INTRODUCTION TO COMMERCIAL LAW

Prof. RoweClass 1

Applicability of UCC

Q: When is a commercial transaction within the scope of UCC? 1-102 - If a transaction falls within one of Articles 2 to

9. “Transaction” is not defined. Character of transaction is important, not the characters. There are no Article 1 transactions (it is a general article that governs when others don’t)

Q: What transactions are outside scope of UCC? Real estate Construction contracts Professional services Data and information transactions

Can parties contract around UCC?

Yes, 1-302(a) says “the effect of the provisions” of the Code may be varied by agreement, unless prohibited by the Act

1-302(b) can’t vary the obligations of good faith, diligence, reasonableness and care, which may not be disclaimed by the parties. Under 1-302(b), the parties may determine

the standards by which the performance of such obligations is to be measured as long as such standards aren’t “manifestly unreasonable” such as through course of performance and custom and trade

1-302 Continued

Official Cmt. 1 makes clear that meaning of statute itself is

in the text and can’t be varied by agreement (e.g., a party can’t make something goods to fit within Article 2 if they don’t meet the definition of “goods”).

Also makes clear that rights of third parties can’t be destroyed by agreement of the parties (e.g., 9-317- general security interest priority provision)

Purpose of UCC

1-103(a): UCC must be liberally construed and applied to promote underlying policies and purposes, which are:

Simplify, clarify and modernize law governing commercial transactions

Permit continued expansion of commercial practices through custom, usage, and agreement of the parties

Make uniform the law among various jurisdictions

Do Other Laws Supplement UCC?

Yes, under 1-103(b): Unless displaced by the Code, law related to

capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, bankruptcy

Karl Llewellyn was a realist and sought to work within existing business landscape not change it. The drafters attempted to capture prevailing commercial practices and effectuate sound commercial policy, e.g., good faith, fair dealing, custom, course of dealing & course of performance.

Revision Process

Is very lengthy and goes through ALI and NCCUSL. It also includes numerous groups, ABA advisors, ABA business law section, constituencies identified as having an interest, who are allowed to comment.

State Process: NCCUSL Commissioner of each state then promotes

the revision in his or her state. Each state usually appoints a committee and reporter as well. Can result in nonuniform enactment. State reporter’s comments will often point out the differences in the state’s version and the uniform version.

Recurring Themes in Articles 2 and 9

Recurring themes: Good faith

Favored Commercial Status: Bona fide purchaser for value in Art. 2 and Buyer in Ordinary Course of Business in Article 9

Reliability

How to Read the Code

Article 1’s general definitions only apply if other Articles don’t have a definition (sometimes in definitions section of that Article and sometimes its own section within an article)

How is “value” defined for purposes of Article 2? For purposes of Article 3?

1-204 is Article 2 definition: broader than 3-303 because an executory promise is sufficient to support a simple contract to suffice for value

3-303 is Article 3 definition: value is given to the extent the promise has been performed; Cmt 1 shows executory promises do not suffice

How to Read the Code

How is “security interest” defined for purpose of Article 2? For purposes of Article 9?

1-201(35) provides the definition for purposes of Articles 2 & 9 because those Articles do not contain a more specific definition. “An interest in personal property or fixtures that

secures payment or performance of an obligation”

Chapter 2Applicability of Article 2

2-102: Art. 2 applies to “transactions in goods” and not to secured transactions and does not repeal laws regulating consumers, farmers etc.

2-105: Definition of goods: all things movable at the time of identification to the contract other than money in which price is to be paid, investment securities, and things in action (rights in action). Includes unborn young of animals, growing crops, and things easily severed from realty (see 2-107(2))

Other Chapter 2 Statutes

2-106: Definitions of Contract for Sale (passing of title from the seller buyer for a price) & goods are conforming when they conform to contract between the parties

2-107: Goods to be Severed from Realty Minerals, oil, gas, etc. to be severed from realty by SELLER,

not buyer; and Crops, timber, and things easily severed from real property

without material harm thereto are goods regardless of who severs them

2-314(1): Implied warranty of merchantability applies when merchant deals in goods of that kind

Goods v. Services

3 Tests: Predominant purpose test (majority rule; NC & SC

follow) Examines which aspect of transaction was dominant

Gravamen test (minority rule; applied in Anthony Pools) Examines which component failed and caused the

incident subject of the suit – the goods or services?

Policy-oriented approach (Newmark v. Gimbel) Examines whether consumer protection requires that

transaction be treated as sale of goods in order to provide a meaningful remedy to the consumer

Anthony Pools v. Sheehan

Slippery diving-board case

GOODS V. SERVICES HYPO 1

Farmers bought hog feed that they argued had toxins that injured their hogs. The contract required the supplier to mix the feed and transport the feed. Duxbury v. Spex Foods

ANSWER

HELD: Under predominant factor test, this was a K for sale of goods due to the following factors: (1) K language, (2) nature of supplier’s business, and (3) intrinsic worth (or cost) of the goods and services provided

REAS: cost of goods (feed) was much greater than cost of transport (services)

GOODS V. SERVICE HYPO 2

Real estate developer sued Porcelite, the company hired to repair bathroom fixtures in a residential development and the defective fixture injured someone. Arvida v. A.J. Indus.

ANSWER

HELD: K for services under predominant purpose test because it was repair work

REAS: some goods can always be found in K for services and law of warranties for goods should not be used to impose standards on humans.

Bonebrake

Seminal predominant-purpose case

K was for sale and installation of bowling equipment

HELD: Under predominant purpose test, just because some service is involved doesn’t remove the fact that the contract is mainly for the sale of goods

Goods v. Service Conclusion

What to look for to determine goods v. service under predominant purpose test?

Look to substance of contract and what was the purchaser primarily contracting and paying for?

Problem 2.2, p 15

Conwell v. Gray Loon

Website-design case

Lohman v. Wagner

Weaner-pig case

Problem 2.3, p. 28

Problem 2.4, p. 28