Mutual Assent Under the UCC
Jannusch v. Naffziger
Illinois Appellate Court 379 Ill. App. 3d 381 (2008)
Jannusch is the original owner and plaintiff. Trial court found in favor of the defendants. Plaintiffs appealed.
Was this a contract under the UCC?
The UCC governs the sale of goods:
“(1) A contract for the sale of goods may be made in any manner sufficient to show agreement including conduct by both parties which recognizes the existence of such a contract.
(2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined
(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.”
The sale of the business here was primarily one of goods. Judgement reversed.
The plaintiff owned a food truck company and was trying to sell it. The defendants showed interest and offered to buy it for $150,000. However, they did not have all that money, so they gave them 10,000 and applied for a loan (eventually it was approved). In the meantime, the defendants took control of the company and started operating it with the consultation of the plaintiff. However, at the end of the season, they were disappointed in the sales and attempted to return it to the plaintiff who was no unable to manage it. He claimed that the return, and lack of payment for the full product, was a breach of contract.
The trial court said that this was a matter of the UCC but because this was the sale of a business (not goods), there could have been no formation of a contract.
Here, the court disagrees. They say that this is primarily in goods, so the UCC can form this as a contract. They outline the rule and state the essential terms were agreed on (the cost of the sale and the items to be transferred). The disappointment from the defendant does not negate the contract.
The trial court also mentioned that there was no meeting of the minds, so there couldn’t be a contract. Here, the Supreme Court reminds us that we don’t care if there was a meeting of the minds! If their actions constitute a contract, there is a contract. Here, the actions prove that there was one. The terms were agreed upon, the actions showed the parties believed there was a contract, and the return of the merchandise was a breach of the said contract.
UCC deals primarily in goods.
Here, we have a sale of both goods and services. The truck, inventory, etc. is a good. Then the consultation of the plaintiff is a service.
When there is a contract for services and goods, we look at the “predominant purpose”. If the goods have a greater value than the service, then the goods are predominant. Where the goods are incidental to services, services is predominant and the UCC does not apply. Usually the court looks at the “value” to see which is more predominant.
Under the UCC, there needs to be a contract in writing for anything valuing over $500. But here, there is an exception to the UCC (this was an oral agreement).
Additionally, Under the UCC, their actions showed that there was a contract. For instance, the defendants took the truck, used it, paid the workers, got a loan, etc. In other words, their actions showed that they made a contract.
Finally, even though they did not know the exact moment when the contract was made, there is no reason not to enforce it.
The first question we are going to ask we are provided a question is “does the UCC apply?” The UCC applies to the sale of goods between consumer and commercial transactions and between merchants and non-merchants. In other words, we only ask “is this a sale of goods?” Finally, the UCC supplements common law.
Goods means all things which are moveable at the time of the contract. A good can be moved if it can be moveable without destroying things that are attached. For example a support beam is a good when you initially purchase it, but is not a good if it has already been incorporated into a home.
Merchant is a person who deals in goods of the kind. For example, Best Buy is the merchant of computers at Best Buy. Likewise, a ford dealership is a merchant of Ford vehicles. The reason why we talk about merchants is because there are some rules that apply to merchants (focusing on their sales).
What if we have a contract that has a sale of goods and services? See Jannusch
E.C. Styberg Engineering Co. v. Eaton Corp.
492 F.ed 912 (7th Cir. 2007).
Styberg is the plaintiff. Defendant won in trial court and Styberg appealed.
Was there a contract?
An essential requirement for a contract to form under the UCC is that the parties agreed on sufficient terms.
There are no sufficient terms here, therefore there is no contract. Thus, the trial court’s ruling is affirmed.
Styberg is a components manufacturer and Eaton is a manufacturer of transmissions using a part that Stylerg designs. The two parties entered negotiations where a proposal for 60,000 units was sent over with a minimum purchase of 13,000. Parties continued to discuss and eventually Styberg said that 13,000 units was not enough to cover their expenses and wanted a larger commitment. No comment was made by Eaton about this larger amount.
Later, Eaton made a purchase of 240 parts and paid for them. Once again, he made another purchase of 240 parts, but cancelled a few days later. Additionally, the discussions fell apart and Styberg sued for breach of contract.
The court was asked to determine if there is a breach of contract. However, for there to be a breach, there needs to be a contract in the first place. The trial court said that there was no contract because there were not sufficient terms to form one.
Here, the plaintiff argues that a letter they sent, a schedule that was accepted, and the requests for 240 units was sufficient to establish terms.
The court disagrees because the companies did not follow their standard procedure for determining if something was a contract. For instance, it was common practice to send a purchase order. Since there was no purchase order, there was no agreement. Instead, the discussions were solely confined negotiations. Additionally, the plaintiff did not treat the original interaction as a contract, continuing to request adjustments to price, minimum unit counts, cost of labor, etc. These changes came after they claimed that a contract had been formed. Therefore, there was no contract.
There must be sufficient terms agreed on by the parties to determine whether there is a contract. These terms must be formed by the common practice of the industry and the standard rules of the UCC.
Sometimes there are differences of opinion within one party. Here, we see that the sales department believed the 13,000 was enough of a minimum. However, the VP said that they should would need a minimum of 20,000 + Capital investment of 1.2 million.
Here, the contract fails because there were not sufficient terms. There are 5 things that need to be met to establish sufficient terms
- Identity of the parties to be bound (We want parts)
- The subject matter of the contract (I-Brakes)
- Consideration (Missing because lack of quantity term and price term)
- Quantity Term (Missing, couldn’t decide on amount)
- Price Term (Missing, couldn’t decide on quantity)
The UCC §2-204(2) does not need to say when an agreement was made, but here there was no performance by either party to indicate that an agreement had been made at all.
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