Sales & Leases Outline

Sales, Leases, & Licenses
 
chapter 1 – formation
assignment 1: the role and scope of codes in sales systems
a. fundamental aspects of sales
Ø      Sale systems = all of the people, institutions, laws, and practices that are involved in transfers of ownership for a price.
Ø      Four functions of sales systems that facilitate the transfer of ownership from seller to buyer:
1)    Formation – bring buyers and sellers together and enable them to create legally enforceable transfers of ownership.
2)    Terms – provide a set of standard terms that govern the transfer of ownership UNLESS the buyer and seller choose to modify the standard terms. Often, this gap-filling function is performed by code, like the UCC.
3)    Performance – provide a set of delivery institutions that facilitate the possessory, legal, and symbolic transfer from seller to buyer.
4)    Remedies – enforce agreements to transfer ownership by giving the aggrieved buyer or seller various remedies for breach by the other.
B. functions of a code in sales systems
Ø      Jean manufacturer and clothing store pg 5
o        The trans for an order of jeans that came w/ broken zippers was a sale of goods and therefore was covered by the UCC. The Jean manufacturer is considered a merchant under the UCC and thus a warranty of merchantability was made to the clothing store whether intended or not.
o        That warranty included, among other things, a promise that the jeans would be fit for their ordinary purpose, and jeans w/ broken zippers are not fit. Thus, under the UCC, the jean manufacturer would have been obligated in any event to repair or replace the jeans.
Ø      Reasons to make a buyer whole in the absence of UCC:
1)    Ethically proper thing to do
2)    Want return business from the new customer
3)    Do not want a disappointed customer b/c the customer may have connections in the industry
4)    The C/L might infer in this sales K something comparable to the warranty of merchantability
Ø      The code plays an important role in sales system = gap filling.
1)    Look at: terms of K à COD à COP à TU à UCC default rules à C/L to add to K à gap fillers
Ø      C/L plays at least three roles in law-related sales systems:
1)    can help define terms that he UCC has left undefined.
2)    some UCC sections and Comments make it clear that the UCC provision in question is NOT intended to affect certain related C/L doctrines. Thus, parties must still look to the C/L to define the parameters of that related doctrine.
3)    some C/L doctrines are NEVER referred to explicitly in UCC sections or Comments but those doctrines continue to operate side by side w/ Code provisions. Examples:
§         mitigation of damages
§         frustration of purpose for a buyer
§         tort theories like intentional interference w/ K
c. scope of article 2
Ø      Two industries that don’t use Article 2:
o        diamond – unique in its ability to create and enforce its own system of private law
o        grain – Article 2 emphasizes the importance of cts enforcing course of performance or course of dealing – that is the actual practices used by the disputing parties before the relationship broke down – when faced w/ a sales dispute. By contrast, the grain industry does NOT explore the actual practices b/t two contracting parties b/c they do NOT necessarily want courts to apply the Code’s usage of trade, course of dealing, and course of performance norms to resolve end-game disputes.
Ø      Two of the most common grounds for parties’ fights about whether or not Article 2 applies to their transaction:
o        Warranty theory – P wants Article 2 coverage b/c the prima facie case is fairly easy to prove as contrasted w/ a tort suit in negligence – a warranty suit merely requires proof that the warranty existed, causation, and damages; whereas w/ a tort claim also must show lack of due care.
§         Note: if the suit is for breach of implied warranty of merchantability, then the issue of warranty existence is as simple as demonstrating that this was a sale of goods and the seller was a merchant in goods of the kind.
o        Statute of limitations – P wants the transaction deemed outside the scope of Article 2 b/c UCC §2-275(1) gives P four years to commence an action for breach of sales of K, measured from the time when the cause of action accrued, whether or not the P was aware of it! Whereas many state statutes of limitations for general K actions, do NOT begin running UNTIL the P actually discovers or should have discovered the breach.
Ø      Four ways the UCC gap filler will be superseded – ALWAYS check these four pieces first, then go to UCC:
1)    Effect to private agreement – UCC §1-302(a) – makes it clear that the Code drafters desired first and foremost to give effect to private agreements, at least to the extent that those agreements are w/in the limits of good faith and commercial reasonableness.
2)    Course of performance – UCC §1-303(a) – even where the parties’ written K is silent on a particular matter, the parties’ repeated occasions for performance w/in that K may establish an agreement by implication.
3)    Course of dealing – UCC §1-303(b) – where parties’ past dealings w/ one another have established a particular way that the parties do business w/ one another, that history may establish by implication certain standard terms b/t the parties.
4)    Usage of trade – UCC §1-303(c) – if there is a custom in a particular industry concerning a performance term, that custom will prevail over the UCC gap filler whenever the two are inconsistent.
Ø      UCC §1-303(e) contains a hierarchy among the above rules: 
o        Express terms control both course of dealing and usage of trade,
o        COP – Course of performance controls over COD and TU, AND
o        COD – Course of dealing controls usage of trade.
o        Note: whenever it is reasonable, we should seek to construe the express terms of an agreement as consistent w/ course of dealing or usage of trade.
Ragus Co. v. City of Chicago pg. 10
Ø      This case is an example of where it was reasonable to construe the express terms