Commercial Trans Outline
ADAMS, KIRSTEN D.
Fall 2012
CHAPTER 1
I. SCOPE OF THE COURSE – “The willing suspension of disbelief” –
Sales – Chapters 2-6 (6 talks about Bulk Sales)
Payment Systems Law – Chapters 7-11
Debit and Credit Cards – Chapter 12
Law of Secured Transactions – Chapters 13-17
II. OVERVIEW OF THE UCC AND GUIDE TO ITS USE:
Article I: General Provisions, containing definitions and general terms that aid the reader in applying the Code’s substantive provisions.
Article II: Sales, Transactions in goods. Describes the different types of sales, and the basics and parts and steps of each type of sale.
Article II-A: Leases
Article III: Negotiable Instruments, drafts, promissory notes, checks, and payment systems.
Article IV: Bank Deposits and Collections, Credit cards and Debit Cards (governs these transactions once the bank gets involved, whereas Article III governs before banks get involved)
Article IV-A: Funds Transfers, wholesale wire transfers (WE WILL NOT COVER)
Article V: Letters of Credit, allowing a seller to secure payment from unfamiliar purchaser and guarantees payment through a third party.
Article VI: Bulk Sales, requiring certain purchases through bulk sales to provide the seller’s creditors w/notice before sale takes place. This has largely been taken over by Article IX.
Article VII: Documents of Title, law of bailment. Establishes a standard means of establishing rights in goods either in storage or being transferred from one location to another. Example: UPS document of title for shipment.
Article VIII: Investment Securities, only article that has been considered to be somewhat of a failure. The UCC went in one direction, and the law went in another here.
Article IX: Secured Transactions, primary source of law governing sales, loans and other credit agreements made with collateral. Ex: if you buy a car on credit and you use the car itself as Collateral for the loan.
III. CHAPTER 1 (Questions start here)
a. STORY OF UCC – Text published in 1952. UCC is the product of 2 orgs (ALI and NCCUSL) National Conference of Commissioners on Uniform state Laws (NCCUSL) and the American Law Institute (ALI), both private organizations. NCCUSL is now called the ULC (Uniform Law Commission). Both organizations are private and have no law making authority. This code was not written on a clean slate, the writers took the “good” stuff from the pre-existing codes.
i. Law Merchant: Taking the successful laws of merchant law and combining to create one uniform successful law.
ii. Revising the UCC: Every time there is a proposed revision, the writers have to convince all 50 jurisdictions to enact the new article.
iii. The code has its own way of revising itself 1-103:
The UCC must be liberally construed and applied to permit its policies. The UCC is drawn to provide flexibility, it will provide its own machinery for the expansion of commercial practices.
iv. Not law until it is adopted by state legislature. The purpose is uniformity.
v. ALI: The purpose and objective of the society are educational and are to promote the clarification and simplification of law and its better adaptation to social needs, to secure the better administration of justice and to encourage and carry on scholarly and scientific legal work. Mbrs are chosen through an internal application. More ex-officio mbrs too.
vi. NCCUSL: It is the purpose of the Conference to promote uniformity in the law among the several states on subjects as to which uniformity is desirable and practicable. Mbrs are handpicked by the governors of each state.
b. PURPOSE AND PHILOSOPHY OF UCC – The code was drafted to avoid the complexity, obsolescence, and divergent interpretations of prior uniform laws in the commercial field. 1-103(a).
i. Realism: Associated with the belief that judges can be trusted to make the right decision, even if they cannot explain in a straight-line way, how they got to that decision. Karl Llewellyn – central to realism movement and advocate for Relationship Preserving Norms. Relationship Preserving Norms: Even when clear and well developed may be quit different than the terms agreed upon in written contracts. These are ok to use in internal, informal dispute resolution, but should be left out of litigation because of the difference in the contract terms and what RPN’s may be applied.
ii. Civility of the code: Under the law of contracts, almost never will punitive damages be awarded, instead contract law, is all about keeping the relationship gong and keeping business moving forward.
c. OTHER SOURCES OF COMMERCIAL LAW – Federal law: when you see it in the course, you can almost always bet it is there to enforce a higher law, superseding the UCC. UCC does not apply to commercial realty nor to security interests therein, nor does it apply to the formation, performance, and enforcement of insurance contracts.
d. INTERNATIONAL COMMERCIAL LAW – America’s Top Partners in International Trade: Canada, China, France, Germany, Japan, Malaysia, Mexico, South Korea, Taiwan, United Kingdom.
f. ARTICLE I: There is no such thing as an article I transaction. This is just a helper article, with a lot of basic information to help the reader understand. Part a is more liberal application, while b is more specific. This can be interpreted to mean, start with A, if the language of the code applies to the transaction. Ask yourself “is this within the code’s jurisdiction?” if it is, read it expansively and do not assume there are parts left out. Part B says, if it does not fit, do not assume it was left out, but maybe look to the scope provisions of the other articles to see if the transaction falls w/in that article.
i. Scope – article applies to a transaction if it is governed by another article w/in the code.
ii. Definitions – 1-201 provides a laundry list of definitions but other article sections may have their own definition of a word. If that is the case, then use the definition of the word found in the applicable article instead.
iii. Choice of law – so controversial that states did not adopt it. This is based on policy reasons. State policy is to protect itself and its citizens. If citizens can K away choice of law then state looses its police power.
g. DEFAULT TERMS – Parties can contract around many UCC standards if they so desire and agreed upon how the parties decide. Exceptions do exist. Things like obligations of good faith, diligence, reasonableness and care, cannot be contracted away. 1-302
CHAPTER 2
I. INTRODUCTION TO THE SALES UNIT
II. SCOPE OF ARTICLE 2: Article II applies to transactions in goods; it does not apply to any transaction which create a security interest, nor does it impair or repeal any statute regulating sales to consumer, farmers or other specified classes of buyers.
a. SALES AND LEASES: A common characteristic of both a secured sale and a lease is the right to repossess.
Lease: A transfer of the right to possess goods. A security interest creates a right of ownership in another party.
Ordinary sale: Involves the transfer of title and no residual interest remaining in the party that sold the good.
Security Interest: Getting a car and using the car as collateral on the loan. If you default on the note, then the creditor has the right to repossess.
Ordinary Sale: Paid for car outright w/a check and the check bounces- there is no outright, rights to the car by creditor and creditor only has general rights associated with a breach of contract.
A Lease that Amounts to a Secured Sale Which Creates a SI – Subject to Articles 2 and 9. A transaction in the form of a lease creates a security interest, thus a secured sale IF: 1. there is consideration, 2. the lessee is to pay and that payment constitutes an obligation for the term of the lease AND 3. Lessee does NOT have the option to terminate (termination right should be only in hands of lessor), and 4. one or more of the following apply:
(Dispositive Factors Below) 1-203(b)
1. The original term is equal to or greater than the economic life of the goods.
2. Lessee is bound to renew the lease for remaining economic life of the goods, or bound to become the new owner of goods.
3. Lessee has an option to renew the lease for remaining economic life of goods for no additional consideration or for nominal additional consideration upon compliance w/lease agreement, or
4. The lessee has an option to become the owner of goods for no additional consideration or for nominal additional consideration upon compliance w/the lease agreement.
Other factors Non-Dispositive 1-203(c): A transaction in the form of a lease does NOT create a security interest merely because:
1. The present value of consideration the lessee is obligated to pay for right to possession and use of goods is subs
consider include the language of the contract, the business of supplier and intrinsic worth of goods involved.
Conclusion: Feed was made by grinding corn and mixing medicines, additives made up 14 percent of feed, farmers charged for all components except the corn and they are charged for the grinding and mixing and delivery. The transaction was for the sale of goods.
b. POLICY-ORIENTED APPROACH: not commonly used. But when used, its used where it is difficult to prove negligence, or where there is loss shifting, risk distribution, consumer reliance (all which underlie strict liability in tort). If a good in connection with a service is defective/causes injury and one may use the good on oneself and is able to submit an action in warranty or strict liability in tort against the manufacturer-seller of the product then an injury suffered from such a product even though connected w/a provided service is considered a good sufficient enough to fall within the UCC.
Explanation: Some goods are not in the control (either for manufacture/design/etc) of the service provider. To hold that the service provider exchanged a good would open up the flood gates to claims against a strict service providing transaction. This test doesn’t give any certainty b/c there is no way to predict what a court will actually do.
Salon Service Permanent Wave Issue Discussed In Class – A court might try to apply this test in situations where it would be difficult for the claimant to prove negligence.
c. GRAVAMEN OF THE COMPLAINT TEST: What is your complaint? Focuses on the injury and harm. Focuses on whether the gravamen of the action involves goods or services. Where monetary loss or personal injury is claimed to have resulted from a defect in the consumer goods.
Anthony Pools v. Sheehan (Pg. 2-7):
Case Facts: Injuries from falling from the side of a diving board in plaintiff’s new pool built by defendant. Skid resistant material did not extend to the edges of the board.
Rule: Gravamen of the Complaint Test
Conclusion: Diving board sold to plaintiffs as part of pool construction carried an implied warranty of merchantability.
i. Professional services – do not fall w/in article 2 and no implied warranties apply. However, courts are more willing to apply express warranties of quality where an express warranty is provided by the professional. (Harry Hand Case). The test for the scope of express warranty is no more than and no less than exactly what has been promised.
ii. Food: used to not be considered a good but modern law has determined that food is considered an Art 2 “good”
Nisky v. Childs Co.: (pg. 2-12) –old approach to food being determined “not a good” thus not article 2. Antiquated law.
Case Facts: Woman became ill after eating fried oyster dish.
Rule: While food served constitutes and essential part of the meal transaction, serving it cannot be regarded as a sale of goods.
Conclusion: The meal purchase was not a sale of goods.
iii. Computer information: Art 2 governs all computer information/software and it also covers sales of good over the internet. Current UCC give no guidance as to whether information should be included w/in Article 2. It is easy to see how article 2 applies to Computer accessories but more difficult to apply article 2 to include computer information and software.
