CHAPTER 8
Sales and E-Commerce
INTRODUCTION
 This chapter addresses sales contracts
governed by the UCC as well as the
Convention on Contracts for the
International Sales on Goods and “battle of
the forms” and warranty issues.
 The chapter also addresses laws regulating
e-commerce and the formation of
electronic contracts. Remedies for
breaches of these contracts are also
delineated.
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WHEN DOES ARTICLE 2
OF THE UCC APPLY?
 Sale of “Goods” – “all things (including specially
manufactured goods) which are movable at the time of
identification to the contract for sale.”
 Merchants – “a person who deals in goods of the kind
or otherwise by his occupation holds himself out as
having knowledge or skill peculiar to the practices or
goods involved in the transaction.”
 Identification to the contract – the designation – by
marking, setting aside, or other means – of the
particular goods.
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CONTRACT FORMATION
 Offer – traditional common law principals
determine whether an offer has been made. It is
not defined by the UCC.
 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. It is not
defined by the UCC.
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CONTRACT FORMATION
Case 8.1 Synopsis. ProCD, Inc. v. Zeidenberg (7th Cir. 1996).
ProCD compiled information from over 3,000 telephone directories into one
database. ProCD sold this data on a CD-ROM. The purchaser of the data found
shrink-wrapped with the data an agreement not to sell the data. The purchaser
could not read the license without opening the shrink wrap; further, to use the
data, the purchaser had to click on the “I Agree” (with the license terms) button
to start the program. Zeidenberg purchased the data, then sold the information
on the Internet through his company, Silken Mountain. ProCD sued Zeidenberg
for violating the license agreement. The district court ruled for Zeidenberg
citing Wisconsin state law. ISSUE: Is a shrink wrap or “click wrap” license
whose terms are unknown to the buyer at purchase binding on the buyer?
HELD: Reversed, stating that the terms of the shrink wrap license were binding
on a buyer unless the terms are objectionable on grounds applicable to
contracts in general. If Zeidenberg did not want to be bound to the license, he
could have returned the data or bought a competitor’s data.
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CONTRACT FORMATION
Consideration – must be included in contracts for
the sale of goods to be enforceable.
Offer – not defined by the UCC.
Firm Offer – a signed offer by a merchant that
indicates that the offer will be kept open.
Acceptance - not defined by the UCC, except
stated that an acceptance may contain terms
additional to or different from those in the offer.
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BATTLE OF THE FORMS
UCC 2-207
 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.
 Acceptance with Additional Terms—depends if
either of the parties is a merchant.
 Acceptance with Different Terms—depends if
either of the parties are merchants.
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BATTLE OF THE FORMS
UCC 2-207
Case 8.2 Synopsis. Ionics, Inc. v. Elmwood Sensors, Inc. (1st Cir. 1997).
Elmwood manufactures thermostats. Ionics bought Elmwood sensors to
include in its water dispensers. During each purchase of thermostats, a
battle of the forms occurred. Each company tried to force the other
company to bend to its choice of contractual provisions. Several Ionics
dispensers caused fires, allegedly from faulty Elmwood thermostats. Ionics
sued for breach of the implied warranty of fitness. Elmwood moved for a
partial summary judgment limiting its liability to its contractual
acknowledgment. ISSUE: If there has been an acceptance of an offer, but
the offer and acceptance are on printed forms that contain contradictory
terms, is there a contract? If so, what are the terms? HELD: The trial court
held that the conflicting battle-of-the-forms provisions would be stricken,
and UCC warranty terms would apply instead. The appeals court affirmed
the decision because of the clarity of the UCC provision in question.
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STATUTE OF FRAUDS UCC 2-201
 “Some Writing” - lenient interpretation under the
UCC.
 Quantity of Goods - writing unenforceable unless:
 quantity specified
 goods specially manufactured and not readily
re-salable
 defendant admits in judicial proceedings that
an agreement existed
 payment was made and accepted
 goods were received and accepted
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STATUTE OF FRAUDS UCC 2-201
 Signature - writing must be signed by the
person against whom enforcement is
sought.
 The E-Sign Act, UCITA and UETA allow
digital signatures.
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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.”
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WARRANTIES
 Express Warranty (UCC 2-313) - an explicit
guarantee by the seller that the goods have
certain qualities.
 Puffing - opinion statements do not
constitute a warranty.
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WARRANTIES
Case 8.3 Synopsis. Connor, Inc. V. Proto-Grind, Inc. (Fla. 2000).
FACTS. Doug Connor, the president of Connor, Inc., a land-clearing business, became
interested in purchasing a large commercial grinding machine manufactured by Proto-Grind,
Inc., called the Proto-Grind 1200. Proto-Grind’s brochure described the machine as the
“toughest grinder on the market” and stated that the machine could grind timber, stumps, and
railroad ties into mulch. Connor attended a demonstration of the machine during which a large
log was reduced to mulch. During the demonstration, he spoke to Protos, the president of
Proto Grind, and told him that he needed a machine that would grind palmettos, palm trees, oak
trees, and other trees. Protos assured him that the machine was capable of doing this work.
Connor signed a sales contracts which provided for a two-week trial period during which time
he could use the machine and purchase it only if he was satisfied. After the machine
experienced problems, Protos waived the first installment payment of $5,500 in exchange for
elimination of the trial period. Connor accepted. Protos failed to fix the machine’s recurring
problems and Conner sued for breach of express oral warranties that the machine would grind
organic materials effectively, that the machine would be free from defects for a period of six
months, and that Proto-Grind would fix the machine. The case went to trial and the trial court
granted Proto-Grind’s motion for a directed verdict at the conclusion of Connor’s case on the
grounds that Connor waived the express warranty in exchange for elimination of the first
installment payment of $5,500. Connor appealed. CONTINUED
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WARRANTIES
Case 8.3 (Cont’d) Connor, Inc. V. Proto-Grind, Inc., (Fla.
2000). ISSUE: When do oral statements by a seller about
the capability of a commercial grinding machine constitute
an express warranty? Is a warranty claim waived if the buyer
agrees to eliminate a trial period? HELD: Reversed and
remanded for trial. The finder of fact could reasonably
conclude that the alleged oral promises made were more
than mere puffing, that the product failed to meet the
promise that it would sufficiently grind palm trees and
palmettos, that Connor relied on these affirmations, and that
because the deficiency of the product was not cured, ProtoGrind breached this express warranty.
WARRANTIES
 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.
 Reasonable Expectations: The key issue in
determining merchantability is whether the goods
do what a reasonable person would expect of
them.
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WARRANTIES
 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.
 Reliance - Seller may try to show:
 the buyer’s expertise was equal to or superior to
the seller’s.
 the buyer relied on the skill and judgment of
people hired by the buyer.
 the buyer supplied the seller with detailed
specifications or designs that the seller was to
follow.
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WARRANTIES
Limiting Liability - express or implied warranties
are avoidable under the UCC.
Under the UCC, a seller is not an absolute insurer
of the quality of goods sold.
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MAGNUSON-MOSS
WARRANTY ACT
 Protects consumers against deception in
warranties. It gives a consumer purchaser of a
product the right to sue a manufacturer or retailer
for failing to comply with the ACT or the terms of a
written or implied warranty arising from the ACT.
 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.
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RIGHT TO REJECT
NONCONFORMING GOODS
Case 8.4 Synopsis. Moore & Moore General
Contractors, Inc. v. Basepoint, Inc. (Va. 1997).
Moore & Moore was the contractor for a Red Lobster restaurant. The plans for the
cabinets called for “melamine” cabinets; it is unclear what that term means in the
industry. Basepoint was the subcontractor for the cabinets. Basepoint delivered
particle-board cabinets to the job site instead of sturdier plywood cabinets. Moore &
Moore’s representatives inspected the cabinets and the plans and decided to accept
the goods and save money on the job. When the inspector for the restaurant saw the
particle board cabinets, he ordered them replaced. Moore & Moore then rejected the
cabinets and notified Basepoint they expected delivery of other cabinets within one
week. Basepoint notified Moore & Moore that they could not meet that deadline. Moore
& Moore bought cabinets elsewhere and refused to pay Basepoint. Basepoint sued
Moore & Moore for the price of the cabinets. Moore & Moore counter-sued for the labor
and materials needed to remove and replace Basepoint’s cabinets. The trial court
ruled for Basepoint and rejected Moore & Moore’s counterclaim. CONTINUED
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RIGHT TO REJECT
NONCONFORMING GOODS
Case 8.4 Synopsis. Moore & Moore General Contractors, Inc. v.
Basepoint, Inc. (Va. 1997). ISSUE: Can a Buyer’s acceptance
of goods be revoked because of their nonconformity? If not, is
the Buyer entitled to recover from the seller the cost of
substitute goods? HELD: The Virginia Supreme Court affirmed
the decision stating that Moore & Moore had accepted the
goods and did not justifiably revoke that acceptance. That
being the case, Moore & Moore was not entitled to recover its
costs for cover (buying other cabinets) in this case.
ALLOCATION OF RISK OF LOSS
 ROL: Generally, the party controlling goods at the time
of loss is responsible unless an agreement exists to the
contrary.
 Goods Shipped by Carrier :
 FOB seller’s place of business.
 FOB buyer’s place of business.
 Goods Held by Independent Warehouse.
 All Other Cases.
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ALLOCATION OF RISK OF LOSS
Case 8.5 Synopsis. Lynch Imports, LTD. v. Frey (Ill. 1990).
The buyers purchased a car from the seller for $8,706. The sales form had written
additions that guaranteed the buyers’ satisfaction with the car. The buyers financed
$4,000 and paid the rest by check. The agreement was that the buyers would take
possession of the car, then return it later for an air conditioner to be added to it.
When the buyers did that, they were informed that the car had been previously
damaged. Upon learning that, the buyers refused to take possession of the car,
refused to get financing for the balance of the car payment, and stopped payment on
the check given to seller. The seller sued the buyer for these actions claiming that
the buyer had accepted the car by taking possession. Trial court granted Seller’s
Motion for Summary Judgment. ISSUE: When a buyer takes possession of a car,
but it is understood that the buyer will return with the car to have air-conditioning
installed per the purchase order, has the buyer fully accepted the car and assumed
complete responsibility for it? HELD: Reversed. The case was remanded for further
determination on the question of whether or not the buyer had yet accepted the
goods under the UCC.
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UNCONSCIONABILITY
UCC 2-302(1)
 Extreme unfairness of a contract may prompt it to be
ruled unenforceable by a court.
 Procedural Unconscionability - one party is induced
to enter the contract without having any meaningful
choice.
 Substantive Unconscionability - terms of a contract
are unduly harsh or oppressive or unreasonably
favorable to one side.
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UNCONSCIONABILITY
UCC 2-302(1)
Case 8.6 Synopsis. Walker v. American Cyanamid Co. (Id. 1997).
Walker Farms purchased an herbicide, ASSERT, manufactured by American
Cyanamid Company (Cyanamid) to use on crops of grain and potatoes grown in
rotation on its fields. A Cyanamid representative told Walker that ASSERT was
safe and posed no risk to potatoes even if sprayed directly on the plants. The
label stated that potatoes could be planted in rotation after applying ASSERT on
certain grain crops. A disclaimer on the label further provided: “Any damages
arising from breach of this warranty shall be limited to direct damages and shall
not include consequential commercial damages such as loss of profits or values
or any other special or indirect damages. American Cyanamid Company makes
no express or implied warranty, including other express or implied warranty of
FITNESS or of MERCHANTABILITY.” The crops harvested with ASSERT were
irregular and substandard. Walker sued claiming the limitation of liability
provision on the ASSERT label was unconscionable. CONTINUED
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UNCONSCIONABILITY
UCC 2-302(1)
Case 8.6 Synopsis. Walker v.
American Cyanamid Co. (Id. 1997) [Cont’d].
A jury awarded Walker $3,428,703 in damages for potato crop losses and
increased expenses. The trial court reduced the award by $315,333, the
amount of crop insurance Walker received. Cyanamid appealed.
ISSUE: Is an ambiguous provision limiting liability to “direct damages”
unconscionable? HELD: Affirmed. The limitation of liability provision was
procedurally and substantively unconscionable. Walter could recover for
damage to his potato crops. The limitation of liability provision was
substantively unconscionable because it constitutes unfair surprise.
COMMERCIAL
IMPRACTICABILITY—UCC 2-615
 Application under the UCC - a failure to perform is not
a breach if performance is made impractical by an
event unforeseen by the contract, unless the contract
provides otherwise.
 Factors:
Underlying Condition
Unforeseen Contingency
Impracticable Performance
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DAMAGES
 Seller’s Remedies [UCC 2-708] - UCC provides
monetary damages if the buyer cancels a
contract or refuses to accept delivery of the
goods covered by the contract.
 Buyer’s Remedies [UCC 2-711] - UCC gives a
variety of choices if a breach occurs.
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SPECIFIC PERFORMANCE
UCC 2-716
If the promised goods are unique,
then under Section 2-716 of the UCC
a court may order the seller to
deliver them.
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UNIFORM COMPUTER
INFORMATION TRANSACTIONS
ACT (UCITA)
 Scope: computer information – “information in electronic
form which is obtained from or through the use of a computer or
which is in a form capable of being processed by a computer.”
 UCITA Statute of Frauds– a contract requiring payment of
$5,000 or more is not enforceable unless there is an
authenticated record of the existence of a contract.
 Assent and Contract Formation –electronic agents allowed.
 Warranties—tailored to information and licensing.
 Damages
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INTERNATIONAL SALE OF GOODS AND
THE CISG (CONVENTION FOR THE
INTERNATIONAL SALE OF GOODS)
Scope of CISG—contracts between citizens of
different countries.
Offer and Acceptance—effective upon receipt.
Battle of the Forms—different terms is a
counter-offer.
Good Faith—like UCC.
Implied Warranties—like UCC.
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THE RESPONSIBLE
MANAGER
Operating Under Varying Legal Regimes
Any manager who enters into contracts on
behalf of a business should know which body
of contract law will govern the transaction. The
manager should determine whether the
transaction is governed by Article 2 of the UCC,
the common law rules concerning contracts,
CISG, or UCITA.
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REVIEW
1. Will e-mail and the Internet make the Statute of
Frauds obsolete?
2. Should the protection of unconscionability be
eliminated and replaced with caveat emptor?
3. Why would United States’ companies tend to like the
CISG more than most or all other countries’
companies?
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