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Commercial Law
Rutgers University, Newark School of Law
Poland, Todd

COMMERCIAL LAW SUB-OUTLINE

· Introduction to Article 2: Sales

a) Basic Exchange Transactions – Involve a transfer of a thing of value for a price

i) Extension of Credit – Type of exchange transaction where credit provider gives up present value in exchange for recipient’s later payment of a larger amount

ii) Transfer of Risk – Type of exchange transaction where property owners transfer risk of property loss/damage to insurers in exchange for paying insurance premium

b) Most of the provisions of Article 2 are subject to any clauses made by the parties

· Good Faith and Unconscionability

a) §1-304 – Every K requires good faith in its performance and enforcement

i) Comment 1:Not acting in good faith doesn’t make separate cause of action on its own

b) §1-201(20)/§2-103 Good Faith: Honesty in fact (for everyone) AND observance of reasonable commercial standards of fair dealing (for merchants only)

c) §2-302(a) – If court finds the K or any clause in it unconscionable, it can refuse to enforce it or only enforce the parts that aren’t unconscionable

d) §2-302(b) – Parties have the chance to present evidence to show its commercial setting, purpose, and effect in order to prove K is unconscionable or not

e) El Paso Natural Gas Co. v. Minco Oil & Gas Co. (gas breach unconscionable/bad faith)

i) Some factors for unconscionability are bargaining strength, their business acumen, their knowledge, education, financial ability, etc

ii) It is bad faith to not follow the K provisions and block a party from doing business until they release you from your K obligations

· Force Majeure (Impracticability)

a) This is a common K clause that essentially frees both parties from liability or obligation when an extraordinary events or circumstances beyond the control of the parties, prevents one or both parties from fulfilling their obligations under the K

b) Unconscionability and impracticability are reasons to use force majeure

c) §2-615 – Seller is not in breach for delaying or failing to deliver goods if performance has been made impracticable by the occurrence of an unexpected contingency

i) Doesn’t necessarily mean impossible to perform, just very impractical to do so now

d) §2-616(1) – If seller delays or fails to deliver under §2-615, buyer may, by written notification, tell seller he’s terminating the K, or tell seller he’s modifying K and taking whatever is available (buyer has no more than 30 days to notify seller)

· Scope of the UCC

a) §2-102 – Article 2 applies to transactions in goods only

b) §2-105 Goods: Anything that is tangible and movable, including young animals, crops, and specially-manufactured goods, but not including money, securities, and real property

i) Services is not a good and is governed by common-law

ii) Disputes arise when K has both goods & services; does UCC or common law apply?

c) BMC Industries, Inc. v. Barth Industries, Inc. (eyeglass manufacture assembly line)

i) Predominant Factor Test: Decide if goods was dominant part of K or if services was

ii) If party doesn’t mention breach and keeps acting like there is a valid K, party waives right to refuse goods later; reasonable reliance to detriment is not required for waiver

d) Advent Systems Limited v. Unisys Corp. (computer software breach)

i) Computer software is a good

ii) §2-306 – Don’t need to specify quantity in the K if there’s a Requirements Clause

· “Battle of the Forms” and other UCC “Gap Fillers”

a) §2-204(1) – K can be made by parties in any way sufficient to show agreement, including conduct showing that they recognize the agreement (literal offer/acceptance not needed)

b) §2-204(3) – Even if 1 or more terms are left open, K doesn’t fail for indefiniteness if the parties intended to make a K and there’s a reasonably certain basis for granting a remedy

c) §2-206 – Offer and Acceptance in Formation of K

i) (a) – An offer to make a K is construed as inviting acceptance by any reasonable manner and by any reasonable medium

ii) (b) – If someone orders goods for prompt or current shipment, this is construed as inviting acceptance either by a prompt promise to ship, or by the prompt or current shipment of the goods

d) §2-207 – Conduct by the parties recognizing existence of a K is sufficient to establish the K even if the writings don’t otherwise establish a K (Knock-Out Clause)

e) §2-201 – Statute of Frauds

i) (1) – K for $500 or more isn’t enforceable unless written and signed by party or his agent. Written K isn’t insufficient merely because it omits or incorrectly states a term agreed upon, but K is not enforceable beyond the quantity shown in the writing.

ii) (2) – If both parties are merchants, and 1 sends a writing in confirmation of the K within a reasonable time, and the receiver has reason to know of its contents, it satisfies the requirements of (1) unless receiver objects in writing within 10 days

(1) So if sender signed it, receiver need not sign it

f) Gap Fillers: If you forgot a term in the K, Article 2 will fill the gap for you by telling you default rules to use (ex: time/place of delivery, implied warranty of merchantability)

g) §2-202 Parol Evidence: Extrinsic evidence used to prove intent of the parties for the K

i) Parol evidence can’t be used to contradict the clear written intent of the parties if the evidence is a previous written agreement or a contemporaneous oral agreement

ii) However, you can provide written contemporaneous supplemental evidence

h) §2-209 – Modification, Rescission, and Waiver

i) (1) – Agreement modifying K needs no consideration to be binding

· Convention on Contracts for International Sale of Goods (CISG)

a) Applies to different nations that are contracting for the sale of goods

b) Articles 1, 8, and 11 are the only ones we discussed

c) MCC-Marble Ceramic Center v. Ceramica Nuova d’Agostino (K with foreign country)

i) CISC Article 8 doesn’t follow our parol evidence rule for determining intent since it allows all evidence in, even oral evidence and previous written agreements

· Title; Good Faith Purchaser; Buyers in the Ordinary Course of Business

a) Introduction:

i) §2-106(1) Sale: Passing of title from seller to buyer for a price

ii) Title is a person entitled to possess, use or consume, or dispose of goods

(1) A person with title is referred to as the “owner” of the goods

iii) Owner can exclude others from possessing, using, consuming, or disposing the goods; they can allow someone else to possess and use the goods (bailments and leases); they can transfer a limited property interest (security interest)

b) Warranty of Title – Buyers expect good clean title to the goods they purchased

i) Good title can be ruined in 2 ways: sale of stolen goods & sale of encumbered goods

ii) §2-312(1) – In a K, seller warrants that title conveyed is good and without any SI, liens, or encumbrances that buyer doesn’t know about

(1) Comment 1: We give good, clean title so buyer won’t be exposed to lawsuits in order to protect his title

iii) §2-312(2) – Warranty of title can be excluded or modified by specific language in the K or by certain circumstances which give buyer reason to know that the seller doesn’t claim to have title or that he’s selling only the rights that he may have

iv) Colton v. Decker (truck with multiple VINs)

(1) Majority view is that even if buyer received good title, the mere initiation of a colorable challenge (if it’s not a bogus challenge) is sufficient to violate the warranty of title under §2-312, regardless of the outcome

(2) Comment 1 is violated if buyer is exposed to lawsuit over title issue, even if in the end the buyer is found to have good title (colorable challenge created the breach)

c) Good Faith Purchase of Goods

i) GFPV = §1-201(20) (Good Faith) + §1-204 (Value)

ii) Good Title: Title that is good and clear of everything

iii) Voidable Title: Title that can be voided by original owner since someone obtained the property by fraud

iv) §2-403(1) – Purchaser acquires all title that transferor had or had power to transfer; person with voidable title has power to transfer good title to a GFPV

(1) Hypo 1: If thief steals the goods, he never had title to pass to the GFPV

(2) Hypo 2: If jerk fraudulently induced owner to voluntarily deliver goods to jerk, then owner can still rescind the delivery; thus, jerk has voidable title which can be transferred to a GFPV who then receives good title as a bona fide purchaser

v) Kotis v. Nowlin Jewelry, Inc. (watch was obtained with fraud check)

(1) To get good title from a voidable title transfer, you must be acting in good faith

d) “Entrusting” and “Buyers in the Ordinary Course of Business §1-201(9)”

i) Factor’s Acts

(1) Owner who entrusted goods to a factor (agent) for sale took the risk of the factor

nfidence in the product (like airplane), you can revoke acceptance if your loss of confidence was reasonable, with timely notice

i) Carnation Company v. Olivet Egg Ranch (bad chickenfeed)

i) If product breached warranty of quality, you can get consequential damages for lost revenues incurred by the breach

ii) Burden is on P to prove consequential, but burden is on D to prove that P didn’t reasonably attempt to mitigate damages like he was supposed to

· Warranty Disclaimers

a) Implied warranties can be disclaimed by following the formal procedures

b) §2-316 – Exclusion or Modification of Warranties

i) (2) – To exclude/modify merchantability, language must mention “merchantability” & must be conspicuous; to exclude/modify fitness, must be written & conspicuous

ii) (3)(a) – All implied warranties are excluded by expressions like “as is”, “with all faults”, and other common language, unless circumstances indicate otherwise

iii) (3)(b) – If buyer fully examined the goods or was offered chance to, there’s no implied warranty for any defects which examination ought to have revealed to him

iv) (3)(c) – Warranty can also be excluded/modified by course of dealing, course of performance, or usage of trade

c) Parol evidence of oral express warranties can be used if there’s no K clause negating it (the evidence must be consistent with the K clauses)

i) Usually sellers use a Merger Clause to say that all agreements are merged into the K (so no parol evidence of oral express warranties can be admitted)

d) Insurance Co. of North America v. Automatic Sprinkler Corp. (conspicuous clause in K)

i) Must be conspicuous, must mention “merchantability”, and must follow (3)(a)

e) Universal Drilling Co. v. Camay Drilling Co. (drills weren’t operable)

i) When both people are knowledgeable in the field, and K said that P takes goods “as is”, and K says goods are used and there is no guarantee they are fit or even operable, then non-working drills still conforms to the description in the K and P is screwed

· Limitation of Damages

a) §2-719 – Contractual Modification or Limitation of Remedy

i) (1)(a) – K can provide for remedies in addition to or in substitution for the UCC remedies and may limit/alter the measure of damages as by limiting buyer’s remedies to return of the goods and recovery of price, or repair/replacement of goods/parts

ii) (2) – If circumstances cause an exclusive/limited remedy to fail of its essential purpose, aggrieved party can get damages from other sections of UCC

iii) (3) – Consequential damages can be limited/excluded unless it’s unconscionable; limitation of consequential damages for injury to person in consumer goods is prima facie unconscionable, but if it’s commercial goods then it is not

b) Western Industries, Inc. v. Newcor Canada Limited (microwave oven cavities)

i) If good isn’t working, and then seller sends agreement stating that he is disclaiming consequential damages, it is not valid since buyer may never have agreed then

c) Kunststoffwerk Alfred Huber v. R.J. Dick, Inc. (sale of industrial belts)

i) Consequential damages are not disclaimed unless proof party agreed to it

d) Hill v. Gateway 2000, Inc. (Gateway computer is bad; arbitration clause included)

i) Even if a phone salesperson doesn’t read over the long statement terms, as long as they are included in the box, buyer is bound by the terms such as Arbitration Clause

e) Remedial Promises §2-719(1)(a)

i) These are different than warranties (ex: Promise to repair and replace)