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Sales & E-Commerce

Lesson 6

Article 2 of the U.C.C. (1)

Types of Contracts Covered.

Article 2 only covers the sale of goods.

Analysis: Is it a sale of goods or services? Most courts hold that Article 2 applies to contracts involving software only if the primary purpose of the sale is a good.

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Article 2 of the U.C.C. (2)

Types of Contracts Covered.

What Are “Goods”? All things (including specially manufactured goods) which are movable at the time of identification to the contract for sale.”

Article 2 of the U.C.C. (3)

Types of Contracts Covered.

Identification to the Contract: the designation–by marking, setting aside, or other means–of the particular goods.

What about fixtures?

Not considered goods under the UCC because they are attached to real-estate.

Contract Formation (1)

Offer: not defined by the UCC.

Firm Offer: a signed offer by a merchant that indicates that the offer will be kept open.

Contract Formation (2)

Acceptance.

Unless the offeror indicates unambiguously that his or her offer can be accepted only in a particular way, an offer may be accepted in any manner and by any medium that is reasonable in the circumstances.

Contract Formation (3)

Acceptance.

Definite Response: intent to close the deal is crucial.

Conditional Response: counteroffer should be clearly stated.

Acceptance with Missing Terms: contract formed with included terms. 

Contract Formation (4)

Acceptance: Battle of the Forms.

The UCC effectively abolishes the mirror-image rule. Unlike common law, additional or different terms does not necessarily create a counteroffer.

With Additional Terms: depends if either of the parties is a merchant.

Contract Formation (5)

Acceptance: Battle of the Forms.

If either party is not a merchant, additional terms are construed as proposals and do not become part of the contract.

Contract Formation (6)

Acceptance: Online Purchase Agreements.

“Click-wrap” contracts: license terms must be agreed to before software is installed. 

Some websites use “browse-wrap” licenses which is a part of an online agreement.

Contract Formation (7)

Consideration.

Must be included in contracts for the sale of goods to be enforceable.

However, merchants dealing solely with other merchants may enter into enforceable option contracts for periods not to exceed three months without providing consideration.

Statute of Frauds (1)

“Some Writing”.

Lenient interpretation under the UCC.

Writing unenforceable unless:

Quantity specified.

Goods specially manufactured and not readily re-salable.

Statute of Frauds (2)

Writing unenforceable unless:

Defendant admits in judicial proceedings that an agreement existed.

Payment was made and accepted.

Goods were received and accepted.

Statute of Frauds (3)

Signature: writing must be signed by the person against whom enforcement is sought, unless it is between two merchants.

The E-Sign Act and UCITA allow digital signatures.

Electronic Contracts: UETA and E-SIGN (1)

Uniform Electronic Transactions Act (state law) contains four basic rules:

1. Record or signature cannot be denied legal effect solely because it is in electronic form.

2. A contract cannot be denied legal effect solely because an electronic record was used in its formation. 

Electronic Contracts: UETA and E-SIGN (2)

Uniform Electronic Transactions Act (state law) contains four basic rules:

3. Electronic records satisfy a law that requires a record to be in writing.

4. Electronic signatures satisfy a law that requires a signature.

Electronic Contracts: UETA and E-SIGN (3)

Uniform Electronic Transactions Act.

Under UETA almost any mark or process used to sign an electronic record is an electronic signature.

This includes “I Agree” and “Click Through” buttons.

Electronic Contracts: UETA and E-SIGN (4)

E-SIGN Act.

Preempts all state laws inconsistent with its provisions. Allows UETA to “modify, limit, or supersede” E-SIGNs provisions.

Exclusions.

E-SIGN & UETA do not apply to certain documents and transactions:

Wills and trusts

Contracts or records relating to adoption, divorce, or other matters of family law

Contracts governed by certain provisions of the Uniform Commercial Code in effect in each state.

Duty of Good Faith Under the UCC

Section 1-203 of the UCC states that “[e]very contract or duty within this Act imposes an obligation of good faith in its performance and enforcement.”

Warranties (1)

Express Warranty: explicit guarantee by the seller that the goods have certain qualities.

Puffing: are opinions a warranty?

When “Puffing,” a seller is not making a warranty, they are merely expressing an opinion about the quality of the goods

Warranties (2)

Implied Warranty of Merchantability.

Guarantees that goods are reasonably fit for the general purpose for which they are sold, and that they are properly packaged and labeled.

Warranties (3)

Implied Warranty of Merchantability.

Reasonable Expectations: The key issue in determining merchantability is whether the goods do what a reasonable person would expect of them.

Warranties (4)

Implied Warranty of Fitness for a Particular Purpose.

Guarantees that the goods are fit for the specific purpose for which the seller recommended them. Buyer relies on Seller’s expertise.

Warranties (5)

Implied Warranty of Fitness for a Particular Purpose.

Disproving Reliance. Seller can show:

Buyer had expertise that was equal to or superior to the seller’s.

Buyer relied on the skill and judgment of buyer’s people. 

Warranties (6)

Implied Warranty of Fitness for a Particular Purpose.

Disproving Reliance. Seller can show that buyer supplied seller with detailed specifications, or designs seller was to follow.

Warranties (7)

Disclaiming Warranties and Limiting Liability.

The seller may limit its liability under any of these three types of warranties.

A seller may disclaim any implied warranties of quality if it follows specifically delineated rules in the UCC designed to ensure that the buyer is aware of, and assents to, the disclaimers.

A seller can exclude all implied warranties by using expressions such as “AS IS” or “WITH ALL FAULTS,” or other language that in common understanding calls the buyer’s attention to the exclusion of warranties and makes plain that there is no implied warranty.

By refraining from professing expertise with respect to the goods and leaving the selection to the buyer.

Warranties (8)

Strict Product Liability vs. Breach of Warranty.

Product liability claims may succeed when breach of warranty claims may not:

Where there is no contractual relationship between buyer and seller (no privity).

Product liability also permits recovery for physical injury of damages to property.

Magnuson-Moss Warranty Act (1)

Protects consumers against deception in warranties.

Gives consumer-purchaser the right to sue a manufacturer or retailer for failing to comply with the MMWA or the terms of a written or implied warranty arising from the MMWA.

Magnuson-Moss Warranty Act (2)

Full Warranty: gives the consumer the right to free repair or replacement of a defective product.

Limited Warranty: might restrict the availability of free repair or replacement.

Passing of Title

Under 2-401 of the UCC, generally title cannot pass from seller to buyer until the goods are identified.

Unless parties agree otherwise, title passes when seller contractually completes its performance (physical delivery of conforming goods).

Allocation of Risk of Loss (1)

Generally, the party controlling goods at the time of the risk of loss (ROL) is responsible unless an agreement exists to the contrary.

Allocation of Risk of Loss (2)

Goods Shipped by Carrier.

ROL passes to buyer when:

(1) goods are properly delivered, or

(2) carrier tenders goods at destination. 

Allocation of Risk of Loss (3)

Goods Held by Independent Warehouse.

ROL passes to buyer when buyer receives the document entitling him to pick up the goods.

Allocation of Risk of Loss (4)

All Other Cases.

ROL depends on whether seller is a merchant:

If seller is merchant, ROL passes to buyer when buyer receives physical possession of goods.

If seller is not a merchant, ROL passes upon tender of delivery.

Right to Reject Nonconforming Goods

Buyer has the right to reject any portion, or all, of the nonconforming goods.

Rejection must be made within a reasonable time after delivery.

Right to reject can be inadvertently waived.

Commercial Impracticability (1)

A failure to perform is not a breach, if performance is made impracticable by an event unforeseen by the contract, unless the contract provides otherwise.

Commercial Impracticability (2)

Factors:

Failure of Underlying Condition: not included in the parties’ bargain.

Unforeseen Contingency: contingency was both unforeseen and unforeseeable.

Impracticable Performance: increased costs alone is not sufficient.

Remedies (1)

Seller’s Remedies.

UCC provides monetary damages if the buyer cancels a contract or refuses to accept delivery of the goods covered by the contract. [UCC 2-708]

Remedies (2)

Buyer’s Remedies.

UCC gives a variety of choices if a breach occurs [UCC 2-711]:

Cancel the contract,

Cover, and

Recover damages (direct, consequential).

Remedies (3)

Specific Performance.

If goods are unique, court may order goods sold. [UCC 2-716]