- Does the Statute apply?
- UCC
- Background: original code created in 1950s in response to globalization of transactions to take the place of “trust.” Each state, upon adoption of the UCC, can make changes to it
- Rule §2-102: the UCC applies to transactions in goods
- Potential issues:
a)Is it a good? §2-105: "Goods" means all things (including specially manufactured goods) which are
1)movable at the time of identification to the K
a)Goods must be both (1) existing and (2) identified (S has indicated that these goods are the particular goods that are going to be used to satisfy a particular K, this is important b/c all corn looks alike) b/f interest can pass, still can make a K for a “future” good
b)Definition includes water, natural gas
2)Includes specially manufactured goods (ex: B gives S specifications for which the good must comply. Here you should still counter argue with a “service”)
3)not the money in which the price is to be paid, investment securities (Article 8) and things in action (intangible rights ex: copyright, IP rights, raffle ticket)
4)Includes the unborn young of animals and growing crops and other identified things attached to realty
b)Mixed K Tests: courts use two tests to determine whether the K is for “goods”
1)Predominant factor: is the predominant purpose of the transaction to sell goods or services? (use all factors language, CP, CD, TU)
a)Factors:
1)cost allocation
2)Purpose: what does the buyer really want?
3)S/B’s primary business (ex: famous artist)
4)Policy considerations: do we generally want the UCC to apply or not? (Cook)
a)Policy rule: courts have been reluctant to apply the UCC to health care professionals. Fear that if court imposes a strict liability guarantee on this business will create a chilling effect on the providers of these services. Ex: Blood shield laws, i.e. blood is not subject to the warranty of merchantability
b)Ex: do we want to apply the warranty of merchantability to the statute of the David?
b)Result: law applies to the entire K
2)Gravamen of the harm: is the source of the complaint with the goods or the services?Result: UCC only applies to the portion of the K that deals with goods
3)Princess: The court holds that this is a sale of services (note how they use the mixed use test factors.) Therefore, whether Princess assented to the terms of the K must be construed under the CL
- CISG
- Background: In 1980 UN submits CISG to 62 nations, currently 60 countries have ratified It is a set of Default rules and applies if B/S have not opted out. Goals are to promote uniformity and create trust.
- Rule: CISG covers the sale of goods between parties whose places of business are in different states (either between contracting states or when the rule of law leads to the application of law of a CS)
a)International
1)K/SHK requirement: POB in different States is disregarded whenever this fact does not appear either (1) from the contract or (2) from any dealings between or (3) from information disclosed by the parties at any time before or at the conclusion of the contract (at the end of formation, not performance)
2)Movement of goods does not trigger CISG, does not matter that goods move over country lines
3)Place of Business = place which has the closest relationship to (1) the formation of the K and (2) its performance
a)Multiple offices: Article 10(a): when choosing b/t multiple offices, POB is limited to facts/circumstances known to the parties b/f the K is formed
b)Permanent establishment required: no warehouse, office of S’s agent
c)If no POB: Article 10(b): buyer’s habitual residence
b)Sale
1)Does NOT apply to sales of (A2)
a)Consumer goods: goods bought for personal, family or household use
1)Look at Buyer’s intended use: there is nothing that is inherently a consumer good
2)Exception: S at any time before or at the conclusion of the contract neither K/SHK that the goods were bought for such use
b)auction;
c)execution or otherwise by authority of law;
d)stocks, shares, investment securities, negotiable instruments or money;
e)ships, vessels, hovercraft or aircraft;
f)electricity
g)article 5: claims of defects or other liability injuries
2)If Buyer supplies substantial part of goods: Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production.
3)A4: CISG governs only the (1) formation of the contract of sale and (2) the rights and obligations of the seller and the buyer arising from such a contract. In particular, it is not concerned with:
a)validity of the contract (fraud, duress, unconscionability, etc.)
b)effect which the contract may have on the property in the goods sold (ex: resolution of disputes concerning claims to the goods themselves not arising out of this transaction)
c)A5: does not apply to the liability of the seller for death or personal injury caused by the goods to any person
d)Does not govern Ks ancillary to an international sales K, i.e. distribution agreements, insurance Ks, dispute resolution clauses
c)Goods: are defined by exclusion
1)Factors in favor of classification as a “good”:
a)severability
b)nothing in A2 would exclude
c)policy: i.e. effectuating the purpose of promoting international trade through uniform law
2)Examples:
a)goods: software program, warehouse + dismantling where cost of warehouse > service of dismantling
b)not goods: marketing analysis
3)Preponderant part test: does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services.
- Opting out: parties may exclude the application of the of the convention or in some cases derogate/vary the effect of it’s provisions.
a)Note: if there is an extrinsic choice of law agreement, start with the statute that is presumably applicable. If it is the COSG, this extrinsic E is admissible b/c there is no PE rule if the E goes to what the parties intended (see PE rule under CISG)
- Formation: Is there a K?
- UCC
- Formation in General 2-204: A K for sale of goods may be made in ANY manner sufficient to show manifestation of intent to enter an agreement, including conduct by both parties which recognizes the existence of such a k
a)Look at the language of the parties or determine by implication from other circumstances including CoD, TU, CoP.
b)Must show that it happened – do not need to show (1) when or (2) include all the terms (cmt: argue that the more terms left open the less likely the parties intended a binding agreement)
c)Car sales: note that if a car dealer has an unlimited supply of goods then when he puts an ad in the paper it may become an offer
- Offer + Acceptance in Formation of K: 2-206
a)Offer by order 2-206(1)(b): unless otherwise unambiguous by the language or circumstances (offeror is master of the offer) an order or other offer to buy goods for shipment shall be construed as inviting acceptance either by (1) prompt promise to ship or (2) prompt shipment of a conforming/non-conforming product.
1)Tender of non-conforming goods:iF the S ships non-conforming goods ≠ acceptance if the S seasonably notifies the B that the shipment is offered only as an accommodation to the B. This is considered a new offer, what happen depends on whether the B accepts. If no notice, then S has (1) accepted offer and (2) is in breach (for shipping the non-conforming goods).
b)Potential issue: who makes the Offer?
1)Hill v. Gateway: Court holds that Gateway makes offer by sending computer. B accepts by not sending computer back w/i the 30 days expressed in the terms located in the box. The terms contain an arbitration agreement, b/c the agreement is part of the offer, it b/c part of the K when the B accepts.
a)Problem: goes against general principle of K law that a party cannot accept by silence.
b)Rationale: 1997, judge is trying to promote internet transactions by making it easier for the S
c)Scott thinks this decision is bad.
2)Klocek: there is a dispute as to formation and nobody knows who is the offeror. Court has to decide and then use 2-207 to determine the terms.
c)Normal formation: S makes the offer through solicitation, B accepts through payment
- Additional/Different Terms in Acceptance/Confirmation: the general rule of acceptance under the CL is the mirror image rule, however, under the UCC a form may act as an acceptance even if it is not the mirror image of the offer.
a)Trigger #1: parties have exchanged forms and the acceptance varies from the terms of the offer
1)Analysis:
a)Definite + seasonable?
b)Expressly conditional on assent?
c)If not expressly conditional on assent(= formation) determine if additional or different
1)Additional terms between merchants?
a)No proposals unless express assent of offeror
b)Yes included unless exception
1)Offer expressly limits?
2)Additional terms constitute a material alteration (cmt 4+5, surprise or hardship test)
3)Notification of objection already given or w/i reasonable time after
2)Different terms: 3 analysis
a)2-207(2) analysis, problem: “materially alters”
b)Master of the offer analysis
c)Knock out rule analysis
d)If expressly conditional on assent
1)Offeror expressly consented to terms?
2)Performed without consenting? (1) same terms + (2) gapfillers
2)A (1) definite and (2) seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance (= formation)even though it states terms additional to or different from those offered or agreed upon, (3) unless acceptance is expressly made conditional on assent (by the recipient) to the additional or different terms.
a)Rejection of the CL counteroffer rule
b)Definite: is a limit on how broad the variation of terms can be and courts determine on a cbc basis. Terms must match in terms of (1) subject matter (i.e. what is being sold), (2) quantity must have consistency (exception: output K, requirements K), but (3) quality, price, or delivery do not need to agree b/c these can be fixed under the UCC (exception: If the offeror makes it clear that time is of the essence then perhaps delivery cannot be fixed).
c)Seasonable: sent within a reasonable time. no absolutes, it will depend on (1) what is happening in the market (fast vs. slow) (2) course of dealings (3) perishable goods (4) course of performance (5) trade usage
d)Expressly conditional: must appear in the acceptance and communicate that “this acceptance does not operate as an acceptance unless offeror consents to the terms in the acceptance”. NOTE: must (1) expressly condition your acceptance and (2) require express assent (verbal or writing) by the recipient/offeror (note: parties do not b/c bound by the terms in this by just performing, we get rid of the last shot doctrine here) go to 2-207(3).
3)2-207(2): If acceptance is (1) D and (2) S and is (3) NOT expressly conditional on assentthen additional terms are to be construed as proposals for addition to the K.Between merchants such terms become part of the contract unless (a) the offer expressly limits acceptance to the terms of the offer;(b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received
a)Def:
1)Additional term = whether the term in the acceptance adds to the offer (note: we are not asking about what is in the offer)
2)Different term = conflicting with each other
b)Additional Terms analysis
1)Step #1: is this b/t merchants?
a)Between merchants 2-104(3): any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants
b)Merchants 2-104(1): (1) one who deals in goods of the kind (must be the goods that are the subject of this K) (2) or otherwise by his occupation holds himself out as having knowledge or a particular skill (note: if merchants, offeror can always expressly assent and then you don’t have to do the analysis)
2)Step #2 (a): if NOT between merchants than additional terms are proposals only and only allowed in by express assent by the offeror (performance ≠ assent)
3)Step #2 (b): if b/t then terms are presumptively in unless one of the exceptions apply
a)Offer expressly limits acceptance to the terms of the offer
1)Brown Machine: “this order expressly limits acceptance to the terms stated herein”
2)note: this is inapplicable to trigger #2 scenarios where there is an oral K
b)Material alteration (Dale H)
1)Presumptively a material alteration (Cmt 4) =
a)Clause/disclaimer that negates warranties (Split in courts: disclaimer that negates warranties is sometimes tied to limit on consequential damages)
b)Indemnification clause (risk shifting and therefore likely to be MA)
c)Choice of law
d)Arbitration (policy debate about whether we should treat as a MA – increasing willingness to treat as MA)
e)Attorney’s fees: if they are not bargained for but are included as a result of 2-207 then they are considered a MA b/c they are a shift in hardship due to the fact that the burden for fees usually rest with each party for their own.
2)Presumptively NOT a material alteration (Cmt 5) =
a)Clause fixing a reasonable time for complaints within customary limits
b)Fixing S’s standard credit terms when they are w/i trade practice
c)Limiting remedy in a reasonable manner (i.e. clause limiting the right for rejection of defects which fall w/i the customary trade practices)
3)If neither of above use surprise OR hardship test: (1) trade usage (2) CoP (3) CoD (4) can look at UCC gap fillers to see where the burden normally rests
a)Surprise: (1) Trade usage (Dale H. ex: is it common for glass sellers to limit consequential damages in this way?) – actual knowledge of TU not required (2) course of performance (Dale H ex: under this K how have the parties acted with regard to the limit in consequential damages?)
b)Hardship: not enough to argue that it will cost party money. Has to do with an unanticipated financial expense. Often comes down to an unbargained for re-allocation of risk. Ex: Generally, burden rests on the other party and through these terms it has shifted to me. B/c I was unaware I have been unable to take adequate precautions to prepare for this risk. Point: look for who normally bears the risk.
c)Different Terms analysis: 3 approaches/no majority
1)2-207(2) analysis (see above AT analysis): Problem here is 2-207(b) that says that if term “materially alters” then it is out.
2)Offeror’s terms control: b/c he is the master of the offer and 2-207(2) does not address different terms
3)Knock out rule: where the terms of the offer and acceptance conflict they cancel each other out and the UCC fills the gap.
4)2-207(3): a K is formed as the result of the conduct of the parties (an offer with an expressly conditional acceptance where there is no express assent by the recipient but the parties perform) although the writing of the parties do not establish a K. However, court must decide the terms under the UCC. In such case the terms of the particular contract consist of (1) those terms on which the writings of the parties agree, together with (2) any supplementary terms under the UCC (gap fillers)
a)Brown Machine: we have an offer with no indemnification, an acceptance with an indemnification clause. It is not a term agreed upon by both parties and the UCC gap filler does not allow for indemnification. So, it is out.
b)Trigger #2: oral agreement (K) followed by 1 or more written confirmations (WC)
1)WC conflicts with K WC is out (need express assent for K modification under the UCC)
2)WC adds terms to the K 2-207(2) additional terms analysis
3)K is silent but WCs differ in terms (A vs. NOT A) 2-207 cmt. 6 says that terms cancel each other out and use UCC gapfillers
- Consideration?
- CISG
- Formation: Offer + Acceptance
a)Offer: A proposal for concluding a contract addressed to (1) one or more specific persons constitutes an offer if it is (2) sufficiently definite and indicates (3)the intention of the offeror to be bound in case of acceptance
1)Specific: if you can determine who the person is
a)Proposal other than one addressed to one or more specific persons = invitation to make offers, unless the contrary is clearly indicated by the person making the proposal
2)Sufficiently Definite = (1) indicates the goods and (2) expressly or implicitly fixes or makes provision for determining the quantity and the price
b)Acceptance: A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance
c)No consideration required (unlike UCC)
- Rules
a)Effective upon receipt = An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror (rejection of the mailbox rule = effective upon sending). An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise.
1)Offer is also effective on receipt
b)Mirror image rule: A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer (same as common law)
1)Exception: a reply to an offer which purports to be an acceptance but contains additional or different terms which do NOT materially alter the terms of the offer constitutes an acceptance UNLESS offeror, (1) without undue delay, (2) objects orally to the non material terms or (3) dispatches a notice to that effect. If he does not object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.
a)Materially alters = Additional or different terms relating, among other things, to the price, payment, quality (warranties would be here) and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.
2)If the reply contains terms that materially alter no K, considered a counter-offer (NOTE: Then performance = assent to c/o)
- What are the terms?
- UCC PE
- PE Analysis
a)Only triggered with a writing
b)One party is trying to introduce extrinsic E that occurs prior to or contemporaneous to a the writing
c)Is it completely integrated (C+F analysis – on test must decide if it goes to C or F) ? PE raised as a bar
d)Yes, CI does an exception apply?
e)No, CI (1) F but not C (2) C but not F, or neither F/C
f)
- Parole Evidence
a)Trigger: a writing exists and one of the parties is trying to introduce E extrinsic to the writing against the other party
b)Background: generally consistent with the CL rules. PE is a 2 step process: the admissibility of PE is a matter for the judge (question of law). If the judge decides that the PE rule does NOT bar admissibility then it goes to the finder of fact – who decides whether it is true, etc. If judge is decider on both steps – judge cannot rely on step one when making a decision in step 2 if PE rule bars the E.