SALES_outline_Hillary_2011
Basic Concepts
I. Introduction:
a. Article 1: General provisions applicable throughout the entire code, unless the articles state otherwise
i. Defines terms
ii. Good Faith (§1-203): Must be Good Faith in all UCC Transactions
b. Article 2: The Sale of Goods
c. Article 2A:
d. Official Comments: Depending on case, you should look to them if it helps your case.
II. Scope of Article 2 (§2-102): Article 2 of the UCC will apply when there is a transaction of a good
a. Transactions in Goods
i. Goods (§2-105(1)): all things, including specially manufactured goods, which are movable at the time of identification
1. Goods do no need to be tangible – ex. Electricity is considered a good in majority of states.
2. Examples of Goods: building materials (not part of a service); software (see below)
a. Severance from realty (§2-107(1)): a K for sale of minerals, gas, oil, or a structure is a K for the sale of goods if they are to be severed by the Seller.
i. Example: Seller sells just the house on the property
3. Non-examples of goods: insurance policy (considered a thing in action), real property; sap service;
ii. Mixed Goods & Services: Generally, when goods & services are mixed, the courts have applied two different tests (apply both on the test) to determine whether or not UCC applies. The common law and the UCC cannot be mixed. Choose one then decide if you have a valid warranty under contract or tort. You could have both. The two tests include the following:
1. Predominate Purpose Test (Majority): UCC will not govern when the service predominates, and personal property is incidental to the transaction
a. If the UCC is applied, the court will place an implied warranty of merchantability on the product – which is a high standard
i. Implied warranty of merchantability: The good does what you say it will
b. If service predominates, the court will hold the service to the reasonable care and competence owed generally by practitioners in that profession, UNLESS the parties have bound themselves to a higher standard
i. Example: A builds a sprinkler system from the parts he sold. The pipe used was defective. Here, UCC would not be applied because service predominates.
c. Software: Courts are evenly split as to whether or not software is a good. You could make an argument either way. Some courts look at making the software (service). Another court might look at the end product as you would buy on a shelf (good) – use these two tests to determine.
i. Remember, an item can be a good even if it is unique – look at def. also, just because it is not bought on the shelf does not mean it is not a good.
2. Gravamen Test : where goods are sold in a transaction, they retain their character as goods, even when the good is incidental to the service
a. Examples:
i. A builds a sprinkler system from the parts he sold. The pipe used is defective. Here, UCC would apply because the good is faulty
ii. A builds a system from parts he sold. The accident results from the service performed. Here, UCC would not apply
b. Merchants (§2-104): A person who deals in goods of the kind; OR holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction; OR holds himself out as having knowledge or skill.
i. GR: Article 2 applies to everyone; however, there are certain provisions that require a merchant standard for UCC to apply. Other provisions require even a higher Merchant standard as well – such as defined above – for UCC to apply.
1. Look at the circumstances and the rule to determine a merchant
a. Example: Some courts find that a farmer is not a merchant of his products, while others do.
III. Scope of Article 2A: controls leasing (note: articles 2 & 2A are very similar)
a. Standards to determine if 2A governs:
i. If the lessee becomes the owner at the end of the lease period for little or no consideration, it is a sale – Article 2 will apply. If there is an option to buy at the end, it is still a lease
ii. If the K permits the lessee to terminate the lease at anytime, it is a lease and 2A applies
iii. If the lease is for the entire economic life of the leased goods, with or without renewal, it is a sale
1. Entire economic life: ex. You lease until there is 300k miles on it
IV. International sales: US is bound by the UN Convention on Contracts for the International Sale of Goods (CISG)
CONTRACT FORMATION
I. The Statute of Frauds (§2-201)
a. §1: A contract for the sale of goods for the price of $500 or more must be evidenced by a writing (agreement doesn’t need to be in writing itself) The writing must contain three things
i. Quantity
1. If there is no quantity listed, you can always assume 1.
2. What about output contracts? Courts struggle. Some say that parties cannot really know what a quantity is in an output contract. Others say that if there is no number, you cannot enforce it.
ii. An indication that a contract has been made
1. Ex. A check that says “tank” on it.
iii. Signed by the” party to be charged”
1. Signed – any symbol adopted by a party with present intention to authenticate a writing
a. Ex.
2. Written or Writing: Includes printing, typewriting, or any other intentional reduction to tangible form
a. Example: president of ice cream company writes on a memo pad inscribed “Amudsen Ice Company from the Desk of the President” and writes “2 tons Ross Co.” and scribbles his initials on it. It is valid.
3. UETA (state) & e-sign (federal if not UETA in state) allow for electronic signatures in almost anything now
b. § (another way between merchants) Elements:
i. Oral agreement
ii. Between merchants
iii. Within a reasonable time written confirmation
1. Reasonable time (majority): depends on the nature, purpose, and circumstances of the action.
a. To be decided by the jury
iv. That binds sender
v. Receiver has reason to know of contents
vi. Satisfies S/F unless objections within 10 days is received
1. Ie §2-201(2) says that after an oral agreement, if B sends A a writing which would bind B to the agreement under 2-201(1), it binds A as well if A does not object within 10 days of receipt
c. §3 Exceptions: (When writings are not needed)
i. Part payment that has been accepted OR part performance (sending good or making it)
1. But only for that part paid or for that part performance (sending good or making it)
a. But only for that part paid or for that part performed, UNLESS it is one item, then courts will enforce the entire contract. (How are you going to take half a tank?)
ii. A party admits in pleading, testimony, or otherwise in court that the contract exists
1. Such as in answer, pretrial discovery, depositions
2. Ex. In a demurrer, you admit the facts and SOME courts will say a part admitted.
iii. Specially manufactured goods not suitable in the ordinary course of business for resale
1. Unique product or good
a. 1000 pink and green outfits
iv. Supplementary principles (§1-103): allows estoppels, fraud, and misrepresentations principles to be used unless a code expressly trumps it. However, some jurisdictions allow estoppel, etc. to displace the statute of frauds, but other courts do not. Be able to argue both sides on the exam here.
II. The Parole Evidence Rule (§2-202)
a. When does this apply? When parties have a written contract, and one tries to bring in a prior or contemporaneous statement
b. Analysis
i. Do the parties have a writing or memoranda that confirms the terms to which they agreed?
1. If YES, go to “ii”
2. If NO, Parole evidence inapplicable
ii. Is the writing a final, complete, and exclusive expression on terms (ie totally integrated)?
1. If YES, no other terms may be brought in, even if consistent and only additional.
a. EXCEPTION: Course of dealing, usage of trade, or course of performance may still come in, UNLESS they contradict the contract.
i. Course of Dealing: Terms can be explained by what the parties have done in the past contracts.
ii. Course of Performance: What the parties have done in this contract;
iii. Usage of trade: what people in the industry do.
2. If NO, it is partially integrated; thus consistent, additional terms are admissible.
3. Test for total integration:
a. Is the term one that parties would ordinarily expect to embody in the writing?
i. If YES, the K is totally integrated on that term. If there are more than one term in question, apply the test to each term.
ii. The existence of a merger/integration clause does not presume total integration. We still use the test.
b. Examples:
alesperson says, “mechanically in perfect condition” but P has own mechanic check it. This is harder to show it went to basis of bargain, but P could show that both statements went to basis of bargain
iv. Non-example: “ you are going to love it”; “this is a great car”
b. Implied Warranties:
i. Implied Warranty of Merchantability (§2-314)
1. Elements:
a. Warranty not modified or excluded under 2-316
b. Merchant of the goods of that kind
i. Non-example: police officer sells his car
2. The implied warranties of merchantability include – reference to section:
a. Fit the contract description
b. Are of fair average quality within the description
c. Fit for the ordinary purposes for which goods are used [noneed foreliance]
i. Non-ex: P swerves to miss a deer and hits a tree. He gets cut by door handle when he hits a tree. Here, crashing is not the ordinary use of a car.
ii. No-ex: the ordinary purpose of a car trunk is not to commit suicide; car company not liable for not having exit button on inside.
iii. Ex: P paints a room. The paint gives off a very offensive odor.
iv. Note: If a small % of population is allergic to something, courts will usually say that the product is still fit for ordinary purpose
d. Run within the variations permitted by the agreement
e. Adequately contained package and labeled
i. Even if the container is not sold; like in a restaurant
ii. Serving of food or drink is a good under this section
f. Fit the promise or affirmations of fact made on container or label.
i. These cigarettes are “mild”. Someone might believe it would reduce cancer, but they don’t.
ii. Non-ex: P buys small heater to heat a big room. No warranty of merchantability because the heater is doing what it is supposed to do
g. Other implied warranties in course of dealing or usage of trade.
ii. Implied warranty of fitness for a particular purpose (§ 2-315)
1. Elements: – need show reliance
a. Seller knows the particular purpose for which the goods are required; AND
i. Purpose has to be beyond its ordinary purpose
ii. Ex: best wood to make violins from is old piano wood.
b. Buyer relies on the seller’s skill or judgment
i. Seller does not have to be a merchant of the kind. So it can be john off the street.
ii. Non-ex: P sees add in newspaper for heater. P tells friend that he wants to order Brand X of heater. P buys heater from friend at his store. P wants to use heater for room friend helped P build. Heater doesn’t work for the size of room. Here, P did not rely on his friend.
iii. Ex. P gets paint sample and has duplicate made from store; paint does not match.
