Sales Outline

SALES OUTLINE (Spring 2009)
ARTICLE 1:
–          Very General. Applicable to the total UCC unless there is a statute that excludes it.
ARTICLE 2:
–          Scope: This deals with transactions in goods and the leasing of goods.
o   Article 2 covers:
§ 2-102 (SCOPE) :
·         Transactions in goods.
o   This means, buying, selling, leasing, etc.
·         What is NOT INCLUDED:
·         Insurance policies, real estate, contracts for services, intellectual property.
OFFICIAL COMMENTS:
–          Not the law in Michigan. But these are very persuasive.
Goods (2-105):
–          General Rule “Defined”: These are all things movable at the time of identification to the contract for sale, other than money and investment securities.
–          Important:
o   Goods also include unborn animals, growing crops and other things attached to realty and things in action.
o   Things in action: Rights of a lawsuit, insurance proceeds, etc.
What is NOT a Good (Excluded in Code):
–          Life Insurance policies “Things in action”,
–          Real estate,
–          Contracts for services,
–          Intellectual property.
 
Tests to see if the UCC or Common Law Applies (USE FOR HYBRID SITUATIONS):
PREDOMINANT PURPOSE TEST: (Very Fact Specific) MAJORITY TEST:
1)      Predominant part is a service = Common Law
2)      Predominant part is a good = UCC.
a.      You CANNOT divide a contract into Goods and service parts. You can only have one PREDOMINANT purpose for the contract. YOU MUST PICK ONE.
GRAVAMEN TEST: MINORITY TEST:
1)      Does the Gravamen of the action involve goods or services?
a.      If what went wrong involved goods, the UCC applies.
b.      If what went wrong involves services, then common law applies.
                                                              i.      You CAN divide a contract into Goods and service parts. You apply the APPROPRIATE body of law to each component.
USE BOTH TESTS ON THE EXAM
 
Merchants Defined (2-104): The UCC “Implied Warranties” Apply to Transactions in Goods From or Between Merchants or those with knowledge or skills peculiar to the practices or goods involved.
–          “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.”
–          A person making an isolated sale is not a merchant.
o   Note 2-205
o   Note 2-314:
§ Farmers are generally not merchants but courts may give them that classification if their operations are sophisticated, such as agribusiness.
Implied Warranty of Fitness “For a particular purpose.” 2-315:
–          If the seller knows the particular purpose that the goods are desired for, AND
–          The buyer is relying on the seller’s skill or judgment.
o   THEN, the Implied Warranty of Fitness “For a Particular Purpose” will Apply.
 
ARTICLE 2(a): DECIDING WHEN IT IS A LEASE AND WHEN IT IS A SALE:
–          Scope:
o   1) As under the original definition, if at the end of the lease period the lessee becomes the owner of the property for little or no consideration, it is a secured transaction and not a lease.
o   2) If the contract contains a clause that “Allows them to walk away at any time,” this is a true lease.
o   3) If the lease is for the entire economic life of the goods, I.E. The good is worth nothing at the end of the lease period, LOOK FOR THE ITEM BEING WORTHLESS, a disguised sale has occurred.
 
CONTRACT FORMATION:
2-201(1) Statute of Frauds: SEE HANDOUT
–          GENERAL RULE: Sales of Goods sold for more than $500must be in writing in order to be enforceable.
§ You must have:
·         (1) A Quantity,
·         (2) An indication that the contract has been made “Writing”, and
o   1-201(43)
§ This is just something that evidences the contract.
§ This is called confirmatory memorandum.
·         (3) Signed by the “party to be charged, or by authorized agent or broker.” This is the party that the contract will be sought to be enforced against.
o   1-201(39)
§ Signed means a mark of any kind, A mark, your signature, initials, an X, etc.
CONTINUED FROM ABOVE: 2-201(2):Oral Contracts Between Merchants: (ALL PARTIES MUST BE MERCHANTS):
–          GENERAL RULE: If within a REASONABLE TIME, “determined by facts and circumstances” a writing in confirmationof the contract is received and the merchant has a reason to know of its contents, it is a valid contract.
–          EXCEPTION: The party who received the notice and objects to its contents and GIVES WRITTEN NOTICE within 10 days of receipt.
2-201(3) EXCEPTIONS TO STATUTE OF FRAUDS: IF IT DOES NOT SATISFY THE STATUTE OF FRAUDS (ABOVE):
1)     General Rule: For transactions in goods over $500, etc, you need a writing.
a.      Exceptions:
                                                                                                                          i.      A. If the goods are going to be made custom “specially manufactured OR very unique” and not suitable for resale in the ordinary course of the merchant that produced the good. This is NOT automatic, check to see if it is able to be resold. Look at what kind of item it is!!!; or
                                                                                                                        ii.      B. If a party admits that there was a contract “In pleadings, testimony, interrogatories, depositions, etc.”; or
                                                                                                                      iii.      C. Part payment or part performance “but only in relation to the part performed or paid.”
 
2-202 Parole (Extrinsic Evidence) Rule: SEE HANDOUT
–          Start with the premise that it is a total integration; then we decide if it is or is not.
o   Course of dealings, Usage of trade and course of performance, unless clearly negated, are admissible to supplement the terms of any writing, and that the contracts are to be read on the assumption that these elements were taken for granted when the document was phrased.
o   The Code’s official commentators urge that overly simplistic and overly legalistic interpretation of the contract should be shunned.
·         IN SHORT “General Rule”:
o   Assume the wri