Sales Outline- Prof. Scott- Fall 2011
I. INTRODUCTION
A. The UCC, In General:
1. The UCC is a state statute regulating commercial matters.
2. Sales is concerned with the following Articles –
a. Article 1: General provisions applicable throughout the rest of the Code.
b. Article 2: Deals with the sale of goods
c. Article 2A: Deals with the lease of goods
d. Article 5: Deals with letters of credit
e. Article 7: Deals with documents of title
B. The Basics of Article 1:
1. Article 1 applies to all the Articles (unless those Articles state otherwise).
2. Basic Article 1 Rules/Principles:
a. §1-102: Explains how the Code is to be construed.
b. §1-103: Preserves the common law unless obviously changed by the Code.
c. §1-203: Commands that good faith be imposed in all UCC transactions.
d. §1-201: Definitions of terms used throughout the statute.
C. The Basics of Article 2:
1. This is the primary focus of the Sales class.
2. It deals with ALL transactions involving goods.
D. The Basics of Article 2A:
1. Article 2A applies to all things involving the leasing of goods.
E. Official Comments:
1. Not law; they are written by the drafters of the Code to explain what was intended.
II. SCOPE OF ARTICLE 2
A. Scope Rule §2-102: Article 2 applies to the transaction in goods.
B. Goods, Defined §2-105: “Goods” means all things (including specifically manufactured goods) which are movable at the time of identification to the contract for sale
1. Includes:
a. Unborn young of animals
b. Growing crops and timber and other identified things attached to realty
· Growing crops are goods regardless of whether they have been severed from the ground.
c. Sale of a house apart from the realty (severed from realty §2-107)
d. Mobile home/modular home (separate from the real property)
e. Electricity (according to the majority view)
f. Sale of building materials as long as it is for the materials alone and not the service; if it covers the service as well, it is governed by common law.
2. Excludes:
a. Money in which the price is to be paid
b. Investment securities
c. Sale of real property/transactions involving real property
d. Insurance policies (intangibles)
e. Contracts for services
f. Security transactions
g. Sales of membership (more of a service because you are not buying equipment; you’re buying the ability to use it)
h. Intellectual property transactions (such as trademarks and patents)
i. Bulk sales §6-103 – courts have gone both ways on this
· Example: The sale of the entire assets of a clothing store is a bulk sale.
j. Things in action, i.e., right to pursue a lawsuit or a right to pursue damages
· Example: An insurance policy is a thing in action because it is a right of the insurer to go after losses.
C. Transaction for Goods verses Transaction for Services – Hybrid/Mixed Transactions:
1. What is a Hybrid Transaction? It is a transaction/contract in part for the sale of goods and in part for the rendering of services.
2. Two Tests to Determine if a Contract is One Involving Goods or Services:
a. Predominate Purpose Test:
· Issue: The court must determine whether an agreement is one for goods or one for services. The court must inquire whether the “essence or dominant factor” in the formation of the contract was the provision of goods or of services.
· Key: Look at the predominant PURPOSE of the contract itself.
· Rule:
o Either the UCC or the Common Law will apply to the ENTIRE transaction; cannot sever the goods from the services in these transactions. Milau Associates case.
o If the predominant purpose is services, the common law applies.
o If the predominant purpose is goods, Article 2 (UCC) applies.
§ When service predominates, and the transfer of personal property is but an incidental feature of the transaction, the warranty standards used in the law of sales will not apply.
· NOTE: Under the English system, if there was any sale of goods involved in a transaction, the UCC applies to the entire transaction. But, in America, if the service dominates, then the common law applies.
b. Gravaman Test:
· Issue: Is this a good or a service?
· Key: The test looks to that portion of the transaction that went WRONG to determine whether it involved goods or services.
· Rule:
o You can separate the goods from the services and examine each individually; no prohibition from severing goods from services; i.e. each claim can be severed and decided under applicable law.
o If it is service component that went wrong, it is a contract for services and common law applies. If it is the “thing” (good) that went wrong, it is a contract for goods and the UCC applies.
o If a consumer good is sold as part of a commercial transaction and the good retains the character of a consumer good after completion of the performance promised to the consumer, then the UCC provisions dealing with implied warranties will apply to the consumer good, even if the transaction is predominantly one for the rendering of consumer services.
c. For Exam P
nforced even if a main term is omitted or misstated; the only term necessary for a sufficient memorandum is QUANTITY.
· (2) An indication that a contract has been made; and
· (3) Signed “by the party to be charged.”
o The “party to be charged” is the one that is disputing that a contract exists; it is the party denying the existence of a contract.
o Per §1-201(39), “signed” includes any symbol executed or adopted by a party with present intention to authenticate a writing.
3. §2-201(2) Special Situation “Between Merchants”
a. If Merchant A sends a confirmatory writing to Merchant B which meets the statute of frauds requirement against Merchant A, Merchant B loses his statute of frauds defense (i.e. it also binds Merchant B) UNLESS he objects to the writing within 10 days, in writing (i.e. cannot be an oral objection).
b. Example: Refer to Handout on §2-201(2) for a great example.
c. NOTE: If the quantity is the only thing objected to, that, by implication, means that the person has admitted to the existence of the contract.
d. A merchant confirmation must be sent “within a reasonable time.”
· §1-204: A reasonable time for taking action depends on the “nature, purpose and circumstances” of the action. All relevant circumstances, including custom and practice of the parties, must be considered in determining what constitutes a reasonable time under §2-201(2).
4. §2-201(3) Three Situations where a Writing is Not Required, i.e. where SOF requirement does not apply (note that these situations don’t necessarily mean that a contract was made; they only mean that the party denying the existence of a contract is denied the use the SOF defense):
a. Part payment or part performance BY the buyer, but only for that part paid or for that part performed; OR
· Courts have held that the part payment or part performance regarding non-divisible items gets you the whole item.
· Example: Buyer leaves a down payment with dealer. Dealer later tries to get out of transaction under SOF, offering something in the amount of the down payment. But, here, part payment is sufficient for the whole item.
