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Commercial Transactions
St. Johns University School of Law
Hennigan, John

COMMERCIAL TRANSACTIONS
Professor Henningan
Spring 2002

INTRODUCTION

Uniform Commercial Code (UCC)
§ Functions as a gap filler to facilitate sales Ks
§ Article I General Provisions applies across the board in all transactions
§ Article II only governs the sales of personal property
§ §1-103: Supplementary General Principles Of Law Applicable
o If no provision of the Code addresses a problem such as a sale of goods K, then look to case law
o “unless displaced by a particular provision”
§ §1-201: General Definitions
o Agreement: the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing, or usage of trade or course of performance as provided in this act.

Issues:
§ BEWARE of K’s combining goods and services
o Cabinets installed and subsequently fall apart: suing on a sales issue or negligence theory
o TESTS (courts differ)
§ Predominant purpose (OR)
§ What is the heart of the claim
§ NY has not taken a position on this
§ Article 2A applies to leases
o BEWARE of sales disguised as leases and vice versa
§ If parties agree to lease for a period of time and there is an option to buy; it’s not really a lease because you would be crazy not to buy
§ Domestic sales are governed by the UCC; International sales are governed by CISG

CHAPTER 1: FORMATION
ASSIGNMENT 1: The role and scope of Codes in sales systems

§ Seller is going to want to develop a reputation for goods (predominant reason behind sales is therefore not law)
§ Role of the law is to step in when something has gone wrong between the buyer and the seller
o Buyer is entitled to merchantable goods: not perfect; there is some tolerance for things not to be entirely right

Benefits of a Commercial Code
§ Default rules §1-102(3): gap filler will not apply to a particular term if specified in the contract as long as within limits of good faith and commercial reasonableness
o Direct cost savings when lawyers are not involved
o Lower cost is a way to establish predictability and encourage people from entering into Ks
o When default rules are set ask: what would have the parties wanted
o Quantity would be the hardest gap to fill
§ §2-305 Open Price Term
o price: reasonable price at the time for delivery
§ law makes it possible to conclude a sales K
§ bias of UCC is to promote a K in favor of people being free to K

PROBLEM 1.2
A K for 5 shipments with delivery place not stated in the K:
§ Gap-filler used only where parties have not agreed otherwise
§ §2-308 Absence of Specified Place for Delivery
o unless otherwise agreed, the place of delivery is the seller’s place of business
o concept of agreement encompasses course of performance
§ §1-205 Course of Dealing
o sequence of previous conduct between the parties
o exhibited but different Ks
§ §1-205 Usage of Trade
o any practice or method that will justify an expectation that it will be observed with respect to the transaction in question
o custom in industry
§ §2-208 Course of Performance
o repeated occasions for performance
o exhibited but not expressed
§ HIERARCHY: arranged according to those closest to parties intention
o Express terms control
o Course of performance
o Course of dealing
o Usage of Trade
§ SUMMARY: with a short form K, it is okay to just agree on quantity and everything else can be a gap filler where necessary

PROBLEM 1.3
Optometrists: Contact lenses which cost 3-4 times as much; contemplating a K that would disclaim all UCC warranties
§ §2-314: Implied warranty: merchantability
§ §2-315: Implied warranty: fitness for a particular purpose
§ Under Article 2, these warranties are subject to being disclaimed
§ BUT if deemed a service, can not K out of negligence
§ TEST (neither test is self applying)
o Predominant Purpose Test: the price is 3 or 4 times that of the ordinary price
§ Under this test, given the facts, it is likely to be a services K because of the difference in prices.
o Gravaman of the complaint: look to the complaint itself
§ Solution: facts may prevail under predominant purpose test and be excluded from the UCC as a service (OR)
o Keep warranty in place but limit damages
§ Consequential damages
§ Federal warranty: federal law can cut down the possibilities with consumer products as to disclaiming.

PROBLEM 1.4
Oral agreement to sell Rolls Royce and prospective buyer sent letter of confirmation to the seller regarding their oral agreement.
§ K for the sales of goods → governed by the UCC
§ GENERAL RULE §2-201 (1): K for the sale of goods for the price of $500 or more must be committed to writing and signed by the party against whom enforcement is sought (except as otherwise provided in this §)
§ EXCEPTION (2): between merchants . . . a writing in conformation of the K and sufficient against the sender is received and reason to know its contents
o §2-104: definition of a merchant: a person who deals in goods of the kind or holds himself out as having knowledge or skill peculiar to the practice or goods involved in the transaction
o BEWARE: look to see if it is a sale in the capacity of dealing in goods of that kind. For example transactions involvi

ditor with no right to take property back as the lessor.
o The lessor really has a security interest and must file public notice with that financing statement (Article 9).
§ To solve seller’s problem: he wants to ensure no returns and true leases
o Structure K so buyer gets credit on rental payments for that piano and any other piano in showroom. This breaks the certainty of the property being owned by lessee.
o With the facts being as they are, seller needs to be advised that he is really selling and not leasing.

PROBLEM 1.6
§1-201(37)(a) says that a transaction is not a disguised sale just because the lessee is obligated to make lease payments that have a present value equal or greater than the FMV of the goods. This seems like a sale or why else would lessee enter into a K with such terms in the first place?
§ Sometimes there are accounting or tax benefits
§ Pay enough of the premium to get the benefits

PROBLEM 1.7
CISG: Buyer in NY, Seller in MI but the goods are manufactured in MX. Buyer orders two chairs one for the office and one for an apartment.
§ The purpose of this hypo is to let us know CISG is there and that its provisions are different than the UCC.
§ Mixed K but presume it’s a K for sale of goods
§ Article 1: Convention applies to Ks of sale of goods between parties
§ Article 10: Place of business is that which has the closets relationship to the K and its performance
o Here, by definition it would be Mexico.
§ Article 2 does not apply for goods bought for personal purposes. (So one of the chairs would not fall under article 2)
§ Article 3 (2) CISG is N/A to K where the preponderant part of the obligations of the party who furnishes the goods consists of labor or services

PROBLEM 1.8
(a) sale of 1846 farmhouse to be severed from the land: Article 2 of the UCC applies if the severance is done by the seller
(b) the 1846 farmhouse (to remain attached to the land) plus all of the land: house sold with land is not within article 2 of UCC
(c) six bushels of apples to be picked from trees on the land: will be an article 2 sale within the UCC