UCC I

Outline

Purpose of the Sales System: Provide a legal mechanism to better enable human beings
to reflect the image of God in the exercise of their creative dominion over the resources
of the earth and goods produced by other people through enforcement of terms to which
they have agreed (expressly or tacitly), or payment of damages in lieu thereof

I. Assignment 1: The Role and Scope of Codes in Sales Systems

A. Sales systems: all the people, institutions, laws and practices that are involved
in transfers of ownership for a price

B. Sales Systems perform 4 functions: formation, terms, performance & remedies

1. Brings buyers and sellers together and enables them to create legally
enforceable transfers of ownership
2. Provides a set of standard terms that govern the transfer of ownership
a. The buyer and seller can choose to modify the standard
terms
b. This gap-filling function may be performed by a code (UCC),
common law, or standard form contracts
3. Provides set of delivery institutions that facilitate the possessory, legal
and symbolic transfer from seller to buyer
4. Enforce agreements to transfer ownership by giving aggrieved buyer or
seller various remedies for breach by the other

C. Three ways sales law has impact on sales systems

1. Law of sales crucial in those instances where the normal business
relationship breaks down and the parties end up in the litigation
world
2. When parties to sales agreement negotiate informal settlements to
disputes, they will probably do so in the “shadow of the law”
3. Legal rules help dictate the terms of the various forms that business
people use in conducting transactions within a given sales system
a. Forms are important because they could be binding in litigation
and also b/c business people often act as if the forms are
binding and sometimes change their behavior to conform to
what the forms say

D. The UCC plays the role of gap-filing in the sales system of goods
1. The common law is a gap-filler where the code is silent
2. §1-103 The provisions of the code override common law that is
contrary to it but the common law shall continue to supplement the
provisions of the code

E. Common law continues to play at least 3 roles in law-related sales system

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 1. Where Article 2 is merely codifying existing law, the common law can
help define terms that the UCC has left undefined
2. Some UCC provisions are not intended to affect certain related common
law doctrine, therefore parties must looks to common law to define
parameters of that related doctrine
3. Some common law doctrines that operate side-by-side with UCC
a. Mitigation of damages, frustration of purpose for buyer, and
even such related tort theories as intentional interference w/
contract

F. Four ways in which UCC gap-filler will be superseded

1. UCC will not apply if the contact itself specifies what the term should
be
a. §1-302(a): Code drafter desired first and foremost to give effect
to private agreements, at least to extent that agreements are
w/in limits of good faith and commercial reasonableness
2. Even where parties to contract are silent on a particular matter, parties’
repeated occasion of performance w/in that contract may establish
an agreement by implication w/in that contract
a. §1-303(a): Course of performance
3. Where parties’ past dealings with one another have established a
particular way that the parties have done business with one
another, that history may establish by implication certain standard terms
btwn the parties
a. §1-303(b): Course of dealings
4. If there is a custom in a particular industry concerning a performance
term, that custom will prevail over the UCC gap-filler whenever
the two are inconsistent
a. §1-303(c): Usage of trade

G. Article 2 applies to the sale of goods

1. §2-105: Goods are defined as:
a. all things which are moveable at the time of identification to the
contract for sale other than; the money in which the price is
to be paid, investment securities…..and things in action
b. the unborn young of animals and growing crops
2. §2-107 Good also includes things severed from Realty
a. Minerals, structures or materials if they are severed by the seller
b. Growing crops or other things attached to realty and capable of
severance w/out material harm to the land
c. Timber to be cut whether severed by buyer or seller

H. Two different tests to determine if “mixed” contract is for goods or services

1. Predominant Purpose test: look to the contract and see what it is
“predominantly” about, goods or services

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 2. Gravaman of the Action test: look at the dispute (lawsuit) and see if it is
concerning the good or the service

I. §2-314 Implied Warranty of Merchantability

1. The warranty that all merchants create when they sell goods under
Article 2, at least where the merchant deals in goods of the kind
that are sold
a. The warranty promises the buyer that the good will be fit for
their ordinary purpose
b. The seller must be a merchant with respect to goods of that kind

J. Merchant is defined as §2-104:

1. Person who deals in the goods of the kind OR
2. Otherwise by his occupation holds himself out as having knowledge or
skill peculiar to the practices or goods involved in the transaction
OR
3. To whom such knowledge or skill may be attributed by his employment
of an agent or broker or intermediary who by his occupation holds
himself out as having such knowledge or skill
4. Matters if person is merchant or not: Implied warranty of
merchantability and statute of fraud exception
a. If merchant then implied warranty of habitability applies to the
goods they are selling
b. §2-201(2) Statute of frauds exception: Btwn merchants if w/in a
reasonable time a writing in confirmation of contract and
sufficient against sender is received and party receiving it has reason
to know what it is, it satisfies the writing requirement of goods of
$500 or more, unless written notice of objection to its
contents is given w/in 10 days after its received
5. §2-104 Comment 2: 3 categories of Consequences to Being a Merchant:
a. Merchants follow rules surrounding general business practices
such as answering the mail, giving firm offers, etc.
b. Implied warranty of merchantability
c. General duties of good faith & standards of fair dealing in trade
including special duty of merchant-buyer to follow seller’s
reasonable instructions regarding goods in the buyer’s
possession following rejection & heightened duty of merchant
to give adequate assurance of future performance

IA. Problem Set 1

A. Place of delivery in contract for goods §2-308

1. (a) Unless otherwise agreed place for delivery is seller’s place of
business or if he has none his residence; BUT

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 2. (b) in contract for sale of identified goods, which to the knowledge of
the parties at time of contracting goods are in another place, that is
the place for their delivery
3. (c) documents of title delivered through customary banking channels

B. Agreement as distinguished from contract §1-201(3)

1. Bargain of the parties as found in their language or inferred from other
circumstances like course of performance, course of dealing or
usage of trade

C. If dispute arises over what was agreed to:

1. Express terms prevail over all
2. Course of performance is next (how they have already performed in
contract in question)
3. Course of dealing is next (how they have performed in past contracts)
4. Usage of trade is last (how others in the industry perform)

D. Statute of Frauds §2-201

1. In order to be enforceable contract for the sale of goods for $500 or
more must be in writing
2. Btwn merchants if w/in a reasonable time a confirmation writing is sent
and received and receiving party has reason to know of its contents
it will meet the writing requirement and is enforceable unless receiving
party gives written objection to its contents w/in 10 days

II. Scope Issues with Leases, CISG, and Real Estate

A. In a lease, the lessor, unlike a seller, has a reasonable expectation of receiving

the goods back at a time when the goods still have meaningful economic life

B. Article 2A deals with lease transactions it:

1. Borrows heavily from the language & concepts of Article 2
2. Like Article 2 it also allows the parties to make their sale or lease
contracts more or less as they wish, with gap-fillers provided as
back-ups but with very few limits on freedom of contract

C. Courts struggle to distinguish btwn “true lease” & “disguised sale”

1. Economic realities test: simply considers the likelihood, at the time the
transaction is entered into, that the lessor will receive the goods
back at a time when the goods still have a meaningful economic life.
a. If there is a reasonable likelihood lessor will retain some residual
interest in the goods then this test would deem it to be a true lease
b. If unlikely that there lessor would get back considering the
economics then it is considered a disguised sale intended
for security
c. Economic realities test rejects looking at the parties’ intention

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 D. §1-203: Four times when the transaction must be considered a disguised sale
1. Transaction in form of a lease creates instead a security interest if the
lessee is obligated to pay the lessor for the right of possession and
use of the good during the term of the lease AND this obligation is not
subject to termination by the lessee AND:
a. the original term of the lease is equal to or greater than the
remaining economic life of the goods; OR
b. the lessee is either bound to renew the lease for the remaining
economic life of the goods or is bound to become the
owner of the goods; OR
c. the lessee has the option to renew the lease for the remaining
economic life of the goods for no additional consideration
or nominal consideration upon compliance with the lease; OR
d. the lessee has the option to become the owner of the goods for
no additional consideration or for nominal consideration
upon compliance with the lease
2. §1-203 (c): Transaction in form of a lease does not create a security
erest merely b/c:
a. The present value of consideration the lessee has to pay for use
& possession of goods substantially = to or greater than the
fair market value of the goods at the time the lease is entered
into; OR
b. Lessee assumes risk of loss of goods; OR
c. Lessee agrees to pay associated cost of goods (i.e taxes,
insurance, registration fees, service/maintenance costs,
etc.); OR
d. Lessee has an option to renew the lease or become the owner of
the goods; OR
e. Lessee has option to renew lease for fixed rent that is = to or
greater than the reasonable fair market rent for term of
renewal at the time the option is to be performed
f. Lessee has option to purchase option at fair market value

E. CISG: Convention of Contracts for International Sales of Goods

1. CISG applies if the parties have reason to know, by the time of contract
formation, that they have places of business in different
Contracting States
2. CISG defines a party’s place of business as the place “which has the
closest relationship to the contract and its performance”
3. CISG does not cover the sale of consumer goods, unless the seller
neither knew nor should have known that the goods were being
purchased for a consumer purpose
4. CISG does not apply to the liability of the seller for death or personal
injury caused by the goods sold
5. There is no body of common law the CISG can draw upon when silent

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III. The Process of Sales Contract Formation

A. The first question is “Is there a contract?”

1. §2-204: Formation in General