Professor Hennigan
COMMERCIAL TRANSACTIONS
Sales Assignments
I.Role and Scope of Codes in Sales System
A. 1-102. Purposes; Rules of Construction; Variation by Agreement.
1. (3) The effect of provisions of this Act may be varied by agreement.
2. Says: parties are not bound by the Code.
B. UCC Default provisions
1. Basic: the UCC provides default terms for rules about price, delivery, etc.
2. Do not apply default provisions in the following situations:
a. K expressly states otherwise;
b. K is silent, but course of performance applies
c. K is silent, but course of dealing applies
d. K is silent, but trade usage applies.
3. Gap Fillers (or default provisions) include:
a. 2-305. Open Price term: goods are assigned a reasonable price at the time for delivery.
i. Reasonable: market price but some say that is not always reasonable.
b. Quantity: no default term b/c there is no reasonable quantity.
c. 2-308. Absence of Specified Place for Delivery
i. (a) the place for delivery of goods is the seller’s place of business or if he has none, his residence; but
ii. (b) in a K for a sale of identified goods which to the knowledge of the parties at the time of K are in some other place, that place is the place is the place for their delivery.
C. Course of Performance, Course of Dealing, Trade Usage
1. Applied when: when present in a transaction, these become incorporated as part of the express agreement.
2. Rule: if you have any of these, then you have an agreement b/t the parties
a. 1-202(3) “Agreement”: means 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 §§ 1-205 and 206. Whether an agreement has legal consequences is determined by the provisions of this Act, if applicable
3. Course of Performance:
a. When it applies: Deals with this particular K.
b. Sequence of conduct b/t parties to a particular transaction that exists if
i. the particular transaction involves repeated occasions for performance by a party; and
ii. the other party, with knowledge of the nature of performance and opportunity to reject it, accepts the performance or acquiesces in it w/o objection.
4. 1-205. (1) Course of Dealing:
a. When it applies: deals with the same parties, but not necessarily the same K.
b. Sequence of conduct involving previous transactions b/t the same parties, that is regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.
5. 1-205. (2) Usage of Trade:
a. When it applies: not necessarily involving the same parties, just same trade.
b. 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 w/respect to the transaction in question.
c. Must prove as facts: the existence and scope
6. 1-205. (4) Rule of construction: the above must be construed as consistent with each other, unless such construction is unreasonable,
7. The hierarchy is as follows: if the construction using more than one would be unreasonable,
i. 1st Express Terms
ii. 2nd Course of Performance
iii.3rd Course of Dealing
iv.4th Usage of Trade
D. Mixed Contracts – K for Goods and Services.
1. Issue: whether UCC governs in situations where a K involves both the provision of services and the supply of goods.
a. Clearly K for services: to hire someone for installation.
b. Less clear: hiring a carpenter to build and install a cabinet.
c. Article says
i. 2-102. Scope: this article applies to transactions in goods
ii. 2-105. (1) “Goods”: means all things (including specially manufactured goods) which are movable at the time of identification to the K for sale other than the money in which the prices is to be paid.
2. Courts are SPLIT on how to decide
a. Predominant Purpose Test:
i. Court must decide whether the predominant purpose of the transaction is for goods or services?
i. If to sell goods: Article 2 applies to entire transaction
ii. If to provide services: Article 2 applies to none of the transaction, not even the goods portion.
ii. NY: lower courts adopted this test, highest court hasn’t spoken
b. The Gravamen of the Action Test:
i. Court must decide whether the source of the complaint is the services or goods portion of the K.
i. If services: then Article 2 is not applicable and only recourse is a negligence action.
ii. If goods: then Article 2 applies to the entire transaction
ii. Why does this matter? b/c what you have to prove to make out these differing claims is different. E.g., different defenses, SOL, etc.
3. Consequence of Service K: Article 2 does not govern, and sellers need not disclaim warranty of merchantability.
E. 2-201. Statute of Frauds
1. When it applies:
a. K for the sale of goods
b. $500 or more
2. Requirements for compliance:
a. Must be some writing
b. Sufficient to indicate a K has been made
c. Signed by the person against whom enforcement is sought or his agent.
3. (2) Exception:
a. K b/t merchants
i. 2-104. (1) “Merchant”: means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.
b. If w/in a reasonable time
c. A written confirmation of the K is sent
d. The receiving party has reason to know of its contents
e. The receiving party does not send written notice of objection w/in 10 days of receipt
F. Problem Set 1
1. 1.1: Your firm specializes in extensive international practice, and receives a call from the Minister of Commerce of a formerly communist country now attempting to convert to a free-market economy. This foreign official would like your firm to serve as a consultant on the issue of whether his country should adopt a commercial code. He would like the firm to consider the following questions:
a. What are the benefits that his country’s economy can gain from enacting a commercial code as opposed to letting private agreements handle the details of all commercial dealings?
i. Having a commercial code may help set expectations and understandings that would foster the development of consensual commercial relations;
ii. gives people a baseline;
iii.parties can rely on the boilerplate provisions that the Code provides, but they are not bound by it if they chose to contract around it.
b. For which subject (e.g., price, quantity, place of delivery) should the code include gap fillers?
i. Policy of gap fillers: intended to foster transaction b/t parties by supplying terms that they would likely select if they don’t specifically do so in their K.
ii. Price: UCC 2-205: reasonable price
i. Hennigan says: reasonable price is the market price
iii.Quantity?
i. No b/c too difficult to know what the parties would be likely to select.
ii. May be used to define quantity terms
1. Ragus v. City of Chicago: Ragus contracted to supply the city w/quantity of rodent traps. K called for (1) 150 cases of 5.5 x 11 with 24 per case; and (2) 75 cases of 11 x 11 with 12 per case. Ragus tried to deliver this as defined in the K.
a. City rejected: saying that it meant “pair”
es, then it says that if you are a merchant dealing in goods of that kind, then implied warranty of merchantability applies.
i. UCC 2-314. Implied Warranty of Merchantability. (1) Unless excluded or modified, a warranty that the goods shall be merchantable is implied in a K for their sale if the seller is a merchant w/respect to goods of that kind.
ii. If not goods: then Article 2 does not apply – STOP! Need not disclaim implied warranty of merchantability.
i. Note: this is bad for customers!
c. Apply the 2 tests
i. Predominant Purpose test: here the customers are paying 3 times the price b/c they are custom lenses so they are really paying for the services.
i. Result: since this is probably a service K, need not disclaim.
ii. Gravamen of the Injury test: 2 possible types of complaints here
i. Complaint about goods: they could complaint that the lenses are defective, or don’t conform to their prescription.
1. Result: patient has an Art. 2 claim b/c the complaint has to do with the goods, and the Partner should disclaim the warranty.
ii. Complaint about services: patient could complain about the performance of the optometrist.
1. Result: this would be a services matter and need not disclaim.
4. 1.6: Deborah is a lawyer friend, drunk and bragging about her collection of used Rolls Royces. By the end of the night she agreed to sell you the one she drove that night, a 1983 model, for just $8,000. The deal was you were to bring her a check and pick up the car at her house at the end of the month. 1 day later, just to be safe, you send Deborah a certified letter that describes the terms of the bargain struck. Deborah did not object or otherwise acknowledge the letter. 20 days after the reunion, you went to Deborah’s house w/a certified check for $8,000. Deborah told you the car was worth at least $15,000 and you would have to take her to court to enforce the oral K. Will you succeed?
a. Deborah’s defense? The Statute of Frauds
b. Statute of Frauds applies: b/c this is a K for the sale of goods more than $500.
c. Exception in 2-201(2) but: must be a K b/t merchants
i. 2-104. (1) “Merchant”: means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.
ii. 2-104. (3) “Between merchants”: means in any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants.
iii.Comment 2 to 2-104: for a lawyer to be considered a merchant, must be acting in a mercantile capacity, not a personal capacity.
iv.Applied
i. Is Deborah a merchant of cars? NO
ii. Does Deborah hold herself out as having knowledge or skill w/respect to cars? NO
Answer: Deborah will not be hooked on 2-201(2) exception b/c
