I. Scope of Art 2

A. “Transactions in Goods”

Prob. #1

  1. N, thing in action.
  2. N covered by real estate law, N cant be severed without material harm to the house, unless severed from real estate then becomes good.
  3. N, part of labor, thing in action.
  4. N, except teeth b/c they are a “movable”, “identifiable”, and “existing” good.
  5. Y
  6. Mixed good and service, cts usually find computer programs are goods.
  7. N
  8. N covered by Art 6
  9. N, thing in action

Add notes on legal pad

A. Identification

§2-201; §2-501 Insurable Interest in Goods

*Time

*Insure

Risk Neutral: don’t care about risk.

Risk Averse: Avoid risk.

What is risk? The existence of some probability that something negative will occur in the future.

Who bears the risk of loss? Person must have an insurable interest. §2-501 “insurable interest in goods by identification of existing goods as goods to which the k refers.” Important to identify when the risk shifts from seller to buyer, identification is the way to determine who bears the risk. Unless explicitly agreed upon, If goods are identifiable and exist then identification occurs when the K is made, if the K is for the sale of future goods, then identification occurs when the goods are shipped, If the goods are crops then identification occurs when planted, If the goods are animals, identification occurs at conception.

§2-105, goods that are moveable at the time of identification.

Things in action: things that are going to come into existence in full with some probability, if a contingency occurs. Insurance K are things in action, are not goods under art 2.

§2-107, severability §.

Things attached to realty, once severed become moveable goods. Minerals, crops. Futures K allow farmers, etc. to insure themselves against risk.

MILAU Assoc. v. North Ave. Dev. Co(Goods v. Service dichotomy, applicability of Art2

F: ’s, commercial tenants of building, brought suit against ’s, Milau (general contractor) and Higgins (subcontractor that installed sprinklers), b/c pipe broke causing water damage of inventory. ’s sued under negligence and breach of implied warranty for a particular use.

PH: Trial ct denied ’s request for implied warranty, jury found in favor of ’, finding no negligence. ’s appealed, arguing that pipe was a good, and that implied warranty for a particular purpose applied. Appellate Ct held that pipe was not unfit for its intended purpose.

H: Ct held that ’s not liable b/c sprinkler was installed as a service not as a good.

R: Perlmutter case (ct denied claim that blood was good separate from service of Dr.). “Unless the parties have contractually bound themselves to a higher standard of performance, reasonable care and competence owed generally by practitioners in the particular trade or profession defines the limits of an injured parties justifiable demands.” Ct stated that policy considerations for not holding tradesmen to higher warranty standard include “consumer reliance, marketing responsibility and the reasonableness of imposing loss distribution,” additionally, the ct held that standards for tradesmen are set contractually, unlike the sellers of goods which “encourage mass public reliance on their products’ fitness and safety through advertising, packaging and other promotional devices.” Ct not prepared to impose a “warranty of perfect results upon tradesmen.”

Must look at the context to determine if something is a good.

If services fell under Art 2, then in effect would be holding them strictly liable if something went wrong.

B. Merchants

Problem 2:

Art 2 would apply to the sale of a car by a student to a fellow student b/c the car is a good b/c it is moveable, identifiable, and it exists. §2-314, Implied warranty; Merchantability: Usage of Trade, would not apply to this transaction b/c the seller is not a “merchant,” does not deal in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill particular to the … goods involved in the transaction.” “A person making an isolated sale is not a merchant within the meaning of the full scope of this section, and thus, no warranty of merchantability would apply. However, even if the seller is not a merchant, if the seller “guarantees” there may by action according to §2-314.

SIEMEN v. ALDEN

F:  sued , individual who sold used saw to , for PI sustained from saw.  told  before K that saw was not operational and needed repairs.

PH: Trial ct granted SJ on strict tort liability and breach of warranties.  appeals.
H: A seller of used goods that is not a merchant will not be held liable under warranty theories unless 1) the seller knows the particular purpose to which the good is intended and 2) the buyer rely on the skill or judgment of the seller.

R:  argues that §2-104(1) makes  liable b/c he is a sawmill operator and therefore had knowledge or skill peculiar to the goods involved. Ct says no b/c  not engaged in sale of saws, and was isolated transaction, barring application of §.  also argues that §2-315 is applicable. Ct says no b/c although 1st requirement that the seller know the particular purpose the good is to be used is satisfied, the 2nd requirement the buyer rely on the seller’s skill or judgment is not. Ct held that nothing supported ’s reliance on ’s skill or judgment, b/c he had decided to purchase this brand of saw prior to talking to .

Problem #3

  1. Y, by her profession, a hat store owner. No duration requirement
  2. Y,

II. STATUTE OF FRAUDS

§2-201

Under C/L, all terms and conditions of K had to be in writing if it fell within Statute of Frauds. Under the UCC, the only term required is quantity, additionally, four exceptions are provided: 1) merchant confirmation letters, 2) special manufacture, 3) part performance, and 4) admission in legal proceedings. The K must be signed by the person against whom it is to be enforced, and must be for the sale of goods.

Important in non repeat players transactions.

Quantity must be included in the writing b/c cannot be supplied by default rules.

Penalty Default Rules: Rules that penalize those, to force people to transfer information.

8/28/02

§2-106, K for sale of goods

K’s: Rules to coordinate behavior.

Goods include:

1.Present goods which are identifiable; and

2.existing and future goods which are not yet existing and identifiable.

Merchants §2-104: 3 parts to definition: see chart

1)Repeat player-deals in goods of the kind

2)Occupation, reputation

3)

Disparity of information #1 concern in consumer / merchant transactions. Information is used to value a product, thereby reducing risk. Merchants are concerned about their reputation.

Problem 6 a-c

  1. Y, the memo pad satisfies §2-201(1), the sale is for goods, it is more than $500, is signed by an agent of the company against whom it is to be enforced, and statesthe quantity. §1-201 “Signed” includes (but not limited to) any symbol executed or adopted with present intention to adopt or accept a symbol.” Official comments: a complete signature is not necessary, symbol may be pronted, stamped or written.
  2. It was a merchant confirmation letter. Y. §2-201: statute of frauds.
  3. N, b/c §201(2) requires written notice of objection to the contents of the merchant confirmation letter, this was given orally and not within 10 days after the letter was received, an oral notice of objection was all that was given.

Problem 7

  1. Y, specially manufactured, part performance, tank is singular, quantity inferable.
  2. Tanks of America can argue that this was a specially manufactured good, and that they have made substantial beginnings under §2-201(3)(a), and under §2-201(3)(c), the buyer has made part performance by tendering the check for 10% of the purchase price.

Problem 9

§2-201 does not forbid the use of computer transactions, however I would advise that all orders are reviewed prior to the expiration of 10 days, to allow time for written notice of objection to be given in accordance with §2-201(2).

C. PAROLE EVIDENCE RULE

§1-303; 2-202; 2-208(1)-(2)

§2-202: Attempt to limit type of extrinsic evidence brought in to explain K, want to encourage people to put things in writing to avoid litigation. However, the context must be looked at. Can’t bring in outside evidence to contradict K, however can bring in evidence to explain or supplement. General idea is that K’s do not encompass all terms that are agreed upon. (a) deals with underlying context of K (formed by disinterested parties, harder to fake; CP, CD, UT (actions taken by the parties), (the independence of the extrinsic evidence, b/c not made to attain a certain result) while (b) unless K is complete and exclusive of all terms (4 corners).

§1-303 Course of Performance, Course of Dealing, and Usage of Trade

(a)CP: repeated occasions for performance, ie K calling for repeat performance, ie mowing the lawn once a week.

(b)CD: sequence of performance of previous transaction between the parties.

(c)UT: what people in a industry regular do or understand term to mean.

(e) Hierarchy of interpretation: 1) express terms; 2) Course of Performance; 3) Course of Dealing; 4) Usage of Trade

Problem #10

(d)§2-202 probably will not bar the introduction of evidence that Space Age had pre-k agreed to provide free flying lessons to Hi Handsome, the president of Swinging Singles b/c, depending on the market price of such lessons, However, b/c in comparison for the price of a plane, such lessons would be insignificant, they could have been left out of the K, in which case, the terms of the K can be supplemented by extrinsic evidence.

(e)§2-202 most likely will bar the introduction of evidence that Space Age agreed to a two month trial period, after which the plane could be returned for full price b/c “if the additional terms would certainly have been agreed upon, they would have been included in the K.”

Columbia Nitro Co v. Royster Co.

F: , Royster, sued , Columbia, for failure to take delivery of goods ie defaulting on K. District ct excluded all evidence of UT and CD and found for ,  appeals arguing that CD and UT be allowed to explain K..

I: Must the K be ambiguous prior to allowing in extrinsic evidence?

H: No. “A finding of ambiguity is not necessary for the admission of extrinsic evidence about the usage of trade and the parties course of dealing.”

I: Was the evidence offered by Columbia inconsistent with the express terms of the K?

H: No. “The test of admissibility is not whether the K appears on its face to be complete in every detail, but whether the proffered evidence of CD and UT reasonably can be construed as consistent with the express terms of the agreement.” Reasons it is reasonable to construe this evidence as consistent w/ express terms: 1) K doesn’t expressly exclude CD or UT; 2) K silent on adjusting prices and quantities, neutrality allows for CD and UT to supplement the K and explain terms; 3) description of “products supplied under contract” is consistent w/ extrinsic evidence; 4) default clause refers only to the failure of the buyer to pay for delivered goods, no clause for refusal to take delivery

Ct holds that CD and UT should have been admitted.

Notes: the quantity and duration of the K, in addition to the price, are all indicators of the parties intention, ie attempt to defer risk of price inflation/deflation. When a K is entered into, the parties are determining how to allocate the risk. Individuals in a industry may have a different meaning than the plain meaning of the words, ct looks at UT to determine what the parties likely intent, ct doesn’t want to impose a meaning on the parties, that neither intended!! Ct looks at plain meaning from the perspective of someone in the trade!!

CONTRACT FORMATION & OPEN TERMS

§2-204; 2-207; 2-305; 2-306; 2-308; 2-309; 2-310(a); 2-511

D. Offer and Acceptance

§2-204

What is the difference between term “agreement” and term “contract.” Agreement: provisions agreed to, ie. x,y,z, bargain in fact of the parties. K is the total legal obligation that results from the parties agreement ie binding. Just b/c you have an agreement, doesn’t mean you have a K: However to have a K, you must have an agreement.

UCC doesn’t stick to traditional K theory: doesn’t matter if can’t determine when K formed. Underlying policy is that if people enter agreements, they should be held accountable, unless they did not intend to make K.

Reasonableness: Subjective test: look at the action of a group in similar circumstance to determine reasonableness. Reasonableness is how people would have filled gaps if they had thought about it.

Problem #11

(a) The K was formed upon shipment (the acceptance).

§2-206, “unless otherwise unambiguously indicated by language or circumstances”, ie unless it is in the K, this gives leeway for ct to interpret.

(b) G cannot argue that there was not a K b/c the offer was only to buy “good” not defective goods b/c the shipment of the defective goods, w/out notice that the shipment offered was only an accommodation to the buyer, operated as an acceptance

(c) Is G in breach b/c it shipped non-conforming goods? No, b/c act of shipment of nonconforming goods accompanied by notice that the shipment was not an acceptance, operates as a counter-offer.

§2-207: Battle of Forms: UCC’s way to avoid C/L mirror image rule, under c/l if the terms of the offer and acceptance were not the same then ct would look to see if the difference in terms was material to the underlying agreement. Ct wants to hold persons to K only if they intended to make a K. §2-207 is way to determine the terms of the K: §2-207(2): terms to construed as proposals for additional terms (ie other party agrees) however between merchants the terms become part of K, Unless: 1) the offer expressly limits acceptance to terms of offer; 2) materially alter K; or 3) notification of objection has been given or within reasonable time. An additional term is said to materially alter a K “if its incorporation into the K w/out express awareness by the other party would result in surprise or hardship.”

§2-207(3):conduct by the parties: Applies to non-merchants.

Ex: Problem

June 1st Gap calls orders 2,000 blue jeans, Lee says ok. Is there a K?

Need to have a writing to satisfy statute of frauds, §2-201 b/c these is for a purchase of goods in excess of $500. Either Gap or Lee could send confirmation. It is advisable for the Gap to send confirmation w/in a reasonable time. §2-204(3) even though terms are left open, a K does not fail for indefiniteness.

June 5th 2 confirmations are sent.

Lee sends confirmation that 2,000 jeans will be:

(silent on price)

-sent on July 10th

-w/ disclaimer of warranties, and remedies on back in boilerplate.

Gap sends confirmation that it is to buy 2,000 jeans:

-for $5 each,

-to be delivered on June 6th,

-w/ provision that buyer is entitled to consequential damages.

§2-207, additional terms become part of the K b/c offer wasn’t limit to terms of offer, unless term materially alters the K-look to Falconer Glass case.

Important terms of K: quantity, price, Delivery, warranties, payment.

Under §2-207(2), the price states by the Gap will materially alter a K b/c it will result in a substantial economic hardship.

Price terms are Materal!! Warranty terms are Material!!!

§2-207, if there is already a K, the confirmation is not an acceptance. The oral conversation, in which there was a quantity ordered, and the order was accepted.

Additional or different terms are: the disclaimer of warranty and remedies, and

12) No. §2-205 requires that a merchants firm offer be evidenced by a signed writing, as Posh only orally promised to hold the car, the promise was revocable, which was done by selling the car to another purchaser.

13)

14)

Diamond Fruit Growers v. Krack Corp.

F: Krack, manufacturer of cooling units that contain steel tubing purchased from,  Metal Matic. Krack was sued b/c cooling unit it sold leaked causing purchasers inventory to rot. Tube in cooling unit supplied by Metal Matic was source of leak. Purchaser, Diamond Fruit sued Krack and Krack sought indemnification from Metal Matic.  and  had 10 year business relationship where the same form was given, additionally on at least one occasion, Krack objected to the inclusion of the indemnity exclusion. Metal Matics acknowledgment form disclaimed all liability for consequential damages.

I: Did Metal Matic’s disclaimer of liability become part of the K?

H: No.

I: Did Krack assent to Metal Matics limitation of liability term?

H: No. Although Metal asserts that Krack did implicitly agree to the term based on the discussions with Krack’s agent re: the term, and Krack continuing to do business with Metal. Ct refuses to apply C/L last shot rule, stating that finding for  b/c it sent the last form would revert back to last shot rule, that party must assent to term, not just receive a form last. Additionally, ct would be applying last shot rule if it accepted ’s argument that terms were implicitly agreed upon by the continued performance of the party.

R: “If the seller truly does not want to be bound unless the buyer assents to its terms, it can protect itself by not shipping until it obtains that consent.”

NOTES on Fruit: type of K= provide metal tubing. Problem with the performance= leaking. What resulted? Fruit Growers sued Krack, the manufacturer, and Krack sued Metal Matic to indemnify for damages. Metal Matic argues that disclaimer of liability clause in Matic’s form “acceptance of offer is expressly made conditional to acceptance of terms and provisions of the acknowledgment form” prevents Krack from recovering. Matic’s form only offered replacement.

ANALYSIS: §2-207(1) doesn’t apply b/c Matic’s acceptance was made expressly conditional of acceptance of the additional or different terms (in effect making the acknowledgment a counter-offer), so b/c §2-207(1) doesn’t apply, (2) doesn’t either. So look to §2-207(3), although there is no K, b/c no offer and acceptance, then if the conduct of the parties recognizes the existence of a K, then the terms of the K are those on which the parties agree and additional terms as supplied by the UCC.

Krack did not assent to the additional or different terms. Even though Matic attempt to assert that Krack implicitly assented by objecting to the terms but continuing to buy, ct says no. Ct holds that §2-207 is intended to enforce those K’s that would have failed under C/L mirror image rule, and unless offer made expressly conditional on assent to additional terms, then ct will enforce K. B/c Matic included term requiring acceptance, ct refuses to allow assent to occur implicitly. Ct wants to enforce K in a neutral fashion, to go with Matic’s interpretation, ct would be reinvigorating C/L “last shot” rule. Ct wants to encourage parties to actively negotiate/Bargain for these type of terms, not just add them in boilerplate. B/c the terms conflict, they are eliminated.

R: Ct will not imply assent, assent must be made expressly.

Default rule, if §2-207(1) applies then §2-207(2) might apply, if §2-207(1) doesn’t apply, see if §2-207(3) applies. If §2-207(1) applies, then §2-207(3) cannot apply.