Advanced Sales and Leases – Fall 2014 – Wellman
Plan of Attack
1. Does Article 2 apply?
2. Is there a K? (Offer & Acceptance)
a. Destination; shipment; warehouse
3. Is there a Statute of Frauds issue?
4. Is there a BOF issue?
5. Is there a vague or ambiguous term that parties need clear definition for?
a. Extrinsic evidence analysis
6. Is there a party wanting to add supplementary/contradictory terms?
7. Does a party want to modify the K at all, or limit modifications?
8. Are there any warranties on the goods?
9. Did the Seller tender? (ID; deliver; ship; docs/title)
10. Is it a carrier or a warehouse K? (ROL)
11. Did the buyer tender? (Accept; Reject; Revoke)
12. Was there a breach of K or warranty?
13. What are the remedies? (Sellers vs. buyers)
14. Any random defenses? (Unconscionability; Impossibility)
Introduction: The Scope of Articles 2 & 2A; Merchanthood p. xvii-xxii, 3-51
Note on Article 1 (Good Faith)
§ Has been revised, but Michigan has not adopted the revision.
§ Most Changes are small (i.e. numbering)
§ One substantive Change: the Concept of Good Faith
s §1-201(20) Revised Code: everyone held to honesty in fact and the observance of reasonable commercial standards
o Subjective: Honesty in fact
o Objective: Observance of Reasonable Commercial Standards
s §1-201 Original Code:
o Non-merchants: Honesty in fact (subjective)
o Merchants: Honesty in Fact AND observance of reasonable commercial standards (subjective and objective)
o Now the same standard is held for both
§ Good faith cannot be disclaimed, BUT parties can determine standards in a contract so long as it is not manifestly unreasonable
s Subjective standard: aesthetic, complex or discretion
s Objective standard: quantifiable or simple
§ MN: Adopted revised Article 1: Good faith is applicable to everyone (merchants and non-merchants)
s Has to meet both arms of the good faith definition (subjective and objective)
§ MI: Has not adopted the revision. §2-103 is still binding only on merchants
s If one party is a non-merchant then the only standard of good faith that he has to meet is the standard of honesty in fact
Scope of Article 2/Does Article 2 Apply?
§ Question 1 of the analysis will always be what body of law governs
s Common Law or Article 2?
§ It does NOT cover:
§ What kind of contract is this? Sale of Goods?
s Predominant factor test: Goods or Service? Hybrid contract?
o Are we talking about a sale of goods with ancillary services or vice versa?
o Michigan has perverted this test:
Ø If the contract and the relationship ONLY exist because of the goods, then the predominant factor of the contract is goods (VW hates this rule)
s Gravamen test: What is the subject of the dispute that we are paying attention to right now?
o Is it the goods and their qualities or is it something related to the services of the transaction
o This is not an all-or nothing test (like PFT): applies dispute by dispute
§ Note: Under Article 2, minerals when sold after being removed from the land are good (§2-107)
s Contract to remove the minerals isn’t covered
s Fish Chowder with bones in it: Goods, Warranty of Merchantability
s Buying foreign currency: Good
s Oil/Natural Gas
ANALYSIS – Is this a transaction in goods? Work through the definition of goods
§ §2-105(1): all things movable at the time of identification to the contract of sale
s Includes the unborn young of animals, growing crops and specially manufactured goods
§ §2-105(2): Must be both existing and identified
s Even if the goods don’t exist, we can have a contract for the sale of goods to manufacture in the future (future goods)
§ §2-105(4): An undivided share of a bulk of identified fungible goods is sufficiently identified to be sold although the quantity of the bulk is not determined
s Once you buy, you became an owner in common
Statute of Limitations
§ §2-725(1): Must sue within FOUR years after breach
o Can be reduced via contract, but cannot be less than one year
o Cannot extend via contract
§ §2-725(2): Cause of action accrues when the breach occurs, even if you don’t know about the breach
o Breach of warranty occurs when the tender of delivery is made, except where warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance
§ The cause of action then accrues when the breach is or should have been discovered
Examples of Goods and Not Goods
§ Buyer leases computer software (i.e. a license)
s Secured transactions: the sales part does
s Once hardware is soft with software in it it is more likely to be covered under Article 2
o SO: Shrink Wrap (Good), Creating the software (NO), Updates/modifications (middle ground)
Ø Updates/Modifications depend on whether programmer was paid like a seller
s Investment securities
s Goods that are incidental (use the predominant factor test)
o Ex: Get dentures from dentist. They suck. Can’t sue Dentist under Article 2 BUT you can sue the manufacturer of the dentures.
s Repair Contracts are not usually goods
Termination vs. Cancellation of a K
§ §2-106(3): Termination: When either party pursuant to a power created by the agreement or law puts an end to the contract for something other than a breach
s All obligation which are executory on both sides are discharged
s Any right based on a prior breach or performance survives
s VW: No Remedy for a termination
§ §2-106(4): Cancellation: One party legitimately ends the K in response to other’s breach
s Remedy is available
s VW: Default does NOT equal breach
§ NOTE: Do NOT start the analysis asking if one party is a merchant until you have identified the particular provision of the code that you are applying the facts to
o Different provisions may result in different answers
o DO ask: Is the party a merchant in this section?
§ What standard are we using?
§ Does the party in question apply to the standard?
§ 3 Standards in §2-104
o §2-104: A person who deals in goods of the kind OR holds himself out as having knowledge of skill peculiar to the practices/goods involved
§ 1) Merchant in GOODS (§2-300s: Warranties) = meaning the party is an expert in those goods in particular
§ 2) Merchant in PRACTICE (§2-200s: SOF, BOF, Firm Offers, Modification/Rescission) = essentially everyone is qualified as a merchant unless acting in a private capacity
§ 3) Sliding Scale (huh?)
o §2-104(3): “Between merchants” both parties are chargeable with the knowledge or skill of merchants
§ Comment: For purposes of these sections almost every person in business would be deemed to be a “merchant”
o §2-314: Uses a more limited definition of merchant
§ Note: MI criteria of good faith on behalf of a merchant will be different based on what section you’re using (see note on Article 1 differences)
LEASES: Article 2A
§ There is no §2-207 in Article 2A
§ §2A-100s are almost the same as §2-100s
o Important Change: §2A-302 (on unconscionability) was moved into the 2A-100s which makes more sense because unconscionability is not a gap filler.
§ It is a correction/policing mechanism
§ No parallelism between 2-300s and 2A
o There are no gap-fillers in 2A, except for provisions about warranties (implied AND express)
§ We can add more features into a lease relationship (i.e. build in a third party)
o Ex: When you lease a car you work with the dealership and through a financing agenc
ree must be separately signed by the offeror
o Actual offer
o Made by a merchant
o Signed writing (tangible representation/manifestation of words
o Important: By its terms gives assurance it will be held open (2 tricky parts)
§ By its terms, by terms of signed writing in normal construction and not other stuff
§ What qualifies as assurance?
· If I say offer expires by Friday: not giving assurance it will be open until then, I’m saying you have until Friday to accept. It expires on Friday
· Becomes in effect a statutory option contract for you to accept at your discretion
· How long does it remain open? As long as it says (not longer, sometimes shorter). Never longer than three months (Gap-Filler)
§ When there is a firm offer, it is enforceable just because it is made
o It does not have to be an option contract and it does not require consideration
§ Look for:
o Genuinely an offer
o By a merchant
§ Who is a merchant? Depends on which provisions we are talking about
Battle of Forms: §2-207
§ Common law mirror image rule: You acceptance must mirror my offer AND all of its terms/conditions
o What comes from this: If we know that we have a contract, then we know that you have accepted my offer or I have accepted yours
§ §2-207: Does NOT work the same way as the mirror image rule
o When I accept your offer, I can do things with different or additional terms
o Do not have to identify who made offer to whom or exactly what terms you offered to me
o Under §2-207, an offer MUST be made
§ Solicitations and inquiries are not offers
§ Do not pay attention to the label parties give to a document, rather look at the function of the document
o Remember: If it changes too many terms, it is NOT an acceptance. Also pay attention to when the offer lapses
§ §2-207(1): Contains the proviso clause after the comma
o Unless acceptance is expressly made conditional on the assent to the additional or different terms
o If included in offer than any additional terms are considered a counteroffer
o Smart for sellers
§ §2-207(2): If worried about having term snuck in as additional then add provision to offer that says this can only be accepted by terms and conditions in this offer!
§ Questions: Is there a contract? What are its terms? Was there an offer? Was there a response?
o Was the response a definite and seasonable expression of acceptance? (doubtful)
§ Definite and seasonable: Response to offer within time stipulated by original offer
§ If accepted after time stipulated, new offer
o Did the acceptance contain different or additional terms?
§ Comment 4: Do the proposed additional terms materially alter the contract?
§ Comment 5:: Unreasonable surprise or hardship in the trade – issues:
o Choice of law: Material
o Choice of Venue: Immaterial
o Arbitration: Varies by Jurisdiction
§ Standard terms and conditions = BAD: If I want to incorporate my standard terms and conditions, I have to at the bare minimum say so and get your agreement to their inclusion