocked out, and the contract includes agreed-upon terms supplemented by the UCC.

Third Party Beneficiaries

• These are non-parties who benefit from a contract.
• Intended beneficiaries have standing to sue, requiring acceptance, reliance, or a lawsuit in the contract.
• Their rights cannot be modified without consent once vested.
• Incidental beneficiaries do not have enforcement rights.
• A promise to repay a debtor’s obligation to a creditor is valid, allowing the creditor to sue as a third-party beneficiary.
• 3rd party beneficiary relationships do not need to be specifically intended by the parties to the contract when a third party beneficiary’s right is essential to satisfy a contract, and the beneficiary stands to receive the value of the contracted performance

Government Contracts (Restatement § 313)

• General rules for ordinary contracts also apply to contracts with the government, except where they conflict with specific laws or policies.
• The promisor isn't generally liable to the public for consequential damages unless the contract specifies or the government could be liable.

Third-Party Beneficiaries of Warranties (UCC § 2-318)

• Alternative A extends warranties to family, household members, or guests injured by the goods.
• Alternative B extends warranties to any natural person expected to use the goods and injured by a breach.
• Alternative C extends warranties to any person injured by a breach, removing the "natural person" and "bodily injury" requirements.
• A and B apply to third parties who are natural persons that have suffered bodily injuries.
• Alternative C allows recovery for economic losses w/ no bodily harm and it is not limited to natural persons

Assignment

• This involves transferring rights or benefits to another party. assign the right to a collection agency
• Limits: An assignment is invalid if it materially changes the duty of the obligor
• Forbidden by Statute or Public Policy: welfare or child support
• The assignor warrants that they will do nothing to impair the value of the assignment, that the right exists, and the documentation is authentic.

Delegation

• This involves transferring a duty, but the delegator remains liable unless specified otherwise.
• Limits: The obligations cannot be contrary to policies, violate the terms of the original agreement, or involve special work requiring the original party. delegation of duty or obligation.
• A person who has agreed to provide consulting services under a contract can delegate the duty to another consultant, but they remain liable if the delegatee fails to perform the services as agreed

Key Restrictions on Assignability (Restatement and UCC)

• Assignment isn't allowed if it would materially change the obligor's duty, is forbidden by law, or is precluded by contract.
• The right to the gown can be assigned to Amy since there’s no restriction in the contract preventing it.

Warranties of Assignor

• S/he will do nothing to defeat or impair the value of the assignment and has no knowledge of any fact which would do so
• The right, as assigned, actually exists and is subject to no limitations or defenses good against the assignor other than those stated or apparent at time of the assignment;
• Any writing evidencing the right which is delivered to the assignee or exhibited to him to induce him to accept the assignment is genuine and what it purports to be.

Novation

• This involves replacing an old contract with a new one. differs from an assignment, where the rights or duties under a contract are transferred to a third party, but the original contract remains intact
• Parties 1 and 2 enter into K2 with a third party, (1) for the purpose of binding the third party to perform the same or similar obligations that K party 1 had under K1, and (2) which also releases K party 1 from her obligations under K1.

BURNISON v. JOHNSTON, 764 N.W. 96 (Neb. 2009)

• Personal service contracts are generally not assignable, but payment can be transferred if the work has been performed.

MINGLEDORFF’S INC. v. HICKS, 209 S.E.2d 661 (1974)

• An anti-assignment clause in a contract can be valid and enforceable

GILMORE v. SCI TEXAS FUNERAL SERVICES, INC., 234 S.W.3d 251

• Delegating duties does not absolve the original party from their responsibilities.

Warranties with the Sale of Goods

• Implied warranties:
• The goods are similar to what is sold in the trade and can be fit for their ordinary purpose of use. (UCC 2-314) (applies to merchants)
• Fitness for Purpose (UCC 2-315): The seller has reason to know the buyer's specific purpose and relies on the seller’s skill to furnish or select suitable goods.

Express Warranties (UCC 2-313)

• An affirmation of facts or promises in the description of the goods.

Notice

• Must notify seller for breach within reasonable time (UCC 2-607)

Third Party Beneficiaries of Warranties Express or Implied.

• The person must have been injured in person by a breach of the warranty
• Volunters are not considered.

Warranties with Finance Leases

• In a finance lease (2A-103), the lessor doesn't supply the goods but finances the lease. finance lease

Acceptance of Goods (2A-515)

• Must inspect within reasonable time, the Lessee must signify that the goods are conforming or will take it despite of conforming

Irrevocable Promises Finance Lease (2a 407)

• Lessee promises under contract are irrevocable and independent on the lessee acceptance of said good. lessor generally does not give nor imply warranties

Warranty Liability Reduction (UCC § 2-316)

• Warranties can be limited or excluded if reasonable and conspicuous language is used.
• Using "as is" and with all faults excludes all implied warranties.

Limiting Damages for Breach (UCC § 2-719)

• Sellers can limit remedies unless unconscionable, particularly for consumer goods. remedy

Impracticability with Sales of Goods

• If "the contract requires for its performance goods identified when the contract is made,” suffers casualty
• Total Loss- Contract is voided, Partial Loss- May void or deduct
• Force majeure clauses may excuse delays due to unforeseeable events. Conditions. (Excuses for Performance)

Unconscionability with Sale of Goods (UCC 2-302)

• Courts may refuse to enforce or limit unconscionable contracts.

Title with Sales of Goods

• UCC 2-312 implies a warranty of good title that the seller cannot disclaim. Title

Voidable Title (UCC 2-403)

• Good faith purchaser can obtain good title from debtor with voidable title

Zaretsky v. William Goldberg Diamond Corp

• Entrusting goods to someone allows that person to transfer title only if the person regularly deals in that type of goods.

Power to Transfer; Good Faith Purchase of Goods; "Entrusting".

• Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business.