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Outline UCC Lecture

 
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PostPosted: Wed Nov 28, 2012 10:01 am    Post subject: Outline UCC Lecture Reply with quote

As promised; here is my outline of my lecture for Monday:

The UCC (Uniform Commercial Code) Article 2 concerns itself with the sale of goods in an amount over $500.00. This code has been adopted in all but one of the U.S. States.

First we must see what is a good?

Goods: Most tangible items: e.g.: books, clothing, cars, etc.

Why the UCC rule: It provides a group of easy-to-apply rules placing risk of loss of goods on party most able to either bear the risk or insure against it.

If Articles 2 does not apply: Then the: Common law of contracts governs the sale.

Next we must define a sale:

A sale is when title passes from Seller to Buyer for a price EXAMPLE: Purchase of a book: Paid for by cash, check, credit card, or other form of consideration.

THESE ITEMS ARE NOT CONSIDERDED GOODS; AND THEREFORE ARE NOT COVERED BY ARTICLE 2:

1. MONEY.

2. INTANGIBLE ITEMS, E.G.: STOCKS, BONDS, AND PATENTS,

3. REAL ESTATE NOT A TANGABLE GOOD: NOT MOVABLE [UCC 2-105(1)].

4. SERVICES ARE NOT COVERED BY UCC RULES.

GOODS VERSUS SERVICES CONTRACTS

A problem can arise if we have a situation where there is a MIXED SALE, a mixed sale is where we have a combination of goods and services in the same transaction and where the GOODS ARE DEFECTIVE AND CAUSE A PROBLEM.


SOLUTION TO A MIXED SALE TRANSACTION:

Article 2 governs, and the U.C.C. applies ONLY IF the goods are predominant in the transaction. (And the amount of purchase is over $500.00) UCC: Gives No guidance as to deciding the rules of which predominates: it’s decided on a case-by-case basis using the “Reasonable Man Standard”.

Providing services: including legal, medical, dental, car repairs cases etc., where the goods are defective and the service predominates, it is not covered by Article 2, but is covered by Common Law Rules of Contract.

The Case of: Hector v. Cedars-Sinai Medical Center 180 Cal.App.3d 493, 225 Cal.Rptr. 595 (1986) California Court of Appeals P. 383

A detailed excerpt of this case is found on my website.

Explanation of HECTOR

This is a case where the plaintiff sued her hospital because her pacemaker failed. NOTE: SHE WAS NOT SUING BECAUSE OF DOCTOR DOING SOMETHING WRONG, BUT WAS SUING BECAUSE OF A FAILURE OF THE GOODS INVOLVED. The discussion centers around balancing and deciding which of the two is predominant in this surgery, the goods themselves or the service provided by the hospital? The reasonable person standard tells us the service was the predominant factor in this “transaction.” Because the pacemaker cost more than $500.00, the U.C.C. rules have to apply regarding the sale of goods and it’s the goods that failed!! The problem is the service was predominant here, and the hospital, a provider of service, NOT the “supplier” of the goods, cannot be subject to U.C.C. rules. The plaintiff sued the wrong party. She should have sued the manufacturer.

A MERCHANT IS A PERSON WHO:

1. Deals in goods of kind involved in transaction; or 2. By occupation holds self out as having knowledge/skill peculiar to goods involved in transaction. EXAMPLE: Sporting goods dealer is a merchant w/respect to sporting goods; but not when sells lawn mower to neighbor.

Article 2 applies to ALL sales contracts, merchants or not. Several provisions either apply only to merchants or impose a greater duty on merchants.

DIFFERENT UCC RULES FOR OFFER AND ACCEPTANCE

ADDITIONAL TERMS

Under the COMMON LAW: Any slight modification to the terms of the offer made by the offeree means there is no contract. MIRROR IMAGE RULE requires that the terms of the acceptance exactly match those of the offer. If the rule is not complied with it is defined as a counter-offer.

UCC, when an acceptance is unequivocal, dispenses with the mirror image rule. There is a severe limitation to the concept of counter-offers under the UCC (SEE BELOW). If the Offeree's response indicates a definite acceptance of the offer, a contract is formed even if the acceptance includes additional or different terms from those contained in the offer.

What happens to these additional terms? The answer to this question depends, in part, on whether the parties are non-merchants or merchants.

Rules When One Party or Both Parties Are Non-merchants.

If one (or both) of the parties is/are a non-merchant, the contract is formed according to the terms of the offer submitted by the original offeror and not according to the additional terms of the offeree. The additional term(s) is/are merely a proposal (suggestion) EXAMPLE Seller offers in writing to sell his personal computer, printer, and scanner to Buyer for $1,500. Buyer faxes a reply stating, "I accept your offer to purchase your computer, printer, and scanner for $1,500. I would like a box of laser printer paper and two extra toner cartridges to be included in the purchase price." Buyer has given Seller a definite expression of acceptance (creating a contract), even though the acceptance also SUGGESTS an added term for the offer. Because SELLER (And in this case buyer as well) is not a merchant, the additional term(s) are a mere suggestion which Seller can honor or not. NEVERTHELESS THE SALE FOR THE personal computer, printer, and scanner is a VALID CONTRACT.

Rules When Both Parties Are Merchants.

Additional terms automatically become part of the contract unless

(1) the original offer expressly limits acceptance to the terms of the offer, e.g.: THE OFFEROR STATES: I WON’T ACCEPT ANY ADDITIONAL TERMS; (2) the new or changed terms materially alter the contract (we use the reasonable person standard to determine materiality); or (3) the offeror objects to the new or changed terms within a reasonable period of time. (Again, the reasonable person standard) [UCC 2-207(2)].

What if the offeree’s response is conditional (not unequivocal)?

If there is anything but an unconditional acceptance of the offer, there is in fact a counter-offer under the UCC rules as well: Example: In the above case: The offeree stated: "I accept your offer to purchase your computer, printer, and scanner for $1,500. ONLY IF YOU INCLUDE a box of laser printer paper and two extra toner cartridges in the purchase price.

PASSAGE OF TITLE AND RISK OF LOSS OF GOODS VALUED AT OVER $500:

SELLER retains risk of loss until title passes to BUYER.
This point in time determined by applying these rules:

SHIPMENT CONTRACT

Contract Requires Seller ship to Buyer via common carrier:

Title passes to Buyer at time and place of placing the goods in the common carrier’s care.

DESTINATION CONTRACT

Requires Seller deliver goods either to Buyer’s place of business or another specified destination. (NOTE: A COMMON CARRIER IS EMPLOYED HERE AS WELL, BUT THERE IS A DESIGNATION THAT IT’S A DESTINATION CONTRACT)

Title only to Buyer when Seller tenders delivery at the specified destination.

DELIVERY OF GOODS W/O MOVING THEM

Authorizes delivery w/o requiring Seller moving them.

Who bears risk if goods destroyed or stolen?

UCC: Two different rules. One applies to MERCHANT-SELLERS and the other to NON-MERCHANT-SELLERS [UCC 2-509(3)1.

MERCHANT-SELLER

Risk does not pass to Buyer until buyer physically takes possession of goods and moves them from Seller’s place of business.

NONMERCHANT-SELLER

Risk passes upon completion of sale whether or not goods are trasnsferred to Buyer’s actual possession.
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