1. Commercial Law: The Uniform Commercial Code (UCC)
CHAPTER 8
Commercial Law: The Uniform Commercial Code (UCC)

2. Uniform Commercial Code
Created because the desirability of uniform commercial contract law was widely recognized
All the composers of the UCC wanted to create a contract law that allowed for more freedom for commercial practices from legal constraints
The UCC does protect consumers by emphasizing non-enforcement of bargains and practices that are unconscionable.
In this chapter we emphasize the differences between the CL of contracts and the UCC

3. Uniform Commercial Code
Focus of this chapter is Article 2: Sale of goods
Article 2 is currently being rewritten
Note that the UCC is really a gap-filler, which supplies terms, when the parties do not
For example, if nothing is said about delivery, then the UCC will supply the appropriate term as to who has responsibility for delivery, risk of loss and other aspects of deliveries

4. Scope of the UCC
Under the UCC, goods are tangible physical property that is moveable
Real property is not moveable, and therefore not a good
A good is identifiable if
it is in existence at the time of the sale and
had a unique marking or some distinguishing characteristic

5. Merchants and Good Faith
Under the UCC, merchants
Deal in goods of the kind, or
Otherwise hold themselves out as having knowledge or skill peculiar to the practices or goods involved in the transaction
Merchants are required to operate in good faith
honesty in fact in the conduct or transaction concerned
it is implied in every sales transaction that the goods sold are fit for the ordinary purposes for which such goods are used
Implied warranties are often disclaimed, which is legal as long as the disclaimers are conspicuous

6. What is a Sale?
A sale takes place when title to the goods transfers from seller to buyer for a price
A thief cannot transfer title even though the purchaser has purchased the good innocent of the theft
In shipment contracts, title transfers when the seller delivers goods to a common carrier
In destination contracts, title transfers when the goods are delivered to the buyer’s dock or home
Sellers bear risk of loss until the goods are delivered to the common carrier in shipment contracts
In destination contracts sellers bear risk of loss until the goods are delivered to the buyer

7. Sales
When the goods are in possession of a third party, such as a warehousemen
Title and risk of loss transfer when documents of title are transferred
All of these allocations of risk of loss can be altered in the contract
Note further that risk of loss and title are not synonymous

8. Agreement under the UCC
Compared with the common law of contracts, the UCC places more emphasis on intent
If the parties intended to make a contract then the UCC allows the following to be used in determining the terms of the contract:
prior conduct, custom and usage in the industry, communications between the parties, UCC gap-fillers and reasonable terms, including price
if a term is left open, UCC gap-fillers are usable
At a minimum, quantity must be specified, but in
Output and requirements contracts, quantity is specified only within a range

9. Termination of Offer and Acceptances
Under the UCC, a signed, written offer by a merchant is irrevocable for
The period stated in the offer
up to 3 months
Under the CL of contracts, an acceptance that has new terms is a counteroffer
The CL acceptance rule creates the last shot problem—whichever firm sends the last piece of paper controls the terms of the contract

10. Additional Terms in the Acceptance
UCC abandons the CL rule that additional terms in the acceptance means that it is a counteroffer
Under additional terms in the acceptance are part of the contract unless:
The offer expressly limits the acceptance to the terms in the offer
The acceptance requires acceptance of the additional terms
The offeror does not object to the additional terms, or
The additional terms materially alter the contract

11. Additional Terms in the Acceptance
Under Article 2-207
Warranty disclaimers have been held a material alteration, such that they would not be part of the contract if the term was added in the acceptance
2-207 puts the burden on offerors to object to the additional terms or else they become part of the contract
If an additional term in the acceptance conflicts with a term in the offer, then both terms are thrown out and a UCC gap-filler is used
Note that even if the writings do not agree, conduct of the parties can be used to determine the terms of the contract along with trade usages

12. Open Terms and Contract Modifications
Terms not specified in the contract are “open”
If the parties intend to conclude a contract for the sale of goods and nothing is said about price
The UCC calls for a reasonable price to be inserted
Under the UCC contracts can be modified without additional consideration as long as the changes are bargained for
The preexisting contract rule is not part of the UCC

13. Statute of Frauds
A contract for the sale of goods in excess of $500 must be writing, except if
the goods are specially manufactured for the buyer, or
the buyer admits that there was a contract, or
with respect to goods for which payment has been made and accepted, or
which have been received and accepted
If the seller sends and signs a written confirmation of a prior oral agreement, it creates a binding contract unless the buyer objects within 10 days

14. Warranties
Express warranties are created by affirmative acts of the seller
an affirmation of fact or promise made by the seller
which relates to the goods
and becomes part of the basis of the bargain
Can be created when the seller describes the goods or furnishes samples
Warranties create strict liability for the seller
In general warranties are based on factual statements rather than opinions about the future
An exception is made when it is a professional opinion which can create a warranty

15. Implied Warranties
Implied warranties are part of every UCC contract unless disclaimed by the seller
Disclaimers of implied warranties must be conspicuous using boldface print
Implied warranty of merchantability
Goods sold are fit for the ordinary purposes for which such goods are used,
Would pass without objection in the trade
Is adequately packaged, labeled, and contained
Conforms to the promises made in the label

16. Implied Warranties Implied warranty of fitness for a particular use
At the time of sale, the seller has reason to know the uses the buyer has for the goods, and
The buyer relies on the seller’s judgment in selecting the goods
This implied warranty is not created if
The buyer’s knowledge of the goods is as great as the seller, or the buyer has a professional consultant,
Or the buyer supplies specifications to the seller
Although a seller cannot disclaim an express warranty, he can disclaim implied warranties

17. Warranty Disclaimers and Limitations of Liability
Disclaimers of warranties
Must be conspicuous, in boldface print, and must name the warranty disclaimed
Warranty disclaimers are accomplished by “as is” sales of goods—recreates caveat emptor
Limitations of liability must also be conspicuous
Generally sellers try to limit liability to replacement of the defective goods or the amounts paid by the buyers for the goods

18. Warranty Disclaimers and Limitations of Liability
Sellers try to avoid being liable for consequential damages, which are
Any losses (such as lost profits) that the seller had reason to know about and
Injuries to the user or property proximately related to any breach of warranty
Between businesses limitations of liability for consequential damages are very common and are enforceable
UCC 2-719(3) indicates that limitations of consequential damages for personal injuries for consumer goods is prima facie unconscionable

19. Breach of Warranty
Under the UCC, liability for breach of warranty is based on seller status
Manufacturer, distributor, and retailer could all be jointly and severally liable
Distributor and retailer may be able to escape liability if the manufacturer is solvent
Component sellers can be liable for breach of warranty is their components reach the consumer unchanged, such as tire manufacturers
Purchasers, consumers, users, and even bystanders are entitled to sue in most states for breach of warranty

20. Breach of Contract under the UCC
The UCC does not make use of the term, “material breach”
Any deviation from the goods called for in the contract violates the perfect tender rule and thus allows the buyer to treat the deviation as a breach of contract
Exceptions
If there is time to cure performance, the seller must be given the opportunity
Buyer rejection must occur within a reasonable time
Buyer is not required to reject all of the goods offered
In installment contracts, buyer is not entitled to cancel the entire contract just because one batch is bad unless the bad shipment undermines the entire contract

21. Excuses for Non-Performance
Commercial impracticability
Akin to the CL doctrine of impossibility, but is more liberal, in keeping with commercial mores
A party is justified in invoking this principle if an event occurs, the non-occurance of which was a basic assumption of the parties to the contract
Effect of the UCC rule is that more of the risk of nonperformance is allocated to the promisee

22. Contract Damages
Often UCC contract damages begin with the difference between market price and contract price, times contract quantity
[(Pk - Pm)*/Qk] = D
If the nonbreaching party has to go back on the market, then it will be able to collect for incidental damages
UCC authorizes nonbreaching buyers to cover by purchasing from another seller on the spot market
To recover consequential damages, it must be shown that the breaching party had reason to know about those damages

23. Repudiation of the Contract
The UCC uses the term “repudiation” of the contract to avoid the CL term, anticipatory breach
Relative to the CL, the UCC grants the nonbreaching parties when a contract has been repudiated by the other side, more options to do what is commercially reasonable