Key Topics in the Uniform Commercial Code

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Some key topics in the Uniform Commercial Code include:

• Nonconforming goods -- if sent with a note of accommodation, it is construed as a counteroffer, and if accepted, forms a new contract and binds buyer at previous contract price. If seller refuses to conform and buyer does not accept, the buyer can sell the goods at public or private auction and credit the proceeds to amount owed.

• The buyer however does have a right of “perfect tender” and can accept all, reject all, or accept conforming goods and reject the rest, within a reasonable time after delivery but before acceptance, he must notify the seller of the rejection. If the buyer does not give a specific reason (defect), he cannot rely on the reason later, in legal proceedings. (akin to the cure before cover rationale). Also, the contract is not breached per se if the seller delivered the non-conforming goods, however offensive, before the date of performance has hit.

• “Reasonable Time/Good Faith” standard -- required from a party to a contract indefinite as to time, or made indefinite by waiver of original provisions.

• Requirements/Output contracts -- the UCC provides protection against disproportionate demands, but must meet the “good faith” requirement.

• “Reasonable Grounds for Insecurity” -- In a situation with a threat of non-performance, the other part may suspend its own performance and demand assurances in writing. If assurance not provided “within a reasonable time not exceeding 30 days,” the contract is repudiated. [2-609]

• Specially Manufactured Goods -- in buyers breach, the aggrieved party can recover costs incurred plus incidental costs (lost profits). [2-821]

• Firm offers -- valid without consideration and irrevocable for time stated, or up to 3 months. Must be signed (company letterhead will do)

• Offer to buy goods for “prompt shipment” invites acceptance by either prompt shipment or a prompt promise to ship. Therefore, this offer is not strictly unilateral. However, this “acceptance by performance” does not even have to be by conforming goods [2-206(1)]

• Battle of Forms -- New terms will be incorporated into the agreement unless 1) offer limited to its own terms, 2) materially alter original terms (limit liability etc), 3) first party objects to new terms in a timely manner, or first party has already objected to new terms. Look at what the item is to determine whether the new terms “materially alter” the original offer. (delay in delivery of nails not the same as for fish).

• Battle of Forms -- a written confirmation of an offer sent within a reasonable time operates as an acceptance even though it states terms additional terms to or different from those offered, unless acceptance is expressly made conditional to the additions.

• Statute of Frauds as applicable to the sale of goods -- the actual contract need not be in writing. Just some note or memo must be in writing and signed. However, the UCC exception to the signature requirement is where written confirmation is received and not objected to within 10 days [2-201(2)]

• Cure/cover -- Buyer must give seller time to cure the defective shipment before seeking cover

• FOB contracts -- FOB place of business: seller assumes risk of loss until goods are placed on a carrier. FOB destination: seller risks loss until shipment arrives at destination. If the contract leaves out the delivery place, it is the seller’s place of business.

• Risk of Loss -- no equitable conversion. In sale of specific goods, the risk of loss lies with the seller until tender. Generally, the seller bears risk of loss until the buyer takes physical possession of the goods (the oppposite of realty)

• Crop Failures -- resulting from an unexpected cause excuses a farmer’s obligation to deliver the full amount as long as he makes a fair and reasonable allocation among his buyers. The buy may accept the proposed modification or terminate the contract.

• Assignments -- a requirements contract CAN be assigned IF the quantity required by the assignee is not unreasonably disproportionate to original quantity [2-306]

• Consideration -- modifications without consideration may be acceptable in a contract for the sale of goods. [2-209(1)]

• Failure to state price -- In a contract for the sale of goods, the failure to state a price will NOT prevent the formation of a contract if the parties original intent was to form a contract. A reasonable price will be determined by the court. [2-305]

• Reclamation -- successful reclamation of goods excludes all other remedies with respect to the goods [2-702(3)]. A seller can reclaim goods upon demand within 10 days after buyer receives them if the seller discovers that the buyer received the goods while insolvent.

• Rightfully Rejected Goods -- Duties of merchant/buyer are 1) follow reasonable instructions of the seller, 2) if no instructions then make a reasonable effort to resell for seller, and 3) buyer/bailee entitled to 10% of gross.

• Insolvency -- if a buyer is insolvent, the seller may refuse to deliver the goods except for cash, including goods already delivered under the contract [2-702]

• Warranties -- Implied warranty of fitness: arises when the seller knows the buyer is relying upon his expertise in choosing goods. Implied warranty of merchantability: every sale of goods fit for ordinary purposes. Express warranties: arise from any statement of fact of promise.

• UCC damages in Repudiating/Breaching SELLER -- Difference between 1) the market price when the buyer learned of breach and the 2) contract price 3) plus incidental damages. An aggrieved seller simply suing for the contract price is economically inefficient. [2-713]

• Specially Manufactured Goods -- exempt from statue of frauds where manufacturer has made a “substantial beginning” or “commitments for the procurement” of supplies.