Harris – Temple University
From Contract Formation on (§2-204) all italicized writing is comprised of my commentary to the UCC Rules
Brief intro the UCC
The code was created by NCCUSL (National Conference of Commissioners on Uniform State Laws – now called the Uniform Law Commission) and ALI
Keep in mind that in the context of the cases the UCC is not law, but is a model of law that is to be adopted by the states
Therefore the states are allowed to alter if they wish; however, at least the vast majority have adopted with little or no changes so the study of the general UCC is effective in most situations.
Falling within the scope of the UCC is important in applicable transactions because it envokes modifications to the common law (variations on the SOF, PER, modification, agreement BOF) and imputes gap fillers by adding warranties and the like.
§1-103 Gives us the general principals of the UCC.
Policies of the UCC and Supplemental Principles of Law (§1-103)
Construed liberally, promote purposes and policies.
(1)Simplify, modernize, clarify contract law.
(2)Expansion of contract through custom, usage, and agreement of parties.
(3)Uniform law across jurisdictions.
Unless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, promissory estoppel, fraud, misrepresentation, duress, coercion, mistake, and bankruptcy shall supplement its provisions.
Article 2 displaces “other law that is inconsistent with the purposes and policies of the UCC, as well as with its text”-
The UCC preempts principles of common law and equity that are inconsistent with either its provisions or its 3
purposes and policies (common law supplements but does not supplant).
Ex. Formation principals §2-204-§2-207
Comments are neither statutory text nor legislative history (written after the Code text by that adopting state, so they by default carry the most weight), but 1-103 requires us to look at the “purposes and policies,” presumably laid out in the “official” comments, and judges have consistently relied on the comments in formulating their opinions
Comment Note: If Article 2 has not supplanted common law contracts, then use common law contracts laws to supplement the Code.
§1-201 – Contains definitions that are applicable to the entire UCC
The Scope of Article 2
This section would represent the obligatory first step in addressing any problem, determining whether or not object of the sale falls within the scope of Article II.
Harris notes that there are four principal factors that an attorney should consider when determining what law applies to a contract:
(1) The type of property or other subject matter of the transaction (e.g., goods, real estate, services, intellectual property, accounts receivable);
(2) the nature or extent of the rights being transferred (e.g., a sale, lease, license, lien, bailment, gift);
(3) the location of the parties to the transaction; and
(4) what, if anything, the parties’ agreement says about governing law.”
These are preliminary questions that will help us determine if we are going to fall into the UCC, the key consideration for us in most situations will be what the subject matter of the transaction is.
Is the subject of the transaction goods?
Is this a hybrid transaction combining goods and services?
§2-102 – Defines the Scope of Article 2 (Notes in title that Certain Security and other transactions are excluded from the section)
Unless the context otherwise requires, this Article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.
NOTE: Article 2 applies specifically to sales. Leases are not covered in this section, but rather are covered in Article 2A.
This Article shall be known and may be cited as Uniform Commercial Code – Sales.” UCC § 2-101; see also Comments.
This is just re-affirming that although “transactions” goes further than sales, that is all that really applies in this section.
How do we define goods, looks to definitions §2-105:
“Goods” means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action.
Irrelevant whether the good is microscopic, liquid, gas, etc. – they are still moveable
Is a utility (power/water) considered a good? This is hard to say as they are movable at the time of identification, but certainly is not a concrete as other items
In general public policy, likely in terms of special regulation of these goods has led them not to be classified as goods.
What about future goods (§2-105)
A future good is not both existing and identified. The sale of future goods is covered within section 2 and operates as a contract to sell.
Revised section two explicitly says that these goods are covered.
How do we deal with the sale of money?
This falls under the traditional definition of goods most likely
Is this money in which the price is to be paid? No, the money is the object of the transaction.
This is not a transaction where the price is to be paid, rather think of this as a commodity sought
Comment tells us that When foreign currency is being treated as a commodity, it is the subject matter of a sales transaction.
Electronic funds transfers do not apply
Note the example that involved purchasing Yen through an investment banker. This does not apply
What are things in action
These are explicitly exclude by the section and refer to
Rights to sue
§2-207 Covers goods to be severed from Realty. Depending on the type of good it might matter if severed by seller or buyer.
A contract for the sale of
Applies only if they are to be severed by the SELLER.
Until severance the contract is only effective as a contract to sell
This makes little difference because a contract to sell is equally effective, right?
Note that any of these items sold as already severed commodities are goods, this is in compliance with severance by the seller, but not directly related.
Other things not mentioned above (minerals, oil, etc.) like:
Other things that can be severed from the land without being materially harmed.
Are sales of goods REGARDLESS of whether the seller of buyer is doing the severing.
Note that the unborn young of animals are goods. §2-105
These are goods
There would seem to be strong argument that this is just a much a goods as the book
However there is argument on behalf of the music industry that it is not a good
Not a good UCITA would apply
Word processing software
With software, is it really the movable good, the CD, that you’re buying. Or are you really buying the license to use the software. Most courts seem to say that you are just buying the license to use the software.
NOTE: The amended definition excludes information from Article 2, this would seemingly excludes software, and is a major point of contention.
We can run into issues in determining if something should fall under the UCC in a couple hybrid situations, the most common of which are
Combination of Goods and Services
Smart Goods – Combinations of the Good and Software (ex. Smartphone, Computer)
Note that even if Art. II applies there will be some IP licensing stuff that will apply in conjunction.
When dealing with either of these we apply one of two tests:
Predominant Purpose Test (majority)
Consider whether the goods portion or the services predominate the purpose of the contract. Some helpful factors in determining this:
Look at the contract language
Looking for the word goods
Something that might make us lean on way or the other
Mention of services or warranties, services an incidental or collateral
Nature of supplier’s business
Value of materials vs. the value of the services/warranties
This is considered by many courts to be the most important factor.
NOTE: that when DESIGN makes up a considerable portion of the services rendered most court have not trouble chalking this under Art. II, because “specially manufactured goods” are expressly defined in §2-105.
Problematic items tend to be
Gravamen of the Claim Test (minority)
Does the claim resulting from the contract apply to the goods or the services
Services then common law
If goods then II applies to all
The court stress that the goods had to be supplied under a commercial transaction, rather than a contract for professional services, and had to retain their character after completion of the performance promised.
Problem with the gravamen is that you don’t know what law is going to govern the claim until the claim is actually brought.
IMPORTANT: Under both tests if it is found that Article II applies to a hybrid transaction then it will apply to everything contained within the contract.
However, there seems to be at least some courts that will separate and apply as such (Sheehan approach)
§2-501 tells us what identified at the time of the contract means (identification doesn’t really play too much of a role though, at least here.)
essentially its is saying that identification is picking out the particular goods that are subject to the contract, this invokes certain property interests in the buyer.
Identification can occur at any time by an explicit agreement between the parties involved, or in the absence of an agreement occurs either:
When the contract is made if it is for the sale of goods already existing and identified
if the contract is for the sale of future goods other than those described in paragraph (c), when goods are shipped, marked or otherwise designated by the seller as goods to which the contract refers;
when the crops are planted or otherwise become growing crops or the young are conceived if the contract is for the sale of unborn young to be born within twelve months after contracting or for the sale of crops to be harvested within twelve months or the next normal harvest season after contracting whichever is longer.
Article II’s Interaction With the Common Law and State Statues
As noted by §1-103 – the common law remains in full effect and works in conjunction with Article II, UNLESS one of II’s principles is in conflict with a common law rule. Then Art. II supersedes.
With relation to State Regulations on Sales, per §2-102: “. . . this Article [does not] impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.”
Keep in mind that the UCC is going to be adopted by the state as state law, so it is theoretically on equal footing as other state laws.
The state statute may effectively
Remove something that would otherwise be considered a good from the coverage of Art. II by declaring the good a service or perhaps just plain removal
Statute may remove a certain gap filler of provision of the UCC in a certain situation
Lease or a Sale
Per §2A-103(1)(j) – A lease is “a transfer of the right to possession and use of goods for a term in return for consideration, but a sale or retention of a security interest is not a lease.”
Difference between SALES and LEASES
In sale the title actually passes
In a lease the title always remains with the lessor.
Difference between a LEASE and a SECURITY INTEREST
Look to unrevised §1-201(37) second full para
Whether a transaction creates a lease or security interest is determined by the facts of each case
However, a transaction creates a security interest
if the consideration the lessee
aluate the nominal nature at the time that the payment comes up? Is this right, it seems like it would be difficult toe work this in practice. Maybe it is all just evaluated at the time of the initial sale/lease.
If you can return it at any time we don’t have a presumptive security interest. If you don’t have a presumptive security interest then you need to evaluate based on the economic realities.
The next step in the analysis requires determining whether or not an agreement as formed.
The book wants us to note the difference between as defined in §1-102
Agreement – the bargain of the parties in fact, typically evidenced by the communications of the parties
Book notes that the construction terms of Rev. §1-303 also form the agreement
Cmt. Note that whether an agreement has legal consequesnce is determine by applicable provisions of the UCC and, to the extent provided in §1-103, the common law of contracts.
Contract – the parties legal obligations resulting from the agreement.
Basically this is the agreement filtered through the UCC and the common law
It often times is more than the agreement is
Adding warranties and other gap fillers
May be less (SOF, PER)
Note that both of these definitions are broader than the common law definition of a contract:
Promise of a set of promises for the breach of which the law gives a remedy
UCC Contract Formation is covered by §§2-204 to 2-207; UCC §1-103
We note the potential importance of common law principals as the rules regarding formation are not complete and where the rules don’t define the law and the common law is not in conflict with the UCC, the common law still governs.
§ 2-204 – Formation in General.
(1) A contract for sale of goods may be made in any manner (oral, written, other- cmt.1) sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
This removes the strict necessities of formal offer and acceptance that were required under the common law
In evaluating whether the parties have reached an agreement under this section there is some interplay with section (3) below in the sense that
The more terms that are left open the less likely that the parties actually intended to reach an agreement
(2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
This term seems relatively worthless
(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
This sub-section is a very important deviation from the common law allowing open terms, like open price. These terms will be filled by gap fillers which will be discussed later. All that matters is that that under subsection one, there is conduct that is sufficient to show agreement.
§ 2-205 – Firm Offers
An offer by a merchant to buy or sell goods in a signed writing which by its terms give assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.
NOTE: This section does not define what an offer is, it leaves that to the common law. I seem to recall something about an obj. std.
If all of the Requirements Under this Section are met the Offer is NON-REVOCABLE during the time stated or a reasonable time NOT TO EXCEED THREE MONTHS.
Requirements (are underlined in the rule above)
There offeror is a merchant
See §2-104 – As noted in the comments this is the more lenient type of merchant (merchant for business – as opposed to for goods as required for warranties – pretty much everyone in a business setting will qualify for this more lenient version of merchant (“practice merchant’) as noted in comment 2 for the definition.
Note that this merchant definition applies to all of the contract formation items, SOF, and modification
Note that we have some pretty lenient definitions of a signed writing under §1-201(39) – “Signed” includes any symbol executed or adopted by a party with present intention to authenticate a writing.
Cmt. – The inclusion of authentication in the definition of “signed” is to make clear that as the term is used in this Act a complete signature is not necessary.
Authentication may be:
printed, (stamped or written)
It may be on any part of the document
Will be sufficient that the statement is on an official billhead or letterhead
The court must use common sense and commercial experience in passing upon these matters