A. Intro to the Course
1. Background to the UCC
a. In the early-20th C Am law was rule oriented. Legal realism changed that with the belief that diff facts should yield diff results and the movement away from abstract rules. The UCC was the brainchild of Carl Llewelyn, the father of the legal realist movement. The UCC is thus very particular to facts. Title (abstract) was the crux of the law of sales b4 the UCC. Now it’s CoD, CoP and UoT (more fact-oriented).
b. § 1-102—UCC shall be liberally construed.
c. § 1-203—Parties to a K must act in good faith in performance/ enforceM.
2. Functions of Sales Systems
a. Formulation: Sales systems help Bs and Ss create legally enforceable ownership xfers.
b. Terms: Sales systems provide a set of stnd terms unless B and S choose to modify them.
c. Performance: Sales systems provide a set of delivery institutions that facilitate the possessory, legal and symbolic xfer from S to B.
d. Remedies: Sales systems enforce agreeMs to transfer ownership by giving the aggrieved buyer or seller various remedies for breach by the other.
B. The Role and Scope of Codes
1. The UCC is a Gap-Filler!
Express Termsà Implied Terms (CoPàCoDàUoT)à UCCà CL
a. Express terms trump all.
b. Implied terms trump UCC and CL
i. § 2-208(1)/R1-303(a) = CoP
ii. § 1-205(1) and (3)/R1-303(b) = CoD
iii. § 1-205(2) and (3)/R1-303(c) = UoT
c. The UCC fills gaps since parties to a sales agreeM cannot think of every contingency in advance. Makes transactions quicker when parties are willing to fall back on UCC. Plus it creates uniformity, as opposed to CL which varies by state. The content of UCC is itself mostly UoT.
d. § 1-103: The CL is the second gapfiller; helps define terms UCC leaves undefined like “offer.”
e. Ragus Co. v. City of Chicago (1993)
i. Ragus entered K to supply City w/ a certain number of rodent traps. The city says that it meant pairs of rodent traps and refused delivery of ind traps. Ragus sued for damages. The City showed the UoT was pairs of traps; everyone sold them in pairs. Therefore, City wins SJ. (Note: This case kind of ignores the parol evidence rule, but the modern trend is to admit evidence liberally).
2. UCC applies to transactions in goods (movable at time of identification to K).
a. § 2-102: Art 2 applies to transactions in goods (has nothing to do w/ merchant status).
b. § 2-105/A2-103(1)(k): Goods are “all things (including specially mfg goods) which are movable at the time of identification to the K for sale.” (Also includes crops and unborn animals).
c. Dakota Pork Indus. v. City of Huron (2002)
i. DP gave City water rights in exchange for water supply. Is furnishing water the sale of goods? This ct (unlike some other cts) holds that the sale of water is the sale of goods governed by Art 2 bc it, like electricity, is a thing that is fairly identifiable as movable (by measure w/ flow meter) at the time of identification to the K of sale.
ii. Note: Cts can still apply Art 2 principles and policies even if Article 2 does not technically apply.
d. Problem 1.5: Are these the sale of goods such that Art applies? §§ 2-102, 2-105(1)/A2-103(1)(k).
i. Sale by author of movable paper certificate representing author’s rights to future royalties.
1) Answer: NO—paper is movable but it is not a good. The right/ability to sue/collect royalties is a thing in action, which the UCC specifically states is not goods. Therefore the CL applies.
ii. Sale of natural gas
1) Answer: YES (EXCEPT: If it will damage the realty, Art 2 only applies if the seller removes it. W/ natural gas you have to drill so probably will damage the land and must be removed by S.)
iii. Sale of compact disc to a consumer by a retail music store
1) Answer: YES. Buyer is buying the actual CD, not the IP—might be diff with a download but with a CD the form predominates.
iv. Recording artist’s sale of an original recording on CD to a producer to produce/distribute the CD.
1) Answer: NO. The artist is selling his IP; the IP predominates, not the technical CD form.
v. A publishing company’s contract with an author to write a book
1) Answer: NO- Book does not exist at time of identification to the K. Again this is an IP purchase.
vi. A manufacturer’s K w/ a merchant buyer to specially manufacture and sell a custom-made machine.
1) Answer: YES. 2-105(1) expressly includes SOME specially manufactured goods. Machine v. book. For machine, specs are submitted so the B gets exactly what B wants. With book, even if B doesn’t nec know at time of identification to K exactly what finished product will be.
vii. A sculptor’s K w/ a patron of the arts to create and sell an original sculpture to the patron.
1) Answer: NO—this is a closer question, but still involves creativity so isn’t precisely id’d to the K.
viii. The sale of a raffle ticket for a new car.
1) Answer: NO- A chance to win the car is a thing in action—a right to claim the car IF your ticket gets picked. Any time a piece of paper represents something its almost always not a good.
3. UCC applies to some Mixed Goods-Services Ks
a. Predominant purpose test (maj): Is the predominant purpose of the transaction to sell goods or services? If goods, the UCC applies to the whole transaction. If services, UCC applies to none.
b. Gravamen of the action test (min): Is the source of the complaint w/ the goods or the services portion of the transaction? (H prefers).
c. Cook v. Downing (1994)
i. D is a dentist who also sells dentures. P sued under IWF for ill-fitting dentures. IWF only applies to merchants. Dentists are medical service providers, not merchants under 2-104 and dentures are not goods under 2-105. JudgM for P rev’d.
ii. Dissent: This is a mixed goods-services K. The predominance test applies, there was evidence that the dentures were the predominant part of the trans, and so judgM for P should be aff’d. Maj ignores the fact that nothing excludes dentures/dentists from the code’s definitions of goods/merchants.
d. Problem 1.3: Aunt takes old-fashioned reels of home movies to local camera shop for xfer to VHS tapes. Shop messes up xfer process and ruins reels. Will Art 2’s warranties provide a remedy?
i. Answer: § 2-102: Art 2 only applies to transactions in goods. This is a mixed services-goods K. Art 2 probably will not apply to her claim bc:
1) Under the gravamen test it was the service that resulted in the damage.
2) Under the predominance test she is probably paying more for the service than the tapes.
e. Problem 1.4: Specialty Optometrists make and fit contact lenses for the problem wearer. Should they make customers sign disclaimer of UCC warranties?
i. Answer: § 2-102 again. H doesn’t know the answer bc its difficult to pull apart the goods from the services. If we go by Cook v. Downing then its not a transaction in goods, but “medical services.” But under normal UCC definitions, maybe? Primarily buying the specialty contact lenses—so goods seem predominant. Plus the contacts and not the fitting will likely cause any damage.
a. § 2-104(1): a merchant is “a person who deals in the 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 employM of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.
b. Three Types of Merchants under UCC (§ 2-104 Cmt. 2):
i. For § 2-201(2) (SoF), 2-205 (firm offers), 2-207 (confirmatory memoranda) and 2-209 (modification), almost every person in biz qualifies as a merchant by “hold[ing] himself out as having knowledge or skill peculiar to the practices … involved in the transaction …” This is bc the practices involved, e.g., answering mail, are typical biz practices for all bizs. Still must be in mercantile capacity.
ii. § 2-314 (IWM), §2-402(2) and § 2-403(2) (entrustment) only apply to merchants who deal in goods of the kind (requiring professional status as to the particular kind of goods.)
iii. § 2-103(1)(b) (good faith = reas comm stnds), §2-327(1)(c), § 2-603, § 2-605, § 2-509 (RoL) and § 2-609 apply to persons who are merchants under either of the above definitions: practices or goods so like i. every person in biz will qualify.
c. Problem 1.6: Drunk lawyer friend agrees to sell you her car for $8,000 at reunion. You were told to bring the check to her house at end of month for pickup. Sent letter to confirm agreeM but she didn’t respond and refused to sell bc worth 15,000. Can you enforce oral K under §§ UCC 2-201(1) & (2), 2-104(1) & (3), and OC 2 to 2-104.
i. Answer: Under OC 2, for SoF issues, any person in business qualifies as a merchant, so long as they are acting in their mercantile capacity…not to a lawyer buying fishing tackle. For 2-201(2) to apply, the sale must be between merchants. Deborah might be acting w/in her mercantile capacity due to her expertise of Rolls Royces. But B (me) probably is not—like buying fishing tackle. So probably not merchants, K exceeds $500 and there’s valid writing so Debo
good, it’s a true lease and C can sue for conversion.
e. Recall Ramifications of lease v. sale:
i. Tax and accounting: periodic expenses v. debt; certain tax advantages.
ii. 2A (lease) v. 2 (sale) v. 9 (secured sale): what rights and remedies under each Code provision?
f. Problem 2.2: Purported lease is for $300/mo for 10 ys. The ride has a 20 yr expected use life and is worth 30,000 at time of sale. Brigid can terminate at any time and has a 10,000 PO after one year. Term: “BOTH PARTIES INTEND THIS IS A TRUE LEASE.” Acme never filed financial stateM. B sells to Joe. Can Acme get it back? §§ 1-207(37)/R1-203; 9-317(b); 9-505(b).
i. Answer: H: This leans more toward a disguised sale than a lease. It’s not a disguised sale under the bright-line test bc can terminate at any time, but it probably is under the economic realities test: What is the likelihood, at the time the transaction is entered into, that the lessor will receive the goods back at a time when the goods still have meaningful economic life? B’s ability to walk away is an imp one, but it’s not determinative. The PO seems nominal if exercised immediately after the 1st yr bc most reas ppl would pay the 13,600 total to own so its highly unlikely that Acme will get it back at all, let alone with meaningful economic life. Counter: the ride does have 10 yrs of life at the end and lessors won’t all want to buy—10,000 a lot of money. It’s probably a security int, but Acme can’t get it back bc Joe never filed fin stateM so int not perfected and no Art 9 protection.
ii. R1-203: Addl consideration is nominal if it is less than the lessee’s reas predictable cost of performing under the lease agreeM if the option is not exercised.
g. Problem 2.3: First month’s rent 50% of purchase price. Remaining 35 monthly payMs only 1.5% of purchase price. May terminate any time after first month. May purchase at end or during lease with full credit toward purchase price for all lease payMs received. (same stats).
i. Answer: Joe needs to choose lease or disguised sale; can’t have both. With his terms, the lessor can terminate at any time so fails bright line test but might meet the economic realities test. This is a front-loaded lease. Once you have sunk half of the expense into sth would you really reas terminate? The front-loaded-ness really diminishes that the lessor will get any value back. It might help if the lease payment credit could be used toward anything in the store.
7. Scope of CISG
a. 60 countries have ratified the CISG. CISG only applies if parties have reason to know they are in different contracting states. A party’s place of biz is the place that has the closest relationship to the K and its performance. The CISG does not define goods but it expressly excludes Ks where the preponderant part of the seller’s obligation consists in the supply of labor or other services.
b. Like UCC, CISG is a default mode that parties may opt out of.
c. If its outside of the CISG then you default to international conflict of laws rules
d. Three key matters included in UCC Art 2 but excluded from CISG
i. Art 2(a): CISG does not cover sale of consumer goods unless the seller neither knew nor should have known that the goods were being purchased for a consumer purpose.
ii. Art 5: CISG does not apply to the liability of the seller for death or personal injury caused by the goods sold
iii. Art 4(b): CISG specifically excludes issues of whether the sale to the buyer cuts off the property interests of third parties in the goods that were sold.
e. Viva Vino Import Corp. v. Farnese Vini S.r.l.
P, PA corp and D, IT corp, entered into exclusive distributorship agreeMs. The agreeMs are