SALES FINAL

sales law

sales systems

all of the people, institutions, laws, and practices that are involved in transfers of ownership for a price

• different systems for different types of goods

• 4 functions that facilitate the transfer of ownership

4 Functions of a Sales System

1. Brings buyers and sellers together to make a legally enforceable transfer of ownership

2. provide a set of standard terms that govern the transfer of ownership (unless the buyer and seller choose to modify the standard terms)

3. facilitate performance by providing a set of delivery institutions that enable the possessory, legal, and symbolic transfer from seller to buyer

4. enforce agreements to transfer ownership by giving the aggrieved buyer or seller various remedies for breach by the other

brokers

A layer of employee whose sole function is to encourage the formation of further sales agreements

Article 2 of the UCC

Governs the sale of goods

UCC Article 2A

Govern leases

Convention on Contracts for the International Sale of Goods (CISG)

Govern international sales

3 major way sales law impacts sales systems

1. Crucial when normal business relationship breaks down and parties litigate

2. when parties to a sales agreement negotiate informal settlements to disputes, they will probably do so in the “shadow of the law.”

3. help dictate the terms of the various forms that business people use in conducting transactions within a given sales system

UCC §1-103(b)

the provisions of the Code displace any common law to the contrary, but that the common law shall continue to supplement the provisions of the Code

3 major roles common law plays in law-related sales systems

1. cases where Article 2 is merely codifying existing law, the common law can help define terms that the UCC has left undefined

2. in some UCC sections and Official Comments the Code drafters make it clear that the UCC provision in question is not intended to affect certain related common law doctrines

3. multiple common law doctrines that are never referred to explicitly in UCC sections or Comments but that nevertheless continue to operate side by side with Code provisions

2 major gap fillers in Art. 2 of the UCC

1. Warranty gap filler

2. Statute of limitations gap filler

Warranty suit evidentiary requirement compared to tort negligence case

proving merely the existence of a warranty, causation, and damages seems easy (compared with having to show that elusive “lack of due care” required in a tort suit)

• if the suit is for breach of the warranty of merchantability, then the issue of warranty existence is as simple as demonstrating that this was a sale of goods and the seller was a merchant in goods of the kind.

UCC §2-725(1)

gives a plaintiff four years to commence an action for breach of a sales contract, but the four years is measured from the time when the cause of action accrued, whether or not the plaintiff was aware of it.

• Many state statutes of limitations for general contract actions, by contrast, do not begin running until the plaintiff actually discovers or should have discovered the breach.
  

UCC Gap Filler Function

• Last resort - courts will use only when there lacks a more specific indication of what the parties must have intended with respect to the term in dispute

4 major ways UCC gap fillers can be superseded

1. will not apply to a particular term if the contract itself specifies what that term should be

2. Even where the parties’ written contract is silent on a particular matter, the parties’ repeated occasions for performance within that contract may establish an agreement by implication (AKA course of performance)

3. parties’ past dealings with one another have established a particular way that the parties do business with one another - history may establish by implication certain standard terms between the parties (AKA course of dealing)

4. a custom in a particular industry concerning a performance term, that custom will prevail over the UCC gap filler whenever the two are inconsistent (AKA usage of trade)

UCC §1-302(a)

Code drafters desired first and foremost to give effect to private agreements, at least to the extent that those agreements are within the limits of good faith and commercial reasonableness.

UCC §1-303(e)

hierarchy among rules: “express terms control both course of dealing and usage of trade and course of dealing controls usage of trade.”

• HOWEVER, the statement of this hierarchy begins with the admonition that whenever it is reasonable, we should seek to construe the express terms of an agreement as consistent with course of dealing or usage of trade

Ragus Co. v. City of Chicago

628 N.E.2d 999 (1993)

Rule of law: Under the Uniform Commercial Code, the usage-of-trade test should be applied when contract language is ambiguous.

Facts:

• In 1991, the City of Chicago needed to buy some rodent traps. They asked companies to bid for the job. Ragus Company won the bid and tried to deliver the traps. But the City said they got it wrong - they wanted pairs of traps, not individual ones. Ragus disagreed and sued the City for money and to say they didn't break the contract.

Issue: The question is, should we use the 'usage-of-trade' test when the contract language is unclear, according to the Uniform Commercial Code?

Holding/Reasoning: YES

• First, we need to see if the contract language is unclear. —— If it is, we look at how the words are normally used in that business.

• HERE, the City and Ragus disagreed on whether '24/case' and '12/case' meant pairs of traps or individual traps. The language didn't clearly say one way or the other, so we look at the normal use in the trade. The City showed that traps are usually sold in pairs. Ragus didn't have any evidence to say otherwise.

• THUS, the court was right to say the contract meant pairs of traps.

• The court properly dismissed Ragus's complaint

UCC §2-105(1)

defines goods as “all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale.”

New subsection 2-106(5)

defines a hybrid transaction as “a single transaction involving a sale of goods and the provision of services, a lease of other goods, or a sale, lease or license of property other than goods.”

Example of a hyprid transaction

• a carpenter’s contract with a homeowner to do a kitchen renovation that included the installation of new cabinets in the homeowner’s kitchen.

• a contract in which the owner of a business sells the entire business that consists partly of goods but also includes non-goods components such as real estate, goodwill, or customer lists.

Approaches to hybrid transactions

1. Predominate purpose test

2. Gravamen of the action test

3. Bifurcation approach

Predominate purpose test

Common law test where the court decides whether the predominant purpose of the transaction is to sell goods or something other than goods.

• if the predominant purpose of the transaction is goods, then Article 2 applies to the whole transaction, even the non-goods portion of it.

• If the predominant purpose is determined to be something other than goods, then Article 2 does not apply to any part of the transaction, not even the goods portion.
  

Gravamen of the action test

Common law test where the court determines whether the source of the complaint (the gravamen of the action) is with the goods or the non-goods portion of the transaction

• If the problem lies with the goods, then Article 2 applies even if the predominant purpose of the transaction is not goods.

• If the problem lies with the non-goods aspect of the contract, then Article 2 does not apply to the dispute even if the predominant purpose of the transaction is goods.

Bifurcation approach

Variant of the gravamen of action test

• courts simply apply Article 2 to the goods portion of the contract and then apply any appropriate non-Article 2 law to the non-goods portion of the contract.

• Key distinction between the gravamen of the action test and this approach is that with this approach, the parties can know at the time of contract formation which portions of the contract Article 2 will govern.

  • With the gravamen of the action, the parties cannot know whether and to what extent Article 2 will apply until either side asserts that a breach has occurred, since only at that point will the “gravamen of the action” be evident.

The 2022 Amendments create a new subsection, 2-102(2)

Tells courts specifically how they should treat hybrid transactions.

• requires a court to determine first whether the sale-of-goods aspects of the hybrid transaction “predominate.”

• If so, then Article 2 will apply to the transaction “but does not preclude application in appropriate circumstances of other law to aspects of the transaction which do not relate to the sale of goods.” UCC §2-102(2)(b).

• If the sale-of-goods aspects of the hybrid transaction do not predominate, then “only the provisions of [Article 2] which relate primarily to the sale-of-goods aspects of the transaction apply, and the provisions that relate primarily to the transaction as a whole do not apply.” UCC §2-102(2)(a).

Goods defined

All things that are moveable at the time of identification to the contract for sale

• EX: clothes, machinery, agricultural products, and electricity

UCC Art. 2 applies to:

transactions in goods \

• covers more than just sales of goods (but the majority of transactions fall under sales of goods)