Lecture 7 Advanced Contracts and UCC Sales Welcome to lecture
seven of our Bar Prep Master Class.
This session marks the beginning of Week 3, where we build upon
the foundational concepts from earlier contract law lectures
and pivot into more complex territory, including the Uniform
Commercial Code UCC provisions that govern the sale of goods.
Understanding the distinctions between common law and UCC
Article 2 is essential for bar success.
This lecture will cover advanced doctrines such as the parole
evidence rule, contract modifications, warranties,
performance breach, and remedies under both systems.
Let us begin with the distinction between common law
contracts and contracts for the sale of goods under the UCC
common law versus UCC Article 2. Contracts for services, real
estate, and employment are governed by the common law,
while contracts for the sale of goods are governed by UCC
Article 2. Goods are defined as tangible
movable items at the time of identification.
The UCC applies regardless of the price of the goods or the.
Party's sophistication. When a contract includes both
goods and services, courts use the predominant purpose test to
determine which legal framework applies.
Under this test, the court evaluates whether the primary
purpose of the contract is the sale of goods or the provision
of services. For instance, a contract to
install carpeting. A combination of sale and
service will be governed by the UCC if the value of the goods
predominates. If the transaction is more about
the service, EG, hiring a contractor to renovate a house
whose supplies nails, drywall, and tools, common law applies.
Hybrid contracts, such as those involving computer software and
installation, often require nuanced analysis.
Additionally, UCC rules prioritize flexibility, speed of
transactions, and the norms of business commerce.
Unlike common law, which emphasizes formality and
historical precedent, contract formation and modification.
Under common law, a valid contract modification requires
new consideration. This means both parties must
exchange something of legal value that was not already owed.
If a builder agrees to build a house and later seeks more money
without changing the scope of work, the promise to pay more is
unenforceable absent new consideration under the UCC.
However, modifications do not require consideration if they
are made in good faith. This permits parties in an
ongoing commercial relationship to adapt to change circumstances
without creating a new contract. For example, if unforeseen
supply chain disruptions require a seller to adjust delivery
schedules, the parties may modify their agreement without
exchanging new consideration, as long as the change is reasonable
and not coerced. The UCC also.
Permits contract formation even when terms are left open.
Section 22O four allows contracts to be formed in any
manner sufficient to show agreement, including conduct.
This reflects commercial realities where parties may act
without ironing out every detail.
Quantity, however, is typically required unless the contract
involves output or requirements terms.
In output contracts, the seller agrees to sell all it produces
to the buyer. In requirements contracts, the
buyer agrees to purchase all it needs from the seller.
Such contracts are enforceable so long as quantities are made
in good faith. The Peril Evidence Rule The
peril evidence rule is a rule of substantive law that prevents
parties from introducing evidence of prior or
contemporaneous oral and sometimes written agreements to
contradict a final written expression.
The rule does not apply to subsequent modifications or to
agreements that are completely separate from the subject matter
under the UCC. A partially integrated
agreement, one that does not include all the terms the
parties agreed to, may be supplemented with consistent
additional terms. A fully integrated agreement,
when intended as a complete and exclusive statement of the
terms, may not be contradicted by prior oral agreements.
However, it may still be explained by course of
performance how the parties acted under the current
contract. Course of dealing how the
parties acted in prior contracts with one another.
Usage of trade practices commonly observed in a
particular industry. Additionally, parallel evidence
is always admissible to clarify ambiguity in language.
Prove that a writing was conditional upon the occurrence
of an event. Demonstrate that the agreement
was induced by fraud, mistake, or duress.
Demonstrate clerical error in transcription.
Performance Obligations The UCC imposes on sellers the duty to
tender conforming goods. The buyer has a right to a
perfect tender goods must conform in every respect to the
contract terms. This rule gives the buyer
substantial leverage, but is balanced by the seller's
opportunity to cure. If a buyer rejects non
conforming goods, the seller may cure the defect if the time for
performance has not yet expired. Notify the buyer of intent to
cure and deliver conforming goods within a reasonable time
if the seller had reasonable grounds to believe nonconforming
goods would be acceptable. Buyers may revoke acceptance of
goods if the nonconformity substantially impairs the value
of the goods. The defect was not discovered
initially due to the difficulty of discovery or assurances by
the seller. In installment contracts,
rejection is more limited. A buyer may only reject an
installment if the nonconformity substantially impairs the value
of that installment and cannot be cured.
If the nonconformity affects the entire contract, the buyer may
cancel the whole agreement. Warranties under the UCC The UCC
recognizes three types of warranties express implied by
merchandability. And implied.
By fitness for a particular use. Express warranties arise when
the seller makes affirmations of fact, promises or uses,
descriptions, or samples that become part of the basis of the
bargain. Puffery or sales talk does not
create a warranty. Implied warranty of
merchandability requires that goods be fit for their ordinary
purpose. This warranty arises
automatically when the seller is a merchant dealing in goods of
that kind. Implied warranty of fitness for
a particular purpose applies when the seller knows the
buyer's specific use and the buyer relies on the seller's
skill or judgement. Disclaimers must be explicit.
To disclaim merchant ability, the seller must use the term
merchant ability and ensure the disclaimer is conspicuous.
For fitness, the disclaimer must be written and conspicuous,
though it need not use specific language.
The phrase as is or with all faults conserved to exclude all
implied warranties. Risk of loss.
Risk of loss determines who bears the cost if goods are lost
or destroyed through no fault of either party.
This is especially important when delivery is delayed or
complicated. Factors influencing risk of loss
include contract terms. Express contractual terms that
allocate risk of loss will control.
Courts enforce such terms strictly, especially when
parties are sophisticated or the term is industry standard.
Common terms include shipping clauses such as FoB origin or
FoB destination shipment versus destination contracts.
A shipment contract or FoB seller city risk passes to the
buyer when the seller delivers the goods to the carrier.
This is the default rule under the UCC.
If the contract does not specify destination contract or FoB
buyer city, risk of loss remains with the seller until the goods
arrive at the specified destination and are tendered to
the buyer. Any damage during transit is the
seller's responsibility in non carrier cases.
If the seller is a merchant, risk of loss passes to the buyer
upon the buyer's actual receipt of the goods, ensuring the buyer
is in control of possession before assuming risk.
If the seller is not a merchant, risk of passes upon the seller's
tender of delivery, meaning when the seller places the goods at
the buyer's disposal and notifies the buyer that the
goods are available. Additional considerations
include if goods are damaged or destroyed before risk of loss
has passed, the seller bears the loss.
If risk has passed, the buyer must still pay.
Risk of loss also factors into insurable interest.
Both parties may have an insurable interest in the goods
prior to delivery, depending on who holds title and the type of
transaction. In sales on approval or return
sale On approval. The buyer takes goods for trial.
Risk of loss remains with the seller until the buyer signifies
approval or retains the goods beyond a reasonable time.
Return can be made even if the goods are perfectly fine.
Sale or return? The buyer takes goods for resale
with the right to return unsold items.
Risk of loss passes to the buyer upon delivery and remains with
the buyer until the goods are returned to the seller.
This arrangement is often used in consignment transactions.
These distinctions are highly testable and often appear in MBE
hypotheticals concerning damage or destruction of goods in
transit remedies. For.
Breach. The UCC offers a broad range of
remedies designed to put the non breaching party in the position
they would have occupied had the contract been performed.
Remedies are structured to promote fairness, prevent
economic waste, and uphold reasonable commercial
expectations. Seller's remedies.
Withhold delivery. If the buyer wrongfully rejects
or revokes acceptance of goods, fails to make a payment due on
or before delivery, or repudiates the contract, the
seller may withhold delivery of remaining goods.
Cancel the contract. If the buyer is in breach, the
seller may cancel the contract and sue for damages for the
portion not yet performed. Resell the goods.
The seller may resell the goods in a commercially reasonable
manner and recover the difference between the contract
price and the resale price, plus incidental damages such as
storage and transportation costs.
Recover market damages If the seller does not resell or resell
is not possible, they may recover damages based on the
market price at the time of tender minus the contract price
action for the price. If the buyer has accepted goods
but failed to pay, or if goods conforming to the contract are
lost or damaged after risk of loss has passed to the buyer,
the seller may sue for the full contract price.
Stop delivery. In certain circumstances, such
as when the buyer is insolvent, the seller may stop delivery of
goods in transit, especially if a large shipment is involved.
Buyer's Remedies. Cover.
The buyer may purchase substitute goods in good faith
and without unreasonable delay and recover the difference
between the contract price and the cover price.
Cover is optional, not mandatory.
Recover market damages. If the buyer chooses not to
cover or is unable to cover, they may instead recover the
difference between the market price at the time of breach and
the contract price. Specific performance.
This equitable remedy is available when goods are unique,
such as art, custom items, or rare goods, or where cover is
impracticable. The buyer must show that
monetary damages are inadequate. Replavent.
When the buyer has made partial or full payment for goods and
the seller refuses to deliver, the buyer may seek replavent to
recover the goods, especially when goods are identified to the
contract and no suitable cover is available.
Revocation of acceptance The buyer may revoke acceptance of
goods if the non conformity substantially impairs their
value and was difficult to discover at the time of
acceptance. Consequential damages.
These are indirect damages that arise from special circumstances
beyond the ordinary course of events.
Buyers can recover consequential damages if the loss results from
the sellers breach. The damages were foreseeable at
the time of contracting and buyer took reasonable steps to
mitigate the loss. Examples include loss profits
from the buyer's resell customers or losses due to
production downtime caused by defective goods.
These remedies are cumulative and may be asserted in the
alternative. The overarching goal is to
protect commercial expectations while promoting market
efficiency. The UCC Statute of Frauds
requires a writing for sales of goods priced at $500 or more.
The writing must indicate a contract has been made and
include a quantity term and be signed by the party to be
charged. Exceptions include merchants.
Confirmatory memo if both parties are merchants and one
sends a written confirmation that the other fails to object
to within 10 days. Specially manufactured goods.
Goods made specifically for the buyer that cannot be resold in
the ordinary course of business. Admission in court.
Party admits a contract existed. Part.
Performance, payment made or goods received and accepted.
In conclusion, today's lecture covered advanced doctrines in
contracts law and transitioned into the Ucc's governance of
goods transactions. Understanding the UCC specific
rules regarding performance warranties and remedies is
critical to mastering contract law in the bar exam.
In our next session, we will turn to business associations
and fiduciary principles in corporate partnership an agency
contacts.