UCC: Sales & Commercial Paper Fall 2015
INTRODUCTION & SCOPE
UCC is state law, brought from the bottom up, so contrary federal law will trump it
§2-102: This section applies to transactions in goods
“Transactions” is not defined but this refers to voluntary transactions (not gifts or bailments)
§2-105(1) Goods—all things (including specially manufactured goods, i.e. custom assembly line built to your specs) which are movable at the time of identification to the contract for sale (including unborn young of animals, and growing crops (see §2-107)) other than:
Money (price)
Investment securities (stocks, bonds—covered by Article 8)
Things in action (non-tangible rights such as copyright, insurance policy, right to produce a TV show, membership”
But includes: unborn young of animals. Growing crops, other identified things attached to realty to be severed from realty
International Sales: CISG
Covers only issues of K formation, rights, and duties of the parties
Excludes coverage of products liability issue, K validity (fraud, illegality, etc)
76 member countries, but UK, JP, KR, TW have not signed
If a country ratifies, then have to follow it:
Whether it applies to your transaction or not, whether your place of business is located in another country
You can opt out of it—you can contract out of it, it is not mandatory
It is mainly a gap filler
It does not apply to consumer goods in the hands of the actual consumer
FORMATION
Hybrid Transactions: Predominant v. Gravamen Tests
Hybrid transaction—mixture of goods and service or goods and real estate are most common mixtures, but remember article 2 only applies to sales of goods (2A applies to leases of goods, as opposed to gift, bailment or secured transaction)
Whether a transaction is denominated sales (goods) or services determines whether Article 2 applies or not
Contracts for repair are not covered by Article 2
Predominant Factors Test: all-or-nothing decision—entire transaction is reviewed and judged to be either a sales contract or a service contract
When all factors are considered, is the transaction more like a sales contract with a little service on the side, or a service contract with some sales thrown in (majority)
Gravamen Test: focus on whether the gravament of the action involves goods or services—only when an action is brought does the problem of characterization arise
Does the weight of the accusation reflect a dissatisfaction with the goods or with the rendition of services?
Ex: the pie itself? Or the installation? (Minority)
Can result in a body of law being applied to one part or another
Ex: spinal plate interested in hospital- depends on the test. Usually not a sale by the doctor or hospital, but it is a sale by manufacturer.
No merchant requirement for general applicability – any buyer or seller
Which test is applied is outcome determinative
LEASES
§2A-102: Article applies to any transaction, regardless of form, that creates a lease
Article 2A does not include a sale or security interest
Security interest: an interest is granted to a creditor to take a thing if the lendee defaults
Advantage of leasing goods: balance sheet ratios, tax advantages, reversionary interest
Lease: a true lease is created when the lessor:
Retains a reversionary interest
That is economically meaningful in the property
A sale of goods is not a lease, to distinguish:
If the K contains a clause that permits the lessee to terminate the lease at any time and return the leased goods, a true lease has resulted. Such a right of termination is not an attribute of a sale of goods
If the lease is for the entire economic life of the leased goods, with or without renewal, a disguised sale has occurred
§1-201(37): Security interest, NOT a lease, is created
MERCHANTS
Not required for applicability of Article 2, but required for certain provisions (§2-314)
Merchant: a person who
Deals in 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 employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill
Comment 2: the professional status under the definition may be based upon specialized knowledge as to the goods, business practices, or both and which kind of specialized knowledge may be sufficient to establish merchant status is indicated by the nature of the provision
Assumption: transactions between professionals in a given field require special and clear rules which may not apply to a casual or inexperienced buyer or seller
“Casual sale” or “isolated sale” not usually considered a merchant
OFFER AND ACCEPTANCE—THE BASICS §2-204/2-206
Preliminary note—article 2 does not always change the common law, because “offer” is not defined in UCC, common law definition applies
§2-204 Formation in General: K for sale may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of the contract. Although “offer” is undefined, the code offers a different perspective on contract formation
Any manner can be oral, written, or otherwise
Timing: an agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined
Open terms: even though one or more terms are left open a K 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
MUST have quantity term
Commercial standards on the point of “indefiniteness” are to be applied.
Note that missing terms such as performance, open price, remedies, etc. are elsewhere in the act
The more terms parties leave open, the less likely it is that they have intended to conclude a binding agreement, but their actions may be frequently conclusive on the matter despite the omissions
2-206 Offer and Acceptance in Formation: (1) unless otherwise unambiguously indicated by the language or circumstances:
(a) an offer to make a K shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances
Any reasonable manner of acceptance is intended unless the offeror has made quite clear that it will not be acceptable (offeror is still master of the offer under the UCC)
Must be clearly unambiguous. Court is not going to deal with nitpicky details. Look to 2-204(1)
(b) An order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods, but such a shipment of nonconforming goods
we get rid of the mirror-image rule)
2-207(2 )- Additional terms are considered proposals. Between merchants, they are in UNLESS one of the three exceptions apply
My way or the high way offer
Additional terms are material (material means that enforcing them would impose a hardship or surprise on the offeror)
Timely objection
If it is not between merchants—additional terms are OUT
2-207(3)- the forms do not match up (counter offer) but the parties perform, you move to 2-207(3) and the contract consists of the terms to which the parties agree plus whatever additional terms the UCC provides
Additional terms—2-207(2)
Something that was added to the original offer but that the original offer was silent on
Different terms—2-207(3)
On a subject matter where the offer speaks but the terms are not the same
STATUTE OF FRAUDS §2-201
Distinguish contract formation from statute of frauds—statute of frauds operates as a barrier to enforcement
Statute of Frauds is an ancillary side constraint—it is not about formation
The ONLY result of this section is to take away from the other party the S/F defense
The burden of persuading the trier of fact that a contract was in fact made orally prior to the written confirmation is unaffected. Parties do not invoke the S/F defense as a way of arguing that no contract was ever agreed to. Rather, even if a contract was entered into, that contract is not enforceable against them at this time.
General Rule
§2-201(1): sale for goods $500 + is not enforceable unless there is some
Writing sufficient to indicate that a K for sale has been made between parties,
Signed by the party against whom enforcement is sought (see definition)
Any adoption of a symbol intended to operate as a signature (§1-201(39))
Quantity: K not enforceable beyond the quantity of goods shown in the writing.
A quantity may be ambiguous and still be sufficient
A requirements K and an outputs K both satisfy the requirements of quantity
“All” is quantity
A writing is not insufficient because it omits or incorrectly states a term agreed upon
This includes the price, time and place of payment or delivery, the general quality of the goods, or any particular warranties
No formal requirements for the writing
No delivery requirement
Other information cannot be introduced to show that a writing means something other than what it says on its face
Parol evidence is immaterial to the threshold issue whether the documents are sufficient on their face to satisfy SoF
Four exceptions:
Merchant confirmation letters §2-201(2)
Special Manufacture §2-201(3)(a)
Admission in Legal Proceedings §2-201(3)(b)
Part performance §2-201(3)(c)
Go through three steeps:
