UCC OUTLINE
I. INTRODUCTION
a. How UCC & Common Law work together
i. Common law fills in the space not cover by the UCC
ii. When there is a conflict the UCC controls
b. Main Areas Covered
i. UCC- Article 1-General Provisions & Definitions
ii. UCC-Article 2- Sales
iii. UCC-Article 3- Negotiable Instruments
iv. UCC-Article 5- Letters of Credit
v. UCC- Article 9- Secured Transactions
c. Causes of Action
i. Replevin
1. Recovery of goods unlawfully taken from possession
a. Bailment/entrustment problem
2. Requires ownership
ii. Conversion- intentional tort
iii. Negligence
iv. Breach of K
v. Breach of Warranties (express/implied)
vi. Breach of covenant of good faith & fair dealing
d. Types of Contracts
i. Requirement Contract- where a party sells something at a lower rate but buyer is required to purchase certain quantity
ii. Output Contract- where seller agrees to supply all of buyer’s demand for certain product
iii. Open Price Term- parties agree price will reflect the market value
e. Damages
i. Direct
1. Immediate result
2. Natural and wrongful conduct of defendant
ii. Consequential
1. Arise in consequence of an act
a. Loss of profits
2. Knowledge would preclude this
f. Defenses
i. Breach of K
ii. Breach of Express/ Implied Warranties
iii. Set off
1. Requires mutual obligations- each side owns an obligation to another
2. What one party owes to the other is set off against the other side and the difference is owned to the party
a. Ex. I owe you $10 but you owe me $20, so we will set off the amounts and you owe me $10.
iv. Affirmative defenses:
1. Fraud
2. Mistake
3. Duress
4. Unconscionability
5. Illegality
II. AGREEMENT
a. 1-201(3) Agreement- the bargain of the parties in fact as found in their language or inferred from other circumstances including course of performance, course of dealing, or usage or trade
b. Components to Agreement
i. Express Terms
1. What parties explicitly agree to- language
2. Need not be in writing
3. Oral K’s can be valid (even though valid- not necessarily enforceable)
a. Unenforceable because SOF
4. Only executory oral K’s (not yet performed)
ii. 1-303 (a) Course of Performance- sequence of conduct between the parties to a particular transaction that exists if:
1. the agreement of the parties with respect to the transaction involves repeated occasions of performance by a party; and
2. the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquires in it without objection
3. Comes after formation
4. (e) Subject to 2-209, a course of performance is relevant to show a waiver or modification of any term inconsistent with the course of performance
iii. 1-303(b) Course of Dealing- sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding and for interpreting their expressions and conduct
1. Comes before formation
a. How the parties understood previous agreements determines how the party will understand the current agreement
iv. 1-303(c) Usage of Trade- 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 must be proven as facts
1. Background knowledge of terms
2. Usage becomes part of the K only when it can reasonably be construed consistently with other express and implied terms in the K
c. 1-303(e) Lexical Priority- the express terms of an agreement and any applicable course of performance, course of dealing, or usage of trade must be construed whenever reasonable are consistent with each other.
i. If such construction is unreasonable:
1. Express terms prevail over course of performance, coarse of dealing, and usage of trade
2. Course of performance prevails over course of dealing, and usage of trade
3. Course of dealing prevails over usage of trade
ii. Note: Try to make consistent if reasonable- point out difficulty in reasonable
d. Nanakuli Paving v. Shell Oil
i. Facts: Parties agreed Nanakuli would by all of its asphalt requirements from Shell. Shell failed to price protect Nanakuli when the price nearly doubled.
ii. Issue: Breach of K for failure to price protect based on course of dealing and trade usage
iii. Holding: The preference for waiver only applies where the acts are ambiguous. Shell price protected Nanakuli 2 times in the past and gave advance notice of increases. It is reasonable to conclude price protection was incorporated into the original agreement and it was reasonably consistent with the express terms of the agreement.
e. Waiver
i. If a party’s course of performance is inconsistent with express terms can argue “waiver”
ii. However, its only a “one shot deal”
iii. If it happens more than once waiver doesn’t hold up
iv. Parties can protect themselves if they do something inconsistent with the written terms
1. Send written document informing other party that they “waived” certain event but will not do it anymore
III. 1-304- OBLIGATION OF GOOD FAITH
a. Every K or duty within the UCC imposes an obligation of good faith in its performance and enforcement
b. Parties must be
i. Honest in fact
ii. Conform to reasonable commercial standards
c. Measure for good faith for a merchant is the standard in the industry
i. Good faith differs from trade usages
d. Good faith is directly correlative to the amount of discretionary authority delegated by the contract
e. Cannot be disclaimed by agreement
f. COA- Need a breach of duty because being mean is not enough
g. Sons of Thunder v. Borden
i. Exercising a termination clause won’t necessarily breach good faith BUT The way you perform (discharge) under an agreement can be done in bad faith
1. Here, Borden’s course of performance à encouraged Sons of Thunder to continue to invest while thinking the
ption of the collateral- and the parties intended to sign a formal agreement, and a financing statement was filled.
iv. Note: Then why require security agreements?
1. Moral Hazard- the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk.
d. In re Bollinger
i. Parties have: promissory note, financing statement (duly signed & details the collateral), and letters that constitute course of dealing. No formal security agreement was ever executed.
ii. Holding: Ct looks at the whole transaction when the security agreement hasn’t been signed to see the intent of the parties. The promissory note read in conjunction with the financing statement (duly filed and supported), & correspondence during course of transaction is sufficient to establish a valid security agreement under PA law.
1. Security agreements are NOT AS FORMAL- Intent CAN be read in
e. Dragnet Clause (future advances)- secures all of debtors obligations to a creditor, regardless of whether those obligations arise prior to, concurrent with, or after the security agreement has been attached.
i. Purpose is to secure additional loans the secured party intends to make to the debtor
ii. Secured all obligations of debtor- scope of obligation
f. 9-204 After-acquired Collateral
i. A security agreement may create or provide for a security interest in after-acquired collateral- open/on-going/ floating lien
ii. Not effective for
1. Consumer goods- other than an accession when given as additional security- unless debtor acquires right in them w/in 10 days after the secured party gives value
2. Commercial tort claim
g. Assignment
i. Occurs when you pay the full amount and deliver the consideration to the seller and the seller assigns/transfers his rights
ii. The obligor can generally assert all the defense against the assignee that it could have asserted against the assignor, even defenses arising out of other transaction
h. Personal Guarantee
i. Person assumes liability and guarantees that if X fails to pay any amount owed to the bank under the arrangements- guarantor will pay the debt
1. Almost always collateralized
ii. Always have customer do his banking at the bank with the loan or else there would be a right to set off
1. If you breach- bank can go into your account and take all your funds
VI. FRAUD
a. Negates the acceptance of the Kà making the K invalid
i. Independent cause of action
b. Roles of fraud
i. Restitution
1. COA to permit victim to rescind the K
2. When K is rescinded- each party gives back what they received
