Thursday, December 31, 2015

Your Brain: The Best Investment You Can Make

As you approach 2016, ask yourself whether or not you are committed to personal excellence as a way of life.  If the answer is no, the follow up is why not?
If the answer is yes, there are an infinity of ways to move forward.  I believe the most impacting is to improve the quality of one’s mind. I have made this a personal life mission and am grateful to have done so.  Improving one’s mind does not have to come from text books, and indeed can come with great power from other sources.  Nothing teaches better than life. 
I have learned so much since the blog process began. Thanks to Conner Kempe, aka Stephen Seller aka Tony Montana on his instagrams and for help in the overall process.
The post for New Year Eve is a reposting of an earlier post concerning Brain Investment.  I wish you well in 2016 and I promise you that if you make and complete a commitment to personal excellence 2016 will be your best year ever.

Your Brain: The Best Investment You Can Make
This post will discuss some general thoughts on:
1.    Teaching, Writing, and Posting;
2.    Motivation;
3.    Higher Level Motivation and the Brain;
4.    Why I Encourage Learning the Uniform Commercial Code

         Introduction
I believe that the best investment anyone can make is in her or his brain.  Better brains process information at higher levels. Better brains see more variables which impact decisions. The bottom line is that better brains make better decisions, ultimately raising an individual’s plane of existence.  Those renewable rewards clearly justify a commitment to mental development.  Law school is certainly a great opportunity to make this happen, but there are infinite ways to acquire intellectually challenging material and challenging life situations from which growth can occur. 
1.    Teaching, Writing, and Posting
When I began this blog less than a month ago, it was a positive experience but somewhat detached because there was no audience to whom I could relate and therefore interact. The only responsibility I felt was to put out short pieces of quality information about the Uniform Commercial Code.  At this point however, there are real people involved who have read the blog, and some of whom have made comments in the groups to which the links were posted. That dramatically changes the dynamic for me. 
              The impact of having people read and comment on the posts crystallizes the teaching aspects of this process and everything that goes with that role.  This involves at the very least, two things:  first, demonstrating why the area you are teaching is important and has relevance; second, to motivate students to learn it. 
As to the former, one motivating element has already been stated in an earlier post: there are tremendous job opportunities for someone who has a thorough knowledge of the Uniform Commercial Code.  Additionally, from an entrepreneurial stand point, a knowledgeable Code person could cultivate relationships with many small businesses, particularly start ups.  At last count, there was a reported 29.4 million small businesses in America, many of them functioning without the benefit of legal counsel.  There are no guarantees, but a knowledgeable UCC person could speak at Rotary Clubs and business organizations and with a few powerful pieces of ‘look what could happen to you’ information, that person could start to generate business which would benefit the business and the lawyer.  So, the first piece, on a very practical level, is satisfactorily in place.  Job opportunities and tremendous new client potential establish importance and relevance to someone focusing on a career path.
                                             2. Higher Level Motivation
The second piece—higher level motivation—is an integral part of my approach to teaching and life in general.  In addition to the tangible rewards which can be achieved by mastering content, a still higher level motivation will result if higher level rewards are available.  By way of illustration, I am highly motivated in the teaching setting, on a personal level as well as a professional level—because I know that if I put in the right amount of effort, I will emerge from the classroom experience smarter and better than when I went in. This is always true.  I want students to understand that the same is true for them, and hence I want those of you who are sharing your valuable time with me to understand that as well. 
I explain my basic system to the students so that they can understand the process.  I approach the brain as a muscle and create teaching strategies based upon the principles of aerobic, interval and resistance training.  It works quite well. If you would like to see some of the components of that system, they are available at www.pathwaystoexcellence.us.  A ‘mini’ version of that content can be accessed at www.2ptpe.com.
     I want students to understand that if they buy in to the system and content I am presenting, the same level of improvement will happen for them.  Components of that system will be integrated into this blog.
To bring this point home, I do my best to communicate what mastering a large block of the Uniform Commercial Code will do for their overall intellect as well as preparing them for the opportunities noted.  It’s simple: mastery of a block of intense, compact information such as that contained in the UCC, significantly increases the power of your brain.  Think of it as adding a knowledge application to your phone.  All of a sudden it can do things it could not previously do.  That is a wonderful payback for putting in the work. 
3. Higher Level Motivation and the Brain
There is another element to this, and that is demonstrating, beyond any doubt, that everyone in the class has the ability to master the topic. In this regard, I am passionate and firm in my belief that everyone with moderate intelligence can elevate his or her mind infinitely and become masters of major content in the process. For example, I am 100% certain that everyone reading this could become an expert in the UCC, or one of a dozen areas with the right effort focused on the right content.  There are certainly enough open circuits in the brain to accommodate anything you might want to learn.
  From a physiological standpoint, we all have same basic brain.  That brain has been estimated to contain 100,000,000,000 neurons. Neurons process and transmit information. Your brain structurally is no different than Einstein’s.  His may have been activated at a higher level, but he had no more circuits available than you or I do. The point of this is that there is infinite room to expand, so the notion that anyone is limited in any mental way from accomplishing complete mastery of the UCC or any subject is false.  The only question is whether or not an individual has the motivation and passion  to make that happen.
                       4. Why I Encourage Learning the Uniform Commercial Code
There are many reasons why I encourage people to learn the Uniform Commercial Code.  The first is quite simple—that is an area I truly enjoy and the area in which I have taught for over twenty years. One of the primary reasons I encourage mastering the subject matter is the relative freedom that accompanies having a valuable level of expertise in an area where there are few experts.
That stated, it certainly does not need to be the UCC for that to happen.  It could be the Tax Code, issues relating to cyber currency, intergalactic torts, or any area generally not understood by the majority, and who further, typically want nothing to do with the area.  That is where you can find a spot with the autonomy to have a much better existence.  This is important to me because autonomy through knowledge increases the likelihood of preserving positive core values intact. I think it is a good thing when positive core values stay intact, and therefore, I encourage this level of mastery. I have shared this sentiment at the beginning of every law school class I have ever taught. 
Another reason I encourage learning the Uniform Commercial Code is the fact that it is a pervasive force throughout the United States and we interact with it all day every day. There are literally billions of commercial transactions occurring in the United States every working day, hundreds of thousands, perhaps millions at this instant.  It is very nice to have a solid basic understanding of how the entities involved in these transactions are impacted by the law governing them, and what one’s rights are as a consumer.
 I hope this post has been of some value.  The next post will return to The Uniform Commercial Code.  Periodically, I will integrate some of the brain muscle strategies with explanations in the posts.                                           







Wednesday, December 23, 2015

A Christmas Poem



              A Christmas Poem
   Author Unknown

‘Twas the night before Christmas
Santa had a full load.
Most requested gift?
The Uniform Commercial Code.

He got ready to fly and looked at the forecast.
Changed into his suit knowing soon he’d be gone fast.
The weather had changed, it was going to be breezy.
So he decided to chill and read….
The Uniform Commercial Code Made Easy.

Santa thought back on how things had changed.
In many ways things have lost all sensibility.
Remembering clearly the day he got sued
For breach of warranty of merchantability.

To his Code Santa had gone and he knew right away,
No case could be brought on any a day.
For Santa gave gifts, he never did sales.        .
A motion to dismiss would surely prevail.


Out into the night, it was time to depart.
Goods fully loaded in the Custom Made Cart.
As he loaded them up, there was no debating.
Name and address was clear on each bill of lading.

To many came checks of varying kinds.
A whole lot of fun for Santa to find.
Giving the checks was fun to implement for
He knew from the Code, the holder had gold
In that Article 3 negotiable instrument.

Indorsements required in all shapes and sizes,
Restrictive, Special and accommodation devices.
Day after day Santa knew the situation,
Each and every one would end up with negotiation.

On into the night Santa continued to fly
Never wondering whether or why.
He always knew, no matter the load,
He’d protect himself and the elves
With the Uniform Commercial Code.

Santa wishes the same for you.
That you might soar beyond Article 2.
Remembering always before you are done,
Wherever you are there’s Article 1.

And so as we leave
And you carry your load.
Rejoice in the fact
That you know the Code.

No matter how far,
No matter the direction.
There’s always an answer
There’s always a section.

Yes, my friends….
There’s always an answer
There’s always a section.

Merry Christmas

Thursday, December 17, 2015

Battle of the Forms: No Battle


The Reply Doctrine of Section 2-201(2) creates a logical introduction to Section 2-207—Battle of the Forms.  In fact, Section 2-207(1) uses language almost identical to Section 2-201(2) insofar as it speaks of a ‘written confirmation’ of acceptance.  Before turning to the text and meaning of Section 2-207, it should be noted that this section has been heavily litigated with differing interpretations as to its meaning.
            Section 2-207 provides an opportunity to demonstrate the connectivity between Code sections, and the intertwining of meaning.  The skilled advocate creates a logical sequence through all of that with a favorable outcome.  For example, standing alone you have fairly clear statutory text for Section 2-201(2).  ‘A writing in confirmation’ is very clear when stated like the example given in the last post.  Of course, in reality it is rarely done so cleanly.  Rather, the writing in confirmation may be a simple purchase order, with no specific confirmation language, and courts have so held.
            The Code sections which immediately come into play are Sections 1-201(b)(3),(12), the definitions of agreement and contract.  This in turn activates Section 1-303 and the elements of course of performance, course of dealing and usage of trade. There are also supplemental principles of law which may apply pursuant to Section 1-303(b). As facts are added to the substantive provisions of the statute, the Code sections come to life with new interpretations.  These various interpretations create a very dynamic and fertile ground for structuring arguments or drafting provisions in a manner most favorable to your client.
            As for Section 2-207, I believe that section can be understood by a careful reading of the text of the statute.  As I was taught ‘The answer is always in the Statute.’  At the outset, one must remember that Section 2-207 is predicated upon an offer having already been made by either the buyer or seller, for the section speaks in terms of a ‘definite and seasonable expression of acceptance or a written confirmation’.  There can be no acceptance or written confirmation unless an offer has been made. [Unless of course, someone is using Section 2-201(2) to solidify a deal that may or may not have existed.]
Section 2-207(1) states as follows:
(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
The rule of Section 2-207(1) is clear and straightforward.  It contemplates an acceptance or written confirmation of an offer, with the acceptance presenting additional terms to those offered.  The rule is that the acceptance is binding unless the acceptance is made conditional on the offeror’s assent to the additional terms.  In other words, it is a ‘take it or leave it’ acceptance.
            For example, Seller offers buyer 1,000 pairs of shoes for $18.00 per pair with no stated delivery terms.  Buyer sends the following response:
I accept your offer to buy 1,000 shoes at $18.00 per pair, delivery to be made in five separate lots of 200 units per lot.
Under Section 2-207(1), Buyer has accepted Seller’s offer.  Delivery in five lots is not a condition to Buyer’s acceptance, simply a statement or request.
If on the other hand, Buyer had demanded inclusion of his delivery term as a prerequisite to the acceptance, there would be no acceptance under Section 2-207(1).  In that scenario, Buyer’s proffered acceptance might read as follows:
I accept your offer to buy 1,000 shoes at $18.00 per pair.  However, I need delivery in five separate lots of 200 units per lot or I will not do the deal.
Buyer has made his ‘acceptance’ conditional upon Seller’s acquiescence to his delivery demand.  Hence, no acceptance.
            Section 2-207(2) explains what happens when additional terms are proposed but not made as a condition to the acceptance:
The additional terms are to be construed as proposals for addition to the contractBetween merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
In the first part of the example given above, Buyer’s request for delivery in five lots would be treated as a ‘proposal’ for addition to the contract.  If both parties involved in the transaction are merchants, Buyer’s delivery proposal will become part of the contract unless one of the contingencies covered in Section 2-207(2) occurs.  For example, one question might become whether the proposed delivery terms ‘materially alter’ the original offer.  Trade custom would have particular relevance here.
            It is interesting to note that the first contingency stated in 2-207(2) goes back to the original offer which set things in motion.  If that offer is a ‘take it or leave it’ proposal, no additional terms will be incorporated into the contract.  If the additional terms ‘materially alter’ the offer, they will not be included.  And finally, if a notice of objection to the additional terms has been given within a reasonable time, the terms will not become part of the contract.       
            So, at this point we have two take it or leave it scenarios.  Under Section 2-207(1) a ‘take it or leave it’ acceptance results in no acceptance.  Under Section 2-207(2), if the original offer was a ‘take it or leave it offer’ no new terms will be considered.  The reality is that these situations rarely occur in orderly communications such as those hypothesized above.  It happens under time and business pressures, with many transactions ongoing.  Sometimes, forms don’t get read, and if they are, often are not understood.  So, there is no formal contract and you may have writings going back and forth with contradictory terms.
            Yet, the deal goes forward.  Why?  Everybody wants to make money and they adopt the ‘nothing will go wrong’ approach, and of course, sometimes the deal goes south.  The beautiful wood cabinets called for in communications were not up to the buyer’s expectations. There is no finalized contract.  Negotiations fail, and litigation ensues.  At this point, Section 2-207(3) takes control of what happens.  That section states as follows:
 Conduct by both  parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.
The net effect is that the written portion of the contract will consist of whatever written terms are agreed upon between the parties, date and quantity for example.  Contradictory terms will be eliminated and the agreed written provisions will be supplemented by the UCC. 
The application of Section 2-207(3) can have an enormous impact on a case.  For example, Seller may have had some very specific warranty provisions that are part of all of his deals.  If Buyer has presented a contradictory term—very common in a purchase order, you have the classic situation.  If Seller’s warranty has been eliminated because it is contradictory to Buyer’s purchase order, it is highly likely that the warranties supplied by the Code will be more favorable to the Buyer than the ones contained in the documents Seller prepared.

Thursday, December 10, 2015

Section 2-201(2): Reply or Cry


Once it has been determined that Article 2 governs, the next series of questions concerns the parties’ agreement, and possible contract resulting from that agreement:
What are the terms of the agreement between the parties?
How does the UCC impact the parties’ agreement?
How do supplemental general principles of law impact the parties’ agreement?
This basic analysis is called for by the definitions of contract and agreement, both of which were discussed extensively in earlier posts. By way of quick review, contract is defined under Section 1-201(b)(12) as ‘the total legal obligation that results from the parties agreement as determined by the Uniform Commercial Code as supplemented by any other applicable laws.  It is quickly apparent that in order to know what the contract is between the parties, it is necessary to determine the contents of the parties’ agreement, for the contract is the legal result of their agreement.
‘Agreement’ is defined as the bargain of the parties in fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade as provided in Section 1-303.’ The importance of course of performance, course of dealing and usage of trade in this analysis is critical, and has been discussed several times in earlier posts.  The essence of their importance lies in the fact that each of these components can supply terms to a contract that may never have been discussed or negotiated.
Once all of the terms are understood, the second element of the definition of contract kicks in: What is the impact of the Uniform  Commercial Code on the parties’ agreement?  The first question is whether the proposed transaction is within the purview of the Uniform Commercial Code. This is the scope question discussed in the last post. The second question which must be asked in this context is: Is the contract enforceable?  That analysis begins with the Article 2 Statute of Frauds contained in Section 2-201.  The basic rule is stated in Section 2-201(1):
Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.
Section 2-201(1) is clear and very straightforward.  If the contract has a value of $500 or more, there must be a writing which sufficiently indicates such a contract, and which is signed by the party ‘against whom enforcement is sought.’  Therefore, a purported seller of goods who seeks to hold a particular person liable as a buyer, must have a writing signed by the buyer or by his authorized agent or broker.  Similarly, a buyer seeking to hold a person liable as a seller must have a writing signed by the seller.
            The basic rule of Section 2-201(1) has several exceptions.  The Reply Doctrine of Section 2-201(2) has particular significance for two primary reasons.  First, the downside for not understanding and following the rule of Section 2-201(2) can be devastating to a business.  Second, most businesses are unaware of Section 2-201(2) and hence are in a state of potential major liability.  Section 2-201(2) states as follows:
Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received.
The best way to illustrate the impact is by way of a simple hypothetical:
Assume that you are a manufacturer of tables that you sell at the wholesale level to retailers for $1,000.
You receive a call from a potential buyer who wants to buy 1000 tables for a motel chain and, given the large order, offers you $650.00 for the tables.
You advise buyer that you have no interest in selling your tables for $650.00 and unless he is willing to pay the full $1,000 you have no interest in further discussions with him.
Several days later, you receive the following email:
            Dear Seller:
Pursuant to our discussion of December 4, 2015 I confirm our contract and agree to purchase 1000 tables from you for $650.00 per table.  I appreciate your recognition of this large order through your discounted price.
Sincerely,
Buyer
You read the email and think to yourself ‘This guy is crazy’ so you delete the email, not knowing that your transaction falls within Section 2-201(2).          
Both parties are merchants, so the first prerequisite of Section 2-201(2) is met.  The writing confirms the contract and is ‘sufficient against the sender’—i.e.—signed by the sender—in this case, the alleged buyer.  Hence the second prerequisite is met.  The third requirement will also be met—i.e.—the person receiving it ‘has reason to know of its contents’ since it was sent to his account via email. 
At this point, unless the seller gives written notice of objection to its contents,  within 10 days of receipt, buyer will have been deemed to have satisfied the requirements of the Statute of Frauds.  This may seem to be a harsh result, but the Code is expressing support for a basic business protocol— answer your business communications in a timely manner.  That is reasonable commercial behavior. If you don’t answer your business communications in a timely manner, and one of those communications confirms a nonexistent contract, you are exposed in a major way.    
This does not mean that the buyer will win in a lawsuit for the 1000 tables at $650.00 per table. However it does mean that one of two things will happen—you will either incur the expense of litigation proving your case, or you will settle.  Both of these can be avoided with a simple one sentence reply denying the existence of the contract.

Thursday, December 3, 2015

Mixed Transactions: UCC or Non-UCC?


As noted in a previous post, although Article 2 is entitled ‘Sales’, the actual scope of Article 2 as stated in Section 2-102 is that its coverage applies to ‘transactions in goods’.  Some transactions involve a combination of sales and services and have been labeled ‘mixed transactions’.  By way of simple example, assume patient ordered a set of dentures from her dentist which he later placed into her mouth.  You have the sales element in the actual sale of the dentures to the patient and you have the service element in measuring for the dentures and installing them into the patient.  These are the facts from a case I used when teaching Sales.  The court found that the transaction between the patient and the dentist was predominantly a service, not a sale. [Cook v Downing 1994 OK CIV APP 178, 891 P2d 611, 27 UCC Rep. Serv. 2d 837 (Ct. App. Div 1 1994) ]  Therefore, the Uniform Commercial Code did not  apply.
Courts have used several tests to determine whether or not a mixed transaction is a sale or a service.  The two most common are posed in the form of questions:
Is the gravamen of the transaction a sale or a service?
Is the primary or predominant purpose of the transaction a sale or a service?
Within these broad based questions, a variety of factors are discussed by the courts.  Before turning to some of these factors, a more fundament question must be asked:
What difference does it make whether a transaction is determined to be a sale or service?
The importance of the classification as a sale of goods or a service lies in the rules governing the drafting of contracts, and, if necessary, determines the governing rules when battles are fought.  As to the drafting of documents if that is in play, the UCC gives great weight to the agreement of the parties and freedom of contract as a general principle.  [Both of these topics have been discussed in earlier posts.]  It is difficult to imagine a more clear set of statutory guidelines with the corresponding ability to impact transactions than those given by the Uniform Commercial Code.  Someone drafting a contract who wants the UCC to govern a mixed transaction should definitely create a provision in the contract stating that it is the intention of the parties to treat the transaction as a sale.   While this is not enough to make a non-sale a sale, it is something the courts have looked at in classifying a mixed transaction contract.  As a general drafting strategy, I encourage a statement of intent where it is important and might ultimately be of use by the court in making its determination.
            If the question arises in the litigation context, the issue becomes: Where do you want to fight the battle?  That will turn on your knowledge base and skill set.  Where are you better equipped to fight?  Do you have better weapons under the Uniform Commercial Code or outside the Code?  That will sometimes be a fact specific analysis which in turn is determined by the relevant Code provisions. For example, statute of limitations protections; warranty provisions; notice provisions and the like.  Obviously, if you have a strong knowledge base in the Uniform Commercial Code, you will generally prefer to have matters resolved within the Code.  Your opponent is not likely to be as well versed in the Code as you are, so he or she will try to keep the case out of the Code, perhaps resolving it through contract law or the law of negligence.  So the answer to the question posed really boils down to what rules do you want to play under?  It can be viewed as something akin to home field advantage.
Mixed contracts occur in a wide variety of settings.  One of the most frequently litigated settings is found in the sale of computer systems.  Often these systems involve two elements—creation and design of the system—and the ultimate sale of the system.  They also involve the sale of software and hardware, both of which have been determined to be goods by the majority of courts.
Micro Data Base Systems, Inc. v. Dharma Systems, Inc 148F3d 649 (7th Cir. 1998) involved a dispute between two software companies—MDBS and Dharma Systems.  The underlying facts began with an IRS call for bids for a contract to improve its computer capabilities. Unisys Government Systems wanted to bid on the contract.  Toward that end, Unisys entered into a contract with MDBS for the provision of a workstation management system designed to be used by the IRS.  MDBS subsequently entered into a contract with Dharma who agreed to adapt its proprietary software program for use in the system MBDS would be providing to Unisys for sale to the IRS.  MBDS agreed to pay a $125,000 licensing fee for the use of the program and an additional $125,000 for adapting the program to meet the requirements of MBDS.
In the opinion, and with respect to the characterization of the transaction, the court noted that the law of the two states involved differed on whether the sale of custom software is a ‘good’ and hence subject to Article 2.  In Indiana, the sale of custom software has been held to be a service, whereas in New Hampshire, the sale of custom software has been held to be the sale of a good.  The court noted that under New Hampshire law the determination hinges on which aspect of the transaction ‘predominates’—the sale or the service. 
In reaching its determination that the contract was for the sale of goods, the court likened the services aspect of the contract to the labor that would attend the manufacture of any product.  In supporting this analysis the court stated:
                   
We doubt that it should even be called a ‘hybrid sale’, for this would imply that every sale of goods is actually a hybrid sale, since labor is a service and labor is an input into the manufacture of every good. Micro Data Base Systems, Inc,.at 655.
            There are cases going both ways on the question of whether developmental software which is later sold is a sale or a service.  The case under discussion is illustrative of the importance of the choice of law provisions of the Code [discussed in an earlier post].  If the parties had contracted for Indiana law to apply which would have been allowable under Section 1-301, the result in the case would have been different.  This is one of the reasons that it is so important to check the law of the various jurisdictions involved in a particular transaction so that parties can intelligently draft contracts which govern their transaction.