UCC Article I Outline

UCC: SALES OUTLINE

CONTRACT FORMATION AND ENFORCEABILITY

Scope of Article 2 and Article 2A

· UCC §2-102 – Scope; Certain Security and Other Transactions Excluded From This Article. 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.
· A2 is the most broadly drafted of all the UCC Articles. A2 applies to transactions in goods. What are goods within the purposes of A2?
· UCC §2-105(1) – Goods. Must be movables on the day they become identified to the contract.
· So when do the goods become identified? Identification is defined under UCC §2-501 – at what time do goods become identified to the contract?
· UCC §2-501(1)(a) and (b)– Insurable Interest in Goods; Manner of Identification of Goods.
(1) The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the contract refers even though the goods so identified are non-conforming and he has an option to return or reject them. Such identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement identification occurs
(a) when the contract is made if it is for the sale of goods already existing and identified
(b) 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.
· Goods must be movable at the time of their identification to the contract. Before any interest in goods can pass from S to B, the goods must be both existing and identified. Identification occurs essentially at the earliest point in time when the specific goods that S will tender to B in fulfillment of the contract are so designated. When B selects the specific goods at the time of the contract formation, identification occurs then. The parties might contract, however, for goods that S has yet to mass produce. Identification might not result until the distant delivery date, at which time the specific units for delivery to B are selected for the first time from S’s subsequently manufactured stock of goods.
· Goods v. Indispensable paper v. Intangibles

Goods

Indispensable Paper

Intangibles

Tangible property

*This is the are we are working with.

Negotiable Instruments (checks – like goods in the sense that it is tangible, but it is not the paper that is worth value, what is valuable is intangible)

Negotiable Documents (bill of lading, warehouse receipts – the right to get the goods is tangible, but the value of the paper is in the intangible act of being able to retrieve the goods)

Contract rights

Patents

Trademarks

· Goods refers to anything that is movable; a tangible, physical property that’s value is determined by its own physical characteristics.
· But what if it is a hybrid transaction – examples: the sale of goods and non-goods, or the sale of goods and services, or the sale of goods combined with indispensable paper or intangibles (a computer is a good, but the software that is installed is an intangible).
· Foster case – Contract to sell a working radio station. Was this a sale of goods? Trial court said no, so the UCC did not apply. The sale was not within A2 because the subject matter of the contract was not goods (not movables identifiable at the time of the contract). But if you are buying a radio station, you are getting real estate, intangibles (FCC license, advertising revenue), furniture (desks, chairs), equipment (can’t broadcast without broadcasting equipment), the radio tower, etc. Some of the above are goods. The furniture is movables, a lot of the equipment (may be issues of fixtures, but a lot of equipment, for example, computers, will be movables). None of the intangibles would qualify, by definition they are not movables, also the real estate is not movable. But the trial court held the subject matter of the contract was not goods, did not involve the sale of goods, even though a lot squarely fit within the definition of goods. So how did the court support its position – the primary/paramount purpose test – all or nothing deal. A2 applies to the entire contract or it doesn’t apply at all. Was the transfer of interest primarily of goods or of something else? The trial court said the furniture and equipment was not the paramount purpose, the paramount purpose was to pass the interest in the real estate and the intangible rights necessary for broadcasting.
· How do you discern what the paramount purpose is? A number of different approaches are taken – valuation approach (the percentage of the total contract price that could be allocated to the purchase of goods), motivation of the party approach (tricky, parties have differing self-interests).
· The trial court cited Epstein v. Giannattasio which involved the sale of a beauty parlor sale. This was a hybrid sale – service and goods. The buyer wants to use A2 to get to use the implied warranty provisions. The court here used the primary purpose test, and found that the beauty products were merely incidental to the sale of the service, even though a good was included.
· Most courts follow the predominant/primary purpose test, but not all. If the court determines that the sale of goods was the primary or dominant purpose motivating the parties to enter the contract, the entire contract is governed by A2. Conversely, if the sale of goods aspect of the contract is considered secondary to the overall transaction, A2 is held not to cover any part of the agreement.
· The appellate court did not like the trial court’s ruling, and went another way. They ended up splitting up/bifurcating the goods and the real estate and intangibles. They found the goods made up 10% of the contract price, and so A2 applies to the portion of the contract dealing with the sale of goods. This bifurcated/splitting up approach is an extreme minority approach, not a common approach at all.

· A2 applies to sales of goods only, not all goods transactions, for ex., it does not apply to leases or bailments.
· Very little turns on when exactly title passes, but transfer of title is still the signature feature of what makes something a sale – when the seller transfers title to the buyer for a price. However, most of the time, the exact moment title transfers is irrelevant. Sale = title for a price.
· Are the A2 provisions for the sales of goods only applicable to contracts that deal with sales of goods? Are the courts constrained/limited to applying A2 to these contracts? No, same as with other legislation. A2 may appropriately be applied to other transactions by analogy, but the analogy must be appropriate to the transaction. How do you lay a base to establish that the analogy fits, and even though it is not a contract for the sale of goods, that A2 still should apply? Establishing that there is a contract itself is analogous to A2 – a minimum level of protection should be available to the buyer, even though a lease, the renter still should be protected like a buyer (but now Art. 2A dealing with leases – drew heavily from A2 though); another way to draw an analogy is through policy – what was the drafters’ underlying policy for the provision and argue the same policy applies to this type of transaction.
· Wivagg case – policy analysis of warranties; electricity. It was the court’s job to determine if the policies underlying the statutory provisions would underlie this case, and the court determined it would.
· Glen Dick case – held lease transaction was similar to sale and applicable provisions would be applied by analogy. “We will use A2 as a premise for reasoning only when the case involves the same considerations that gave rise to the A2 provisions and an analogy is not rebutted by additional antithetical circumstances.”
· I.Lan Systems case – software licensing. Which body of law applies – CL or A2? The court says that A2 does not apply on its face, why not? It’s clearly not a sale of goods – can’t buy software and then go out and sell it to the others; you can use this copy of the software, but I own it, I am simply letting you use it, this clearly is not a sale, it’s not a passage of title for a price, its an exchange for the right to use for a price, the title is not sold for that particular copy of the software. This issue has been decided by many courts before us, and this court says these courts have just assumed A2 applies. They say A2 is consistent with the parties’ expectations, but this really isn’t true, because it’s likely that only one party will want A2 to apply, but the courts probably just feel more comfortable being guided by A2 than by common law. The legislature has made it clear that A2 applies to sales of goods, so why do courts extend this and assume it applies to software? The courts are stuck and need equitable results, no body of law governs software licensing and there are good tested provisions in A2 as compared to common law.
· Another line of cases goes another way – they distinguish between shrink-wrapped mass produced software v. custom-made software. Mass produced is a sale of goods (but another wrinkle is thrown in when the software is downloaded off the internet), but if software is designed particularly for a company, this is primarily a service. This analysis still doesn’t address that it is a license, and not a sale of goods.
· UCC recognized problem that there was no body of law governing software, so it planned Art. 2B, but it was struck down because it favored the software companies too much. A model statute, UCITA, free-standing, has been developed, but only 2 states have adopted it. It was decided that it was politically infeasible in the current market to define a standard.
· It is still up to the court to decide what law software falls under. There is still a chance that a separate body of law will be developed. If a body of law were developed for software licenses, Prof. thinks that bifurcation will not occur, it will be an all or nothing approach for which body of law applies.

· UCC §2-107 – Goods to Be Severed From Realty: Recording.
(1) A contract for the sale of minerals or the like (including oil and gas) or a s