business law

6th_edition_ch_20.ppt

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Quote of the Day

“A commodity appears at first sight an extremely obvious, trivial thing. But its analysis brings out that it is a very strange thing, abounding in metaphysical subtleties and theological niceties.”

Karl Marx,

German political philosopher

Development of Commercial Law

As trade increased throughout history, merchants developed practices which became known as the law merchant.
In 1952, the Uniform Commercial Code was published by a group of scholars whose goal was to draft a modern law of commerce.
The UCC has been revised several times, most recently in 2003, but not all revisions have been adopted by all states.

UCC Basics

Code’s Purpose

To simplify, clarify and modernize the law governing commercial transactions,

To permit the continued expansion of commercial practices through custom, usage and agreement of the parties,

To make uniform the law among the various jurisdictions.

Scope

Article 2

UCC §2-102: Article 2 applies to the sale of goods, things that are movable, other than money and investment securities.

Article 2A

Article 2A governs the leasing of goods.

In a mixed contract involving sales and services, the UCC will govern if the predominant purpose is the sale of goods, but the common law will control if the predominant purpose is service.

Merchants

UCC §2-104: A merchant is someone who routinely deals in the particular goods involved, or who appears to have special knowledge or skill in those goods, or who uses agents with special knowledge or skill in those goods.
The UCC frequently holds a merchant to a higher standard of conduct than a non-merchant.

Good Faith & Unconscionability

Good Faith

The UCC imposes a duty of good faith in the performance of all contracts.

For non-merchants, good faith means honesty-in-fact.

For a merchant, good faith means honesty-in-fact, plus the exercise of reasonable commercial standards of fair dealing.

Unconscionability

UCC §2-302: A contract may be unconscionable if it is shockingly one-sided and fundamentally unfair.

Formation Basics: §2-204

UCC §2-204 provides three important rules:

The parties may make a contract in any manner that sufficiently shows that they reached an agreement.

Knowing the moment of making of the contract is not critical.

One or more terms may be left open. Commercially reasonable terms will be assumed by the courts.

Statute of Frauds

UCC §2-201 requires a writing for any sale for goods worth $500 or more.

Writing Sufficient to Indicate a Contract

In general, the writing must be signed by the defendant.

Incorrect or Omitted Terms

Under the UCC, a court may enforce a bargain even though one or more terms were left open.

Enforceable Only to Quality Stated

The Code will enforce the contract only up to the quality of goods stated in the writing.

Merchant Exception

When two merchants make an oral contract, and

one sends a confirming memo to the other within a reasonable time, and

the memo is sufficiently definite that it could be enforced against the sender, then

the memo is also valid against the merchant who receives it, unless he objects in 10 days.

Special Goods Exception

An oral contract may be enforceable even without a written memorandum, if:

The seller is specially manufacturing the goods for the buyer, or

The defendant admits in court that there was a contract, or

The goods have been delivered or they have been paid for.

Added Terms: Section 2-207

Under §2-207, an acceptance that adds or alters terms will often create a contract.

OFFER

Offeree intends

to accept

Offeree does NOT intend

to accept

CONTRACT

Accepts

terms

Contract

Adds

terms

Usually

forms a contract

Changes

terms

Usually

forms a contract

Accepts IF offerer accepts new

terms

NO contract (is a new offer)

Click once to start self-building graphic.

Additional or Different Terms

Additional: those that raise issues not covered in the offer.

When both parties are merchants, additional terms generally become part of the bargain.

Different: contradict terms in the offer.

Cancel each other out; if there is no clear oral agreement, the Code supplies its own terms to cover prices, delivery dates and places, warranties, and other subjects.

Open Terms: § 2-305 & 2-306

Open Prices: Under §2-305, the parties may conclude a contract even though they have not settled the price.

Under the Code, if the parties have not stated a price, it is to be a reasonable price at the time of delivery.

Output and Requirements Contracts

The UCC requires that the parties in an output or requirements contract make their demands in good faith.

Modification

UCC §2-209: An agreement modifying a contract needs no consideration to be binding.
The parties may agree to prohibit oral modification and insist that all modifications be in writing and signed.

Between merchants, such a clause is valid.

If either party is not a merchant, such a clause if valid only if the non-merchant separately signs it.

“The Uniform Commercial Code enables merchants to form contracts more quickly and easily. But along with this increased facility goes greater responsibility, since informal discussions may suddenly turn into… a contract.”