chapter 10 Contract Law and UCC

Overview of Contract Law

• Introduction to Chapter 10 focusing on contract law.

• Emphasis that a detailed course will be taken in second year.

• Purpose of the lecture to provide background information on the Uniform Commercial Code (UCC).

Uniform Commercial Code (UCC)

• Definition: The UCC is a comprehensive set of laws governing commercial transactions, drafted by the National Conference of Commissioners on Uniform State Laws.

• Adopted by all states in the United States completely or partially.

• Importance: Standardizes laws across states to reduce confusion and support commerce, especially involving transactions that cross state or national boundaries.

Function and Structure of UCC

• Aids businesses by ensuring consistency and efficiency across states.

• Articles of UCC: The UCC is composed of nine main articles, each addressing different aspects of commercial transactions:

  • Article 1: General principles of commercial law.

  • Article 2: Sales of goods.

  • Article 2A: Leases of personal property.

  • Article 3: Negotiable instruments (e.g., checks, promissory notes).

  • Article 4: Bank deposits and collections.

  • Article 5: Letters of credit.

  • Article 6: Bulk transfers.

  • Article 7: Documents of title.

  • Article 8: Investment securities.

  • Article 9: Secured transactions (creditors' interests in debtors' property).

• The number of articles can vary depending on the edition of the UCC referenced.

Principles of UCC

• Good Faith and Fair Dealing: Parties must act honestly and with due regard for the rights of other parties involved.

• Performance Timing: Requirements for performing duties within a reasonable timeframe are determined by industry customs and practices.

• Customization**: Parties may customize their contracts beyond UCC's baseline as long as both parties agree.

Specific Provisions of UCC

Article 2: Sale of Goods

• Covers transactions involving the sale of tangible movable items (e.g., cars, machinery).

• Contract Requirements:

  • Must be in writing if the sale is for $500 or more due to Statute of Frauds.

• Key elements:

  • Warranties: UCC governs warranties and liability concerning defects in goods, emphasizing strict liability for sellers.

  • Risk of Loss: Risk transfers to the buyer upon delivery to common carriers (e.g., UPS), unless insurance is purchased.

• Service Exclusions: Services are not covered by Article 2; neglegence or service provisions fall outside the UCC.

Definitions of Key Terms in Contract Law

• Contract Definition: A legally enforceable agreement requiring an offer, acceptance, and consideration (something of value).

• Offer: A serious proposal that can become a contract when accepted, where the offeror is the maker and the offeree the recipient.

• Acceptance: Must be unequivocal and communicated, creating a binding agreement.

• Consideration: Something of value exchanged between parties, which is not limited to money.

  • Example: Paying $500 for landscaping services.

Counteroffers and Acceptance Rules

• Counteroffer: Alters or rejects the original offer, creating a new offer.

• Mirror Image Rule: Acceptance must match the offer precisely for a contract to be valid.

Contractual Capacity and Enforcement

Lack of Capacity

• Individuals lacking legal capacity (e.g., minors, those declared mentally incompetent) may void contracts.

• Example: A minor purchasing a car cannot be bound by the contract.

• Exceptions: Minors can be held responsible for essential items (necessaries) like food and healthcare. Emancipated minors may also be bound by contracts.

Fraud and Misrepresentation

• Fraud: Intentionally misleading, allowing a contract to be voidable by the deceived party.

• Innocent Misrepresentation: False statements made without intent to deceive, but may still allow for contract cancellation.

Duress and Undue Influence

• Duress: Contract can be voided if entered into under physical, economic, or mental threat.

• Undue Influence: Exploitation of a close relationship can render a contract voidable.

Warranties Under UCC

• Express Warranty: Promises made by a seller that are affirmatively stated.

• Implied Warranty of Merchantability: Goods must meet a minimum standard of quality for their normal use.

• Implied Warranty of Fitness for a Particular Purpose: Applies when a seller knows the buyer's specific needs and provides goods suitable for those needs.

Statutes Requiring Written Contracts

• Contracts that must be written to be enforceable under the Statute of Frauds include:

  • Real estate transactions.

  • Contracts for marriage consideration.

  • Contracts not performable within one year.

  • Contracts guaranteeing someone's debt.

  • Sales of goods over $500.

  • Educator's promise to pay a descendant's debt.

Remedies for Breach of Contract

Types of Remedies

• Specific Performance: Court orders performance of the contract as agreed.

• Compensatory Damages: Compensation for actual losses due to breach.

• Cover: Buying substitute goods and recovering the price difference.

• Consequential Damages: Recovering for losses that were foreseeable due to the breach.

• Nominal Damages: Small amounts awarded for minor breaches without substantial harm.

• Liquidated Damages: Pre-determined damages specified in the contract.

• Reformation: Court modification of a contract to correct errors.

Quasi Contracts and Promissory Estoppel

• Quasi Contracts: Legal obligations imposed to prevent unjust enrichment; not an actual contract formed by agreement.

  • Example: Medical treatment provided to an unconscious patient.

• Promissory Estoppel: Prevents withdrawal of a promise when one party reasonably relies on it to their detriment.

  • Example: Job offer causing someone to quit their job and relocate.

Conclusion

• Importance of understanding contract law for daily transactions and legal enforceability.

• Acknowledgment of the complexities and variety in contract law. Clarification that many agreements occur without formal documentation but can still impact rights and responsibilities.