UCC 2 Outline
Spring 2000

© 2000 Matt Kaser


  1. Scope of Article 2
    1. When applicable: § 2-102, "Unless the context otherwise requires, this Article applies to transactions in goods."
    2. Common Exceptions:
      1. Legal claims, look to see if items are preempted.
      2. Sale of property.
      3. Leases (see § 2A; § 1-201(37)).
        1. Distinguishing Test: If goods are leased, for entirety of useful life; or if there is a nominal option to purchase, after building equity; then you have an Article 9 transaction. §1-201(37).
        2. Policy: Why would you do anything else other than exercise option?
      4. Secured Transactions.
      5. Ethical problems (Anderson is big on determining whether the attorney has a problem before reaching the statutory language in question).
    3. Goods Defined: A good is all things which are movable, identifiable at the time of the contract, i.e. animal young, crops, things attached to property, food , etc.
    4. Mixed Goods/Services issues:
      1. "Predominant Factor Test" (Wash. Rule: Tacoma Athletic Club, 49 Wn.App. 250)
        1. Examine whether one predominates over the other. If goods, UCC 2 applies.
        2. Practice note: assume code does not apply.
      2. "Component Part Test" (Minority rule) -- Dissect the transaction and examine the character of component parts.
    5. Merchants
      1. Although the Code applies to all, depending if a party is a merchant, certain provisions may apply.
      2. Merchant defined: a person who regularly deals in goods of the kind, or otherwise skilled in a particular knowledge or skill in the area of trade. § 2-104.
      3. Merchants held to highest standard, which includes duty of good faith and fair dealing.
  2. Contract Formation
    1. Offer and Acceptance
      1. At common law, you needed offer, acceptance, consideration. This consideration had to be a mirror image (unities). Sans this, you had no meeting of the minds, and no contract.
      2. Under the UCC approach, you merely need conduct sufficient which recognized the existence of such a contract and a basis for a remedy. § 2-204. Even though terms are not specified, if the parties intended to enter into a contract, a contract exists. The basis for this is that the code intends for there to be filler terms.
        1. Any commercially reasonable manner of acceptance is intended to be available, unless the terms of the offer expressly provide a particular manner of acceptance. § 2-206(1)(a).
        2. For goods that require prompt shipment, shipment may constitute acceptance. If non-conforming goods, an acceptance does not exist if the seller informs the buyer that the goods are intended to be an accommodation. § 2-206(1)(b).
      3. If the offeror is not notified of performance (being acceptance) within a reasonable time, the offeror may treat the offer has being lapsed prior to acceptance.
    2. Statue of frauds
      1. At common law: all contracts in writing.
      2. UCC Approach:
        1. "Regular" Sales, In contracts for sale of goods, (1) all sales over $500 require contract to be (2) in writing and (3) signed against party against whom it is sought. (§ 2-201). If inaccurate, only the quantity of goods is enforceable. The basis for this is that a judge can fix everything else with gap-fillers, except quantity.
        2. Between Merchants (§ 2-201(2)).
          1. All transactions b/w merchants are fair game, unless the buyer gives notification of objection within 10 days after receipt.
          2. Exceptions to General Approaches (§ 2-201(3))
            1. Goods specially manufactured for buyer and not suitable for sale to others
            2. Buyer admits that a contract was made (via pleading or otherwise), but unenforceable beyond the quantity. If a requirements contract has been made (i.e. § 2-306), the court will look to what extent the quantity would be reasonable in deciding damages.
            3. Payment has been made and accepted, but only to the extent that payment has been offered.
    3. Parol Evidence Rule (§ 2-202)
      1. Defined: evidence that varies the contract what is beyond the contract, i.e. not within the four corners of the contract. A finding of ambiguity is not required to proffer parol evidence.
      2. Policy: if a contract is dignified by a writing, courts ought to grant strong deference to the writing.
      3. Code allows evidence that allows explanation or supplementation as exceptions to the general rule:
        1. By course of dealing
        2. Usage of trade
        3. Course of performance
        4. Consistent additional terms (unless writing is exclusive statement of agreement). If the terms would have most certainty included in the contract, then the evidence of their making must be suppressed.
      4. In Wash, under Berg v. Hudesman, 115 Wn.2d 657, 801 P.2d 222 (1990), the question of whether of whether the parties intended that a writing was intended to be a final expression is a finding of fact.
    4. Firm Offers (§ 2-205)
      1. Defined: an signed offer by a merchant to either buy or sell goods at a fixed price, keeping the offer open for a fixed period of time.
      2. Time limit of offer: 3 months.
    5. Inconsistent Writings -- The Battle of the Forms (§ 2-207)
      1. First, is there a contract? § 2-207(1) looks to whether the parties actually created a contract on the terms.
      2. Extra terms in the contract are included unless:
        1. The offer expressly limits acceptance to the terms of the offer.
        2. They materially alter it. Official Comment 4 defines "material" as either
          1. Surprise; or
          2. Hardship
        3. The offer objected in advance or seasonable to that term.
      3. If neither (1) or (3) apply, courts take three different approaches in including these additional terms:
        1. Ignore different terms -- offer controls (look to agreement and see if there is a contract by their conduct).
        2. Treat differently as if they were additional and use § 2-207(2).
        3. Strike both terms and use fillers.
          1. Examples of Fillers include:
            1. COD
            2. FOB-Seller
            3. "Reasonable delivery"
            4. Fair market price on day of delivery
            5. Warranty of merchantability - explicit purpose
            6. Fitness for specific purpose
          2. The Code also recognizes:
            1. Course of dealing
            2. Usage of trade
            3. Course of performance
      4. If unable to find a writing under § 2-207(1), look to (3). Under (3), if the parties have overt manifestation of conduct that is sufficient to establish a contract, consider a contract formed. Then, look to the extent that the writings agree.
  3. Terms of the Contract
    1. Filling in the gaps
      1. Commercially reasonable standards:
        1. Course of performance
        2. Course of dealings
        3. Usage of trade.
    2. Repudiation
      1. If it appears as though the contract may not be performed, and reasonable grounds for insecurity exist, the other party has the right to seek adequate assurances of due performance, and may suspend performance until adequate assurances have been received under commercially reasonable standards. § 2-609.
      2. The other party after securing reasonable grounds for security can either accept the other party's repudiation or wait a commercially reasonable time before resorting to remedies for breach. § 2-610.
      3. Retraction of repudiation may be by any method which indicates that they intend to perform, and provides adequate assurances. § 2-611.
    3. Unconscionability (§ 2-302)
      1. If a clause in a contract is unconscionable, the court may fashion an equitable remedy that would limit the application of the clause to provide a just result.
      2. The basic test is whether the clauses are so one-sided under the totality of the circumstances at the time of the making of the contract.
      3. Unconscionability exists in two forms, and you must have both present:
        1. Procedural: Examine the conditions at the formation of the contract.
        2. Substantive: Usually in the form of the price of goods involved.
      4. If a clause appears to be unconscionable, but parties shall be afforded the opportunity to be heard in a finding before the court. This is a question of law solely for the judge.
      5. Practice notes:
        1. If you're on either side of the debate, cooperate with opposing counsel to get the evidence before the judge because the issue will go up on appeal, regardless of the outcome.
        2. Will rarely see this in actual practice between merchants.
      6. Policy: Culmination for years of policing devices in the contract. For example, with fraud, we have a material representation for the purposes of deceiving, and courts will find that unfair. See e.g., Williams v. Walker-Thomas Furniture Co., 350 F.2d 445, 449-50 (D.C. Cir. 1965).
    4. Identification of the goods
      1. The buyer obtains an insurable interest when the goods become identifiable. § 2-501 . This can occur when the goods are:
        1. Existing and identified
        2. Future goods, when marked and designated by the seller
        3. Crops or animal young
      2. Policy: This is important because it provides the basis for a remedy. Moreover, rights accrue when the goods become identifiable.
  4. Performance
    1. Rejection and Acceptance
      1. Generally: The obligation of the seller is to transfer the goods and the buyer is to buy the goods. § 2-301.
      2. Unless otherwise agreed, all goods are to be tendered in a single instance, provided the goods can be separated into lots. § 2-307. Tender of delivery requires that the seller give the buyer the opportunity to take possession and identify the goods which they will accept. § 2-503. The buyer has the right before delivery or acceptance to inspect the goods in a reasonable manner. § 2-513.
      3. Tender of payment is a condition to mandate delivery of the goods. § 2-511. Acceptance of any part is acceptance of the whole. Acceptance of the goods exists when (§ 2-606):
        1. The buyer agrees to do so.
        2. Fails to make an effective rejection.
        3. Acts as in a manner consistent with ownership.
      4. The buyer is allowed to reject the goods if the seller ships the goods and there is either material delay or loss ensures attributable to delay.
      5. Once the goods have been rejected, the buyer is under several obligations:
        1. If the parties are not merchants, the buyer is under an obligation to hold them with reasonable care until the seller can remove them. §2-602(2)(b).
        2. Ownership cannot be exercised over the goods.
        3. If the goods are perishable, the buyer may resell the goods, and reimburse the seller, minus costs.
        4. For merchants, the buyer is under a duty to follow reasonable instruction with respect to the disposition of the goods, or in the case of perishable, to sell. §2-603.
      6. Once the goods have been accepted, they cannot be rejected, but rights to pursue warranties are not impaired. §2-607.
      7. Notice must be given for the buyer's reasons for rejection. §2-602(1). Failure to give notice if the reason is not readily ascertainable, the buyer cannot rely on the unstated defect to justify rejection because the seller could have cured or if the transaction is between merchants, the seller has requested an explanation of the rejection.
    2. Perfect tender is required. If the goods fail in any respect to conform to the contract in any way, excepting installment sales, the seller is in breach and the buyer, in good faith, may elect a remedy (§2-601):
        1. Reject the whole; or
        2. Accept the whole; or
        3. Accept any part, and reject the rest.
    3. Installment Sales (§ 2-612)
      1. Defined: a contract which calls for repeated performance by which goods separately delivered and separately accepted.
      2. If the delivered goods in a particular installment substantially impairs the value of that installment the buyer must accept the installment unless the value of the contract as a whole is impaired by an inadequate cure.
    4. Cure of goods (§2-508)
      1. If the buyer rejects the goods, and time still exists for performance, the seller may attempt to cure the defect which the buyer rejected the goods.
      2. If the buyer rejected the goods where the seller reasonably expected acceptance, the seller may notify the buyer and have additional reasonable time to cure the defect.
    5. "Shaken Faith Doctrine"
      1. For some purchases, once the goods do not conform to the contract, cure may not be an appropriate remedy. See Zabriskie Chevrolet v. Smith, 240 A.2d 195 (N.J. Super. 1968).
      2. These are usually limited to major purchases where the faith in the transaction is so shaken that the integrity of the contract or supplier is in doubt.
    6. Revocation of Acceptance (§2-608)
      1. Buyers are permitted to revoke acceptance when non-conformity impairs the value of the sale when cure has not happened or if it is difficult to detect the problem with the goods.
        1. Factually, was this an impairment to the buyer (subjectively); and
        2. Would a reasonable person (objectively) find that the nonconformity substantially impair the value of the goods?
      2. Revocation must occur within a reasonable time. This reasonableness is limited by when the buyer discovers or should have discovered the error.
      3. Revocation is not effective until the buyer notifies the seller.
      4. The same rights and remedies are available as if the buyer had rejected the goods.
    7. Risk of Loss: Breach
      1. Generally: if the goods suffer casualty without fault of either party, before the risk of loss passes to the buyer, the contract is avoided or the buyer may have the price pro-rated based on the remaining goods. §2-613.
      2. Determining when the risk of loss passes to the buyer (§2-509):
        1. If the contract does not require a place of delivery, exists when the goods are tendered to the carrier or if the goods are to be delivered to a particular destination, exists when the goods are tendered to the end-destination.
        2. When the goods are bailments, the risk of loss transfers to the buyer when receipt of a document of title, acknowledgment of the bailee of the buyer's right to the goods or receipt of a written direction to deliver.
        3. Any instance when the buyer on receipt of the goods, if the seller is a merchant or on tender of delivery.
      3. Determining when the title of the goods passes to the buyer (§2-401):
        1. Cannot occur prior to their identification to the contract.
        2. Passes at the point in date and time when the seller completes physical delivery of the goods, subject to agreement.
      4. If there is a breach, the risk of loss is with the seller for a reasonable time to either cure or acceptance. §2-510.
      5. General Analysis
        1. Have the goods been identified prior to the commencement of the contract?
        2. If identified, are the goods conforming?
        3. Has title transferred?
    8. Impossibility of Performance
      1. Performance of the contract may become commercially impracticable. The code has four provisions to address this:
        1. Casualty to Identified Goods (§2-613)
          1. Conditions precedent
            1. Goods suffer casualty without fault
            2. Risk of loss has not transferred to the buyer
          2. Remedy
            1. If total, contract void
            2. If partial, the buyer may inspect and treat the contract as voided or adjust the price accordingly.
        2. Substituted Performance (§2-614)
          1. Condition precedent: manner of delivery unavailable.
          2. Remedy: A commercially reasonable substitute, if available, must be used.
        3. Excuse by failure of proposed conditions (§2-615)
          1. A seller remedy.
          2. Applies when performance has been many impracticable because of unforseen supervening circumstances which was a basis assumption on which the contract was made, aside from destroyed goods or substituted performance.
          3. Increased costs alone insufficient. A shortage of materials may be a justification.
          4. The remedy is that the contract must be performed, and the goods delivered to the extent possible to the buyer(s), provided that the buyer(s) are notified of the situation. §2-616.
            1. Following receipt of the notice, if the notification impairs the value of the whole, the buyer may terminate the contract or take the sellers proffered quota in substitution.
            2. After 30 days, those the contract lapses with respect to any deliveries affected.
      2. Exam Note: Never use the words "impossibility" or "impracticable," but rather, "a failure of a presupposed condition."
  5. Warranties
    1. Warranty of Title
      1. Characteristics (§2-312):
        1. Title is good
        2. Transfer is rightful
        3. Goods delivered free from any security interest or other lien or encumbrance of which the buyer at the time has no knowledge
          1. Actual Knowledge; or
          2. Constructive knowledge.
      2. Relief is repudiation of the contract.
    2. Warranties of Quality
      1. Express (§2-313)
        1. Defined: arises when the seller does something affirmative to create buyer expectations about the characteristics or performance of the goods.
        2. There representations must have substance to rise to the dignity of an express warranty.
        3. A description of the goods is sufficient to create an express warranty that the goods are conforming.
        4. A sample that is made part of the sale is also sufficient that the lot will conform to the sample.
      2. Implied Warranties
        1. Warranty of Merchantability (§ 2-314)
          1. Defined: Must be of a quality comparable to that generally acceptable in that line of trade under the description or other designation of goods used in the agreement. Official Comment 2.
          2. If the seller is a merchant, a warranty of merchantability attaches.
        2. Warranty for a Particular Purpose (§ 2-315)
          1. Defined: When the seller has knowledge, at the time of the formation of the contract, that the goods are required for a particular purpose and the seller has the ability to select suitable goods, the warranty attaches.
          2. Applies to all sellers because of the knowledge disparity between the parties.
      3. Warranty Disclaimers and Limitations (§2-316)
        1. A warranty may be excluded, provided that it's done reasonably.
        2. Disclaimer of warranties of merchantability or fitness for a particular purpose must be clear and conspicuous.
        3. Disclaimer of warranty of fitness for a particular purpose must be in writing (the only disclaimer that must be in writing).
        4. Must delineate the warrant that is being excluded.
        5. Defects which would have been reasonably discovered by the buyer are excluded from these warranties.
        6. Warranty of title may be disclaimed with "as is."
        7. Failure to adequately disclaim means the warranties remain.
  6. Remedies
    1. Policy
      1. Put the parties in at good of a position as they were had the contract been formed. §1-106
      2. The code does not attempt to abrogate alternate theories of remedies available at law.
    2. Special Remedies
      1. Remedies on Insolvency
        1. Under the code, the non-insolvent party may be able to reclaim the goods with reclamation. §§2-502 and 2-702.
        2. In bankruptcy cases, reclamation is inadvisable because the federal bankruptcy code preempts the UCC.
      2. Liquidated Damages
        1. Defined: the parties set among themselves the damages if the contract is breached. Usually, time is of the essence and the actual damages are difficult to calculate.
        2. The code allows liquidated damages, but only to the amount relative to the actual harm. §2-718(1)
      3. The Breaching Buyer's Restitution
        1. Defined: seller withholds delivery because of buyer's breach, the buyer can get restitution to either the remainder of the damages which the seller could receive or the lesser of twenty percent or $500. §2-718(2)
        2. Example: Problem 67 (W. 261)
          1. Breach of contract. Total contract would be $2300. Breached after buyer paid $1800.
          2. Total damages: $1800 - [lesser of (20%)($2300) or $500] = $1340.
    3. Seller's Remedies
      1. Accepted goods (§2-703).
        1. The seller may pursue the following remedies if the buyer has wrongfully accepted the goods or fail to make payment prior to repudiation:
          1. Withhold delivery
          2. Resell and recover damages §2-704
            1. The seller has control of the goods.
            2. The goods are identifiable or close to identifiable (unfinished goods).
            3. In the case of manufactured goods, the seller can either finish production, or cease and sell the goods as scrap.
          3. Recover the price. §2-709
            1. If the risk of loss has passed to the buyer and the seller is unable to resell the goods, the buyer is liable for the price.
            2. If the seller sues for the price, they must hold for the buyer, other goods subject to the contract, unless resale is possible. Proceeds are applied to the buyer's obligation.
          4. Cancel the contract.
          5. Incidental Damages. §2-710.
            1. Includes commercially reasonable charges, expenses or commissions incurred in stopping delivery stemming from the breach.
            2. Seller does not get consequential damages under the code.
          6. Failure of presupposed conditions.
          7. Seek cure of the problem. §2-508.
        2. The seller cannot elect a particular remedy. Rather, the seller can only recover once.
        3. The Code explicitly prohibits sellers from receiving consequential damages.
      2. Unaccepted goods (§2-706)
        1. The seller may resell the goods. §2-706 (preferred methodology). The difference between the contract price and the actual sale price + incidental damages is the remedy.
          1. Notice of sale
            1. For all sales, notice must be given.
            2. For private sales, general time frame of intended sales date must be given.
            3. For public sales, all is required is disclosure of the "method, manner, time, place and terms" and that these must be commercially reasonable. §9-504(3).
            4. Purchases of collateral at sale take free of subordinate interests. §9-504(4).
            5. Debtor may redeem the collateral by making a proper offer. §9-506. A proper offer includes payment of full balance and costs, including attorney fees, taking, holding and sales preparation fees. These redemption rights cannot be waived prior to default. In reality, parties may renegotiate the contract with the debtor tendering the delinquent costs, plus some.
            6. Policy: gives debtors the right of redemption to repay debt in full. After sale, there is no right of redemption, in contrast to real estate sales.
          2. Buyer at resale takes free of any interest
          3. Seller need not account for any profit made at resale.
        2. The seller may recover the difference between the market price(§2-723) and the contract price, provided that the seller has attempted to resell the goods or resale is impracticable. §2-708. If the measure of damages is inadequate, utilize the expected profit as the measure of damages.
      3. Despite repeated default, the seller need not seek adequate assurances. Cherwell-Ralli v. Rytman Grain (W. 195).
    4. Buyer's Remedies (§2-711)
      1. Generally: Buyers' remedies are triggered when the seller fails to deliver, repudiates or when the buyer rightfully rejects or revokes acceptance.
        1. The buyer may cancel the contract.
        2. Recover the price that has been paid, subject to the limitations in §2-718.
        3. Recover damages for non-delivery.
        4. Cover - The buyer, in good faith, purchase substitute goods from one other than the seller. The buyer can recover the difference in price. §2-712.
        5. Seek specific performance or replevin (§2-716)
          1. Available if the goods are unique.
          2. Not a preferred remedy.
          3. The court can delineate specific terms with which the non-aggrieved party must comply.
      2. Accepted Goods
        1. The buyer may recover both incidental and consequential damages stemming from the breach. For consequential damages, the damages must be previously conveyed to the seller and the damages must directly stem from the non-performance of the contract, and the buyer couldn't avoid the damages by cover. §2-715.
        2. Official Comment 4 to § 2-715 suggests that lost profits can be recovered. As a practical note, lost profits are speculative and proving a dollar amount is difficult and harsh.
        3. If the buyer has given notice of acceptance, the buyer may recover the difference between the difference of the goods as accepted and the goods as warranted. §2-714.
    5. Limitations on remedies (§2-719)
      1. The parties may limit the application of particular remedies.
      2. The parties may contract for an exclusive remedy.
      3. If overreaching occurs by attempting to limit all practical remedies, the court will nullify the clause and all remedies will be available
    6. Statue of Limitations (§2-715)
      1. By default, the code provides for four years to bring all claims.
      2. The parties may be able to contract around this provision, provided that it cannot be less than one year.
      3. The cause of action accrues when the breach accrues, typically when the goods are sold, regardless of the lack of knowledge of the breach.