1 Click your mouse anywhere on the screen to advance the text in each slide. After the starburst appears, click a blue triangle to move to the next slide or previous slide.

2 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

3 Development of Commercial Law  As trade increased throughout history, the need for a uniform, modernized business law grew greater.  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 Click here to view the text of the UCC on the internet.

4 Scope of Article 2  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.

5 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.

6 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.

7 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.

8 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.

9 Added Terms: Section  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 NO 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.

10 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.

11 Buyer’s Remedies  Conforming goods satisfy the contract terms. Non-conforming goods do not.  Inspection -- The buyer generally has the right to inspect the goods before paying or accepting.  May reject non-conforming goods, but the seller has the right to cure, by delivering conforming goods before the contract deadline.

12 Buyer’s Remedies (cont’d)  Cover If the seller breaches, the buyer may ”cover” by reasonably obtaining substitute goods. Buyer may then obtain the difference between the contract price and the cover price, plus incidental and consequential damages, minus expenses saved.  Incidental and Consequential Damages An injured buyer is generally entitled to incidental and consequential damages.

13 Seller’s Remedies  Stop or refuse delivery  Resale The seller may recover difference between the resale price and contract price, plus incidental damages, minus expenses saved.  Action for the Price The seller may recover the contract price if: –the buyer has accepted the goods, or –the seller’s goods are conforming and he is unable to resell after a reasonable effort.

14 Product Liability  When goods cause injury, there is a question of product liability.  There are three main issues related to product liability cases: Warranty -- a contractual assurance that goods will meet certain standards. Negligence – unreasonable conduct by the defendant. Strict Liability – policy which holds the defendant liable regardless of his behavior.

15 Express Warranties  An express warranty is one that the seller creates with his words or actions.  Any affirmation of fact--or any promise-- can create an express warranty.  Any description of the goods can create an express warranty.  Any sample or model can create an express warranty.

16 Implied Warranties  Are created by the Code itself, not by any act or statement of the seller.  Implied Warranty of Merchantability Unless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract for their sale, if the seller is a merchant of goods of that kind.

17 Implied Warranties (cont’d)  Implied Warranty of Fitness for a Particular Purpose When the seller at the time of contracting knows about a particular purpose for which the buyer wants the goods, and knows that the buyer is relying on the seller’s skill and judgement, there is (unless excluded or modified) an implied warranty that the goods shall be fit for such purpose.

18 Disclaimers and Defenses  Disclaimer: a statement that a particular warranty does not apply. Oral Express Warranties – may be disclaimed. Written Express Warranties – may NOT be disclaimed. Implied Warranties of Merchantability – may disclaim, but must use word “merchantability” and the disclaimer must be conspicuous. ***NOTE: Many states prohibit a seller from disclaiming implied warranties in the sale of consumer goods.

19 Negligence  In negligence cases, plaintiffs most often raise one or more of these claims: Negligent design Negligent manufacture Failure to warn  Where a sales contract includes proper disclaimers or remedy limitations, a buyer barred from a negligence case may have no remedy at all.

20 Strict Liability  Need not prove that the defendant’s conduct was unreasonable.  Strict liability may be imposed if: The defective condition is unreasonably dangerous to the user. Seller is in business to sell this product. The product reaches the user without substantial change.  Strict liability may be imposed EVEN if: The seller exercised all reasonable care. There is no contractual relationship.

21 Contemporary Trends  Strict liability may be imposed based on design, manufacture or failure to warn.  Tests to measure design and warning cases include: Consumer expectation: if the design causes the product to be less safe than expected Risk-utility tests: weigh the value of the product, gravity and likelihood of the danger, feasibility of a safer design, and adverse consequences of a safer design.

22 Negotiable Instruments  Commercial paper is a contract to pay money.  It can be: A Substitute for Money A Loan of Money  Types of Negotiable Instruments Note (also called a promisory note) is a promise to pay money. Draft is an order directing someone else to pay money for you (e.g., checks).

23 Negotiability  The possessor of non-negotiable commercial paper has the same rights-- no more, no less--as the person who made the original contract.  The possessor of negotiable commercial paper has more rights than the person who made the original contract.

24 Requirements for Negotiability  The Instrument Must: Be in Writing. Be Signed by the Maker or Drawer. Contain an Unconditional Promise or Order to Pay. State a Definite Amount of Money. Be Payable on Demand or at a Definite Time. Be Payable to Order or to Bearer.

25 Negotiation  Negotiation means that an instrument has been transferred to the holder by someone other than the issuer. To be negotiated, order paper must first be indorsed and then delivered to the transferee. Bearer paper must simply be delivered to the transferee; no indorsement is required.  An indorsement is the signature of the payee.

26 Holder in Due Course  A holder in due course has an automatic right to receive payment for a negotiable instrument (unless issuer can claim one of a few “real” defenses).  Requirements for Holder in Due Course Under §3-302 of the UCC, a holder in due course is a holder who have given value for the instrument, in good faith, without notice of outstanding claims or other defects.

27 Notice of Outstanding Claims or Other Defects  The instrument is overdue  The instrument is dishonored  The instrument is altered, forged, or incomplete  The holder has notice of certain claims or disputes

28 Defenses  Real and personal defenses are valid against an ordinary holder; only real defenses can be used against a holder in due course.  Real Defenses Forgery, Bankruptcy, Minority, Alteration, Duress, Mental Incapacity, Illegality, and Fraud in the Execution  Personal Defenses Breach of Contract, Lack of Consideration, Prior Payment, Unauthorized Completion, Fraud in the Inducement and Non-Delivery

29 Consumer Exception  A consumer credit contract is one in which the seller is also the lender.  In such cases, the Federal Trade Commission requires a specifically- worded notice to be included on the contract, making it non-negotiable.

30 “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.” “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.”

31 Link to the Internet  Clicking on the orange button below will link you to the website for this book. (You must first have an active link to the internet on this computer.)  Once there, click: Your text cover Interactive Study Center Select a Chapter Internet Applications  You should then see web links related to that chapter. Click here! Click above to return to the slide show.