SALES TOPIC OUTLINE1
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UCC Article 2 applies to (2-102)
Goods are (2-105)(1), (4)
Merchants are (2-104)
Goods to be severed from realty (2-107)
Statute of Frauds (2-201)
Parol Evidence rule (2-202)
Formation (2-204)
Firm Offer (2-205)
Offer and Acceptance; Accomodation (2-206)
Battle of the Forms (2-207)
Modification (2-209)
Gap-Fillers (2-305, 2-307, 2-308, 2-309)
Outputs & Requirements (2-306)
Implied Warranties (2-314, 2-315)
F.O.B. & F.A.S. (2-319)
Perfect Tender Rule (2-601)
Anticipatory Repudiation (2-610)
Installment Contract (2-612)
Seller’s Remedies on Discovery of Buyer’s Insolvency (702)
Seller’s Damages (2-708)
Lost Profits (2-708)
Seller’s Incidental Damages (2-710)
Buyer’s Damages—Cover (2-712)
Buyer’s Damages (2-713)
Buyer’s Damages—Warranty (2-714)
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Copyright 2007 Daniel J. Wilson. Revised 2010. Permission is freely given to use these materials for
preperation for the Colorado bar exam. This material is drawn from a study of released MBE questions;
released Colorado bar exam essay questions; released essay questions from the National Conference of Bar
Examiners; released MBE questions from the National Conference of Bar Examiners; and Emanuals
Contracts outline and various other commercial outlines,. Grateful thanks to Burton F. Brody, Professor of
Law Emeritus University of Denver.
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WAYS THE UCC ARTICLE TWO CHANGES THE COMMON LAW
OF CONTRACTS
1. INTRODUCTION
a. Article 2 governs contracts for the sale of goods. Goods means
all things that are movable at the time of identification to a
contract for the sale of goods. The term includes future goods,
the unborn young of animals, growing crops and other things
attached to realty. Minerals, a structure or its materials are
goods if they are to be severed by the seller. Growing crops or
timber are goods no matter who severs. Goods does not mean
information, the money in which the price is to be paid,
investment securities, foreign exchange transactions or choses
in action. SECS 2-105 2-107
b. Sometimes the rules are different if one or both of the parties is
a merchant. Merchants are those who deal in goods of that
kind or who possess or profess special expertise in that area.
This is particularly important for the bar exam, and in particular
the MBE, because the MBE tends to test how the Code
changes Common Law, and that happens most frequently with
merchants. SEC 2-104
c. Unless the Code specifically displaces them, principles of the
Common Law and the Law of Merchants are imported into the
Code. For instance offer as defined in the common law is the
same, as is consideration and many other important C/L rules.
2. OUTPUTS, REQUIREMENTS AND EXCLUSIVE DEALINGS
SEC 2-306
a. The Code specifically recognizes such contracts. The Common
Law had problems with them because it regarded them as
illusory promises because the quantity term was indefinite.
This is a consideration problem.
b. An outputs contract is one where the buyer agrees to buy the
seller’s complete output.
c. A requirements contract is one where the buyer agrees to buy
all his requirements from the seller.
d. A term which measures the quantity by the output of the seller
or the requirements of the buyer means such actual output or
requirements as may occur in good faith, except that no
quantity unreasonably disproportionate to any stated estimate
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or in the absence of a stated estimate to any normal or
otherwise comparable prior output or requirements may be
tendered or demanded.
e. An agreement for exclusive dealings imposes an obligation by
the seller to use best efforts to supply the goods and the buyer
to use best efforts to promote their sale.
3. GAP-FILLERS/MATERIAL TERMS SECS 2-305 through 309
a. The Common Law required the agreement/writing to include
parties, subject matter, price, quantity and time of performance.
The Code gap-fillers can supply every missing term except
quantity.
b. This is derived indirectly from the Code Statute of Frauds,
referenced below, which requires a writing for every contract for
the sale of goods of $500 or more. The writing must have a
quantity term.
c. Open Price Term. If the parties wish they may form a contract
with out deciding the price term. In such a case the price is a
reasonable price. A price to be set by the buyer or seller
means set in good faith.
d. This is to be distinguished from the case where the parties set a
price orally and it is not reflected in the writing. Parol evidence
will be allowed to determine the price.
e. Gap-filler for place of delivery is seller’s place of business or if
none seller’s residence.
f. Time for shipment is a reasonable time.
g. Payment is at time and place buyer receives goods. Payment
is in money.
4. TIME OF FORMATION SECS 2-204, 2-206
a. The Common Law is very concerned with the exact time of
formation. The Code specifically says that the exact sequence
of offer and acceptance are not important if the parties intended
to form a contract. A contract for the sale of goods may be
made in any manner sufficient to show agreement including
offer and acceptance and conduct which recognizes the
existence of a contract. An agreement for the sale of goods
may be found even if the moment of its making is
undetermined. The contract does not fail for indefiniteness if
the parties intended to make a contract and there is a
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reasonable basis for giving an appropriate remedy.
5. MIRROR IMAGE RULE
a. Common Law says that acceptance must exactly mirror the
offer to be effective. Code says that offer may be accepted in
any manner reasonable under the circumstances. An order for
shipment may be accepted by shipment or a return promise.
b. I think there are two aspects of the C/L Mirror Image Rule.
First, the terms of the acceptance must exactly mirror those of
the offer or the acceptance is a rejection or a counteroffer. That
is mostly done away with by 2-207. (1). 2 Second, the means of
acceptance should be the same in C/L as the offer. That is
completely done away with by 2-204.
6. BATTLE OF THE FORMS--2-207
a.
An acceptance that has different or additional terms is an
acceptance, unless the acceptance is made expressly
conditional on its terms. In that case the purported
acceptance is not an acceptance but rather a
counteroffer.
b.
The key is that the C/L mirror image rule does not apply.
A communication that would be a rejection and a
counteroffer under C/L is an effective acceptance unless
the acceptance is made expressly conditional on its
terms. 2-207.1
c.
The additional or different terms become proposals for the
contract. Unless both parties are merchants, the
additional or different terms go away—the terms of the
offer control.
d.
However, if the parties are both merchants the additional
or different terms become part of the contract unless:
e.
The offer was expressly conditional on its terms,
i.
the term materially alters the contract
ii.
or the offeror objects within a reasonable time. 2-207.2
f.
If the writings do not establish a contract but the parties
act like there is a contract there is one. 2-207(3).
g.
In such case the terms are those on which the writings
agree with any additional terms supplied by Article 2. 22
Section 2-207 is drastically revised in the new Article Two, but is not yet in effect.
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207(3)
7. FIRM OFFER RULE. SEC 2-205
a.
In C/L an offer was revocable at any time unless it was
the subject of an option contract, or as it is often phrased,
is supported by consideration.
b.
Under the Code a Firm Offer by a merchant is
irrevocable. It requires words of firmness, in a writing
signed by the offeror, and is irrevocable for the time
stated or if no time stated for a reasonable time, but in no
event more than three months.
8. STATUTE OF FRAUDS. SEC 2-201
a.
A contract for the sale of goods of $500 or more must be
in writing to be enforceable.
b.
A writing is not insufficient if it omits or incorrectly states
some terms but is not enforceable beyond the quantity
shown
c.
If Between merchants Merchant A sends a writing
sufficient to bind Merchant A to Merchant B, and
Merchant B knows or has reason to know the contents of
the writing, and Merchant B does not object within 10
days the writing is sufficient to bind Merchant B.
9. PAROL EVIDENCE RULE. SEC 2-202
a.
Terms with respect to which the writings of the parties
agree in a writing intended as a final expression of their
agreement with respect to such terms may not be
contradicted by evidence of prior agreement or
contemporaneous oral agreement but may be
supplemented by evidence of consistent additional terms
unless the court finds the writing to be a complete and
exclusive statement of the terms of the agreement.
b.
This is a good expression of the C/L Parol Evidence Rule.
Evidence of prior or contemporaneous agreements will
not be allowed to change or contradict but will be allowed
to explain, unless the writing is fully integrated.
c.
The Code, however does allow parol evidence of course
of dealing, course of performance and trade usage,
apparently without the restriction of completely integrated
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or a finding that the writing is ambiguous. Trade Usage,
Course of Dealing and Course of Performance are a part
of every contract for the sale of goods.
10.
MODIFICATION. SEC 2-209
a.
An agreement within Article 2 needs no consideration to
be binding.
b.
This reverses the C/L rule that a modification needed to
be supported by consideration to be enforceable. Preexisting duty rule.
11.
ACCORD AND SATISFACTION.
a.
An Accord and Satisfaction is when one party to a
contract agrees to accept less than full payment as full
satisfaction of the other parties obligation.
b.
In C/L the debt must be disputed. It the debt is liquidated
and undisputed the pre-existing duty rule makes the
promise to accept less than full payment unenforceable.
There is no consideration to make the promise
enforceable.
c.
If the debt is disputed there is consideration to make the
promise to accept less than full payment enforceable.
The party offering less than full payment is foregoing a
defense to performance—mistake, breach, etc.,--in
exchange for the promise to accept less than full
payment.
d.
I Think the Code changes this rule in two ways. First,
modification of an agreement does not need
consideration to be enforceable. Second, Section 1-306
holds that a claim arising out of breach may be
discharged without consideration.
12.
PERFECT TENDER RULE. SEC 2-601
a.
A seller must make a perfect tender of the goods.
b.
If the tender is not perfect the buyer may reject the whole;
accept the whole; or accept any commercial unit and
reject the rest.
c.
This rule seems to abolish the C/L distinction between
minor and material breach.
d.
The rule is different if it is an installment contract.
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e.
Installment contract means one in which more than one
delivery is made. A buyer may reject a non-conforming
installment and repudiate the contract only if the
nonconformity substantially impairs the whole contract.
This area is a good example of the bar exam simplifying a
complex area. In practice the perfect tender Rule is not
strictly enforced; on the quiz it is.
26.
ACCOMODATION SHIPMENT SEC 2-206
f.
A shipment of non-conforming goods that is accompanied
by notice that it is an accommodation shipment is not
acceptance.
g.
If the buyer thinks the non-conforming goods will work he
can accept them and thereby form a contract. Otherwise
he may return the non-conforming goods and there is no
contract.
13.
BUYER’S AND SELLER’S REMEDIES—CHAPTER 7
a.
Seller's remedies on discovery of Buyer's insolvency 2-
702
b.
c.
d.
e.
f.
g.
h.
Seller’s lost volume profits 2-708
Seller's incidental damages 2-710
Right to adequate assurance
Cover 2-712
Other buyer's remedies 2-713
Breach of Warranty 2-714
Seller’s incidental and consequential damages.
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