Lecture Notes for Regulation of Contracts Involving Goods I. Classifications of Contract Law A.

Contract law can be divided into common-law contract law and statutory contract law. 1. The subject matter of a contract controls whether the common law rules govern or the statutory rules apply. a) The common law rules were "imported" from England and have been made by judges on a case by case basis while the statutory rules were made by legislatures. 1) Article 2 of the Uniform Commercial Code (UCC) has been adopted fully in 49 states and in part in La. 2. UCC Article 2applies to contract for the sale of goods which are defined as tangible personal property. 3. The common law rules apply to most other contracts including those for services and real estate. B. Comparing the Common-Law of Contracts with Article 2 of the Uniform Commercial Code Issue Common law rule UCC Article 2 rule Definiteness Contract must specify all Gap-filling provisions exist the material terms of the which permit material terms parties' agreement. to be implied if the parties otherwise intended to execute a contract. Irrevocable offers Exist only where the parties Recognize both option formed an option contract. contracts and a merchant's firm offer. Counteroffers Valid acceptance must be Acceptance need not be the the "mirror image" of the offer; "mirror image" of the offer between merchants where and a counteroffer rejects an acceptance contains the offer. additional terms not contained in the original offer, the new terms automatically become part of the contract if: 1-They do not materially alter the terms of the offer, and 2-The offeror does not object to the new terms within a reasonable time after receiving notice of them.

Statute of Frauds

Modifications

A writing signed by the party against whom enforcement is sought required where: 1-An interest in real estate is transferred; 2-The contract can not be fully performed by both parties in one year or less; 3-One contracting party promises to be liable for the debt or default of another party (i.e. a suretyship contract exists). New or additional consideration required for the contract modification to be enforceable.

A writing signed by the party against whom enforcement is sought required where the price of the goods sold is $500 or more.

New or additional consideration not required for the contract modification to be enforceable.

C. Transfer of Title to Goods Under U.C.C. Article 2 1.The common-law rule is that a that one can only transfer whatever title in property that he/she has. a) However, Article 2 of the U.C.C. contains an important exception to that rule; as a result, a person with voidable title to goods can transfer absolute title to a good faith purchaser for value of those goods. Transaction Seller's Title Status of Third Title Acquired by Buyer Party Goods sold by No defects Good faith No defects owner purchaser for value (BFP) Goods donated by No defects Good faith gift No defects. owner (i.e. a gift) receipient Goods sold by thief Void title Good faith None; real owner may purchaser for value reclaim the goods. (BFP) Goods acquired by Voidable title Good faith No defects; neither minor seller from a minor purchaser for value nor the defrauded party or by fraud and then (BFP) may reclaim the goods resold Owner entrust No title; merely the Buyer in the No defects; real owner goods right to possess the ordinary course of may not reclaim the goods To merchant dealing goods until the business from the buyer but does in that type of good owner reclaims have a tort action against and the merchant them the merchant for tort of resells the goods conversion

D. Warranties Concerning the Quality of Goods 1. UCC recognizes both express warranties (ones created by the words or conduct of the seller or seller's agent) and implied warranties. Type of Warranty Express warranty How Warranty Created Made by seller or seller's agent Description of Warranty Any affirmation of fact, promise, description of the goods, or a sample or model which relates to the goods and becomes part of the basis of the bargain between the buyer and seller. Implied that the goods are: 1-Fit for the ordinary purposes for which that type of goods are used; 2-Conform to all promises or affirmations of fact on the container or a label; 3-Adequately packaged and labeled. Implied that the goods are fit for the specific purpose for which the buyer acquired the goods if the seller knew or had reason to know: 1-The purpose for which the goods would be used; and 2-That the buyer was relying on the seller's skill or judgment to furnish suitable for that purpose. Implied that the seller has: 1-Valid title to the goods; 2-The right to transfer that title to the buyer; and 3-The goods will be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.

Implied warranty of merchantability

Automatically implied by law where seller is a merchant

Implied warranty of fitness for a particular purpose

Automatically implied by law

Implied warranty of title

Automatically implied by law

II. U.C.C. Article 2A: Leases of Goods A. In 1987 the National Conference of Commissioners on Uniform State Laws and the American Law Institute promulgated Article 2A to establish a comprehensive, uniform law to govern the formation, performance, and default of personal property leases (i.e. leases of goods). 1. The provisions of Article 2A were modeled after and are similar to the provisions of Article 2 for contracts for the sale of goods. By 1995, 40 states had adopted Article 2A. 2.The provisions of Article 2 include the following: a) Definition of a lease as a transfer of the right to possession and use of named goods for a set term in return for consideration. b) Recognition of a firm offer to make a lease by a merchant who makes a written offer to lease goods to or from another person and states in the writing that the offer will be held open; must be held open for the time stated up to a maximum of three months. c) A Statute of Frauds provision that requires lease contracts involving payments of $1,000 or more to be in writing; the writing must describe the leased goods and specify the lease term. d) A risk of loss provision that places the risk of loss on the lessor in the absence of a contrary agreement by the parties. III. Proposal for an Article 2B A.The National Conference of Commissioners on Uniform State Laws is engaged in the final stages of a project to draft a proposal for an Article 2B of the U.C.C. to deal with the licensing of software, databases, information and other "intangible" products. IV. International Sales Contracts: The Convention on Contracts for the International Sale of Goods (CISG): A. Developed by the U.N. Commission on International Trade Law (UNCITRAL) in 1980 in order to (1) reduce legal obstacles to international trade and (2) promote the development of new legal concepts. B. Became effective in the U.S. and ten other countries in 1988; by 1995, 35 countries had adopted it including Austrailia, Austria, Canada, China, Egypt, Finland, France, Germany, Hungry, Italy, Mexico, Russia, Spain, Switzerland, Syria and the U.S. C. The CISG applies to those contracts in which the buyer and seller have businesses in different countries and both countries have ratified the CISG.

1.It is irrelevant where the goods are located or where the contract was formed. 2.The parties are free to "opt out" of the CISG by expressly stating such in their contract; thus the doctrine of freedom of contract is incorporated in the CISG. D. The CISG applies only to contracts for the sale of goods but does not define goods. 1.Commercial paper, investment securities, ships, aircraft and electricity are expressly excluded from coverage. 2.The CISG also expressly excludes the international sale of goods to consumers. E. The CISG governs only the formation of the contract and the rights and duties of the parties to the contract; it does not govern the validity of the contract or the contract's effect on title to the goods. F. General Provisions of the CISG include: 1. An obligation of good faith is not implied by the CISG. 2. The contract becomes binding when an acceptance of an offer becomes effective. 3. An offer is defined as a proposal for concluding a contract which indicates an intention to be bound in case of acceptance and which is sufficiently definite. a. The offer must describe the goods, indicating their quantity and their price. 1)It is acceptable for the price to be tied to an index, include an escalator clause, or be set by a third party. b. Requirements and output contracts are valid in terms of quantity. 4. Merchant's firm offers exist but they have no time limit and need not be contained in a signed writing. 5. The "mirror image" rule of the common law is enforced; thus if the seller's acknowledgment differs on any material terms from the buyer's purchase order, no contract is formed. 6. Acceptance of an offer is valid only upon receipt of the acceptance by the offeror. 7. No consideration is required to form a valid contract under the CISG. 8. The CISG contains no Statute of Frauds provision; however, a country may provide otherwise for contracts formed in that country (a contract is normally considered "formed" where the acceptance occurs).