Scope of the Uniform Commercial Code
I. Commercial Law: Study of Sales Systems
a. Study of people, institutions, laws & practices involved in transfers of ownership of assets for money
b. Systems have 4 functions:
i. Create legally enforceable transfers
ii. Create standard terms
iii. Create institutions to facilitate legal/possessory transfers
iv. Create enforcement mechanisms (remedies)
II. What is a Contract?
a. “A Contract is a promise (or set of promises) for breach of which the law gives a remedy.”
i. Defined in Restatement (Second) of Contracts— American Law Institute (ALI).
b. Sources of Contract Law
i. Common Law.
ii. Based on English common law.
iii. Summarized in Restatement (Second) of Contracts.
iv. Applies to contracts with subject matters of land or services.
1. Examples: Mortgage, lease or medical services.
c. Development of K law
i. Common law once required all K’s to be in writing with a seal affixed
ii. Later some payment was required before K could be enforced
iii. Mutual Promises became enforceable in 1600’s
iv. By the 1900’s, courts began to consider the fairness of K’s before enforcing them.
d. Types of Contracts (or agreements)
i. Bilateral v. Unilateral
1. Bilateral: both parties makes a promise
2. Unilateral: one party makes a promise that the other party can accept only by doing something
ii. Express v. implied
1. Express: the two parties explicitly state all important terms of their agreements
2. Implied: the words and conduct indicate that the parties intended an agreement
iii. Executor v. executed
1. Executory: when one or more parties has not fulfilled its obligations
2. Executed: when all parties have fulfilled their
iv. Valid v. unenforceable v. voidable v. void
1. Valid: satisfies the law requirements
2. Unenforceable: intend to form a valid bargain but some rule of law prevents enforcements
3. Voidable: when the law permits one party to void the agreement
4. Void: one that neither party can enforce, usually because the purpose is illegal or one of the parties had no legal authority
e. Elements of a Contract:
1. Offer: Parties are the offeror (who makes offer) and offeree (receives offer)
a. Language must indicate intent to contract: Not just inquiry, negotiations, courts will use objective standards.
b. Essential Terms: Under common law offer must contain essential terms of the contract (Parties, Subject matter of the contract, Price and Payment Terms, Delivery Terms, Performance Times)
a. Meeting of the Minds: The parties can form a contract only if they had a meeting of the minds.
i. They must understand each other and intend to reach an agreement.
ii. A judge will make an objective assessment of any disagreements about whether a contract was made ‐‐ whether or not a reasonable person would conclude that there was an agreement, based on the parties’ conduct.
ii. Consideration: There must be bargaining that leads to exchange between the parties
iii. Legality: The K must be for a lawful purpose
iv. Capacity: The parties must be adults of sound mind
f. Sources of Contract Law:
i. Common Law
ii. Uniform Commercial Code
1. Nationwide code that seeks to standardize commercial transactions into a single cohesive unit
a. Set of rules and standards within the rules
b. Adopted in part or in whole in all states EXCEPT Louisiana
2. Purpose of UCC
a. Simplify, clarify, modernize laws governing commercial transactions
b. Permit expansion of commercial transaction
c. Establish uniformity
d. Provides as “GAP FILLERS (Article 2)” when there is ambiguity in the K, or no meeting of the minds on certain terms
g. Interpretation and Construction of Agreements
i. UCC § 1-205 & § 2-208 creates a progressions of tools to define and establish the terms of a agreement
1. Express terms of the K
2. Course of performance (§ 2-208)
3. Course of dealings § 1-205 (Prior Transactions)
4. Usage of trade § 1-205(Industry practice)
5. UCC Gap Fillers
h. Role of the Common Law
i. UCC § 1‐103 tells us that the provisions of the UCC displace any common law to the contrary, but that the common law shall continue to supplement the provisions of the UCC (Back up Gap Filler).
ii. The Common law continues to play at least three roles in law-related sales systems:
1. First, in cases where Article 2 is merely codifying existing law, the common law can help define terms that the UCC has left undefined.
2. Second, in some UCC sections and Official Comments the Code drafters make it clear that the UCC provision in question is not intended to affect certain related common law doctrine. Thus, parties must still look to the common law to define the parameters of that related doctrine.
3. Third, there are a number of common law doctrines that are never referred to explicitly in the UCC sections or Comments but that are nevertheless continue to operate side by side with Code provisions.
a. These include such concepts as mitigation of damages, frustration of purpose for a buyer, and even such related tort theories and intentional interference with contract
III. Uniform Commercial Code
a. Adoption by the States
i. Most states have adopted the Uniform Commercial Code. Not all States have adopted the revisions/amendments to the Code for Chapters 1,2,7 and 9.
ii. NJ has adopted only the revisions to Article 9.
b. Types of Transactions Not Covered by the Uniform Commercial Code
i. Probate Matters
ii. Real Estate Transactions
iii. Divorce, Family Support, Alimony, etc.
iv. Labor Relations
v. Prenuptial agreements
c. Overview of the Uniform Commercial Code (UCC)
i. Article 1 – General provisions
ii. Article 2 (current) – Sales
nty of merchantability
2. General duties of good faith and standards of fair dealing in trade-any person in business would be subject to these requirements
The Process of Sales Contract Formation Under UCC
I. Contract Formation Generally
a. In the UCC:
i. Contract [UCC § 1-201(11)]: The total obligation which results from the parties agreement as affected by this Act and any other law.
ii. Agreement [UCC § 1-201(3)]; The bargain of the parties in fact as found in their language or by implication from other circumstances including Course of Dealing (§ 1-205); Usage of Trade (§ 1-205); or Course of Performance (§ 2-208)
1. NO UCC definition of OFFER – look to definition of agreement
b. In the Common Law:
i. C/L‐ need offer, acceptance and consideration.
ii. Rest. Sec. 24: offer is manifestation of willingness to enter into a bargain, so as to justify another person into understanding that his consent will conclude bargain.
II. Formation of Sales and Lease Contracts
a. Any rules established by Articles 2 and 2A take precedence over common law of K
b. What is a offer:
i. A contract for the sale or lease of goods may be made in any manner to show agreement
ii. Includes conduct by both parties that recognizes the existence of a contract [UCC § 2-204(1), § 2A-204(1)] iii. An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined [§ 2-204(2)]; And
iv. A contract does not fail for indefiniteness if
1. Parties intended to make a contract; AND
2. There is a reasonable certain basis for giving a remedy.
c. Acceptance – UCC § 2-206
i. Is relevant to determine whether an agreement has been reached, REASONABLE MANNER OF COMMUNICATION
1. In cases of conflict specific rules of § 2-206 govern over § 2-204
2. UCC provides that K is formed SELLER sends acceptance to BUYER
3. UCC permits acceptance by any reasonable manner or method of communication § 2-206(1)(a), § 2A-206(1)
ii. Mailbox Rule- codified in § 2-206
1. Acceptance of an offer is made when acceptance is place in mailbox, as long mailing accepting offer is reasonable form of acceptance
a. Does not apply to revocation of acceptance, which are only effective when received
iii. Immediate Shipment Contract
1. When buyer agrees to purchase goods for immediate shipment, seller may accept by shipping or agreeing to ship the goods § 2-206(1)(b)
2. Non-Conforming Goods, § 2-206(1)(b)-shipment of non-conforming good will count as an acceptance unless shipment was offered as an accommodation to buyer.