I. UCC: BASIC PRINCIPLES
A. Domestic United States Sales Law
1. Scope UCC Article 2
· Art. 2 applies to Sales. Sales are composed of buyers and sellers.
· 2-102: “This article applies to transactions in goods.”
· 2-103: “Goods”: all things that are movable at the time of identification to contract for sale. This excludes information.
2. Goods and Services
· If you buy goods then you want the person to promise certain things
· If you buy services then you want to know how good those services are
§ Article 2 does not govern a contract for the sale of services
· Goods: all things (including specially manufactured goods) which are movable at the time of the identification for sale.
§ It does not include foreign exchange transactions. It also does not include information (includes computer programs).
· Contracts are often for both goods and services and we need to know which law governs the contract.
a. BMC, Inc. v. Barth Industries, Inc.
· Facts: The P hired the D to build a lens manufacturing machine. The D took longer and longer, and the P assisted them by giving them money to complete the job and encouraging them to finish. Once it was done, the P rejected acceptance of the goods.
· Issue: Should the contract created between the two companies be governed by the UCC -Sales or Florida law?
· Holding: BMC breached the contract by not accepting. The contract was for the good, and therefore should be covered by the UCC. (This was an example of a hybrid contract) — Unfortunately there is no standard for mixed/hybrid good.
· The court applied the Predominant Factor Test
o Under this test the court determines “whether their predominant fact, their thrust, their purpose, reasonably stated, is the rendition of service, with goods incidentally involved or is a transaction of sale, with labor incidentally involved”
§ Factors to look at include: (1) language of contract itself; manner in which transaction was billed; moveable goods
· Alternative Test; Gravamen of the action
o This test asks “what’s the problem?” If the problem is the object itself then it’s covered by UCC -sales, but if the problem is the service aspect, then it’s not covered by the UCC
§ you look at what the breach is: is it a breach of the services or a breach of the goods?
3. Goods and Information
· But now there is an in-between area where we do not know if it is within Article 2 or not (smart goods ® tangible goods that have a lot of software in them)
· The courts need to decide whether these smart goods are in Article 2.
4. Formation of a Contract
b. 2-204 (1): A contract for sale of goods may be made in any manner sufficient to show agreement, including offer and acceptance, conduct by both parties which recognizes the existence of such a contract, the interaction of electronic agents, and the interaction of an electronic agent and an individual.
· Under the UCC, if you have a contract then you have a contract. There is not going to be an extended argument about whether there is a contract (e.g. ability to form by conduct, formal offer and acceptance). Anything that reasonable indicates that the parties have a contract means there is a contract under the Code.
· If the parties are acting like there is a contract then there is a contract.
· You can have a contract between a person and a computer.
o Revised § 2-204 (pp. 89) [Assent Example]:
§ Includes electronic contracts (interaction of electronic agents and individual and electronic agents). No formation problems.
5. Regulation of Private Conduct
· El Paso Natural Gas Co. v. Minco Oil & Gas Co. (Ct. App. Tx. 1998):
o Summary: Minco sells natural gas to El Paso on a take-or-pay basis. Market changes pose problems to El Paso, so parties amend and re-contract agreement. Minco terminates (as they can under K) and waives former liabilities. However, after seeing others sue El Paso, they also sue.
o Cannot waive unconscionability and good faith under the Code.
§ Unconscionability cures an advantage gained by unfair advantage or surprise (See § 2-302, but it is not specifically defined, just allows the Court to re-write the contract, must convince a judge [see, “as a matter of law” that is is unconscionable) and is evaluated by a two prong test (must have both):
· Procedural Abuse – negotiation procedures (i) pressure of deception, (ii) absence of a viable alternative, (iii) totality of circumstances. — Look for unequal bargaining power or adhesion contracts.
· Substantive Abuse – fairness or oppressiveness of the K itself (i) totality of the circumstances, (ii) either (a) lopsided with no reasonable parity, or (b) inimical to public policy.
· Sufficiently shocking / gross – tendency of courts to not want to intercede, must fall pretty to circumstances, not just applied to
o If both are met – Court may refuse to enforce, enforce the remainder of the contract or re-write the contract.
o Good Faith is a “mushy” term. Examples include the presence of a legitimate commercial activity and a means by which modification of K was obvious.
§ Gabriel – the absence of “bad faith”; Bad faith – when something during K performance which is outside the reasonable anticipations of the other party (e.g. taking a left turn). Looking at how the K should be treated itself.
§ Good faith does not apply to negotiations, rather to enforcement and performance of the K (see, Common Law). Once a K is formed, then there are rea
B. Warranty of Title
· Buyers of goods ordinarily expect to obtain “good” or “clean” title to the goods they have purchased. Two situations may defeat that expectation: sales of stolen goods and sales of encumbered goods.
UCC 2-312: Warranty of Title and Against Infringement; Buyers Obligation Against Infringement
(1) Subject to subsection (3), there is in a contract for sale a warranty by the seller that:
(a) the title conveyed shall be good and its transfer rightful and shall not unreasonably expose the buyer to litigation because of any colorable claim to or interest in the goods; and
(b) the goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge
(2) Unless otherwise agreed, a seller that is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like buy a buyer that furnishes specifications to the seller must hold the seller harmless against any such claim that arises out of compliance with the specifications.
(3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifications
· UCC § 2-312: This is an implied warranty
o Says that (1) titled conveyed is a “good title” and (2) goods are delivered free from any secured interest or lien of which the buyer doesn’t know about
o Term that is part of agreement unless parties specifically exclude it
1. Colton v. Decker
· Facts: The P bought a car from the defendant that had been rebuilt. The police pulled him over for speeding and found multiple VIN numbers. The police impounded it took it apart, let it rust for a year. He got it back in back condition and very devalued. He went back to the seller and said he was going to sue him for the loss due to the title problems.