FORMATION

introduction
UCC Background
Movement away from abstract rules.
UCC § 1-102 → the UCC should be liberally construed. Parties to a contract must act in good
faith in performance and enforcement
FUNCTIONS OF SALES SYSTEMS
SALES SYSTEMS. Sales systems include all of the people, institutions, laws, and practices that
are involved in transfers of ownership for a price.
FOUR FUNCTIONS OF SALES SYSTEMS:
FORMATION → BRINGS BUYERS AND SELLERS TOGETHER. Sales systems bring
buyers and sellers together and enable them to create legally enforceable transfers of ownership.
The systems not only provide legal rules to define when formation occurs but also provide the
people and institutions that help enable formation.
TERMS → PROVIDES A SET OF STANDARD TERMS. Sales systems provide a set of
standard terms that govern the transfer of ownership unless the buyer and seller choose to modify
the standard terms. This gap filling function is often performed by a code (i.e. the UCC)
PERFORMANCE → FACILITATE PERFORMANCE. Sales systems facilitate performance by
providing a set of delivery institutions that enable the possessory, legal, and symbolic transfer
from seller to buyer.
REMEDIES → ENFORCE AGREEMENTS TO TRANSFER OWNERSHIP. Sales systems
enforce agreements to transfer ownership by giving the aggrieved buyer or seller various
remedies for breach by the other.
THE REAL WORLD OF SALES
TOPICS. Contract formation; the statute of frauds; parol evidence; warranties and disclaimers;
commercial impracticability; acceptance and inspection; delivery practices; remedies
GENERALLY, THE FIRST STEP IS NOT TO SUE, BUT TO STOP DOING BUSINESS
WITH THE OTHER PARTY. If a buyer or seller is not acting consistently with the expected
norms in an industry, the most common response of an aggrieved party is not to sue, but rather to
cease doing business with the violator. When there is a long-term relationship at stake, both sides
have an incentive to compromise and to avoid litigation.
THREE WAYS SALES LAW HAS AN IMPACT ON SALES SYSTEMS:
CRUCIAL WHERE THE NORMAL BUSINESS RELATIONSHIP BREAKS DOWN. The
law of sales will be crucial in those instances where the normal business business relationship
breaks down and the parties end up in litigation. Stakes are high when litigation occurs. This is
the point at which lawyers become involved.
LEGAL STATUS OF EACH SIDE’S POSITION. When parties to a sales agreement negotiate
informal settlements to disputes, they will probably do so in the shadow of the law. Although the
ultimate legal position of a buyer or seller will not necessarily be the dispositive factor in the
resolution of a particular dispute, the legal status of each side’s position can at least be an
important factor.
HELPS DICTATE THE TERMS OF FORMS. Legal rules are important in sales systems
because they help dictate the terms of the various forms that business people use in conducting
transactions within a given sales system. Lawyers draft these forms (e.g., purchase orders,
distribution agreements, etc.) and business people use them. Forms matter not only because they
could be binding in the unlikely event of litigation, but also because business people often act as
if the forms are binding. Business people will sometimes (but not always) change their behavior
to conform to what the forms say.

THE ROLE AND SCOPE OF CODES

EXPRESS TERMS → IMPLIED TERMS (CoP → CoD → UoT) → UCC → CL
THE UCC IS A GAP-FILLER
THE UCC APPLIES TO TRANSACTIONS IN GOODS. Article 2 of the UCC applies to sales
of personal property. Parties to a sales contract cannot think of every contingency in advance.
With sales of personal property, article 2 fills the gaps for the parties with default terms on issues
such as warranties and remedies. However, the UCC cannot successfully fill all of the gaps in all
of the contracts it was intended to cover. This is where the common law comes in, as a kind of
backup gap filler.
UCC § 2-102 → Article 2 of the UCC applies to transactions in goods
GOODS, DEFINED. UCC § 2-105(1) → goods are all things (including specially manufactured
goods), which are movable at the time of identification to the contract for sale
WARRANTY OF MERCHANTABILITY.
UCC § 1-103(b) → the UCC provisions displace any common law to the contrary. However, the
common law is the second gapfiller; it helps define terms that the UCC does not define (e.g.,
offer)
Functions of a code in sales systems
COMMON LAW → THREE ROLES IN LAW RELATED SALES SYSTEMS
DEFINING TERMS. In cases where Article 2 is merely codifying existing law, the common law
can help define terms that the UCC has left undefined (e.g., breach, offer, possession)
DEFINING PARAMETERS OF CERTAIN COMMON LAW DOCTRINES. In some UCC
sessions and Official Comments the code drafters make it clear that the UCC provision in
question is not intended to affect certain related common law doctrines. Thus, parties must still
look to the common law to define the parameters of those related doctrines.
COMMON LAW DOCTRINES NOT REFERRED TO IN THE UCC. There are a number of
common law doctrines that are never referred to explicitly in the UCC sections or Comments but
that nevertheless continue to operate side by side with Code provisions (e.g., mitigation of
damages, frustration of purpose for a buyer, intentional interference with a contract, etc.)
SCOPE OF ARTICLE 2
ART. 2 → THE MOST PREVALENT SET OF DEFAULT RULES FOR SALES OF GOODS.
Art. 2 emphasizes the importance of court enforcing course of performance or course of
dealing--that is, the actual practices used by the disputing parties before the relationship broke
down--when faced with a sales dispute. When courts apply the Code’s usage of trade, course of
dealing, and course of performance provisions, they will often be using relationship-preserving
norms to resolve end-game disputes.
Some sales systems do not use Art. II of the UCC and instead enforce their own private system
of law (diamond and grain industries).
FUNDAMENTAL PREMISES OF ART. II OF THE UCC.
MUST ABIDE BY COP, COD, AND UOT. Courts should apply the rules in litigation with
reference to how the parties acted when they were not in litigation.
APPLICABILITY OF ART. II TO THE TRANSACTION. Another key functional consideration
of Art. II coverage is whether or not the particular transaction will be subject to the gap filling
role of the code. While there are many gap fillers in Art. II, two of them provide the most
common grounds for parties’ fights about whether or not Art. II applies to their transaction: the
warranty gap filler and and statute of limitations gap filler.
WARRANTY GAP FILLER.
STATUTE OF LIMITATIONS GAP FILLER. UCC § 2-275(1) → a plaintiff has four years to
commence an action for the breach of a sales contract, measured from the time when the cause of
action accrued, whether or not the plaintiff was aware of it.
Courts will look to the UCC gap filler only if they lack a more specific indication of what the
parties must have intended with respect to the term in dispute.
FOUR WAYS IN WHICH A UCC GAP FILLER WILL BE SUPERSEDED.
TERM IS SPECIFIED IN THE CONTRACT. UCC § 1-302(a) → the gap filler will not apply to
a particular term if the contract itself specifies what that term should be. The UCC makes it clear
that the drafters of the code want to give effect to private agreements to the extent that those
agreements are within the limits of good faith and commercial reasonableness.
COURSE OF PERFORMANCE. UCC § 1-303(a) → even where the parties’ written contract is
silent on a particular matter, the parties’ repeated occasions for performance within that contract
may establish an agreement by implication
COURSE OF DEALING. UCC § 1-303(b) → where parties’ past dealings with one another have
established a particular way that the parties do business with one another, then such a history
may establish by implication certain standard terms between the parties. These are implied terms
based on past contracts between the same parties.
USAGE OF TRADE. UCC § 1-303(c) → if there is a custom in a particular industry concerning
a performance term, that custom will prevail over the UCC gap filler whenever the two are
inconsistent.
IMPLIED TERMS HIERARCHY. UCC § 1-303(e) → express terms control both course of
dealing and usage of trade and course of dealing controls usage of trade. Whenever it is
reasonable, we should seek to construe the express terms of an agreement as consistent with
course of dealing or usage of trade.
Ragus Co. v. City of Chicago (1993)
Rule statement: under the UCC, the usage of trade test should be applied when contract language
is ambiguous.Ragus entered into a contract to supply the city with a certain number of rodent
traps. The city said that it meant pairs of rodent traps and refused delivery of Ragus’s traps.
Ragus sued for damages.
The city showed that the usage of trade (UoT) was pairs of traps; everyone sold them in pairs.
UCC APPLIES TO SOME MIXED GOODS/SERVICES CONTRACTS
MIXED CONTRACTS, DEFINED. On the issue of scope, Art. II’s provisions are most deficient
in their coverage of what are commonly known as mixed contracts. Mixed contracts are those
contracts involving a combination of goods and services, or a combination of goods and
something other than services.
PREDOMINANT PURPOSE TEST (MAJORITY).
Is the predominant purpose of the transaction to sell goods or services?
If goods → UCC applies to the whole transaction.
If services → UCC applies to none.
GRAVAMEN OF THE ACTION TEST (MINORITY).
Is the source of the complaint with the goods or the services portion of the transaction?
MERCHANTS
MERCHANTS, DEFINED. UCC § 2-104(1) → a merchant is a person who deals in the goods of
the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar
to the practices or goods involved in the transaction or to whom such knowledge or skill may be
attributed by his employment of an agent or broker or other intermediary who by his occupation
holds himself out as having such knowledge or skill.
BETWEEN MERCHANTS, DEFINED. UCC § 2-104(3) → between merchants means means in
any transaction with respect to which both parties are chargeable with the knowledge or skill of
merchants.
BATTLE OF THE FORMS UNDER UCC § 2-207
COMMON LAW BACKGROUND. UCC § 2-207 is a poorly drafted provision that diverges
significantly from the common law in formation and terms.
COMMON LAW MIRROR IMAGE RULE. The offeror is the master of the offer. If acceptance
is at all different with respect to material terms, it is treated as a counteroffer. UCC Article 2
explicitly rejects the mirror image rule.
COMMON LAW LAST SHOT RULE. Performance is acceptance of the counteroffer. This
creates huge problems for offerors and takes their power away.
UCC ACCEPTANCE. Acceptance is still valid even if it includes different or additional terms,
unless it says that it is a counteroffer.
Hill v. Gateway 2000, Inc. (1997)
RULE STATEMENT: under the UCC, a purchaser may be bound to terms included in product
packaging if the purchaser has an option to review the agreement and reject it by returning the
product.
This is a merchant/customer case. Hill bought a computer from Gateway over the phone. The
computer arrived with a list of terms in the box, including a 30 day return policy and arbitration
clause. The question is whether these terms are part of the contract.
EASTERBROOK: Easterbrook frames Gateway as the offeror and Hill as the offeree. Per
Gateways’s terms as master of its offer, Hill had 30 days to accept the offer. Hill did not return
within 30 days. Therefore, Hill accepted the offer and must arbitrate. Easterbrook says that this is
not a battle of the forms issue because there is only one form: Gateway’s offer. It does not matter
that Hill paid before the contract was officially formed by Gateway’s offer and Hill’s acceptance.
Generally, the buyer sends a purchase order (offer) and the seller is the offeree. So, really Hill
made the offer by phone and Gateway accepted it by shipping. The terms in the box are either a
written confirmation following an oral contract or a modification of the oral contract. If
construed this way, Hill would have won.
UCC § 2-206 → implies that an order by a buyer is an offer and the offeree is the seller.
Important ucc provisions for contract formation
FORMATION. UCC § 2-204 → sales contracts can be made in any manner sufficient to show
agreement, including conduct that recognizes the contract. Contract can still exist even if exact
moment of formation is unclear.
OFFER AND ACCEPTANCE RULES. UCC § 2-206 → offers may be accepted in any manner
and by any medium reasonable under the circumstances. Seller may accept Buyer’s offer for
immediate shipment by shipping goods or by promising to ship. Even shipment of
nonconforming goods counts unless the seller specifically indicates that shipment is offered
merely as an accommodation to the buyer.
FIRM OFFERS.
UCC § 2-205 → unlike the common law, firm offers may be binding without consideration if the
offeror is a merchant and the offer is in writing. May be open for stated time or if unstate, a
reasonable time, neither to exceed three months.
BATTLE OF THE FORMS.
UCC § 2-207(1)
WRITTEN CONFIRMATIONS. There must be an existing completed contract followed by a
written confirmation. Written confirmation terms are compared with the terms of the original
agreement, not with other written confirmations. Thus, multiple written confirmations are a
mess.
ACCEPTANCE. Unlike the common law mirror image rule, acceptances that contain additional
or different terms are generally still valid.
TWO WAYS A PURPORTED ACCEPTANCE CAN BE INVALID UNDER UCC § 2-207:
The acceptance is not a definite and seasonable expression of acceptance (i.e., acceptance is very
late; the terms are wildly different)
The acceptance is expressly made conditional on assent to the additional or different terms. It
must track this language exactly, or else it is a counteroffer. If it is a counteroffer, there must be
very specific assent to the counteroffer. Otherwise, there is no contract unless it is a contract by
conduct.
UCC § 2-207(2) → if (1) is met, then this governs terms.
ADDITIONAL TERMS. Additional terms are proposals for addition to a contract.
They become part of the contract between merchants unless:
The offer expressly limits acceptance to the terms of the offer
They materially alter the contract (e.g., they involve an element of unreasonable surprise like
arbitration clauses); or
Notification of objection has already been given within a reasonable time of notice.
If the agreement is not between two merchants, additional terms do not become part of the
contract unless the offeror expressly assents.
DIFFERENT TERMS.
KNOCKOUT RULE.
COMMON LAW → LAST SHOT RULE
UCC § 2-204(3) → only governs the terms of contracts by conduct. Here, additional and
different terms are knocked out and the gaps are filled.
FORMALIZATION REQUIREMENTS: STATUTE OF FRAUDS AND PAROL EVIDENCE
RULE
STATUTE OF FRAUDS WITH SALE OF GOODS
QUESTIONS TO ASK IN A STATUTE OF FRAUDS ANALYSIS:
Is this a sale of goods ($500 or more)?
Is there a contract? Is it signed?
If not, are there any exceptions?
Part performance
Merchants exceptions

GOALS. The goals are (a) to reduce the risk that a party will fabricate an oral contract that does
not exist, and (b) to keep parties from reneging on real oral agreements.
UCC § 2-201 → FORMAL REQUIREMENTS; STATUTE OF FRAUDS
UCC § 2-201(1) → a contract for the sale of goods of $500 or more is not enforceable unless
there is some writing sufficient to indicate that a contract for sale has been made between the
parties and signed by the party against whom enforcement is sought. A writing is not insufficient
because it omits or incorrectly states a term agreed upon but the contract is not enforceable
beyond the quantity of goods shown in such writing.
The statute of frauds only applies to sales of goods for $500+
The writing under UCC § 2-201(1) must only contain three elements:
A sufficient indication that the contract for sale has been made
The signature of the party who is trying to avoid the contract, and,
A quantity term.
UCC § 2-201(3) → if there is no writing that meets these requirements, there are four more
options:
DETRIMENTAL RELIANCE. UCC § 2-201(3)(a) → the seller can show that it relied to its
detriment on the existence of an oral contract in beginning the manufacturing of specially
manufactured goods according to that contract. The seller must also show that the special
manufacturing began under circumstances which reasonably indicate that the goods are for the
buyer.
ADMISSION EXCEPTION. UCC § 2-201(3)(b) → either party can show that the party seeking
to avoid the contract admits in a pleading, testimony, or otherwise in court that a contract for sale
was made.
Two problems:
lies are rewarded and truth is penalized;
plaintiffs will try to argue that they should get to go to trial to try to get the defendant to admit to
the contract on the stand.
PART PERFORMANCE EXCEPTION. UCC § 2-201(3)(c) → to the extent that either the seller
receives and accepts payment for the goods or the buyer receives and accepts the goods, neither
party can deny the existence of the contract.
OFFICIAL COMMENT (2) → receipt and acceptance of either goods or money constitutes an
overt admission that a contract exists. Part performance only validates the contract for the goods
accepted or for which payment has been received.
MERCHANT’S EXCEPTION. UCC § 2-201(2) → the requirements are satisfied between
merchants if within a reasonable amount of time a writing in confirmation of the contract and
sufficient against the sender is received and the party receiving it has reason to know of its
contents, the requirements are satisfied against such party unless written notice of objection to its
contents is given within 10 days.
SIGNED, DEFINED. UCC § 1-201(39) → Signed includes any symbol executed or adopted by a
party with present intention to authenticate a writing.
OFFICIAL COMMENT (39) → can be in the form of a letterhead.
COURSE OF DEALING. UCC § 1-205(1) → a course of dealing is a sequence of previous
conduct between the parties to a particular transaction which is fairly to be regarded as
establishing a common basis of understanding for interpreting their expressions and other
conduct.
USAGE OF TRADE. UCC § 1-205(2) → a usage of trade is any practice or method of dealing
having such regularity of observance in a place, vocation, or trade as to justify an expectation
that it will be observed with respect to the transaction in question. The existence and scope of
such usage are to be proved as facts
COURSE OF PERFORMANCE. UCC § 2-208 → when the contract for sale involves repeated
occasions for performance by either party with knowledge of the nature of the performance and
opportunity to object to it by the other, any course of performance accepted or acquiesced in
without objection shall be relevant to determine the meaning of the agreement.
DIFFERENCES BETWEEN CoD, CoP, AND UoT.
COP AND UOT DIFFER WITH KNOWLEDGE.
UOT. The party must know or have reason to know of usage of trade
COP. the party must have actual knowledge of the course of performance.
COP AND COD DIFFER IN FORMATION.
COP. course of performance arises subsequent to contract formation
COD. course of dealing arises prior to contract formation.
DF Activities Corp. v. Brown (1988)
Defendant filed a motion to dismiss with an affidavit denying an oral contract. The plaintiffs
wanted to depose the opposition to prove that the defendant lied.
A remote possibility that the defendant will admit to the contract does not justify further
proceedings. Once the defendant has denied under oath, the safety valve of UCC § 2-201(3)(b) is
closed. Dismissal for lack of writing affirmed.
Most courts believe that the plaintiff should at least get some discovery before dismissal for lack
of writing.
General Trading Int’l v. Wal-Mart Stores (2003)
While the merchant’s exception does not require a confirmatory writing to be signed by the party
to be charged, the writing still must satisfy the dictations of UCC § 2-201(1). Most courts have
interpreted the sufficient to indicate requirement to required the writing to indicate the
consummation of a contract and not just negotiations. The writing in this case did not evidence
the alleged oral agreement, just negotiations.

Parol evidence rule with sale of goods

EXAM PROCEDURE:
What is the nature of the writing?
Partially integrated?
Completely integrated?
 What kind of extrinsic evidence is this?
Contradictory?
Explanatory?
Consistent additional term?
Supplementary?
What is the timing?
Before?
Contemporaneous?
After?

If after, no PER issue--its a modification issue under 2-209.

Under 2-209 no consideration is required to modify.

In the case where parties to a sales contract do decide to memorialize their agreement with a
writing, they are thereby limiting their ability to enforce terms that are not contained in that
writing.
UCC STATUTE OF FRAUDS → hinders enforceability of certain contracts
PAROL EVIDENCE RULE → bars introduction into evidence (and therefore enforceability) of
certain terms that are not put into writing.
MERGER CLAUSES. If a particular sale is significant enough for the two sides to sit down and
negotiate a full-blown written contract, that contract will almost always include a standard
merger clause. The idea behind the merger clause is that if the two parties are going to spend the
sunk cost to sit down and work out all of the terms of their agreement, then it doesn't make sense
to leave room for side deals that go beyond what the parties agreed to in writing.
EXAMPLE OF A MERGER CLAUSE → “this agreement constitutes the complete and final
agreement and understanding among the parties relating to the subject matter hereof, and
supersedes all prior proposals, negotiations, agreements, and understandings relating to such
subject matter. In entering into this agreement, buyer acknowledges that it is relying on no
statement, representation, warranty, covenant, or agreement of any kind made by the seller or
any employee or agent of the seller, except for the agreements of seller set forth herein”
Druckzentrum Harry Jung GmbH & Co. v. Motorola Mobility LLC (2014)
RULE STATEMENT: the UCC does not allow the introduction of additional terms to a written
contract if the contract has an integration clause.
FACTS. Motorola entered into an agreement with a printer. The printer relied on Motorola’s
representations that it would be the exclusive printer for that region. Motorola decided to
discontinue its business with the printer.
PAROL EVIDENCE RULE AND INTEGRATED CONTRACTS. When a contract is fully
integrated, parol evidence of prior understandings cannot be used to upset the bargain the parties
put in writing.
EXTRINSIC MATERIALS BY REFERENCE. When a contract incorporates specific extrinsic
materials by reference, the proper inference is that other, unmentioned extrinsic agreements are
not part of the contract. If the additional terms are such that if agreed upon, they would certainly
have been included in the document in the view of the court, then evidence of their alleged
making must be kept from the trier of fact.
The existence of contractual ambiguity may allow consideration of extrinsic evidence to clarify
those portions of the contract that are unclear. But it does not warrant a conclusion that the
contract is not fully integrated such that evidence of prior agreements can be used to import
entirely new terms.
If a particular sale is important enough to warrant its own separate contract, it makes sense to
include a merger clause. However, in certain situations, it is not in a company’s best interest to
include a merger clause (see p.124).
UCC § 2-202 → terms in a writing that is intended by the parties as a final expression of their
agreement with respect to such terms as are included therein may not be contradicted by
evidence of any prior agreement or of a contemporaneous oral agreement but may be explained
or supplemented: (a) by implied terms (COP → COD → UOT); and (b) by evidence of
consistent additional terms unless the court finds the writing to have been intended also as a
complete and exclusive statement of the terms of the agreement.
OFFICIAL COMMENT (3) → if the additional terms are such that, if agreed upon, they would
certainly have been included in the document in the view of the court, then evidence of their
alleged making must be kept from the trier of fact.
Subsection (b) permits the importation of consistent terms from prior agreements but only if the
contract is not fully integrated.
Whether or not particular extrinsic evidence is admissible under UCC §2-202 is a function of
both the nature of the evidence sought to be introduced and the status of the writing that would
serve to keep the evidence out.
THERE ARE THREE CATEGORICAL STATEMENTS THAT CAN BE MADE ABOUT THE
PAROL EVIDENCE RULE:
WRITING INTENDED BY BOTH PARTIES TO BE A FINAL EXPRESSION OF THE
AGREEMENT. If the writing that seeks to keep evidence out is not intended by both parties to
be a final expression of the parties’ agreement with respect to the terms included therein, then it
will not serve to keep out any parol evidence.
SIDE DEALS AFTER THE WRITING. Even where there is a writing intended by both parties
to be a final expression of their agreement, parties may always introduce evidence of side
agreements that occurred after the writing in question.
This is just another way of saying that parties are always free to modify earlier agreements that
they made, no matter how comprehensive and final the earlier agreement seemed to be at the
time. UCC §2-209.
EVIDENCE OF COP, COD, AND UOT. even where there is a writing intended by both parties
to be a final expression of their agreement, a party may always introduce evidence of usage of
trade, course of dealing, or course of performance to explain or supplement the writing.
OC 2 to UCC §2-202 → The one exception to this statement is that these terms may not explain
or supplement a writing if the writing has carefully negated that possibility.
Even this exception is probably limited to the careful negation of a particular usage of trade,
course of dealing, or course of performance.
Cravotta v. Deggingers’ Foundry, Inc. (2010)
RULE STATEMENT: Parol evidence indicating a course of dealing or performance may be
introduced to explain or supplement an agreement, even if the agreement is fully integrated.
INTEGRATED WRITING. If contracting parties intend a writing to be a final expression of
their agreement with respect to such terms stated within that writing, then such a writing is
considered integrated. This means the terms cannot be contradicted by evidence of any prior
agreement or contemporaneous oral agreement. But the terms of an integrated writing may be
supplemented by consistent additional terms
COMPLETELY INTEGRATED WRITING. A writing is completely integrated when the
parties intended the writing to be a complete and exclusive statement of the terms of their
agreement. A writing is considered completely integrated if the additional terms sought to be
added to the writing are such that, if agreed upon, they would have certainly been included in the
original contract. If a writing is completely integrated, the writing cannot be contradicted or
supplemented by any extrinsic evidence.
FACTS: Plaintiff purchaser filed a breach of contract suit against defendant foundry, alleging
that the foundry failed to make and deliver certain chandeliers, sconces, and lanterns as promised
for installation in a mansion in Texas. During the trial, the foundry claimed that it could not
make a timely delivery because the purchaser failed to forward important information about the
electrical system in the mansion which was needed to wire the chandeliers and other items
properly
A contract is not enforceable beyond the quantity of goods shown in the writing or admitted to
by the party. A writing is not insufficient because it omits or incorrectly states a term agreed
upon but the contract is not enforceable under this paragraph beyond the quantity of goods
shown in such writing. The required writing need not contain all the material terms of the
contract and such material terms as are stated need not be precisely stated. All that is required is
that the writing afford a basis for believing that the offered oral evidence rests on a real
transaction. This does not prevent a court from finding that, based on extrinsic evidence, a
written contract contains a term not explicitly stated within it.
The course of actual performance by the parties is considered the best indication of what they
intended the writing to mean.
The general rule about parol evidence in the sales of goods system is that prior consistent
additional terms may be introduced to explain or supplement any writing except where the
writing is intended by both parties to be a complete and exclusive statement of all the terms of
the contract. Consistent additional terms may be introduced as evidence but contradictory terms
cannot
A common understanding is that in the absence of anything said to the contrary, all sales are
final.
FOUR RULES:
If the writing is not intended to be a final expression of the agreement, it doesnt bar parol
evidence.
If the writing is fully integrated, evidence of side agreements that occurred after it is always
admissible
If the writing is fully integrated, evidence of implied terms (COP → COD → UOT) is always
admissible to explain/supplement the writing unless the writing carefully negates an implied term
(official comment 2 to ucc § 2-202).
prior/contemporaneous consistent additional terms may be introduced to explain or supplement
any writing except for completely integrated writings. Contradictory terms may not be
introduced in this way.
DIFFERENCE BETWEEN COMMON LAW AND UCC PAROL EVIDENCE RULE. The
difference between the common law and the UCC parol evidence rule is that in the UCC, a
completely integrated agreement can, as a matter of default, be supplemented by an implied term
(COP → COD → UOT). At common law, a completely integrated agreement cannot be
supplemented by anything. Some states have adopted the UCC’s more liberal approach.
FACTORS FOR DETERMINING WHETHER THE AGREEMENT IS COMPLETELY
INTEGRATED:
MERGER/INTEGRATION CLAUSE?
DISCLAIMER OF WARRANTIES CLAUSE?
IS THE TERM SUCH THAT IT CERTAINLY WOULD BE INCLUDED IN THE
DOCUMENT IF IT WERE PART OF THE AGREEMENT?
SOPHISTICATION OF PARTIES
NATURE AND SCOPE OF BOTH PRIOR NEGOTIATIONS AND ANY PURPORTED
EXTRINSIC TERMS.

TERMS
WARRANTIES WITH SALES OF GOODS 2-313
WARRANTY COA
THERE IS SOME KIND OF WARRANTY,
THAT WARRANTY WAS BREACHED,
BREACH OF WARRANTY CAUSED THE HARM COMPLAINED OF,
DAMAGES,
WARD OFF AFFIRMATIVE DEFENSES INCLUDING DISCLAIMERS, STATUTE OF
LIMITATIONS, LACK OF NOTICE, LACK OF PRIVITY AND ASSUMPTION OF THE
RISK

Effects of warranty law on business practice

The warranties that seller’s give to retailers are whatever they get from the manufacturers, which
is typically limited to repair, replacement, or refund of the hardware.
TWO MAJOR ISSUES IN WARRANTY CREATION:
TIME LIMITS. Sellers feel the need for an outside time limit on warranties, but buyers who
resell do not want any time limits to begin until their resale.
SCOPE OF THE WARRANTY. Middlemen do not like to give greater warranties to their buyers
than they are getting from their own sellers; Sellers want to know that after a certain passage of
time, the goods delivered are in fact acceptable and may want to cap the length of their exposure
for warranty problems; buyers who resell are careful to make sure that the warranties that they
give to their buyers are no greater than the warranties that they are receiving from their own
sellers. Otherwise, wholesalers can find themselves in the position of being responsible to their
buyers for problems created by the manufacturer, with no recourse against the manufacturer.
The basic ucc quality warranties
IMPLIED WARRANTIES OF QUALITY--TWO IMPLIED WARRANTIES THAT RELATE
TO THE PERFORMANCE OF GOODS SOLD.
IMPLIED WARRANTY OF MERCHANTABILITY.
UCC § 2-314(1) → unless disclaimed or modified, this implied warranty arises in every sale of
goods where the seller is a merchant with respect to goods of the kind being sold
UCC § 2-314(2) → goods to be merchantable must be at least such as (a) pass without objection
in the trade under the contract description; and (b) in the case of fungible goods, are of fair
average quality within the description; and (c) are fit for the ordinary purposes for which such
goods are used; and (d) run, within the variations permitted by the agreement, of even kind,
quality and quantity within each unit and among all units involved; and (e) are adequately
contained, packaged, and labeled as the agreement may require; and (f) conform to the promises
or affirmations of fact made on the container or label if any.
TWO KEY PROMISES WITHIN THE IMPLIED WARRANTY OF MERCHANTABILITY.
UCC § 2-314(2)(a) and (c) → the two key promises within the implied warranty of
merchantability are that the goods being sold are at least as good as other, similar goods in the
trade, and that the goods are fit for the ordinary purposes for which goods of that description are
used.
Here, the buyer’s complaint about the goods would typically relate to the quality of what was
received. However, sometimes the buyer’s breach of implied warranty action focuses not on
quality as such, but on the absence of certain features that the buyer believes the product should
contain in order to be merchantable.
IMPLIED WARRANTY
Phillips v. Cricket Lighters (2005)
FACTS: Three people died, two of them young children, in a fire that resulted when the children
played with Robyn Williams’ lighter. It is uncontested that this butane lighter lacked any child-
resistant feature. Jerome, Robyn’s son, was able to use the lighter to ignite some linens. The fire
that resulted killed Jerome, Robyn, and another minor child of Robyn's; one minor child, Neil
Williams (Neil), survived. Gwendolyn Phillips, as administratrix of the estates of the three
decedents and as guardian of Neil, instituted this action against the manufacturers and
distributors of the Cricket lighter (Cricket). In her complaint, Phillips, inter alia, claims of design
defect sounding in both strict liability and negligence, negligent infliction of emotional distress,
breach of the implied warranty of merchantability, and punitive damages. These claims were all
predicated on Phillips’ allegations that Cricket should have manufactured and distributed a
lighter that had childproof features. Cricket filed for summary judgment. The trial court found in
favor of Cricket, and dismissed all claims against them.
HELD: The focus on the trial was on whether it can be established that the cricket lighter was not
fit for the ordinary purposes for which such goods are used. The court held that Cricket could not
be liable for breach of warranty of merchantability because the ordinary purposes for which the
lighter was claimed to be fit did not include use as a children's plaything. Therefore, it made no
difference whether the warranty extended to the child who was a guest in the home at the time.
The evidence also would not support an award of punitive damages because the surviving
complaint alleged ordinary negligence, not the sort of reckless or willful conduct that could
result in punitive damages exposure
The concept of merchantability does not require that the goods be the best quality or the best
obtainable but it does require that they have an inherent soundness which makes them suitable
for the purpose for which they are designed.
The IWM extends to any natural person who is in the family or household of the buyer or who is
a guest in the home if it is reasonable to expect that such person may use, consume, or be
affected by the goods and who is injured in person by breach of the warranty
EXPRESS WARRANTIES
REQUIREMENTS FOR EXPRESS WARRANTIES. UCC § 2-313(1) → an express warranty
must be (a) an affirmation of fact or promise that relates to the goods or (b) a description of the
goods orr (c) a sample or model and the express warranty must be made by the seller to the
immediate buyer and the express warranty must become part of the basis of the bargain (reliance
is then presumed unless the seller disproves).
It is not necessary under UCC § 2-313(2) that the seller use magic words like warrant or
guarantee or that the seller have a specific intention to make a warranty
None of the following are warranties under UCC § 2-313(2):
an affirmation merely of the value of the goods
A statement purporting to be merely the seller’s opinion or commendation of the goods (puffing)
FACTORS TO DISTINGUISH BETWEEN PUFFING AND EXPRESS WARRANTY:
LANGUAGE--SPECIFIC V. GENERAL. Specific language is more likely going to be an
express warranty than puffing.
STATEMENTS--WRITTEN V. ORAL. it is more likely that an express warranty will take the
form of a written statement than an oral agreement.
CONTEXT. Was the statement in response to a request from the buyer for the seller’s opinion?
RELIANCE. Ultimately the question is whether the buyer’s reliance on the statement was
reasonable.