INTRODUCTION TO

COMMERCIAL LAW
Prof. Rowe
Class 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 dont)

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) cant 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 arent 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 cant be varied by agreement

(e.g., a party cant make something goods to
fit within Article 2 if they dont meet the
definition of goods).

Also makes clear that rights of third

parties cant 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 reporters comments
will often point out the differences in the states
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 1s general definitions only apply if other

Articles dont 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 2
Applicability 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
suppliers 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 doesnt
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