tag:blogger.com,1999:blog-13232249564354336422024-03-06T12:01:35.844-08:00 UCC Made Easy The Uniform Commercial Code (UCC) made easy is a ground breaking, easy to read, must have guide through the complexities of the Commercial Code. Never before has a short story been used to show and tell how these laws apply to the real world of business transactions.Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.comBlogger73125tag:blogger.com,1999:blog-1323224956435433642.post-67941238213595413432016-08-08T16:20:00.004-07:002016-08-08T19:19:05.073-07:00 Article 1: Always Relevant<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"> </span><span style="line-height: 115%;"><o:p></o:p></span></span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;">As of this post, we have covered most of Article1 and
Article 3, and close to half of Article 2.
I am very pleased with the growing views on the blog, and have received
some encouraging emails from readers. As
I stated when the blog first opened, the primary goal is to teach the basic
meaning of the text of the UCC. Periodically, as in the last post, I find a
case which requires discussion, but even in that context, the primary focus is
on the meaning of the text and how it fits in the overall flow of the UCC.<o:p></o:p></span></span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"> As a law
professor, I felt it important to begin each class with a review, and
periodically, and I feel the same need as to the blog, not just for the
readers, but for myself as well. With
the large number of new readers, and a lot of substantive text behind us, I
wanted to do a brief review of Article 1 and its impact on the UCC. This is
done in the hope that whenever you may encounter a UCC transaction at the
drafting, litigation, or intermediate stage, you will be certain to process the
transaction through Article1 in addition to the substantive Articles activated.<o:p></o:p></span></span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;">I believe that Article 1 is the most important Article
under the Uniform Commercial Code for two primary reasons. First, Article 1 applies to <i>all </i>transactions under the Code per
Section 1-102.</span><span style="line-height: 115%;"> </span>Therefore, regardless of where you are in the Code, Article
1 has impact, and the impact can be dramatic. <span style="line-height: 115%; mso-bidi-font-size: 12.0pt;">The substantive Articles deal with the subject matter
with the purview of each Article, however, the content of these Articles only
presents part of the story, for in order to truly understand the meaning of any
of the substantive provisions of the UCC, it is essential to have a thorough
understanding of Article 1.<o:p></o:p></span></span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Second, Article 1 contains some of
the most powerful and impactful provisions of the Code, provisions which bring
light and special meaning to the language of a contract; create remarkable
drafting opportunities; and contain the fundamental policies upon which the UCC
is drafted:</span></span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><a href="https://www.blogger.com/null" name="1-103a"></a><span style="line-height: 115%;">(a) The </span><a href="https://www.law.cornell.edu/ucc" title="Uniform Commercial Code"><span style="line-height: 115%; text-decoration: none;">Uniform Commercial Code</span></a><span style="line-height: 115%;"> must be <i>liberally
construed and applied</i> to promote its underlying purposes and policies,
which are: (1) to simplify, clarify, and modernize the law governing commercial
transactions; (2) to permit the continued expansion of commercial practices
through custom, usage, and </span><a href="https://www.law.cornell.edu/ucc/1/1-201#Agreement"><span style="line-height: 115%; text-decoration: none;">agreement</span></a><span style="line-height: 115%;"> of the parties; and (3) to make uniform the law among the
various jurisdictions. [Emphasis Added]<o:p></o:p></span></span></span></div>
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;">As stated in Section 1-103(a)(1)(2)(3),<span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"> the drafters of the Code direct that the UCC
be ‘liberally construed and applied’ to promote these policies. An attorney who
lines up legal arguments with an appropriate policy, coupled with the
directives for liberal construction and application, has a great advantage in
guiding the court to the desired result.</span></span></span></div>
<div style="margin: 0in; text-indent: 0.5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "sans-serif";">In addition to the stated policies,
Section 1-103 contains one of the most powerful and important provisions of the
Uniform Commercial Code:<o:p></o:p></span></span></span></div>
<div style="margin: 0in; text-indent: 0.5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%;">Unless displaced by the particular provisions of the </span><a href="https://www.law.cornell.edu/ucc" title="Uniform Commercial Code"><span style="line-height: 115%; text-decoration: none;">Uniform Commercial Code</span></a><span style="line-height: 115%;">, the principles of law and equity, including the
law merchant and the law relative to capacity to </span><a href="https://www.law.cornell.edu/ucc/1/1-201#Contract"><span style="line-height: 115%; text-decoration: none;">contract</span></a><span style="line-height: 115%;">,
principal and agent, estoppel, fraud, misrepresentation, duress, coercion,
mistake, bankruptcy, and other validating or invalidating cause supplement its
provisions. Section 1-103(b)<o:p></o:p></span></span></span></div>
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;">The
net effect of Section 1-103(b) is to incorporate all ‘principles of law and
equity’ which exist, ‘unless displaced by the particular provisions of the
Uniform Commercial Code.' So, if the
Code doesn’t knock it out via a ‘particular provision’ the whole body of law
involved will supplement the Uniform Commercial Code provisions. It doesn’t get more powerful than that. <o:p></o:p></span></span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;">A simple review of the supplemental principals of law
stated illustrates the massive content available to attorneys who are involved
in UCC transactions. The general law of
contracts, agency, estoppel, misrepresentation and fraud often are often intertwined
in commercial transactions.
Understanding the applicability of any of these supplemental principles,
and how to creatively utilize them gives an enormous advantage to someone so
armed. <o:p></o:p></span></span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;">The impact of Article 1 is dramatically illustrated in
the case</span><span style="font-family: "helvetica" , "sans-serif";"> of </span><i><u><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;">In Re Invenux, Inc.</span></u></i><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;">, 298 B.R. 442, </span><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;">51 UCC Rep Serv
2d </span>(Bkrtcy. D. Colo. 2003). The trustee in bankruptcy was
attacking the validity of a security agreement on the grounds that it did not
adequately describe collateral as required by Section 9-203 The security
agreement in question was very detailed in its composition, but did not include
stock that was purportedly to be included.
Defendant’s position was that the contract—i.e.—the security agreement,
was reformed between the original debtor and the secured party and therefore,
stock was incorporated into the security agreement.<o:p></o:p></span></span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;">The question before the court was very significant for
two reasons. First, if the court did not
find a reformation, the security agreement would have been invalid and the security
interest unenforceable. Second, if the
court found a reformation, as it did, the result would in effect be concluding
that the supplemental principles contained in Section 1-103(b) can override the
substantive provisions of another Article.
Considering the incredibly broad scope of Section 1-103(b), the
implications are enormous. <i><u>In re
Inveneux</u></i> is not an aberration as regards the impact of Section 1-103(b)
on the substantive articles of the Code, but illustrative of the powerful
impact that section can have under the UCC.<o:p></o:p></span></span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;">I review Section 1-103(b) in connection with every
case I review under the Code.
Regrettably, a very large number of commercial transactions involve
fraud and misrepresentation. It may also
be that under the law of a particular substantive Article a result may appear
to be inequitable. Section 1-103(b) supplements the totality of the Code with
the law of equity. Even if one does not
win on such a theory, it forces the opposition to respond and creates doubt. <o:p></o:p></span></span></span></div>
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"> Another reason Article 1 is so
important is that it contains critical definitions which are applicable
throughout the Code. There are two
definitions which are so important and powerful under the Code that they must
be highlighted. These are the
definitions of ‘contract’ and ‘agreement.’
<o:p></o:p></span></span></span></div>
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"> To get a full picture of the concept
of contracts under the UCC, one must move beyond the instinctive reactions that
most of us have when we hear the word ‘contracts’ in connection with the Code,
namely, Sales contracts. The application
of the word contract under the UCC embodies much more. It is not an
exaggeration to say that it is the most important definition in the Code,
certainly from an operative standpoint.
Breach of contract is the essence of all lawsuits under the UCC. So in viewing the UCC and the word
‘contract,' one should envision the concept as one which permeates the
UCC. By way of illustration, contracts
exist under the Code between: buyers and sellers [Article 2]; lessors and
lessees [Article 2A]; makers and payees [Article3]; banks and customers [Article
4]; applicant and issuer [Article 5]; issuer and bailor [Article 7] debtor and
secured party [Article 9]. <o:p></o:p></span></span></span></div>
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"> The foregoing contractual
relationships are illustrative, not by any means exclusive. In an earlier post, I suggested the benefits
of a systematic approach to all UCC problems.
This creates a consistency of methodology, and the brain will adjust
accordingly. Once the facts are
thoroughly understood and diagrammed, I suggest a very detailed analysis of
contract and agreement. As you will see shortly, the elements of agreement
dramatically impact the bottom line meaning of the contract. Once the analysis
of ‘contract’ and ‘agreement’ are in place, Section 103(b) should be reviewed.<o:p></o:p></span></span></span></div>
<div class="text-level2">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"> <span style="font-family: "arial" , "sans-serif";">The formal definition of contract is
found under Section 1-201(b)(12): <a href="https://www.blogger.com/null" name="1-201b12"></a><a href="https://www.blogger.com/null" name="Contract"></a><o:p></o:p></span></span></span></div>
<div class="text-level2">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "sans-serif"; font-size: 11.0pt;">“Contract means… the total legal obligation that results from
the parties' agreement as determined by the </span><a href="http://www.law.cornell.edu/ucc" title="Uniform Commercial Code"><span style="text-decoration: none;">Uniform Commercial Code</span></a><span style="font-family: "arial" , "sans-serif"; font-size: 11.0pt;"> as
supplemented by any other applicable laws."<o:p></o:p></span></span></span></div>
<div class="text-level2" style="margin-left: 0in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span></div>
<div class="text-level2" style="margin-left: 0in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="color: windowtext; font-family: "arial" , "sans-serif";">It is clear from the foregoing definition, that in order to
determine the elements of a particular contract, one must first ascertain the
parties’ agreement, </span><span style="font-family: "arial" , "sans-serif";">defined
as follows:</span><span style="color: windowtext; font-family: "arial" , "sans-serif";"><o:p></o:p></span></span></span></div>
<div style="margin: 0in 0in 0in 0.25in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span></div>
<div style="margin: 0in 0in 0in 0.25in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><i><span style="font-family: "arial" , sans-serif; font-size: 11pt;">“Agreement”</span></i><span style="font-family: "arial" , sans-serif; font-size: 11pt;"> means
the bargain of the parties in fact as found in their language or inferred from
other circumstances, including course of performance,<span class="apple-converted-space"> </span>course of dealing<span class="apple-converted-space"> </span>or usage of trade as provided in
Section 1-303. </span><span style="font-family: "arial" , "sans-serif"; font-size: 11.0pt;">Section 1-201(b)(3)<o:p></o:p></span></span></span></div>
<div style="margin: 0in 0in 0in 0.25in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span></div>
<div style="margin: 0in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , sans-serif;">The language of the parties may be explicit, but what it is
fascinating, is that what might appear to be very clear and precise language,
or no language, can be literally transformed by the application of course of
performance, course of dealing or usage of trade. Each is discussed in Section
1-303(a)(b)(c) respectively.<o:p></o:p></span></span></span></div>
<div style="margin: 0in; text-indent: 0.5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , sans-serif;">Course of performance
requires, among other things, a contract with multiple occasions for
performance and course of dealing requires previous transactions between the
parties. Neither may be present in any
given situation. Amidst this uncertainty
there is one thing that can almost always be counted on to supply valuable
information to any agreement under the Uniform Commercial Code:<span class="apple-converted-space"> </span><i>Trade Usage</i>. <span class="apple-converted-space"> </span>Commercial transactions take place
within the context of an existing industry, 99 plus per cent of the time. <span class="apple-converted-space"> </span>Within that industry, there is a
manner of business so customary and fundamental to the industry, that it
becomes part of the agreement between the parties, regardless of whether or not
it is even discussed. <span class="apple-converted-space"> <o:p></o:p></span></span></span></span></div>
<div style="margin: 0in; text-indent: 0.5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span></div>
<div style="margin: 0in; text-indent: 0.5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , sans-serif;">Trade usage is defined
under Section 1-303(a) as follows:<o:p></o:p></span></span></span></div>
<div style="margin: 0in; text-indent: 0.5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span></div>
<div style="margin: 0in 0in 0in 0.5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , sans-serif;">A "usage of trade" is any practice or method of dealing
having such regularity of observance in a place, vocation, or trade as to
justify an expectation that it will be observed with respect to the transaction
in question….<o:p></o:p></span></span></span></div>
<div style="margin: 0in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span></div>
<div style="margin: 0in; text-indent: 0.5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , sans-serif;">The impact that trade
usage can have in a case is dramatically illustrated in the case of <span class="apple-converted-space"> </span></span><u><span style="font-family: "arial" , sans-serif; font-size: 10pt;">In Re: </span></u><i><u><span style="font-family: "arial" , sans-serif;">Cotton Yard Antitrust Litigation</span></u></i><span style="font-family: "arial" , sans-serif; font-size: 8pt;">,<span class="apple-converted-space"> </span></span><span style="font-family: "arial" , sans-serif;">505 F<span style="font-family: "arial" , sans-serif;">.</span>3d<span style="font-family: "arial" , sans-serif;"> </span>274 (4<sup>th</sup><span class="apple-converted-space"> </span>Cir.,
2007).<span class="apple-converted-space"> </span></span><span style="font-family: "arial" , sans-serif; font-size: 8pt;"> </span><span style="font-family: "arial" , sans-serif;">At issue was whether or
not plaintiff purchasers of cotton and poly-cotton yarn were required to submit
their antitrust case to arbitration via an arbitration provision which,
according to defendants, was part of the contract as a result of the regular
and customary use of arbitration in the textile industry as a means of
resolving disputes. <span class="apple-converted-space"> </span></span><span style="font-family: "arial" , sans-serif; font-size: 10pt;"><o:p></o:p></span></span></span></div>
<div style="margin: 0in; text-indent: 0.5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , sans-serif;">At issue on appeal was
whether the district court’s ruling which excluded</span><span style="font-family: "arial" , sans-serif; font-size: 13.5pt;"><o:p></o:p></span></span></span></div>
<div style="margin: 0in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , sans-serif;">arbitration for the antitrust claim was correct. The court of
Appeals reversed the District Court on the arbitration ruling. <span class="apple-converted-space"> </span>After discussing case law which
recognized arbitration as the standard manner of resolving disputes in the
industry, the court held that the arbitration provision was automatically part
of the contract between the parties as a result of arbitration being a trade
usage in the textile industry. <span class="apple-converted-space"> </span>This
was true regardless of the fact that it was never formally agreed to by the
purchasers. <span class="apple-converted-space"> </span>The court
further found that a party’s knowledge of a trade usage, or lack thereof, is
irrelevant, a result which is clearly consistent with the text of the statute.<o:p></o:p></span></span></span></div>
<div style="margin: 0in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , sans-serif;"> There are over
86,000 trade associations in the United States, each with its own rules and
general codes of conduct. I recently
consulted on a case which had a trade association of six members, but
nevertheless had clear cut rules on what was supposed to happen in the event
goods supplied by members of the association turned out to be defective. While these rules may not always be
controlling, they are always relevant.<o:p></o:p></span></span></span></div>
<div style="margin: 0in; text-indent: 0.5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , sans-serif;">Another very important
provision under Article 1 is Section 1-302, the Code’s freedom of contract
provision. Subsection (a) allows parties to change the ‘effect’ of provisions
under the UCC, while subsection (</span>b)<span style="font-family: "arial" , "sans-serif";">
states that ‘the obligations of good faith, diligence, reasonableness and care
may not be disclaimed.' However, the
section goes on to state ‘The parties, by agreement, may determine the
standards by which the performance of those obligations is to be measured if
those standards are not manifestly unreasonable.'<o:p></o:p></span></span></span></div>
<div style="margin: 0in; text-indent: 0.5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "sans-serif";">By setting standards for the
performance of the items noted, the parties dramatically change the inquiry
should the matter end up in litigation.
In a case where no standards are set, the court and/or jury will
determine whether or not a particular standard has been met. If standards are
set, the inquiry is substantially different.
In this instance, the inquiry is: Were the standards met? Are the standards set ‘manifestly
unreasonable?' If met, and not manifestly unreasonable, they will hold up. The latter scenario gives the parties much
greater control as to the outcome in court.<o:p></o:p></span></span></span></div>
<div style="margin: 0in; text-indent: 0.5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , sans-serif;">One of the stated
underlying policies of the UCC is ‘uniformity of law among the various
jurisdictions’ Section 1-103(a)(3). The
provision has been interpreted by many courts to include decisions from other
states in a local jurisdiction.
Therefore, an attorney has the case decisions of 50 states as part of
his or her arsenal. Many attorneys
simply do not know about Section 1-103(a)(3) and are a corresponding
disadvantage in working with the Uniform Commercial Code.<o:p></o:p></span></span></span></div>
<div style="margin: 0in; text-indent: 0.5in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , sans-serif;">Another critically
important provision under Article 1 is Section 1-304 which states:<o:p></o:p></span></span></span></div>
<div class="MsoNormal" style="margin-left: 1in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%;">Every contract or duty within the Uniform Commercial Code imposes
an obligation of good faith in its performance and enforcement.<o:p></o:p></span></span></span></div>
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Good faith is defined as:</span></span></div>
<div class="MsoNormal" style="margin-left: 1in;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%;">…honesty in fact and the observance of reasonable commercial
standards of fair dealing.<o:p></o:p></span></span></span></div>
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Breach of the duty of good faith can have serious
consequences. Although the comments to Section 1-304 state that no independent
cause of action can be brought for a breach of the duty of good faith, there is
case law to the contrary. In fact, in
the case <span style="line-height: 115%; mso-bidi-font-size: 12.0pt;">of In<span class="apple-converted-space"> </span><i><u>First Nat. Bank in Libby v. Twombly</u></i>,
213 Mont. 66, 689 P.2d 1226 (Mont. 1984), the court stated:<o:p></o:p></span></span></span></div>
<div style="margin: 0in 0in 0in 1.5in; text-indent: 3pt;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , sans-serif;">"When the duty to exercise good faith is imposed by law
rather than the contract itself…<span class="apple-converted-space"> </span>the
breach of that duty is tortious. Therefore, punitive damages are
recoverable if the Bank's conduct is sufficiently culpable."<span class="apple-converted-space"> </span><i>First National Bank</i><span class="apple-converted-space"> <i><span style="font-family: "arial" , sans-serif;">in Libby</span></i> </span>at 1230.<o:p></o:p></span></span></span></div>
<div style="margin: 0in 0in 0in 1.5in; text-indent: 3pt;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span></div>
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;">Any
litigant who can persuade the court to entertain a claim for punitive damages
has enormous leverage.<o:p></o:p></span></span></span></div>
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"> It is important to note that while
the definition of ‘good faith’ quoted above is adopted in the majority of
jurisdictions, it has not been adopted in all of them. For example, New York,
Illinois and Missouri have not adopted the amended definition of good faith.
The minority definition of good faith is ‘honesty in fact in the conduct or
transaction’ concerned. There is no
requirement for commercial reasonableness, itself a matter of interesting
interpretation. As the comments to
Section 1-304 state, the conduct being reviewed is not the commercial
reasonableness of the actual conduct in the transaction, but the commercial
‘fairness’ of the conduct.<o:p></o:p></span></span></span></div>
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"> In this regard, it is important to
remember Section 1-301 which allows parties to transaction under the UCC to
choose the law of any state as long as that state has a ‘reasonable relation’
to the transaction in question.
Individuals involved in multistate transactions should always check the
law of the other jurisdiction prior to any drafting so that the law most
favorable to the client can be drafted into the contract. Although the Uniform Commercial Code is
designed to be ‘uniform,' it is processed through each state legislature before
adoption. Often changes are made and
sometimes they are significant. In
addition, the Code gives various alternatives to the states to adopt. Section 2-318 dealing with third party
beneficiaries of warranties offers a dramatic example and potential impact of
the differences between the provisions which may be enacted in a particular
states.<o:p></o:p></span></span></span></div>
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"> The forgoing sections are
illustrative of the impact that Article 1 can have under the Uniform Commercial
Code. Most of the provisions of Article
1 are covered in earlier posts for any readers who want to review the
same. The critical point however, is
that if you are involved in UCC transactions—whether at the drafting stage, or
litigation—it is essential to have a solid working knowledge of Article 1. This will give you an enormous advantage in
all dealings which you encounter under the UCC.<o:p></o:p></span></span></span></div>
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span>
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Article 1; supplementary principles of law' reformation of contract; description of collateral; good faith; freedom of contract; trade usage; course of dealing; course of performance; punitive damages; customer banking relationship.</span></span><br />
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span></div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0tag:blogger.com,1999:blog-1323224956435433642.post-88743124336037623762016-07-21T05:35:00.003-07:002016-07-21T07:05:34.226-07:00Requirement Contracts and The 'Stated Estimate <div class="MsoNormal" style="text-indent: .5in;">
As of this post, we have seen the
basic rule of Section 2-204(3) in operation multiple times within the text of
the Code. By way of review, that section states:</div>
<div style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: .5in; margin-right: 0in; margin-top: 0in; text-indent: 2.25pt;">
<a href="https://www.blogger.com/null" name="2-204(3)"></a><span style="font-family: "arial" , "sans-serif"; font-size: 11.0pt;">Even though one or
more terms are left open a<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#Contract%20for%20sale_2-106"><span style="font-family: "arial" , "sans-serif"; font-size: 11.0pt; text-decoration: none;">contract for sale</span></a><span class="apple-converted-space"><span style="font-family: "arial" , "sans-serif"; font-size: 11.0pt;"> </span></span><span style="font-family: "arial" , "sans-serif"; font-size: 11.0pt;">does not fail for
indefiniteness if the parties have intended to make a<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="font-family: "arial" , "sans-serif"; font-size: 11.0pt; text-decoration: none;">contract</span></a><span style="font-family: "arial" , "sans-serif"; font-size: 11.0pt;"> and there is a
reasonably certain basis for giving an appropriate remedy.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="line-height: 115%; mso-bidi-font-size: 12.0pt;">In
the previous post we looked at the absence of a price term in a contract, and
saw that per Section 2-305, the parties can create an enforceable contract
without a price in place. That, like
the general rule of Section 2-204(3), requires the intent of the parties to
enter into such an agreement.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"> We now look at a situation in which
no specific quantity need be stated in order to have an enforceable
contract. In this instance, the quantity
term is supplied by the ‘requirements of the buyer’ or ‘the output of the
seller’. This situation is governed by
Section 2-306(1): <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="background: white; font-size: 11.0pt; line-height: 115%;">(1) A term which measures the quantity by
the output of the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><span style="background: white; color: windowtext; font-size: 11.0pt; line-height: 115%; text-decoration: none; text-underline: none;">seller</span></a><span class="apple-converted-space"><span style="background: white; font-size: 11.0pt; line-height: 115%;"> </span></span><span style="background: white; font-size: 11.0pt; line-height: 115%;">or the requirements of the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-103#Buyer_2-103"><span style="background: white; color: windowtext; font-size: 11.0pt; line-height: 115%; text-decoration: none; text-underline: none;">buyer</span></a><span class="apple-converted-space"><span style="background: white; font-size: 11.0pt; line-height: 115%;"> </span></span><span style="background: white; font-size: 11.0pt; line-height: 115%;">means such actual output or requirements as may occur in<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-103#Good%20faith_2-103"><span style="background: white; color: windowtext; font-size: 11.0pt; line-height: 115%; text-decoration: none; text-underline: none;">good faith</span></a><span style="background: white; font-size: 11.0pt; line-height: 115%;">, except that no
quantity unreasonably disproportionate to any stated estimate or in the absence
of a stated estimate to any normal or otherwise comparable prior output or
requirements may be tendered or demanded.</span><span style="font-size: 11.0pt; line-height: 115%;"><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="line-height: 115%; mso-bidi-font-size: 12.0pt;">Although
the good faith requirement for output and requirements contracts is mandated by
Section 1-304, Section 2-306(1) explicitly states the good faith requirement in
output and requirements contracts. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"> The good faith component has
parameters placed upon it, in that no output or requirement may ‘be
unreasonably disproportionate to any stated estimate’. In the absence of any stated estimate, no
output or requirement may be tendered or demanded which is not ‘normal or
otherwise comparable prior output or requirements’. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="line-height: 115%; mso-bidi-font-size: 12.0pt;">It is clear from the text that if no quantity is
stated the seller’s output would be comprised of all units produced by the
seller. Similarly, if no specific amount
of requirements are stated, the buyer would be able to request all units to
fulfill its needs. Both of course are
subject to the limiting language of ‘normal or otherwise comparable output or
requirements’, and the good faith requirement of ‘honesty in fact and the
observance of reasonable commercial standards of fair dealing in the trade’.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"> A question appears to have arisen as
to what happens when the buyer provides a stated estimate and then chooses not
to purchase any units. Does the seller have any rights in that situation? A reading of the text of Section 2-306(1)
would appear to allow the seller to tender units to the buyer as long as the
amount tendered was not ‘unreasonably disproportionate’ to the stated
estimate. That however is not the result
reached in a 7<sup>th</sup> Circuit case that posed this precise question. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"> <i><u>Empire
Gas Corp. v American Bakeries Co.</u></i></span><b><span style="background: white; color: #222222; font-size: 10.5pt; line-height: 115%;"> </span></b><span style="background: white; color: #222222; line-height: 115%;">840 F.2d 1333 (7<sup>th</sup> Cir., 1988) Empire Gas was a retail distributor of
propane, and a provider of conversion units which convert gas engines to
propane engines. The major source of
profit for Empire was in the contract to purchase propane from Empire which
accompanied the sale of the conversion units
During the contract period in question, gasoline prices had risen
dramatically resulting in American Bakeries’ decision to convert to propane and
its resulting contract with Empire. The first contract drafted by Empire was
rejected by American, but the subsequent contract was accepted and executed,
which required American to purchase<i> </i></span><span class="apple-converted-space"><i><span style="background: white; color: #222222; font-size: 10.5pt; line-height: 115%;">“</span></i></span><i><span style="background: white; color: #222222; font-size: 10.5pt; line-height: 115%;"> </span></i><i><span style="background: white; color: #222222; line-height: 115%;">approximately three thousand (3,000) [conversion] units, more
or less depending upon requirements of Buyer</span></i><i><span style="background: white; color: #222222; font-size: 10.5pt; line-height: 115%;">”</span></i><i><span style="background: white; color: #222222; line-height: 115%;">.<o:p></o:p></span></i></div>
<div style="background: white;">
<span style="font-family: "arial" , "sans-serif";">In discussing Section 2-306, the court
posed the question of whether or not a buyer who makes a ‘stated estimate’ of
its anticipated needs is actually bound by that estimate as stated in the
contract when a buyer decides to purchase no units, or whether that estimate,
embodied in a signed writing, is irrelevant and unenforceable. Judge Posner stated the question as follows:</span><span style="color: #222222; font-family: "arial" , "sans-serif"; font-size: 11.5pt;"><o:p></o:p></span></div>
<div style="background: white; margin-left: .5in;">
<span style="color: #222222; font-family: "arial" , "sans-serif"; font-size: 11.5pt;">So we must decide whether the
proviso should be read literally when the buyer is demanding less rather than
more than the stated estimate.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="line-height: 115%; mso-bidi-font-size: 12.0pt;">The
court discussed the applicability of the ‘stated estimate’ language to a buyer
who orders more than a stated estimate. The court reasoned that without the
limiting language, a buyer could order significantly more goods when the market
was favorable. In discussing the issue, the court noted that the statute and
Official Comment 3’ <i><span style="color: #4a4a4a;">points to symmetrical treatment of the overdemanding and
underdemanding cases.’</span><o:p></o:p></i></span></div>
<div class="MsoNormal">
<span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"> Despite the clear language of the
statute and comment 3, the Court concluded that the stated estimate of the
buyer was of no legal significance when the buyer chose to purchase no units. In
reaching its conclusion, the court noted case law and respected commentary
which stands for the proposition that a buyer can reduce its requirements to
zero as long as it does so in good faith.
Such a reading is consistent with the statute when a buyer has agreed to
buy all of its requirements from a particular seller. Clearly, if it turns out that there are no
requirements, and that this is the result of a good faith decision by the
buyer, there is no breach.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"> I do not however, agree with the conclusion
that a stated estimate by a buyer is of no legal significance when the buyer
does not purchase any goods under the requirements contract. First, and foremost, such a result is in
conflict with the clear language of the statute. It is clear from the statute that a seller in
such a situation has the right to tender a quantity as long as the quantity is
not ‘unreasonably disproportionate to any stated estimate’. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"> The purpose of the ‘stated estimate’
is easy to grasp. It allows a seller of
goods to make preparations for the buyer while being able to fulfill other
orders. If, as in <i><u>Empire Gas</u></i>, seller knows that its buyer is committed to
purchasing a certain number of units, it can procure materials to accommodate
that order. Additional production may
also be required. The stated estimate
allows the seller to prepare. I
emphasize that the buyer can avoid this result by contracting for ‘all
requirements’, rather than a stated estimate.
<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="line-height: 115%; mso-bidi-font-size: 12.0pt;"> As Judge Posner notes, the comments
clearly indicate the drafters’ intent that the <span style="background: white; color: #222222;">"the agreed estimate is to be regarded as a center
around which the parties intend the variation to occur</span></span><span style="background: white; color: #222222; font-size: 10.5pt; line-height: 115%;">."<span class="apple-converted-space"> </span></span><span class="apple-converted-space"><span style="background: white; color: #222222; line-height: 115%;">A fair read of that language leads to the
conclusion that the drafters considered the ‘stated estimate’ to have legal
significance. Moreover, there is nothing
in the text or the comments which supports limiting the applicability to over
purchases by a buyer as opposed to no purchases by the buyer.<o:p></o:p></span></span></div>
<div class="MsoNormal">
<span class="apple-converted-space"><span style="background: white; color: #222222; line-height: 115%;"> I emphasize again that the case involving the ‘stated
estimate’ is different than a pure requirements contract. If a contract is for ‘all requirements’ of a
buyer, and if the buyer in good faith has no requirements, the buyer is not
liable. On the other hand when, as in this case, the parties negotiated a
contract with a stated estimate of requirements under that contract, I believe
that the buyer is bound by that estimate within the variations permitted by the
Code. The buyer could easily have
limited exposure by simply contracting for ‘all requirements’.<o:p></o:p></span></span></div>
<div class="MsoNormal">
<span class="apple-converted-space"><span style="background: white; color: #222222; line-height: 115%;"> Finally, of great significance is the recognition
throughout the Code of freedom of contract as an affirmative principle of the
Code as embodied in Section 1-302(a).
Moreover, recognizing the agreement of the parties is an underlying
principle upon which the Code was drafted per Section 1-103(a)(2). The parties in <i><u>Empire</u></i> agreed that American Bakeries would purchase approximately
3,000 units. This term was negotiated by
both parties. It is my opinion that the
‘stated estimate’, agreed to by the parties, has legal significance and is
binding. </span></span><span style="background: white; color: #222222; line-height: 115%;"><o:p></o:p></span></div>
<br />Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0tag:blogger.com,1999:blog-1323224956435433642.post-20319591324821610732016-06-29T17:07:00.000-07:002016-06-29T17:07:28.677-07:00No Price?—No Problem
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-520092929 1073786111 9 0 415 0;}
@font-face
{font-family:"MS Mincho";
mso-font-alt:"MS 明朝";
mso-font-charset:128;
mso-generic-font-family:modern;
mso-font-pitch:fixed;
mso-font-signature:-1610612033 1757936891 16 0 131231 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<br />
<div class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt; text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">The Article 2 policy, to
facilitate the deal, is nowhere more evident than Section 2-305, for that
section allows a contract to be formed regardless of whether or not the parties
have agreed on a price. This is a radical departure from Pre-Code law. This
rule is contained in the first sentence of Section 2-305 which states as
follows:</span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">‘The parties if they so intend
can conclude a </span><a href="https://www.law.cornell.edu/ucc/2/2-106#Contract%20for%20sale_2-106"><span style="color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">contract for
sale</span></a><span style="font-family: Arial; mso-bidi-font-family: Arial;"> </span><span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">even though the price is not settled….’ </span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt;">
<span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">On it's face, this would seem to conflict with
Section 2-204(3) which also facilitates the formation of a contract where the
parties intend to form a contract, provided there is a ‘reasonably certain
basis for giving an appropriate remedy.'<span style="mso-spacerun: yes;">
</span>Price is definitely essential in providing an ‘appropriate remedy.' This
is provided in the open price situation as follows:</span><span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt; text-indent: .5in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">In such a case the price is a reasonable price at
the time for delivery if</span></div>
<div class="MsoNormal" style="line-height: normal; margin-left: .5in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: .5in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">(a)
nothing is said as to price; or</span></div>
<div class="MsoNormal" style="line-height: normal; margin-left: .5in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: .5in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">(b)
the price is left to be agreed by the parties and they fail to agree; or</span></div>
<div class="MsoNormal" style="line-height: normal; margin-left: 1.0in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">(c) the
price is to be fixed in terms of some agreed market or other standard as set or
recorded by a third person or agency and it is not so set or recorded.</span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt;">
<a href="https://www.blogger.com/null" name="2-305(2)"></a><span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span></span><span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">There are a couple of things to be noted in Section
2-305(1).<span style="mso-spacerun: yes;"> </span>First, there must be requisite
intent by both parties to the contract for the open price term to be valid.<span style="mso-spacerun: yes;"> </span>Second, it is important to remember the full
import of the definition of ‘agreement’ when trying to ascertain whether the
parties ‘agreed’ to an open price term.<span style="mso-spacerun: yes;">
</span>Such an agreement can arise by way of course of performance, course of
dealing and usage of trade.</span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span></span><span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">There are situations where the parties agree that a
seller or buyer must set a price.<span style="mso-spacerun: yes;"> </span>In
such a situation, the price must be fixed in good faith.</span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">(2) A price to be fixed by the </span><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><span style="color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">seller</span></a><span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"> or by the </span><a href="https://www.law.cornell.edu/ucc/2/2-103#Buyer_2-103"><span style="color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">buyer</span></a><span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"> means a price for him to fix in </span><a href="https://www.law.cornell.edu/ucc/2/2-103#Good%20faith_2-103"><span style="color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">good faith</span></a><span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">.</span><span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt;">
<span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">Once again, we see the concept of good faith
figuring into the equation. If the parties are merchants, this requires
‘honesty in fact and the observance of reasonable commercial standards of fair
dealing in the trade.'<span style="mso-spacerun: yes;"> </span>Remember that
this definition, unlike the definition of ‘good faith’ in Article 1 ties
‘reasonable commercial standards of fair dealing’ to whatever trade is
involved.</span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt;">
<span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span>One
might have difficulty imagining an ongoing business practice of entering into
open price contracts.<span style="mso-spacerun: yes;"> </span>However, when
viewed in the context of a fluctuating market, an open price term makes perfect
sense.<span style="mso-spacerun: yes;"> </span>The petroleum industry offers an
excellent example of an industry that has an ongoing practice of open pricing.<span style="mso-spacerun: yes;"> </span>Litigation within that industry demonstrates
some points raised in earlier posts.<span style="mso-spacerun: yes;"> </span>For
example, is the good faith standard based upon a subjective analysis or an
objective analysis.<span style="mso-spacerun: yes;"> </span>In fact, in<i style="mso-bidi-font-style: normal;"><u> </u></i></span><span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"><i style="mso-bidi-font-style: normal;"><u><span class="st"><em>Mathis v</em>. <em>Exxon Corp</em>.,</span></u></i><span style="mso-bidi-font-style: normal;"><u><span class="st"></span></u><span class="st"> 302 F.3d 448, 454-57 (5th Cir.2002)</span></span><i style="mso-bidi-font-style: normal;"><u></u></i>, the Fifth Circuit
interpreted Texas law on the question to involve both subjective and objective
standard.</span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt;">
<span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;"><u>Mathis</u></i> involved a claim by Exxon
dealers in Texas which was predicated on alleged bad faith pricing by Exxon regarding the cost of gasoline to its dealers. The dealers alleged that Exxon was
attempting to drive them out of business by overcharging for the gasoline which
the dealers were required to purchase under their agreement with Exxon. Under
the terms of the agreement, Exxon was permitted to set the price for the
gasoline to be purchased by the Exxon dealers. The court noted:</span></div>
<div class="MsoNormal" style="background: white; margin-bottom: 11.25pt; margin-left: 1.0in; mso-margin-top-alt: auto;">
<span style="color: black; font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">Texas law, which
tracks the Uniform Commercial Code, implies a good faith component in any
contract with an open price term. Specifically,</span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 11.25pt; margin-left: 1.5in; mso-margin-top-alt: auto;">
<span style="color: black; font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">[t]he parties if they so intend can conclude a contract for sale
even though the price is not settled. In such a case the price is a
reasonable price at the time of delivery</span><span style="color: black; font-family: "MS Mincho"; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial;">. </span><span style="color: black; font-family: Arial; mso-fareast-font-family: "Times New Roman";">A price to be fixed by the seller or by the buyer means a price for him to fix
in good faith.</span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt;">
<span style="font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Exxon
contended that its pricing was proper inasmuch the price charged was within the
range of its competitors pricing and therefore established the ‘commercial
reasonableness’ requirement of good faith. The dealers’ contention was that
even if the price set was within the range stated by Exxon, good faith required
more. In essence, the dealers stated that if the ultimate purpose of Exxon was
to drive the franchises out of business, this would violate the ‘honesty in
fact’ portion of the good faith requirement.</span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt;">
<span style="font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span>The Court discussed comment 3 to
Section 2-305 in great detail, noting that in a ‘normal’ case the type of
standard pricing used by Exxon would have satisfied the good faith
requirement.<span style="mso-spacerun: yes;"> </span>However, the court went on
to state that a lack of subjective good faith, such as the one alleged by the
dealers, would take the pricing of Exxon into the realm of bad faith.<span style="mso-spacerun: yes;"> </span>Accordingly, the judgment of the district
court in favor of the dealers was affirmed. </span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt;">
<span style="font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span>In </span><span style="font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><i style="mso-bidi-font-style: normal;"><u><span class="st"><em>Tom</em>-<em>Lin Enterprises</em>, Inc. <em>v</em>. <em>Sunoco</em>, Inc. (R&M)</span></u></i><span style="mso-bidi-font-style: normal;"><u><span class="st"></span></u><span class="st">, 349 F.3d 277 (6th Cir. 2003)</span></span>
the court concluded that Ohio law required the analysis of the question of good
faith to be limited to the objective standard:</span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">Thus, under Ohio law, to show that a
merchant-seller lacks good faith in fixing a price pursuant to a contract with
an open price term, it must be shown that the price was not fixed in a
commercially reasonable manner and, moreover, that the pricing was commercially
unjustifiable. These are two distinct issues, and both involve an <i>objective</i>
analysis of the merchant-seller's conduct. at 280 [Emphasis the Court’s]</span><span style="font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"></span></div>
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">The <u><i>Tom-Lin</i></u> case is brought to your attention for
several reasons.<span style="mso-spacerun: yes;"> </span>First, to illustrate
the differences between the interpretation of the good faith requirement under
Section 2-305; second to remind you of the importance of understanding key UCC
provisions of any state in which your client might be doing business.<span style="mso-spacerun: yes;"> </span>To the extent the transactions involve
multiple jurisdictions, a party can draft the law of the favorable jurisdiction
to control, provided the requisite contact with the chosen state exists.<span style="mso-spacerun: yes;"> </span>As the <i><u>Mathis</u></i> and <i><u>Tom-Lin</u></i> cases indicate, the
differences can have a dramatic impact on the outcome.</span>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0tag:blogger.com,1999:blog-1323224956435433642.post-64296217587882401002016-05-21T09:30:00.000-07:002016-05-21T09:30:31.622-07:00Article 2: Going Forward
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<br />
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">As of this post,
we have looked at some of the basic concepts in the formation of a contract
under Article 2 including: the Statute of Frauds under Section 2-201; the
importance of the distinction between a merchant and non merchant under Article
2; battle of the forms under Section 2-207; parol evidence under Section 2-202;
recovery of attorneys’ fees as consequential damages under Section 2-607(5)(a);
right to adequate assurance of performance under Section 2-609, and the failure
of presupposed conditions under Section 2-615.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">All of this is
supplemented with all of the posts on Article 1 starting with the Purposes and
Policies of the UCC as stated in Section 1-102, and the mandate to the courts
to ‘liberally construe and apply’ the Code to further these policies.<span style="mso-spacerun: yes;"> </span>The policies stated in Article 1 create a
macro framework through which to process all of the Uniform Commercial Code.<span style="mso-spacerun: yes;"> </span>These blend with the policies of a particular
Article in the interpretation process. Supplemental rules of law under Section
1-103(b) is another section which allows facts to be uniquely applied to the
supplemental area of law which applies to the case.<span style="mso-spacerun: yes;"> </span>For those of you seeking to learn Article 2,
it would be helpful to review the earlier posts on Article 1, followed by the
Article 2 posts.<span style="mso-spacerun: yes;"> </span>The more thorough your
knowledge of Article 1, the better your foundation for everything that follows.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">As we go forward
with Article 2, several things should be stated.<span style="mso-spacerun: yes;"> </span>First—and this is my opinion—sales
transactions are the least formalized transactions under the Uniform Commercial
Code.<span style="mso-spacerun: yes;"> </span>By that I mean it is less likely
that there will be a finalized, integrated document which has been formally
executed than in any of the other Articles.<span style="mso-spacerun: yes;">
</span>Sales transactions often involve a phone call, some correspondence, a
shipping document and conduct which recognizes the existence of the
contract.<span style="mso-spacerun: yes;"> </span>As a result, terms supplied by
the Code have greater significance.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Second, the
Article 2 expectation is that in the event of a dispute the parties will work
it out through negotiation.<span style="mso-spacerun: yes;"> </span>This is a
reflection of how these matters are handled in reality, and is reflected in the
general structure and content of Article 2. Hence, comment 4 to Section 2-607,
which deals with a buyer’s duty to notify a seller of a breach with respect to
accepted goods states:</span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial;">The notification which saves the buyer’s rights
under this Article need only be such as informs the seller that the transaction
is claimed to involve a breach, and thus opens the way for normal settlement
through negotiation.</span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">The ‘looseness’ of Article 2 in this regard
is to be contrasted with the specificity of other Articles. Under Article 9,
for example, you are more likely to find a definitive answer to a problem than
you would under Article 2.<span style="mso-spacerun: yes;"> </span>Secured
lenders want certainty when enforcement of a secured obligation must take
place.<span style="mso-spacerun: yes;"> </span>Thus, the policy of certainty is
expressed in the text of Article 9 and the policy of ‘keep the deal alive’ is
expressed in the structure and text of Article 2. </span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"><span style="mso-tab-count: 1;"> </span>Third,
the definitions of ‘contract’ and ‘agreement’ as defined under Article 1 have
particular significance under Article 2.<span style="mso-spacerun: yes;">
</span>This follows from the lack of formality referred to above.<span style="mso-spacerun: yes;"> </span>Thus, course of performance, course of
dealing and usage of trade need to be carefully examined in each instance to
see how a particular concept might impact the contract.<span style="mso-spacerun: yes;"> </span>As noted in an earlier post, a particular
transaction may not involve a ‘course of performance’ or ‘course of dealing’
since parties may be dealing with one and other for the first time, and the
contract may not call for ‘repeated occasions for performance’ with
objectionable behavior.<span style="mso-spacerun: yes;"> </span>However,
virtually all sales transactions occur within some trade or industry which has
its own rules and protocols.<span style="mso-spacerun: yes;"> </span>Absent
limiting contract provisions, these rules and protocols become part of the
contract. Trade journals are a potential source of incredibly valuable
information.</span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"><span style="mso-tab-count: 1;"> </span><span style="mso-spacerun: yes;"> </span>Part 3 of Article 2 deals with General
Obligations of the Parties: <span style="mso-spacerun: yes;"> </span>Among other
things, Part 3 supplies certain terms that the parties may not have included in
their written agreement or writings.<span style="mso-spacerun: yes;"> </span>For
example, in certain circumstances parties to a contract can conclude a binding
deal without have explicitly agreed on a price; the Code will supply a place of
delivery if none has been stated; and where action is required by no timeline
stated, the Code requires that action be taken within a ‘reasonable time’.<span style="mso-spacerun: yes;"> </span>This ties into a Section 2-204(3) discussed
in an earlier post:</span></div>
<div class="MsoNormal" style="margin-left: 1.0in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial;">A contract does not fail for indefiniteness if the
parties intended a contract and there is a reasonably certain basis for giving
an appropriate remedy. </span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Section 2-301
states the obligations of the buyer and seller in very general terms: </span></div>
<div class="MsoNormal" style="margin-left: 1.0in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial;">The obligation of the seller is to transfer and
deliver and that of the buyer is to accept<span style="mso-tab-count: 1;"> </span>
and pay in accordance with the contract.</span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"><span style="mso-spacerun: yes;"> </span>The
comment to Section 2-301 explains this as follows:</span></div>
<div class="MsoNormal" style="margin-left: 1.0in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial;">In order to determine what is in ‘accordance with
the contract’ under this Article usage of trade, course of dealing and
performance, and the general background of circumstances must be given due
consideration in conjunction with the lay meaning of the words used to define
the scope of the conditions and duties.</span></div>
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-US; mso-bidi-font-family: Arial; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;"><span style="mso-spacerun: yes;"> </span>Section 2-301 thus forms the foundation for
going forward in litigation; implicitly emphasizes the importance of drafting;
and explicitly recognizes ‘usage of trade, course of dealing and performance’
as critical elements in determining the terms and interpretation of a
contract.<span style="mso-spacerun: yes;"> </span>These concepts, the drafting
style of Article 2, and the overall purposes and policies of the Code should be
incorporated in the process of analyzing Article 2 transactions.</span>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0tag:blogger.com,1999:blog-1323224956435433642.post-85284526828524313682016-05-05T08:40:00.000-07:002016-05-05T08:40:24.730-07:00Events Impairing Performance: The Code Response
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-520092929 1073786111 9 0 415 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;}
a:link, span.MsoHyperlink
{mso-style-noshow:yes;
mso-style-priority:99;
color:#428BCA;
mso-text-animation:none;
text-decoration:none;
text-underline:none;
text-decoration:none;
text-line-through:none;}
a:visited, span.MsoHyperlinkFollowed
{mso-style-noshow:yes;
mso-style-priority:99;
color:purple;
mso-themecolor:followedhyperlink;
text-decoration:underline;
text-underline:single;}
p
{mso-style-noshow:yes;
mso-style-priority:99;
margin-top:0in;
margin-right:0in;
margin-bottom:7.5pt;
margin-left:0in;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:"Times New Roman";
mso-fareast-font-family:"Times New Roman";}
span.apple-converted-space
{mso-style-name:apple-converted-space;
mso-style-unhide:no;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<br />
<div class="MsoNormal" style="text-indent: .5in;">
In the previous post we looked at
situations where ‘reasonable grounds for insecurity’ concerning the other
party’s performance have arisen, as well as action which can be taken in such a
situation to ‘demand adequate assurance of performance.’ The first sentence of
Section 2-609(1) notes in this regard<span style="mso-spacerun: yes;"> </span><i style="mso-bidi-font-style: normal;">‘A </i><a href="https://www.law.cornell.edu/ucc/2/2-106#Contract%20for%20sale_2-106"><i style="mso-bidi-font-style: normal;">contract for sale</i></a><i style="mso-bidi-font-style: normal;"> imposes an obligation on each party that
the other's expectation of receiving due performance will not be impaired.' </i>The
impairment contemplated by Section 2-609 is the result of some behavior by one
of the contracting parties.</div>
<div class="MsoNormal">
<span style="mso-tab-count: 1;"> </span>Section
2-615 also contemplates a situation where performance is not forthcoming;
however, in this instance, the non performance is not caused by the behaviors
of one of the parties to the transaction.<span style="mso-spacerun: yes;">
</span>Rather, the non performance (or partial performance) contemplated by
Section 2-615 is the result of some event which makes performance
‘impracticable.'<span style="mso-spacerun: yes;"> </span>Section 2-615(1)(a)
reads as follows:<span style="line-height: 115%; mso-bidi-font-size: 11.0pt;"></span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-size: 11.0pt; line-height: 115%;">Except so far as a </span><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><span style="color: windowtext; font-size: 11.0pt; line-height: 115%;">seller</span></a><span style="font-size: 11.0pt; line-height: 115%;"> may have assumed a greater
obligation and subject to the preceding section on substituted performance:</span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-size: 11.0pt; line-height: 115%;">(a) Delay in delivery or non-delivery in whole or in part by
a </span><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><span style="color: windowtext; font-size: 11.0pt; line-height: 115%;">seller</span></a><span style="font-size: 11.0pt; line-height: 115%;"> who complies with paragraphs (b) and
(c) is not a breach of his duty under a </span><a href="https://www.law.cornell.edu/ucc/2/2-106#Contract%20for%20sale_2-106"><span style="color: windowtext; font-size: 11.0pt; line-height: 115%;">contract for sale</span></a><span style="font-size: 11.0pt; line-height: 115%;"> if performance as agreed has been
made impracticable by the occurrence of a contingency the non-occurrence of
which was a basic assumption on which the </span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="color: windowtext; font-size: 11.0pt; line-height: 115%;">contract</span></a><span style="font-size: 11.0pt; line-height: 115%;"> was made or by compliance in </span><a href="https://www.law.cornell.edu/ucc/2/2-103#Good%20faith_2-103"><span style="color: windowtext; font-size: 11.0pt; line-height: 115%;">good faith</span></a><span style="font-size: 11.0pt; line-height: 115%;"> with any applicable foreign or
domestic governmental regulation or order whether or not it later proves to be
invalid.</span></div>
<div class="MsoNormal">
In order for the event to come within Section 2-615, it must
be of such a nature that the non occurrence of that event was ‘a basic
assumption on which the contract was made.'<span style="mso-spacerun: yes;">
</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
The other situation contemplated by
Section 2-615 is where the party who is unable to perform is precluded from
performance by ‘any applicable foreign or domestic governmental regulation.' As
noted in the text, it is irrelevant if the regulation is later proved to be
invalid. </div>
<div class="MsoNormal">
<span style="mso-tab-count: 1;"> </span>There are
several things which should be noted in the initial discussion of Section
2-615..<span style="mso-spacerun: yes;"> </span>First, Section 2-615 deals with
a situation where performance has become ‘impracticable.'<span style="mso-spacerun: yes;"> </span>This is not the same thing as ‘impossible.'<span style="mso-spacerun: yes;"> </span>As noted in Official Comment 3 to Section
2-615, the word ‘impracticable’ was used ‘<i style="mso-bidi-font-style: normal;">to
call attention to the commercial character of the criterion chosen by this
Article</i>.'<span style="mso-spacerun: yes;"> </span>Second, although the
section is drafted as pertaining only to the seller, Official Comment 9 states
in part that in certain situations ‘the reason of the present section may well
apply and entitle the buyer to the exemption.' There is case law which supports
that result.<span style="mso-spacerun: yes;"> </span>Third, a dramatic price
change is not within the purview of Section 2-615.<span style="mso-spacerun: yes;"> </span>That stated, there must have been some event
that caused the dramatic price change, and that is where the focus should be
directed. </div>
<div class="MsoNormal" style="text-indent: .5in;">
In order to avail oneself of
Section 2-615(1) the party must comply with Sections 2-615(a)&(b). Section
2-615(b) is activated when the triggering event affects only part of a seller’s
capacity to perform and requires an allocation of product by the seller:</div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-size: 11.0pt; line-height: 115%;">Where the causes mentioned in paragraph (a) affect only a
part of the </span><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><span style="font-size: 11.0pt; line-height: 115%;">seller's</span></a><span style="font-size: 11.0pt; line-height: 115%;"> capacity to perform, he must
allocate production and deliveries among his customers but may at his option
include regular customers not then under contract as well as his own
requirements in any manner which is fair and reasonable.</span></div>
<div class="MsoNormal">
Note, upon activation of Section 2-615(1), the seller ‘at
his option’ may include ‘regular customers not then under contract’, and may
also include its own requirements for further manufacture.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal" style="text-indent: .5in;">
Any allocation must be done in a
‘fair and reasonable manner.'<span style="mso-spacerun: yes;"> </span>Once
again, we see an opportunity to draft what is, or is not, an allocation which
is fair and reasonable, and if this is done, the inquiry will be limited to:
were the called for standards of ‘fair and reasonable’ met; and if so, were
these standards not ‘manifestly unreasonable’ per Section 1-302.<span style="mso-spacerun: yes;"> </span>As will be demonstrated shortly, this is one
of several creative drafting provisions that can pay big dividends in the event
of litigation.</div>
<div class="MsoNormal">
<span style="mso-tab-count: 1;"> </span>Section
2-615(c) states the final requirement for Section 2-615(a) to be properly
utilized:</div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-size: 11.0pt; line-height: 115%;">The </span><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><span style="font-size: 11.0pt; line-height: 115%;">seller</span></a><span style="font-size: 11.0pt; line-height: 115%;"> must notify the </span><a href="https://www.law.cornell.edu/ucc/2/2-103#Buyer_2-103"><span style="font-size: 11.0pt; line-height: 115%;">buyer</span></a><span style="font-size: 11.0pt; line-height: 115%;"> seasonably that there will be delay
or non-delivery and, when allocation is required under paragraph (b), of the
estimated quota thus made available for the buyer.</span></div>
<div class="MsoNormal">
The procedure required for the notice referred to is
contained in Section 2-616(1)(a)(b)(2)(3).*<span style="font-size: 11.0pt; line-height: 115%;"></span></div>
<div class="MsoNormal">
<span style="mso-tab-count: 1;"> </span>The general
freedom of contract principle contained in Section 1-302 is explicitly stated
in the first sentence of Section 2-615(a) which states in relevant part as
follows<i style="mso-bidi-font-style: normal;"> : </i><i style="mso-bidi-font-style: normal;"><span style="mso-fareast-font-family: "Times New Roman";">Except so far
as a </span></i><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><i style="mso-bidi-font-style: normal;"><span style="color: windowtext; mso-fareast-font-family: "Times New Roman";">seller</span></i></a><i style="mso-bidi-font-style: normal;"><span style="mso-fareast-font-family: "Times New Roman";"> may have assumed a greater
obligation...</span></i><span style="mso-fareast-font-family: "Times New Roman";">
The ‘greater obligation’ does not need to be stated as guarantee of delivery in
a Section 2-615 situation.<span style="mso-spacerun: yes;"> </span>The greater
obligation can be created through a remedial provision.</span></div>
<div class="MsoNormal">
<span style="mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span><span style="mso-spacerun: yes;"> </span><i style="mso-bidi-font-style: normal;"><u>Gold
Kist v Stokes</u> </i><span style="mso-bidi-font-weight: bold;">138 Ga. App. 482
(1976),</span> <span style="mso-bidi-font-weight: bold;">226 S.E.2d 268 involved
an appeal from a summary judgment.<span style="mso-spacerun: yes;"> </span>There
were a number of evidentiary issues at the trial court which the appellate
court required to be heard by a jury.<span style="mso-spacerun: yes;">
</span>Another issue raised was the failure of the trial court to include the
introductory language of Section 2-615 in its jury instruction as it relates to
‘seller assuming a greater obligation’.<span style="mso-spacerun: yes;">
</span>The contract in the Gold Kist case had the following provision:</span></span></div>
<div class="MsoNormal" style="margin-left: 1.0in;">
<span style="font-size: 11.0pt; line-height: 115%; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman";">...</span><span style="font-size: 11.0pt; line-height: 115%;"> [i]f the
producer is unable to deliver the quantity contracted for <i>solely because of reasons
beyond his control,</i> the measure of damages for failure to deliver is the
difference between contract and market price on the day of breach.</span><span style="font-size: 11.0pt; line-height: 115%; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman";"> </span><span style="font-size: 11.0pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal">
In reversing the trial court, the appellate court found that
under the noted provision, seller had ‘assumed a greater obligation’ via the
damage provision, and that the failure of the jury instruction to include the
introductory language of Section 2-615 as it pertained to the assumption of a
greater obligation by the seller was error.</div>
<div class="MsoNormal">
<span style="mso-tab-count: 1;"> </span>The case
graphically illustrates a point made throughout these posts. Proper drafting
yields great results.<span style="mso-spacerun: yes;"> </span>The remedial
provision probably got very little notice by the seller during negotiations or
one would assume the seller’s attorney would have objected to the provision.<span style="mso-spacerun: yes;"> </span>As a result of inclusion in the contract, the
remedial provision effectively overrode the result that would have occurred
under Section 2-615.</div>
<div class="MsoNormal">
<span style="mso-tab-count: 1;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 11.0pt; line-height: 115%;">____________________________________________________________________________</span></div>
<div style="background: white; line-height: 15.75pt; text-indent: .25in;">
<span style="font-family: Arial; font-size: 11.0pt;">*(1) Where the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-103#Buyer_2-103"><span style="font-family: Arial; font-size: 11.0pt;">buyer</span></a><span class="apple-converted-space"><span style="font-family: Arial; font-size: 11.0pt;"> </span></span><span style="font-family: Arial; font-size: 11.0pt;">receives notification of a material
or indefinite delay or an allocation justified under the preceding section he
may by written notification to the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><span style="font-family: Arial; font-size: 11.0pt;">seller</span></a><span class="apple-converted-space"><span style="font-family: Arial; font-size: 11.0pt;"> </span></span><span style="font-family: Arial; font-size: 11.0pt;">as to any delivery concerned, and
where the prospective deficiency substantially impairs the value of the whole<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="font-family: Arial; font-size: 11.0pt;">contract</span></a><span class="apple-converted-space"><span style="font-family: Arial; font-size: 11.0pt;"> </span></span><span style="font-family: Arial; font-size: 11.0pt;">under the provisions of this Article
relating to breach of installment contracts (Section<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-612.html"><span style="font-family: Arial; font-size: 11.0pt;">2-612</span></a><span style="font-family: Arial; font-size: 11.0pt;">), then also as to the whole,</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-left: .5in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-size: 11.0pt;">(a) terminate and thereby discharge any unexecuted portion of the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="font-size: 11.0pt;">contract</span></a><span style="font-size: 11.0pt;">; or</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-left: .5in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-size: 11.0pt;">(b) modify the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="font-size: 11.0pt;">contract</span></a><span class="apple-converted-space"><span style="font-size: 11.0pt;"> </span></span><span style="font-size: 11.0pt;">by
agreeing to take his available quota in substitution.</span></div>
<div style="background: white; line-height: 15.75pt;">
<a href="https://www.blogger.com/null" name="2-616(2)"></a><span style="font-family: Arial; font-size: 11.0pt;"><span style="mso-spacerun: yes;"> </span>(2) If after<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-103#Receipt_2-103"><span style="font-family: Arial; font-size: 11.0pt;">receipt</span></a><span class="apple-converted-space"><span style="font-family: Arial; font-size: 11.0pt;"> </span></span><span style="font-family: Arial; font-size: 11.0pt;">of such notification from the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><span style="font-family: Arial; font-size: 11.0pt;">seller</span></a><span class="apple-converted-space"><span style="font-family: Arial; font-size: 11.0pt;"> </span></span><span style="font-family: Arial; font-size: 11.0pt;">the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-103#Buyer_2-103"><span style="font-family: Arial; font-size: 11.0pt;">buyer</span></a><span class="apple-converted-space"><span style="font-family: Arial; font-size: 11.0pt;"> </span></span><span style="font-family: Arial; font-size: 11.0pt;">fails so to modify the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="font-family: Arial; font-size: 11.0pt;">contract</span></a><span style="font-family: Arial; font-size: 11.0pt;"> within a reasonable time not
exceeding thirty days the contract lapses with respect to any deliveries
affected.</span></div>
<div style="background: white; line-height: 15.75pt;">
<a href="https://www.blogger.com/null" name="2-616(3)"></a><span style="font-family: Arial; font-size: 11.0pt;"><span style="mso-spacerun: yes;"> </span>(3) The provisions of this section may
not be negated by<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#agreement_2-106"><span style="font-family: Arial; font-size: 11.0pt;">agreement</span></a><span class="apple-converted-space"><span style="font-family: Arial; font-size: 11.0pt;"> </span></span><span style="font-family: Arial; font-size: 11.0pt;">except in so far as the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><span style="font-family: Arial; font-size: 11.0pt;">seller</span></a><span style="font-family: Arial; font-size: 11.0pt;"> has assumed a greater obligation
under the preceding sections.</span></div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0tag:blogger.com,1999:blog-1323224956435433642.post-77600050619968358352016-04-21T08:13:00.001-07:002016-05-21T13:15:45.139-07:00Right to Adequate Assurance of Performance: Be Clear!<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Verdana;
panose-1:2 11 6 4 3 5 4 4 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Verdana;
panose-1:2 11 6 4 3 5 4 4 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
a:link, span.MsoHyperlink
{mso-style-noshow:yes;
mso-style-priority:99;
color:#428BCA;
mso-text-animation:none;
text-decoration:none;
text-underline:none;
text-decoration:none;
text-line-through:none;}
a:visited, span.MsoHyperlinkFollowed
{mso-style-noshow:yes;
mso-style-priority:99;
color:purple;
mso-themecolor:followedhyperlink;
text-decoration:underline;
text-underline:single;}
p
{mso-style-priority:99;
margin-top:0in;
margin-right:0in;
margin-bottom:6.8pt;
margin-left:.5in;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Arial;
mso-fareast-font-family:"Times New Roman";
mso-bidi-font-family:Arial;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<br />
<div style="margin-left: 0in; text-indent: .5in;">
<span style="font-family: inherit;"><span style="font-size: 12.0pt;">Section
2-609 contemplates a situation where either party to a sales contract has
‘reasonable grounds for insecurity’ regarding the other party’s performance,
and the insecure party wants some evidence that the other party is willing and
able to perform. Subsection (1) to Section 2-609 states as follows: </span></span><span style="font-family: inherit;"></span><span style="font-family: inherit;"> </span><br />
<blockquote class="tr_bq">
<span style="font-family: inherit;"><span style="font-size: 12.0pt;"></span></span>
<span style="font-family: inherit;"><span style="font-size: 12.0pt;">The
cases are clear that the determination of whether or not a party’s stated
grounds for insecurity are reasonable is a question of fact. In this regard, I
want to emphasize a point made repeatedly throughout these posts, and
particularly in connection with the discussion of Section 1-302(b) which allows
parties to an agreement to set standards for what is or is not ‘reasonable’,
provided the standards set are not ‘manifestly unreasonable’.<span style="mso-spacerun: yes;"> </span>If standards for ‘reasonableness’ are in fact
stated, the inquiry will be limited to: were the called for standards met, and
if so, were the standards ‘manifestly unreasonable’? If the standards are not
manifestly unreasonable, and proven, inquiry ends. Parties to a contract, can
if they choose, create provisions for what ‘reasonably constitutes’ insecurity
which would frame the inquiry as stated.</span></span></blockquote>
<span style="font-family: inherit;">A <a href="https://www.law.cornell.edu/ucc/2/2-106#Contract%20for%20sale_2-106">contract
for sale</a> imposes an obligation on each party that the other's expectation
of receiving due performance will not be impaired. When reasonable grounds for
insecurity arise with respect to the performance of either party the other may
in writing demand adequate assurance of due performance and until he receives
such assurance may if commercially reasonable suspend any performance for which
he has not already received the agreed return.</span></div>
<div style="margin-left: 0in; text-indent: .5in;">
<span style="font-family: inherit;"><span style="font-size: 12.0pt;"><br /></span></span></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-outline-level: 2; text-indent: .5in;">
<span style="font-family: inherit;"><span style="font-size: 12.0pt; line-height: 115%;">Although there are some
cases which state that an oral demand for ‘adequate assurance of due
performance’ is sufficient, the majority of cases follow the clear language of
the statute which requires that the request for adequate assurances be in
writing. Further, the cases are clear that the writing which purportedly seeks
adequate assurances actually make it clear in the writing that such a demand is
being made.<span style="mso-spacerun: yes;"> </span>Mere objections as to
performance do not meet the standard of a demand for proper performance which
is required to gain the benefit of the provisions of the section. As discussed
in the last post regarding Section 2-607(5)(a), the best way to insure that the
requirements of a particular provision are complied with is to track the
language of the statute. </span></span></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-outline-level: 2; text-indent: .5in;">
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><i style="mso-bidi-font-style: normal;"><u><span style="font-size: 12.0pt; line-height: 115%;">In Alaska Pacific Trading Company v Eagon Forest Products</span></u></i><span style="font-size: 12.0pt; line-height: 115%;"> 85 Wn App 354, 93 P 2d 41 (1997) one of the issues considered by the
court was whether the purported demand for assurances was properly stated.<span style="mso-spacerun: yes;"> </span>The case involved a sales contract by which ALPAC
was to sell 15,000 cubic meters of logs to Eagon.<span style="mso-spacerun: yes;"> </span>The lumber was to be shipped from Argentina
to Korea.<span style="mso-spacerun: yes;"> </span>Between the time of the
execution of the contract in April of 1993 and time stated time for shipment,
the market price for the lumber dropped significantly. Eagon became tentative
about performing under the contract and ultimately, ALPAC came to the
conclusion that Eagan was not going to accept the logs, and decided not to
ship. In discussing whether or not a proper demand for adequate assurance of
performance had been made by ALPAC, the court stated:<span style="mso-tab-count: 1;"> </span></span></span></div>
<div class="MsoNormal" style="line-height: normal; margin-left: 1.0in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<br />
<span style="font-family: inherit;"><span style="font-family: "arial"; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">Here,
while Ahn [Eagon] had some idea that Kimura and ALPAC were concerned about the
status of the contract, he did not understand that ALPAC would withhold
performance as a result….If we were to hold that, in every case where a
contract becomes less favorable for one party, general discussions between the
parties can be considered requests for assurances, we would defeat the purpose
of 2-609. That section requires a clear demand so that all parties are aware
that, absent assurances, the demanding party will withhold performance. An
ambiguous communication is not sufficient. <span style="mso-spacerun: yes;"> </span>Eagon at 357</span></span></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-outline-level: 2; text-indent: .5in;">
<br />
<span style="font-family: inherit;"><span style="font-size: 12.0pt; line-height: 115%;">When merchants are involved,
the determination of whether or not a particular performance was such as to
properly give rise to insecurity will be determined by commercial standards:</span></span><br />
<span style="font-family: inherit;"><span style="font-size: 12.0pt; line-height: 115%;"><br /></span></span></div>
<span style="font-family: inherit;"><a href="https://www.blogger.com/null" name="2-609(2)"></a><span style="mso-spacerun: yes;"> </span>(2) <a href="https://www.law.cornell.edu/ucc/2/2-104#Between%20Merchants_2-104">Between
merchants</a> the reasonableness of grounds for insecurity and the adequacy of
any assurance offered shall be determined according to commercial standards.</span><br />
<span style="font-family: inherit;"><br /></span>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-outline-level: 2;">
<span style="font-family: inherit;"><span style="font-size: 12.0pt; line-height: 115%;">This is consistent with Article 2 in general
and the drafters’ consistent direction to focus on what is going on in the
commercial world, not simply the legalese involved.<span style="mso-spacerun: yes;"> </span>As stated in comment 2 to Section 2-202:</span></span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-outline-level: 2;">
<br />
<span style="font-family: inherit;"><span style="font-family: "arial"; mso-bidi-font-family: Arial;">[This section definitely rejects] the premise that
the language used has the<span style="mso-tab-count: 1;"> </span> meaning
attributable to such language by rules of construction existing in law rather
than the meaning which arises out of the commercial context in which it was
used;</span></span></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-outline-level: 2;">
<br />
<span style="font-family: inherit;"><span style="font-size: 12.0pt; line-height: 115%;">This policy applies throughout Article 2 and,
through the expanded definition of good faith, arguably throughout the Code.</span></span></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-outline-level: 2;">
<span style="font-family: inherit;"><b><span style="font-family: "verdana"; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 18.0pt;"><span style="mso-tab-count: 1;"> </span></span></b><span style="font-size: 12.0pt; line-height: 115%;">Once
a proper demand for adequate assurance of performance has been made, the
failure to provide that assurance is a repudiation of the contract<b>: </b></span></span></div>
<blockquote class="tr_bq">
<span style="font-family: inherit;"><a href="https://www.blogger.com/null" name="2-609(4)"></a><span style="mso-spacerun: yes;"> </span>After <a href="https://www.law.cornell.edu/ucc/2/2-103#Receipt_2-103">receipt</a> of a
justified demand failure to provide within a reasonable time not exceeding
thirty days such assurance of due performance as is adequate under the
circumstances of the particular case is a repudiation of the <a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106">contract</a>.<span style="mso-spacerun: yes;"> </span>Section 2-609(4)</span></blockquote>
<span style="font-family: inherit;"><span style="font-size: 12.0pt; line-height: 115%;">Section
2-609 provides parties with a remedial type course of action which is short of
litigation, but clearly creates a situation where insecurities about
performance are either effectively dealt with through adequate assurances of
performance or repudiation occurs as a result of not providing those assurances.<span style="mso-spacerun: yes;"> </span>Firms dealing in sales and leases of goods
would be well advised to create a template for properly activating and
utilizing Section 2-609.<span style="mso-spacerun: yes;"> </span>This is in
addition to drafting a contract provision which sets standards for ‘reasonable
grounds for insecurity.' </span></span>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com2tag:blogger.com,1999:blog-1323224956435433642.post-19506356081333141722016-03-30T09:37:00.000-07:002016-03-30T09:39:01.285-07:00A Practical Application<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-520092929 1073786111 9 0 415 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<br />
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%;">During the past
year, this blog has presented a number of creative readings and applications of
a large number of Code Sections.<span style="mso-spacerun: yes;"> </span>Among
those section are Sections 1-201(b)(20) which defines good faith; Section 1-304
which imposes a duty of good faith in all contracts or duties under the Uniform
Commercial Code;<span style="mso-spacerun: yes;"> </span>Section 1-103(b)
involving supplemental laws applicable to the Code, and Section 2-607(5)(a)
which involves ‘vouching in’ a seller of goods whose buyer is sued.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%;">An Ohio court recently
considered some of these claims in an opinion which is linked to this
post.<span style="mso-spacerun: yes;"> </span>As you will see, consistent with
the majority of cases which have addressed the issue, the court found that
there was no independent cause of action for a breach of the duty to act in
good faith.<span style="mso-spacerun: yes;"> </span>However, the court did not
discuss whether certain remedial provisions were lost if a party were not found
to have been acting in good faith. Such a result is consistent with the
comments to Section 1-304 as discussed in a previous post. The court did not
address this point since it was not before the court on the plaintiff’s motion
for summary judgment. As the court noted it did not consider the report I wrote
which was a correct ruling.<span style="mso-spacerun: yes;"> </span>It is the
job of the attorneys to present respective interpretations of the law to the
court, so that the court can make the most informed decision possible.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%;">Section
2-607(5)(a) was discussed in relatively recent post. If you recall my
suggestion was to be certain to track the language of the statute to avoid
having to prove ‘substantial compliance’.<span style="mso-spacerun: yes;">
</span>In the case under discussion, a good letter was drafted, but not one
that tracked the language of Section 2-607(5)(a).<span style="mso-spacerun: yes;"> </span>Fortunately for the plaintiff, the court
found substantial compliance with the notice requirements of Section
2-607(5)(a) and found for plaintiff on the most critical issues of the
case.<span style="mso-spacerun: yes;"> </span>As discussed in the opinion, this
finding rendered plaintiff’s cause of action for collateral estoppel moot.<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%;">Finally, the
court did not discuss the recovery of attorney’s fees under Section 2-607(5)(a)
since it was not before the court. <span style="mso-spacerun: yes;"> </span>An
award of attorneys’ fees is supported by case law which was discussed in the
post on Section 2-607(5)(a). It may be that if the case goes to trial they can be
recovered.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%;">For those of you
who have read all the posts, you will see many things in the court’s
opinion.<span style="mso-spacerun: yes;"> </span>I have posted the opinion and
the Expert Witness Report so that you can see some of the concepts we have
discussed in action.<span style="mso-spacerun: yes;"> </span>I also do so to
emphasize how critical it is to have the facts down cold. That is how good
arguments are put together.<span style="mso-spacerun: yes;"> </span>Finally, to
emphasize the role of the attorney in UCC cases.<span style="mso-spacerun: yes;"> </span>Courts are busy.<span style="mso-spacerun: yes;"> </span>Courts want to reach the right result.<span style="mso-spacerun: yes;"> </span>They will make decisions based upon what is
properly pled and in the record.<span style="mso-spacerun: yes;"> </span>The
attorney who consistently does this will win almost every time.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<br />
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%;">Find the <a href="https://drive.google.com/folderview?id=0BwKQVm7-ID5lSDJxdm1ZRERDaFU&usp=sharing">Opinion and Expert Witness Report here.</a> </span></div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0tag:blogger.com,1999:blog-1323224956435433642.post-28316008320444343602016-03-12T08:06:00.000-08:002016-03-12T08:06:33.792-08:00A Case for Setting Standards
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:"Cambria Math";
panose-1:2 4 5 3 5 4 6 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536870145 1107305727 0 0 415 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-520092929 1073786111 9 0 415 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;}
a:link, span.MsoHyperlink
{mso-style-noshow:yes;
mso-style-priority:99;
color:blue;
text-decoration:underline;
text-underline:single;}
a:visited, span.MsoHyperlinkFollowed
{mso-style-noshow:yes;
mso-style-priority:99;
color:purple;
mso-themecolor:followedhyperlink;
text-decoration:underline;
text-underline:single;}
p.MsoListParagraph, li.MsoListParagraph, div.MsoListParagraph
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;}
p.MsoListParagraphCxSpFirst, li.MsoListParagraphCxSpFirst, div.MsoListParagraphCxSpFirst
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;}
p.MsoListParagraphCxSpMiddle, li.MsoListParagraphCxSpMiddle, div.MsoListParagraphCxSpMiddle
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;}
p.MsoListParagraphCxSpLast, li.MsoListParagraphCxSpLast, div.MsoListParagraphCxSpLast
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;}
span.apple-converted-space
{mso-style-name:apple-converted-space;
mso-style-unhide:no;}
p.text-level1, li.text-level1, div.text-level1
{mso-style-name:text-level1;
mso-style-unhide:no;
mso-margin-top-alt:auto;
margin-right:0in;
mso-margin-bottom-alt:auto;
margin-left:0in;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:"Times New Roman";
mso-fareast-font-family:"Times New Roman";}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.0in 1.0in 1.0in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
/* List Definitions */
@list l0
{mso-list-id:2100831922;
mso-list-type:hybrid;
mso-list-template-ids:979903924 1638148012 67698713 67698715 67698703 67698713 67698715 67698703 67698713 67698715;}
@list l0:level1
{mso-level-number-format:alpha-lower;
mso-level-text:"\(%1\)";
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:90.35pt;
text-indent:-.25in;}
@list l0:level2
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:126.35pt;
text-indent:-.25in;}
@list l0:level3
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:162.35pt;
text-indent:-9.0pt;}
@list l0:level4
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:198.35pt;
text-indent:-.25in;}
@list l0:level5
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:234.35pt;
text-indent:-.25in;}
@list l0:level6
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:270.35pt;
text-indent:-9.0pt;}
@list l0:level7
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:306.35pt;
text-indent:-.25in;}
@list l0:level8
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:342.35pt;
text-indent:-.25in;}
@list l0:level9
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:378.35pt;
text-indent:-9.0pt;}
ol
{margin-bottom:0in;}
ul
{margin-bottom:0in;}
-->
</style>
<div class="MsoNormal">
<span style="mso-tab-count: 1;"> </span>In our
discussion of Article 1, it was noted that the Uniform Commercial Code embodies
freedom of contract as an underlying principle.<span style="mso-spacerun: yes;">
</span>Section 1-302 is a codification of this basic principle. Section
1-302(1a) states as follows:</div>
<div class="text-level1" style="background: white; margin-bottom: 7.5pt; margin-left: 90.35pt; margin-right: 31.85pt; margin-top: 0in; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="font-family: Arial; font-size: 11.0pt; mso-fareast-font-family: Arial;"><span style="mso-list: Ignore;">(a)<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-family: Arial; font-size: 11.0pt;">Except as otherwise provided in
subsection (b) or elsewhere in [the Uniform Commercial Code], the effect of
provisions of [the Uniform Commercial Code] may be varied by<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/1/1-201#Agreement"><span style="color: windowtext; font-family: Arial; font-size: 11.0pt; text-decoration: none; text-underline: none;">agreement</span></a><span style="font-family: Arial; font-size: 11.0pt;">.</span></div>
<div class="text-level1" style="background: white; margin-bottom: 7.5pt; margin-left: 0in; margin-right: 31.85pt; margin-top: 0in;">
<span style="font-family: Arial;">The
limits of the abilities of the parties regarding freedom of contract, as well
as some of the specific freedoms granted are noted in section 1-302(b)</span></div>
<div class="text-level1" style="background: white; margin-bottom: 7.5pt; margin-left: 1.0in; margin-right: 31.85pt; margin-top: 0in;">
<a href="https://www.blogger.com/null" name="1-302b"></a><span style="font-family: Arial; font-size: 11.0pt;">(b) The obligations of<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/1/1-201#Goodfaith"><span style="color: windowtext; font-family: Arial; font-size: 11.0pt; text-decoration: none; text-underline: none;">good faith</span></a><span style="font-family: Arial; font-size: 11.0pt;">, diligence, reasonableness, and care prescribed by [the
Uniform Commercial Code] may not be disclaimed by<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/1/1-201#Agreement"><span style="color: windowtext; font-family: Arial; font-size: 11.0pt; text-decoration: none; text-underline: none;">agreement</span></a><span style="font-family: Arial; font-size: 11.0pt;">. The parties, by agreement, may determine the standards by
which the performance of those obligations is to be measured if those standards
are not manifestly unreasonable.</span></div>
<div class="MsoNormal">
<span style="mso-tab-count: 1;"> </span>It is my
belief that parties should set standards for good faith, diligence,
reasonableness and care whenever contracts are being drafted. Setting these
standards removes the question from the jury or the court as to the actual
legal question and restricts inquiry to the question of whether or not the fact
standards set by the parties have been met and whether or not the standards set
are manifestly unreasonable.<span style="mso-spacerun: yes;"> </span>An
excellent example of the importance of setting standards can be found under
Article 7 in connection with the storage of goods.</div>
<div class="MsoNormal" style="text-indent: .5in;">
Section 7-204 deals with the duties
of a warehouse to exercise care with respect to goods it has stored.<span style="mso-spacerun: yes;"> </span>Subsection (a) to Section 7-204 states as
follows:</div>
<div class="MsoListParagraph">
<span style="background: white; font-size: 11.0pt; line-height: 115%;">A<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/7/7-102#warehouse"><span style="background: white; color: windowtext; font-size: 11.0pt; line-height: 115%; text-decoration: none; text-underline: none;">warehouse</span></a><span class="apple-converted-space"><span style="background: white; font-size: 11.0pt; line-height: 115%;"> </span></span><span style="background: white; font-size: 11.0pt; line-height: 115%;">is liable for damages for loss of or injury to the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/7/7-102#Goods"><span style="background: white; color: windowtext; font-size: 11.0pt; line-height: 115%; text-decoration: none; text-underline: none;">goods</span></a><span class="apple-converted-space"><span style="background: white; font-size: 11.0pt; line-height: 115%;"> </span></span><span style="background: white; font-size: 11.0pt; line-height: 115%;">caused by its
failure to exercise care with regard to the goods that a reasonably careful
person would exercise under similar circumstances. However, unless otherwise
agreed, the warehouse is not liable for damages that could not have been
avoided by the exercise of that care.</span></div>
<div class="MsoNormal">
It is seen that the warehouse must exercise the level of
care which a ‘reasonably careful person’ would exercise under similar
circumstances. <span style="mso-spacerun: yes;"> </span>This of course, is a
standard and used frequently in many areas of law.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<span style="mso-tab-count: 1;"> </span>What is or
is not consistent with the standard enunciated however, can be dramatically
different than what one might reasonably believe would meet that standard.<span style="mso-spacerun: yes;"> </span>This is illustrated <i style="mso-bidi-font-style: normal;"><u>in United States Borax and Chemical Company v. Blackhawk Warehousing
and Leasing Company</u></i> 586 S.W. 2d 248 (Ark. CA, 1979). <i style="mso-bidi-font-style: normal;"><u>Borax</u></i> involved the storage of
goods consisting of agricultural chemicals owned by U.S. Borax pursuant to a
warehousing agreement between the parties. In early 1977 goods belonging to
Borax were stolen from Blackhawk. The goods in question consisted of 288 five
gallon cans of a product known as Cobex.<span style="mso-spacerun: yes;">
</span>The court described the burglary as follows:</div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-size: 11.0pt; line-height: 115%;">The burglars entered the building by ripping open one of the
side panels. Then chemicals which had been stored next to the wall were pulled
outside to allow entry into the building. After entry a padlock and chain were
cut to allow a door to be opened. A </span><span style="font-size: 9.5pt; line-height: 115%; mso-bidi-font-size: 11.0pt;">forklift truck was "hot
wired" since it was locked. Then it was used by burglars to move a</span><span style="font-size: 11.0pt; line-height: 115%;"> sailboat blocking the path to
appellant's stored chemicals. Other chemicals in the way were shoved aside, and
the cans of appellant's stored chemicals were taken from the premises. The loss
sustained by the plaintiff amounted to $23,658.28 and suit was brought for that
amount. <span style="mso-spacerun: yes;"> </span>at 833-834</span></div>
<div class="MsoNormal">
Defendant was granted a directed verdict by the trial court,
and Borax appealed, stating that defendant was negligent in not providing the
following specific security measures:</div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-size: 11.0pt; line-height: 115%;">(a) In failing to provide watchmen inside the facility; </span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-size: 11.0pt; line-height: 115%;">(b) In failing to have any burglar alarms or similar systems
installed in the warehouse; </span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-size: 11.0pt; line-height: 115%;">(c) In failing to provide roving patrols outside of the
building; </span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-size: 11.0pt; line-height: 115%;">(d) In failing to place palletized storage directly against
the inside wall at the point of access as was done against other walls to
prohibit any attempt to enter from the outside; </span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-size: 11.0pt; line-height: 115%;">(e) In failing to provide other adequate security measures
which would have prevented the break-in and subsequent loss to the plaintiff;</span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-size: 11.0pt; line-height: 115%;">(f) In failing to be put on notice that extra security
measures were needed after a previous break-in occurred at the warehouse
approximately 7 months before the loss was sustained by the plaintiff. at 836</span></div>
<div class="MsoNormal">
<span style="mso-tab-count: 1;"> </span>The court
discussed the security procedures in effect in the context of general
negligence standards.<span style="mso-spacerun: yes;"> </span>In quoting
Arkansas case law, the court states the question as follows: </div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-size: 11.0pt; line-height: 115%;">The failure to do something which a person of ordinary
prudence would do under the circumstances, or the doing of something that a
person of ordinary prudence would not do under the circumstances. <span style="mso-spacerun: yes;"> </span>at 836-837</span></div>
<div class="MsoNormal">
The court<span style="mso-spacerun: yes;"> </span>reversed
the trial court’s decision concluding that the question of reasonable care
should have gone to the jury.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<span style="mso-tab-count: 1;"> </span>As a result
of the agreement between the parties, the determination of reasonable care was
placed in the hands of the court.<span style="mso-spacerun: yes;"> </span>This
worked out favorably for Borax, but the warehouse could have avoided the whole
problem by simply stating the security measures being taken; selecting standards
which are not ‘manifestly unreasonable; and then proving that those standards
were met.<span style="mso-spacerun: yes;"> </span>I am not an expert in
warehouse security procedures, but it is clear that the burglary in question
required considerable effort to succeed.<span style="mso-spacerun: yes;">
</span>It may be that the suggestions made by Borax have merit, but it may also
be that Blackhawk had adequate security in place.<span style="mso-spacerun: yes;"> </span>If Blackhawk had properly drafted the
warehouse receipt, the problem could have been avoided.</div>
<div class="MsoNormal">
<span style="mso-tab-count: 1;"> </span>The same
rationale applies to every written contract. <span style="mso-spacerun: yes;"> </span>Parties who set the standards of conduct to
govern their transaction eliminate the problems which Blackhawk Leasing had to
deal with in the Borax case.<span style="mso-spacerun: yes;"> </span>In
presenting this approach to the other party, it should be emphasized that
everyone benefits from the certainty of setting standards. </div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com2tag:blogger.com,1999:blog-1323224956435433642.post-22745835935922862902016-03-11T14:19:00.002-08:002016-03-11T14:21:58.529-08:00Year End Evaluation: Going Forward
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-520092929 1073786111 9 0 415 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-bidi-font-family:Arial;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<div class="MsoNormal" style="text-indent: .5in;">
This post concludes one year of
continuous posting on the UCC-Made Easy blog.<span style="mso-spacerun: yes;">
</span>It has been fun, educational and highly productive.<span style="mso-spacerun: yes;"> </span>When the blog was first suggested by and
discussed with Conner, we agreed to evaluate at this point to determine a
strategy for going forward.<span style="mso-spacerun: yes;"> </span>The blog
cannot be valued in a standalone context, but must be viewed in a larger
one.<span style="mso-spacerun: yes;"> </span>There are other matters which must
be attended to.<span style="mso-spacerun: yes;"> </span>For example, in two
weeks I will be presenting a presentation entitled: <i style="mso-bidi-font-style: normal;">Juveniles, Detention and Freedom</i> to the Missouri Juvenile Justice
Association and members of the Missouri State Bar Association.<span style="mso-spacerun: yes;"> </span>Time spent writing about bills of lading must
be viewed not just in the context of this blog, and the positives, but also
what it takes from other areas. In October, I will be doing the most important
empowerment presentation for professionals I have ever done.<span style="mso-spacerun: yes;"> </span>This takes months to prepare.</div>
<div class="MsoNormal">
<span style="mso-tab-count: 1;"> </span>Upon
evaluation, I have decided to keep doing the blog, but not on a weekly basis.
The blog has demonstrated my core philosophies and approach to the Uniform
Commercial Code, as well as the manner in which I approach litigation and
drafting.<span style="mso-spacerun: yes;"> </span>But it is extremely tedious
and linear writing—both of which, not incidentally—have benefitted me
greatly.<span style="mso-spacerun: yes;"> </span>That stated, it is highly
inefficient in a teaching context as opposed to vertically integrated fact
patterns that provide information on many levels.<span style="mso-spacerun: yes;"> </span>By way of illustration, I have done between
55-60 posts. The earlier posts were short, but the majority of them averaged
1200-1400 words.<span style="mso-spacerun: yes;"> </span>If we choose the midway
of 1300, the posts generated 78,000 words, and covered most of Article 1, a
good portion of Article 3 and a small introduction to Article 2 and<span style="mso-spacerun: yes;"> </span>Article 7.<span style="mso-spacerun: yes;">
</span>The reason this is so many words is because it is written on a linear
level—basically, this is what this section means in this context.<span style="mso-spacerun: yes;"> </span>I would estimate that at this rate it would
take well over a millions words to get to a satisfactory level of content.</div>
<div class="MsoNormal" style="text-indent: .5in;">
<i style="mso-bidi-font-style: normal;"><u>The
Uniform Commercial Code Made Easy</u></i> by way of comparison has a total of
115,569 and covers an overwhelming majority of the Code. Many of the words are
contained in the detailed indexes of the book, so the actual number is even
shorter. While writing The UCC Made Easy required a great deal of discipline,
it provided the opportunity to operate at a much higher level during the
process. The book is written at, and operates at multiple levels at the same
time.<span style="mso-spacerun: yes;"> </span>Much like the text of the Code,
which is not surprising since the book is predicated upon many factual assumptions
upon which the Code was written.<span style="mso-spacerun: yes;"> </span>From my
perspective, the efficiency of the book is exponentially higher than a linear
text.<span style="mso-spacerun: yes;"> </span>That is not to say one can’t learn
from a linear text; indeed, it may be more efficient for a certain type of
mind.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal" style="text-indent: .5in;">
By way of analogy, linear
instruction is like an enormous warehouse covering hundreds of thousands of
square miles.<span style="mso-spacerun: yes;"> </span>Multilayered and
Multidimensional instruction is like a massive skyscraper.<span style="mso-spacerun: yes;"> </span>Depending on which floor you exit, you will
be presented with multilayered Code discussions and sections. It requires
inferential reading and effort, but the net effect is mastering the book, and
achieving an extremely high level of Code knowledge and success.</div>
<div class="MsoNormal" style="text-indent: .5in;">
The point of all this is that I
must move some of the 7-10 hours spent each week on the blog to other
areas.<span style="mso-spacerun: yes;"> </span>Productivity is not an option;
direction can be in some situations.<span style="mso-spacerun: yes;">
</span>Right now I am traveling, and will not be doing a UCC content post
during March.<span style="mso-spacerun: yes;"> </span>Thank you for reading, and
I look forward to communicating with you in the near future. </div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0tag:blogger.com,1999:blog-1323224956435433642.post-33787742530997447182016-02-26T06:19:00.002-08:002016-02-26T06:32:41.997-08:00Documents of Title: Shipment Under Reservation<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt; line-height: 115%;">The sale of goods often
involves the commercial movement of goods by carrier and sometimes the
subsequent storage of those goods.
Article 7 of the UCC- Documents of Title- governs the shipment of storage
of goods under the Uniform Commercial Code.
At the outset, it must be pointed out that shipments of interstate
transactions are governed by the Federal Bill of Lading Act 49 U.S.C.801 et.
seq., and the storage of agricultural commodities may be governed by the United
States Warehouse Act 7 U.S.C. 241. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt; line-height: 115%;">A major distinction between
these two acts is that the FBLA is a mandatory act, governing shipments in
interstate commerce, while the USWA is a voluntary licensing statute in which a
warehouse can apply for approval by the Secretary of Agriculture. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt; line-height: 115%;">The purpose of the posts
relating to the movement and storage of goods will be confined the Uniform
Commercial Code; however, given the statistic provided by the Farm Bureau
Agency that 47% of all warehouse space in the United States falls within its
purview, anyone involved in matters involving the storage of commodities should
definitely investigate the applicability of the USWA to a particular
transaction. With respect to other goods
which may be stored, Article 7 will control.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt; line-height: 115%;">The following is an excerpt
from <i><u>The Uniform Commercial Code Made
Easy</u></i> and is designed as a general introduction to bills of lading
including the delivery of goods under a bill of lading. Special emphasis is given to the concept of a
‘shipment under reservation’ which is governed by Section 2-505.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<br /></div>
<div class="Letters" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 1.75in; margin-right: -26.8pt; margin-top: 0in; text-indent: .25in;">
<b>V.
DELIVERY OF GOODS<o:p></o:p></b></div>
<div class="Letters" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 1.75in; margin-right: -26.8pt; margin-top: 0in; text-indent: .25in;">
<br /></div>
<div class="Letters" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 77.25pt; margin-right: -26.8pt; margin-top: 0in; mso-list: l0 level1 lfo2; text-indent: -18.75pt;">
<!--[if !supportLists]--><span style="font-family: "arial" , "helvetica" , sans-serif;">(A)<span style="font-size: 7pt; font-stretch: normal;"> </span><!--[endif]-->Bill
of Lading</span></div>
<div class="Letters" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 54.75pt; margin-right: -26.8pt; margin-top: 0in;">
<!--[if supportFields]><span
style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Bill of lading" \f “names” <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]--></div>
<div class="Letters" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 77.25pt; margin-right: -26.8pt; margin-top: 0in; mso-list: l0 level1 lfo2; text-indent: -18.75pt;">
<!--[if !supportLists]--><span style="font-family: "arial" , "helvetica" , sans-serif;">(B)<span style="font-size: 7pt; font-stretch: normal;"> </span><!--[endif]-->Person
Entitled to Take Possession of Goods;<b> <o:p></o:p></b></span></div>
<div class="Letters" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 54.75pt; margin-right: -26.8pt; margin-top: 0in;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"> Person Entitled Under the Document. <!--[if supportFields]><span
style='mso-element:field-begin'></span>XE "Person entitled under the
document” \f “<span style='mso-no-proof:yes'>7-SEVEN</span>”)<![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]--></span></div>
<div class="Letters" style="margin-right: -26.8pt; text-indent: .25in;">
<br /></div>
<div align="center" class="Letters" style="margin-right: -26.8pt; text-align: center;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><i>(A) Bill of Lading</i><a href="file:///C:/Users/Rob/Documents/UCC%20blog%20%23%2057.docx#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;">[1]</span></span><!--[endif]--></span></a><!--[if supportFields]><span
style='mso-element:field-begin'></span> XE "Bill of lading" \f
“names” <![endif]--><!--[if supportFields]><span style='mso-element:field-end'></span><![endif]--></span></div>
<div class="Letters" style="margin-right: -26.8pt; text-indent: .25in;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">When the
carrier receives the boats it will issue
a document known as a <i>bill of
lading.</i> <!--[if supportFields]><span style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Bill of lading" \f “names” <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]--> <!--[if supportFields]><span style='mso-element:
field-begin'></span>XE "Bill of lading” \f “<span style='mso-no-proof:
yes'>7-SEVEN</span>”)<![endif]--><!--[if supportFields]><span style='mso-element:
field-end'></span><![endif]--> This document will acknowledge the carrier’s
possession of the boats, and in addition will contain a contract for delivery
of the boats. In such a situation, the carrier is called a <b><i>bailee</i></b><i>.</i><a href="file:///C:/Users/Rob/Documents/UCC%20blog%20%23%2057.docx#_ftn2" name="_ftnref2" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;">[2]</span></span><!--[endif]--></span></a><i> </i><!--[if supportFields]><span
style='mso-element:field-begin'></span>XE "Bailee” \f “<span
style='mso-no-proof:yes'>7-SEVEN</span>”)<![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]--><i> </i>The person from whom the carrier receives the goods is called the <b><i>consignor</i></b>,<a href="file:///C:/Users/Rob/Documents/UCC%20blog%20%23%2057.docx#_ftn3" name="_ftnref3" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;">[3]</span></span><!--[endif]--></span></a>
<!--[if supportFields]><span style='mso-element:field-begin'></span>XE
"Consignor” \f “<span style='mso-no-proof:yes'>7-SEVEN</span>”)<![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->here, Royal. Since the
contract calls for delivery to the order of Royal, Royal would also be the <b><i>consignee</i></b>.<a href="file:///C:/Users/Rob/Documents/UCC%20blog%20%23%2057.docx#_ftn4" name="_ftnref4" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;">[4]</span></span><!--[endif]--></span></a>
<!--[if supportFields]><span style='mso-element:field-begin'></span>XE
"Consignee” \f “<span style='mso-no-proof:yes'>7-SEVEN</span>”)<![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]--></span></div>
<div class="Letters" style="margin-right: -26.8pt; text-indent: .25in;">
<br /></div>
<div class="Letters" style="margin-right: -26.8pt; text-indent: .25in;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"> <i>Form of
Document of Title<o:p></o:p></i></span></div>
<div class="Letters" style="margin-right: -26.8pt; text-indent: .25in;">
<br /></div>
<div class="Letters" style="margin-right: -26.8pt; text-indent: .25in;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">A document of
title <!--[if supportFields]><span style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Document of title" \f “names”)<![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->can take one of two forms. It
can be <b><i>negotiable</i></b><i> </i>or<i> <b>non
negotiable</b>. </i><!--[if supportFields]><i style='mso-bidi-font-style:normal'><span
style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Document of title, negotiable"
\f “names”)</i><![endif]--><!--[if supportFields]><i style='mso-bidi-font-style:
normal'><span style='mso-element:field-end'></span></i><![endif]--><i> </i><!--[if supportFields]><i
style='mso-bidi-font-style:normal'><span style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Document of title,
non-negotiable" \f “names”) <span style='mso-element:field-begin'></span>XE
"Bill of lading, negotiable” \f “<span style='mso-no-proof:yes'>7-SEVEN</span>”)<span
style='mso-element:field-end'></span> <span style='mso-element:field-begin'></span>XE
"Bill of lading, nonnegotiable” \f “<span style='mso-no-proof:yes'>7-SEVEN</span>”)<span
style='mso-element:field-end'></span></i><![endif]--><!--[if supportFields]><i
style='mso-bidi-font-style:normal'><span style='mso-element:field-end'></span></i><![endif]--><i> </i><!--[if supportFields]><i
style='mso-bidi-font-style:normal'><span style='mso-element:field-begin'></span>XE
"Document of title, negotiable” \f “<span style='mso-no-proof:yes'>7-SEVEN</span>”)</i><![endif]--><!--[if supportFields]><i
style='mso-bidi-font-style:normal'><span style='mso-element:field-end'></span></i><![endif]-->Section
7-104<!--[if supportFields]><span style='mso-element:field-begin'></span> XE
"7-104" <![endif]--><!--[if supportFields]><span style='mso-element:
field-end'></span><![endif]--> specifies
when a document is negotiable or non-negotiable: </span></div>
<div class="Letters" style="margin-right: -26.8pt; text-indent: .25in;">
<br /></div>
<div class="IndentedItalicsQuote" style="margin: 0in -17.8pt 0.0001pt 1in; text-align: left; text-indent: -0.25in;">
</div>
<ul>
<li><span style="font-family: "arial" , "helvetica" , sans-serif; text-indent: -0.25in;">(a)</span><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: 7pt; font-stretch: normal; text-indent: -0.25in;"> </span><span style="font-family: "arial" , "helvetica" , sans-serif; text-indent: -0.25in;">Except as otherwise provided in subsection
(c) a</span><span style="font-family: "arial" , "helvetica" , sans-serif; text-indent: -0.25in;"> </span><span style="font-family: "arial" , "helvetica" , sans-serif; text-indent: -0.25in;">document of title is negotiable if
by its terms the goods are to be delivered to bearer or to the order of a named
person;</span></li>
</ul>
<!--[if !supportLists]--><br />
<div class="IndentedItalicsQuote" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 1.0in; margin-right: -17.8pt; margin-top: 0in; mso-list: l1 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "arial" , "helvetica" , sans-serif;">(b)<span style="font-size: 7pt; font-stretch: normal;"> </span><!--[endif]-->A document of title<!--[if supportFields]><span
style='mso-bidi-font-family:Arial'><span style='mso-element:field-begin'></span>
XE "Document of title" \f “names”)</span><![endif]--><!--[if supportFields]><span
style='mso-bidi-font-family:Arial'><span style='mso-element:field-end'></span></span><![endif]--> other than one described in subsection (a)
is non-negotiable.<o:p></o:p></span></div>
<div class="IndentedItalicsQuote" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 1.0in; margin-right: -17.8pt; margin-top: 0in; mso-list: l1 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "arial" , "helvetica" , sans-serif;">(c)<span style="font-size: 7pt; font-stretch: normal;"> </span><!--[endif]-->A document of title is non-negotiable if, at
the time it is issued, the document has a conspicuous legend, <!--[if supportFields]><span
style='mso-bidi-font-family:Arial'><span style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Conspicuous" \f “article 2”</span><![endif]--><!--[if supportFields]><span
style='mso-bidi-font-family:Arial'><span style='mso-element:field-end'></span></span><![endif]--> however expressed, that it is
non-negotiable.<o:p></o:p></span></div>
<div class="IndentedItalicsQuote" style="margin-right: -26.8pt;">
<br /></div>
<div class="Letters" style="margin-right: -26.8pt; text-indent: .25in;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">In the instant
situation, the goods are to be delivered to the order of a named person, Royal.
Thus, the form of the bill of lading <!--[if supportFields]><span
style='mso-element:field-begin'></span>XE "Bill of lading” \f “<span
style='mso-no-proof:yes'>7-SEVEN</span>”)<![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->falls squarely within Section
7-104(a)<!--[if supportFields]><span style='mso-element:field-begin'></span> XE
"7-104(a)" <![endif]--><!--[if supportFields]><span style='mso-element:
field-end'></span><![endif]-->. As is obvious from the quoted definition,
whether or not a bill of lading<!--[if supportFields]><span style='mso-element:
field-begin'></span> XE "Bill of lading" \f “names” <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]--> [or any document of title] <!--[if supportFields]><span
style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Document of title" \f “names”)<![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->is negotiable <!--[if supportFields]><span
style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Document of title, negotiable"
\f “names”)<![endif]--><!--[if supportFields]><span style='mso-element:field-end'></span><![endif]-->
<!--[if supportFields]><span style='mso-element:field-begin'></span>XE
"Bill of lading, negotiable” \f “<span style='mso-no-proof:yes'>7-SEVEN</span>”)<![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->or non-negotiable <!--[if supportFields]><span
style='mso-element:field-begin'></span>XE "Bill of lading, nonnegotiable”
\f “<span style='mso-no-proof:yes'>7-SEVEN</span>”)<![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->is simply a matter of form. To
the extent that the bill of lading does not have the proper form, it is
non-negotiable<!--[if supportFields]><span style='mso-element:field-begin'></span>
XE "Document of title, nonnegotiable" \f “names”)<![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->.<a href="file:///C:/Users/Rob/Documents/UCC%20blog%20%23%2057.docx#_ftn5" name="_ftnref5" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;">[5]</span></span><!--[endif]--></span></a>
The distinction between negotiable and non-negotiable documents pervades all of
Article 7. In fact, the last sentence to the first paragraph of the comments to
Section 7-104<!--[if supportFields]><span style='mso-element:field-begin'></span>
XE "7-104" <![endif]--><!--[if supportFields]><span style='mso-element:
field-end'></span><![endif]--> states as
follows:</span></div>
<div class="Letters" style="margin-right: -26.8pt; text-indent: .25in;">
<br /></div>
<div class="IndentedItalicsQuote" style="margin-right: -17.8pt;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">The distinction between negotiable and
non-negotiable documents in this section makes the most important
sub-classification employed in this article.... <!--[if supportFields]><span
style='mso-bidi-font-family:Arial'><span style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Document of title, negotiable"
\f “names”)</span><![endif]--><!--[if supportFields]><span style='mso-bidi-font-family:
Arial'><span style='mso-element:field-end'></span></span><![endif]--> <!--[if supportFields]><span
style='mso-bidi-font-family:Arial'><span style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Document of title,
non-negotiable" \f “names”)</span><![endif]--><!--[if supportFields]><span
style='mso-bidi-font-family:Arial'><span style='mso-element:field-end'></span></span><![endif]--> <!--[if supportFields]><span
style='mso-bidi-font-family:Arial'><span style='mso-element:field-begin'></span>XE
"Document of title, negotiable” \f “<span style='mso-no-proof:yes'>7-SEVEN</span>”)</span><![endif]--><!--[if supportFields]><span
style='mso-bidi-font-family:Arial'><span style='mso-element:field-end'></span></span><![endif]--> <o:p></o:p></span></div>
<div class="IndentedItalicsQuote" style="margin-right: -26.8pt;">
<!--[if supportFields]><span
style='mso-bidi-font-family:Arial'><span style='mso-element:field-begin'></span>XE
"Document of title, non negotiable” \f “<span style='mso-no-proof:yes'>7-SEVEN</span>”)</span><![endif]--><!--[if supportFields]><span
style='mso-bidi-font-family:Arial'><span style='mso-element:field-end'></span></span><![endif]--><span style="font-family: "arial" , "helvetica" , sans-serif;"><o:p></o:p></span></div>
<div class="Letters" style="margin-right: -26.8pt; text-indent: .25in;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">There are many
reasons under Article 7 as to why this is so; it is, however, beyond the scope
of this memorandum to discuss all of these. In the instant situation, the
question for our purposes is: how does procurement of a negotiable bill of
lading <!--[if supportFields]><span style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Bill of lading" \f “names” <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->to the order of Royal reserve
a security interest <!--[if supportFields]><span style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Security Interest" \f “names”)<![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->in Royal? That is, how does Royal’s procurement of a
negotiable bill of lading to its order <i>secure
payment or performance of an obligation, </i>per Section 1-201(b)(35)<!--[if supportFields]><span
style='mso-element:field-begin'></span> XE "1-201(b)(35)" <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->. The simple straightforward
answer is that the carrier would be required to deliver the boats only to
Royal, inasmuch as Royal would be the holder<!--[if supportFields]><span
style='mso-element:field-begin'></span> XE "Holder" \f “names” <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]--> of the negotiable document (bill of lading), <!--[if supportFields]><span
style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Bill of lading" \f “names” <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]--> and delivery to anyone else would be unlawful.
Again, some further analysis is required to illustrate how this works under
Article 7. </span></div>
<div class="Letters" style="margin-right: -26.8pt; text-indent: .25in;">
<br /></div>
<div class="Letters" style="margin-right: -26.8pt;">
<i><span style="font-family: "arial" , "helvetica" , sans-serif;">(B) Person Entitled to Possession of the Goods; Person Entitled under
the Document<o:p></o:p></span></i></div>
<div class="Letters" style="margin-right: -26.8pt; text-indent: .25in;">
<br /></div>
<div class="Letters" style="margin-right: -26.8pt; text-indent: .25in;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">The first
relevant section in dealing with this question is Section 7-403(a) which reads
in pertinent part as f<!--[if supportFields]><span style='mso-element:field-begin'></span>
XE "7-403(a)" <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->ollows: </span></div>
<div class="Letters" style="margin-right: -26.8pt; text-indent: .25in;">
<br /></div>
<div class="IndentedItalicsQuote" style="margin-right: -17.8pt;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">The bailee shall deliver the goods to a
person entitled under the document of title if the person complies with
subsections (b) [dealing
with bailee’s lien] and (c) [surrender or notation of
deliveries on document of title].... <o:p></o:p></span></div>
<div class="IndentedItalicsQuote" style="margin-right: -26.8pt;">
<br /></div>
<div class="Letters" style="margin-right: -26.8pt; text-indent: .25in;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">As previously
noted, the bailee in the instant situation would be the carrier, who, per
Section 7-403(a) <!--[if supportFields]><span style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "7-403(a)" <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->noted above, must deliver to a
<i>“person entitled under a document,”</i>
which is defined under Section 7-102(a)(9) )<!--[if supportFields]><span
style='mso-element:field-begin'></span> XE "7-102(a)(9)" <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]--> as follows:</span></div>
<div class="Letters" style="margin-right: -17.8pt; text-indent: .25in;">
<br /></div>
<div class="IndentedItalicsQuote" style="margin-right: -17.8pt;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><b>Person entitled under the
document </b>means the holder, <!--[if supportFields]><span
style='mso-bidi-font-family:Arial'><span style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Holder" \f “names” </span><![endif]--><!--[if supportFields]><span
style='mso-bidi-font-family:Arial'><span style='mso-element:field-end'></span></span><![endif]-->in the case of a negotiable document of
title, or the person to which delivery of the goods is to be made by the terms
of, or pursuant to written instructions in a record under, a nonnegotiable document
of title. <o:p></o:p></span></div>
<div class="IndentedItalicsQuote" style="margin-right: -26.8pt;">
<br /></div>
<div class="Letters" style="margin-right: -26.8pt; text-indent: .25in;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">As indicated,
since a negotiable bill would be used here, the “person entitled under the
document” would be the holder of that document. <b><i>Holder</i></b> <!--[if supportFields]><span
style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Holder" \f “names” <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->is defined under Section
1-201(b)(21)(B)<!--[if supportFields]><span style='mso-element:field-begin'></span>
XE "1-201(b)(21)(B)" <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]--> as ‘<i>the
person in possession of a negotiable tangible document of title</i><!--[if supportFields]><span
style='mso-element:field-begin'></span> XE "Document of title" \f
“names”)<![endif]--><!--[if supportFields]><span style='mso-element:field-end'></span><![endif]--><i> if the goods are deliverable to bearer or
to the order of the person in possession’. </i>Thus, as long as Royal maintains
possession of the negotiable document of title <!--[if supportFields]><span
style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Document of title" \f “names”)<![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->issued to its order, Royal is
the person entitled under the document as the holder <!--[if supportFields]><span
style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Holder" \f “names” <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->of the negotiable document.
Should the carrier deliver to anyone other than the holder, it would be an
improper delivery for which the carrier would be liable. The carrier knows this and will only deliver
to Royal or the subsequent holder of the document. Royal doesn’t want the
boats; it simply wants to maintain possession of the bill of lading <!--[if supportFields]><span
style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Bill of lading" \f “names” <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->until it gets paid. </span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<br /></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-size: 12pt; line-height: 115%;"><span style="font-family: "arial" , "helvetica" , sans-serif;">The next series of posts
will roughly track the statutory provisions discussed in the memorandum above
as it relates to bills of lading.
Warehouse receipts will be covered thereafter. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<br /></div>
<div class="MsoNormal" style="text-indent: .5in;">
<br /></div>
<div class="MsoNormal" style="text-indent: .5in;">
<br /></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-size: 12pt; line-height: 115%;"><span style="font-family: "arial" , "helvetica" , sans-serif;"> <o:p></o:p></span></span></div>
<br />
<div>
<!--[if !supportFootnotes]--><span style="font-family: "arial" , "helvetica" , sans-serif;"><br clear="all" />
</span><br />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<br />
<div id="ftn1">
<div class="Footnotes">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><a href="file:///C:/Users/Rob/Documents/UCC%20blog%20%23%2057.docx#_ftnref1" name="_ftn1" title=""></a> <span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 115%;">[1]</span></span><!--[endif]--></span>
“Bill of Lading” <!--[if supportFields]><span style='mso-element:field-begin'></span><span
style='mso-spacerun:yes'> </span>XE "Bill of lading" \f “names” <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]--><!--[if supportFields]><span
style='mso-element:field-begin'></span>XE "Bill of lading” \f “<span
style='mso-no-proof:yes'>7-SEVEN</span>”)<![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->means a document evidencing
the receipt of goods for shipment issued by a person engaged in the business of
transporting or forwarding goods.... Section 1-201(b)(6)<!--[if supportFields]><span
style='mso-element:field-begin'></span> XE "1-201(b)(6)" <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->. </span></div>
<div class="Footnotes">
<span style="font-family: "arial" , "helvetica" , sans-serif;">A bill of lading is a document of title under Section
1-201(b)(16)<!--[if supportFields]><span style='mso-element:field-begin'></span>
XE "1-201(b)(16)" <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->. That section states as
follows:</span></div>
<div class="DoubIndFOOTNOTE">
<span style="font-family: "arial" , "helvetica" , sans-serif;">“Document of title” includes dock warrant, dock
receipt, warehouse receipt or order for the delivery of goods, and also any
other document which in the regular course of business or financing is treated
as adequately evidencing that the person or possession of it is entitled to
receive, hold and dispose of the document and the goods it covers. To be a
document of title a document must purport to be issued by or addressed to a
bailee and purport to cover goods in the bailee’s possession which are either
identified or are fungible portions of an identified mass. </span></div>
<div class="Footnotes">
<span style="font-family: "arial" , "helvetica" , sans-serif;">The use of documents in commercial transactions is extremely
important and will be discussed in some detail in this book. For now it should
simply be borne in mind that in many situations the document is treated as the
equivalent of the goods it covers and that transfer of the document or rights
thereunder will generally be equivalent to a transfer of the goods so covered.</span></div>
</div>
<div id="ftn2">
<div class="Footnotes">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><a href="file:///C:/Users/Rob/Documents/UCC%20blog%20%23%2057.docx#_ftnref2" name="_ftn2" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 115%;">[2]</span></span><!--[endif]--></span></a> <i>“Bailee” </i><!--[if supportFields]><i
style='mso-bidi-font-style:normal'><span style='mso-element:field-begin'></span>XE
"Bailee” \f “<span style='mso-no-proof:yes'>7-SEVEN</span>”)</i><![endif]--><!--[if supportFields]><i
style='mso-bidi-font-style:normal'><span style='mso-element:field-end'></span></i><![endif]--><i>means the person who by … bill of lading or
other document of title acknowledges possession of goods and contracts to
deliver them.</i> Section 7-102(a)(1)<!--[if supportFields]><span
style='mso-element:field-begin'></span> XE "7-102(a)(1)" <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->.</span></div>
</div>
<div id="ftn3">
<div class="Footnotes">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><a href="file:///C:/Users/Rob/Documents/UCC%20blog%20%23%2057.docx#_ftnref3" name="_ftn3" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 115%;">[3]</span></span><!--[endif]--></span></a> <i>“Consignor” means the person named in a bill
as the person from whom the goods have been received for shipment. </i>Section
7-102(a)(4)<!--[if supportFields]><span style='mso-element:field-begin'></span>
XE "7-102(a)(4)" <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->.</span></div>
</div>
<div id="ftn4">
<div class="Footnotes">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><a href="file:///C:/Users/Rob/Documents/UCC%20blog%20%23%2057.docx#_ftnref4" name="_ftn4" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 115%;">[4]</span></span><!--[endif]--></span></a> <i>“Consignee” means the person named in a bill
to whom or to whose order the bill promises delivery.</i> Section 7-102(a)(3)<!--[if supportFields]><span
style='mso-element:field-begin'></span> XE "7-102(a)(3)" <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->.</span></div>
</div>
<div id="ftn5">
<div class="Footnotes">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><a href="file:///C:/Users/Rob/Documents/UCC%20blog%20%23%2057.docx#_ftnref5" name="_ftn5" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 115%;">[5]</span></span><!--[endif]--></span></a> Section
7-104<!--[if supportFields]><span style='mso-element:field-begin'></span> XE
"7-104" <![endif]--><!--[if supportFields]><span style='mso-element:
field-end'></span><![endif]-->(c) previously quoted, states as follows:</span></div>
<div class="DoubIndFOOTNOTE">
<span style="font-family: "arial" , "helvetica" , sans-serif;">(c) A document of title is nonnegotiable if, at the
time it is issued, the document has a conspicuous legend, however expressed,
that it is nonnegotiable. <!--[if supportFields]><span style='mso-element:field-begin'></span>XE
"Document of title, non negotiable” \f “<span style='mso-no-proof:yes'>7-SEVEN</span>”)<![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]--></span></div>
<div class="Footnotes">
<span style="font-family: "arial" , "helvetica" , sans-serif;">This provision is contained in the newest amendments to
Article 7 and is absent under Section 7-104<!--[if supportFields]><span
style='mso-element:field-begin'></span> XE "7-104" <![endif]--><!--[if supportFields]><span
style='mso-element:field-end'></span><![endif]-->. The amendment is logical
insofar as it indicates a clear intent of the issuer, and presumably the
consignor, that the document be treated as nonnegotiable. The importance of
negotiability will be seen shortly in Doug’s memorandum.</span></div>
</div>
</div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0tag:blogger.com,1999:blog-1323224956435433642.post-78177720893505006372016-02-18T17:55:00.002-08:002016-02-18T17:55:22.213-08:00Section 2-607(5)(a): Attorneys’ Fees as Consequential Damages
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:Times;
panose-1:2 0 5 0 0 0 0 0 0 0;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Verdana;
panose-1:2 11 6 4 3 5 4 4 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-1593833729 1073750107 16 0 415 0;}
@font-face
{font-family:"Cambria Math";
panose-1:2 4 5 3 5 4 6 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536870145 1107305727 0 0 415 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-520092929 1073786111 9 0 415 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
a:link, span.MsoHyperlink
{mso-style-priority:99;
color:#428BCA;
mso-text-animation:none;
text-decoration:none;
text-underline:none;
text-decoration:none;
text-line-through:none;}
a:visited, span.MsoHyperlinkFollowed
{mso-style-noshow:yes;
mso-style-priority:99;
color:purple;
mso-themecolor:followedhyperlink;
text-decoration:underline;
text-underline:single;}
p
{mso-style-priority:99;
margin-top:0in;
margin-right:0in;
margin-bottom:7.5pt;
margin-left:0in;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:"Times New Roman";
mso-fareast-font-family:"Times New Roman";}
p.MsoListParagraph, li.MsoListParagraph, div.MsoListParagraph
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpFirst, li.MsoListParagraphCxSpFirst, div.MsoListParagraphCxSpFirst
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpMiddle, li.MsoListParagraphCxSpMiddle, div.MsoListParagraphCxSpMiddle
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpLast, li.MsoListParagraphCxSpLast, div.MsoListParagraphCxSpLast
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
span.apple-converted-space
{mso-style-name:apple-converted-space;
mso-style-unhide:no;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
/* List Definitions */
@list l0
{mso-list-id:2073383147;
mso-list-type:hybrid;
mso-list-template-ids:719719094 -1101082438 67698713 67698715 67698703 67698713 67698715 67698703 67698713 67698715;}
@list l0:level1
{mso-level-number-format:alpha-lower;
mso-level-text:"\(%1\)";
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:.75in;
text-indent:-.25in;}
@list l0:level2
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:1.25in;
text-indent:-.25in;}
@list l0:level3
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:1.75in;
text-indent:-9.0pt;}
@list l0:level4
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:2.25in;
text-indent:-.25in;}
@list l0:level5
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:2.75in;
text-indent:-.25in;}
@list l0:level6
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:3.25in;
text-indent:-9.0pt;}
@list l0:level7
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:3.75in;
text-indent:-.25in;}
@list l0:level8
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:4.25in;
text-indent:-.25in;}
@list l0:level9
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:4.75in;
text-indent:-9.0pt;}
ol
{margin-bottom:0in;}
ul
{margin-bottom:0in;}
-->
</style>
<br />
<div class="MsoNormal" style="text-indent: 17.25pt;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">As noted in previous posts, the designation
of a party as a merchant activates a number of special provisions under Article
2.<span style="mso-spacerun: yes;"> </span>Among the most important is the
warranty of merchantability under Section 2-314.<span style="mso-spacerun: yes;"> </span>Subsection (1) to Section 2-314 states as
follows:</span></div>
<div class="MsoNormal" style="margin-left: 17.25pt;">
<span style="font-family: Arial;">Unless
excluded or modified (Section 2-316), a warranty that the goods shall be<span style="mso-spacerun: yes;"> </span>merchantable is
implied in the contract for their sale if the seller is a merchant with respect
to goods of that kind.<span style="mso-spacerun: yes;"> </span>Section 2-341(1)</span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">What is or is not merchantable is set forth in Section 2-314(2):</span></div>
<div style="background: white; line-height: 15.75pt;">
<span style="font-family: Arial;"><span style="mso-tab-count: 1;"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105"><span style="color: #005c72; font-family: Arial; font-size: 11.0pt;">Goods</span></a><span style="color: #333333; font-family: Arial; font-size: 11.0pt;"> to be merchantable
must be at least such as</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-left: .25in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #333333; font-family: Arial;">(a) pass without objection in the trade under the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="color: #005c72; font-family: Arial;">contract</span></a><span style="color: #333333; font-family: Arial;"> description; and</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-left: .25in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #333333; font-family: Arial;">(b) in the case of fungible<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105"><span style="color: #005c72; font-family: Arial;">goods</span></a><span style="color: #333333; font-family: Arial;">, are of fair average quality within the description;<span style="mso-spacerun: yes;"> </span>and</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: .25in;">
<span style="color: #333333; font-family: Arial;">(c) are fit for the ordinary purposes for which such<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105"><span style="color: #005c72; font-family: Arial;">goods</span></a><span style="color: #333333; font-family: Arial;"> are used; and</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-left: .25in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #333333; font-family: Arial;">(d) run, within the variations permitted by the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#agreement_2-106"><span style="color: #005c72; font-family: Arial;">agreement</span></a><span style="color: #333333; font-family: Arial;">, of even kind, quality and quantity
within each unit and among all units involved; and</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-left: .25in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #333333; font-family: Arial;">(e) are adequately contained, packaged, and labeled as the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#agreement_2-106"><span style="color: #005c72; font-family: Arial;">agreement</span></a><span style="color: #333333; font-family: Arial;"> may require; and</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-left: .25in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #333333; font-family: Arial;">(f) conform to the promise or affirmations of fact made on
the container or label if any.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">Sales of goods often involve several levels
of distribution.<span style="mso-spacerun: yes;"> </span>Initially, the sale of
raw materials to be used in the manufacture of finished goods; sales from the
wholesale to the retail level, and the sale to the retail customer. The warranty of<span style="mso-spacerun: yes;"> </span>merchantability will be given at each stage
provided the seller is a merchant.<span style="mso-spacerun: yes;"> </span>Most
of the time, the goods will meet the requisite standard of merchantability;
sometimes they will not.<span style="mso-spacerun: yes;"> </span>Very often this
will occur in a situation involving a middleman who purchases goods for
resale.<span style="mso-spacerun: yes;"> </span>When the goods sold are not
merchantable, and the middleman is sued for breach of warranty, specific rules
kick in which the middleman should be aware of if he or she is to minimize
exposure.<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">Section 2-607(5)(a) contains rules of
particular significance when goods are resold by a middleman to a third
party.<span style="mso-spacerun: yes;"> </span>That section states as follows:</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">Section 2-607(5)(a) states as follows:</span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";">Where the </span><a href="https://www.law.cornell.edu/ucc/2/2-103#Buyer_2-103"><span style="color: windowtext; font-family: Arial; mso-fareast-font-family: "Times New Roman";">buyer</span></a><span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";"> is sued
for breach of a warranty or other obligation for which his </span><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><span style="color: windowtext; font-family: Arial; mso-fareast-font-family: "Times New Roman";">seller</span></a><span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";"> is
answerable over</span></div>
<div class="MsoListParagraph" style="line-height: normal; margin-left: .75in; mso-add-space: auto; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: -.25in;">
<span style="font-family: Arial; mso-fareast-font-family: Arial;"><span style="mso-list: Ignore;">(a)<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";">he may</span><i style="mso-bidi-font-style: normal;"><span style="font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"> </span></i><span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";">give his </span><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><span style="color: windowtext; font-family: Arial; mso-fareast-font-family: "Times New Roman";">seller</span></a><span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";"> written
notice of the litigation. If the notice states that the seller may come in and
defend and that if the seller does not do so he will be bound in any action
against him by his </span><a href="https://www.law.cornell.edu/ucc/2/2-103#Buyer_2-103"><span style="color: windowtext; font-family: Arial; mso-fareast-font-family: "Times New Roman";">buyer</span></a><span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";"> by any
determination of fact common to the two litigations, then unless the seller
after seasonable </span><a href="https://www.law.cornell.edu/ucc/2/2-103#Receipt_2-103"><span style="color: windowtext; font-family: Arial; mso-fareast-font-family: "Times New Roman";">receipt</span></a><span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";"> of the
notice does come in and defend he is so bound.</span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">This section enables the middleman who is being sued for the
allegedly defective product to put his seller on notice of the litigation and
provide him with the opportunity to defend against the litigation.<span style="mso-spacerun: yes;"> </span>The failure of the original seller to do so
will result in his being ‘bound in any action against him by his buyer by any
determination of fact common to the two litigations.’</span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span></span></b><span style="font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">As has been
stated throughout these posts, it is highly recommended that the actual
language of the statute be tracked in this type of situation.<span style="mso-spacerun: yes;"> </span>‘Coming close’ can result in litigation costs
that could have been avoided.<span style="mso-spacerun: yes;"> </span>In this
regard however, and in connection with Section 2-607(5)(a), it must be noted
that this section is permissive in nature, and that if a party does not
strictly comply with Section 2-607(5)(a), she or he may still maintain a cause
of action against her/his buyer for the breach of warranty. </span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">This follows from the language
of Section 2-607(5)(a) which states that the buyer ‘<i style="mso-bidi-font-style: normal;">may</i> give his seller written notice of the litigation.’<span style="mso-spacerun: yes;"> </span>It is clearly permissive.<span style="mso-spacerun: yes;"> </span>This question was thoroughly discussed by the
Michigan Court of Appeals in <i style="mso-bidi-font-style: normal;">Old Kent
Bank v Kal Kustom Enterprises</i>, which has impact in all states by reason of
the uniformity provision of Section 1-103(1)(b).<span style="mso-spacerun: yes;"> </span>See e.g. </span><i style="mso-bidi-font-style: normal;"><span style="font-family: Arial; font-size: 12.0pt;">of </span></i><i><span style="font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">In
re Hispanic American Television Co., Inc.,</span></i><span style="font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"> <a href="http://www.leagle.com/cite/113%20B.R.%20453">113 B.R. 453</a>
(Bankr.N.D.Ill.1990)</span><span style="font-family: Arial; font-size: 12.0pt;">.<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">The court in Old Kent
discussed the permissive nature of Section 2-607(5)(a) as follows:</span></div>
<div class="MsoNormal" style="line-height: normal; margin-left: .5in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";">The language of M.C.L. § 440.2607(5)(a) is clear and
unambiguous. The statute's plain language reflects its discretionary nature.
Again, the statute states that where a buyer is sued for breach of warranty or
other obligation for which his seller is liable, he “may give his seller
written notice of the litigation.”</span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">The court went on to state:</span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 11.25pt; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";">Further emphasizing the
permissive nature of subsection 2607(5)(a) is the fact that a review of other
subsections set forth in M.C.L. § 440.2607(5) indicates that the Legislature
intentionally made some portions of the statute mandatory, and others
permissive. Subsections 2607(3)(a) and 2607(3)(b) contain the mandatory
“must” in terms of notice.<a href="https://www.blogger.com/null" name="footnote_ref_5"></a><a href="http://caselaw.findlaw.com/mi-court-of-appeals/1413395.html#footnote_5"><span style="mso-bookmark: footnote_ref_5;"><sup><span style="color: windowtext;">5</span></sup></span><span style="mso-bookmark: footnote_ref_5;"></span></a><span style="mso-bookmark: footnote_ref_5;"></span> If
the Legislature intended subsection 2607(5)(a) to be mandatory, it would have
used similar mandatory language.</span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span>I have been
involved in cases where the original seller refuses to come into defend and in
some situations completely ignores the notice sent.<span style="mso-spacerun: yes;"> </span>This leaves the middleman in a very bad
situation, for the original seller is the party best equipped to defend the
product he sold.<span style="mso-spacerun: yes;"> </span>As a result of this
reality, at least one court has awarded attorney’s fees to the middleman who
gave proper notice.<span style="mso-spacerun: yes;"> </span>The starting point
for this analysis is Section 2-714, which deals with</span><span style="font-family: Arial; font-size: 12.0pt;"> buyer’s damages for accepted goods
where seller has breached.<span style="mso-spacerun: yes;"> </span>That section
states as follows:</span><span style="font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"></span></div>
<div style="background: white; line-height: 15.75pt; margin-left: 1.0in;">
<span style="font-family: Verdana; font-size: 10.5pt;">(1) Where the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-103#Buyer_2-103"><span style="color: windowtext; font-family: Verdana; font-size: 10.5pt;">buyer</span></a><span class="apple-converted-space"><span style="font-family: Verdana; font-size: 10.5pt;"> </span></span><span style="font-family: Verdana; font-size: 10.5pt;">has accepted<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105"><span style="color: windowtext; font-family: Verdana; font-size: 10.5pt;">goods</span></a><span class="apple-converted-space"><span style="font-family: Verdana; font-size: 10.5pt;"> </span></span><span style="font-family: Verdana; font-size: 10.5pt;">and given notification (subsection
(3) of Section<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-607#2-607(3)"><span style="color: windowtext; font-family: Verdana; font-size: 10.5pt;">2-607</span></a><span style="font-family: Verdana; font-size: 10.5pt;">) he may recover as damages for
any non-conformity of tender the loss resulting in the ordinary course of
events from the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><span style="color: windowtext; font-family: Verdana; font-size: 10.5pt;">seller's</span></a><span style="font-family: Verdana; font-size: 10.5pt;"> breach as determined in any
manner which is reasonable.</span></div>
<div style="background: white; line-height: 15.75pt; margin-left: 1.0in;">
<a href="https://www.blogger.com/null" name="2-714(2)"></a><span style="font-family: Verdana; font-size: 10.5pt;">(2) The
measure of damages for breach of warranty is the difference at the time and
place of acceptance between the value of the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105"><span style="color: windowtext; font-family: Verdana; font-size: 10.5pt;">goods</span></a><span style="font-family: Verdana; font-size: 10.5pt;"> accepted and the value they would
have had if they had been as warranted, unless special circumstances show proximate
damages of a different amount.</span></div>
<div style="background: white; line-height: 15.75pt; margin-left: 1.0in;">
<a href="https://www.blogger.com/null" name="2-714(3)"></a><span style="font-family: Verdana; font-size: 10.5pt;">(3)In a
proper case any incidental and consequential damages under the next section may
also be recovered.</span></div>
<div style="background: white; line-height: 15.75pt;">
<span style="font-family: Verdana; font-size: 10.5pt;">A</span><span style="font-family: Arial;">s noted in Section
2-714(3), in a ‘proper case’ incidental and consequential damages may be
recovered under Section 2-715:</span><span style="font-family: Verdana; font-size: 10.5pt;"></span></div>
<div style="background: white; line-height: 15.75pt; text-indent: .5in;">
<a href="https://www.blogger.com/null" name="2-715(2)"></a><span style="font-family: Verdana; font-size: 10.5pt;">(2)
Consequential damages resulting from the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><span style="color: windowtext; font-family: Verdana; font-size: 10.5pt;">seller's</span></a><span style="font-family: Verdana; font-size: 10.5pt;"> breach include</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-left: 1.0in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Verdana; font-size: 10.5pt;">(a) any loss resulting from general or particular
requirements and needs of which the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><span style="color: windowtext; font-family: Verdana; font-size: 10.5pt;">seller</span></a><span style="font-family: Verdana; font-size: 10.5pt;"> at the time of contracting had
reason to know and which could not reasonably be prevented by cover or
otherwise; and</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-left: 1.0in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Verdana; font-size: 10.5pt;">(b) injury to person or property proximately
resulting from any breach of warranty.</span><span style="font-family: Arial; font-size: 12.0pt;"> <span style="mso-tab-count: 1;"> </span></span><span style="font-family: Verdana; font-size: 10.5pt;"></span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-tab-count: 1;"> </span>In addressing the
question of attorney’s fees, it must be noted that the attorney’s fees
recoverable under Section 2-715(2)(a) are of a different nature than those
claimed in a traditional contract litigation.<span style="mso-spacerun: yes;">
</span>Attorney’s fees incurred in connection with a litigation in which a non
breaching party is, in effect, forced to defend a claim from his buyer for
defective goods sold by the original seller, are of a whole different nature. </span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-tab-count: 1;"> </span>The precise issue was
discussed by the United States District Court </span><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";">Acushnet
Co. v. G.I. Joe’s, Inc., 2006 WL 2729555 (D. Or. Sept. 22, 2006)</span><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">. The case involved
a breach of infringement warranty governed by Section 2-312(3) of the UCC.<span style="mso-spacerun: yes;"> </span>Acushnet is the sole manufacturer of Titleist
golf balls.<span style="mso-spacerun: yes;"> </span>G.I. Joe’s purchased what it
thought were Titleist balls from Cam Golf. They were in fact fakes.<span style="mso-spacerun: yes;"> </span>Acushnet investigated further and learned
that other fake Titleist balls were being sold by G.I. Joe’s elsewhere.</span><span style="font-family: Times; font-size: 11.5pt; line-height: 115%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-tab-count: 1;"> </span>Acushnet sued G.I.
Joe’s, who in turn joined Cam Golf, Inc., the latter for breach of the warranty
of infringement.<span style="mso-spacerun: yes;"> </span>Acushnet and G.I. Joe’s
settled with G.I. Joe’s paying $25,000 and incurring $19,300 in attorney’s
fees. G.I. Joe sought recovery of both amounts in its action against Cam
Golf.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span>The latter argued that attorneys’ fees were
not recoverable, citing supposed authority for that proposition.<span style="mso-spacerun: yes;"> </span>G.I. Joe responded:</span></div>
<div class="MsoNormal" style="margin-left: 1.0in;">
<span style="font-family: Arial;">G.I.
Joe’s contends that Cam Golf has confused the issue of recovering attorney’s
fees in prosecuting a lawsuit against the seller of goods with attorney’s fees
incurred in defending a claim brought against the buyer by a third party. [at
page 5]</span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-spacerun: yes;"> </span>In addressing the matter, the
court noted the permissive nature of Section 2-607(5)(a) and concluded that
attorney’s fees were recoverable under Section 2-715(2)(a),<span style="mso-spacerun: yes;"> </span>the Court quoted from <i style="mso-bidi-font-style: normal;">Raymond v. Feldman</i> 124 Ore. App 543, 546 (1993) as follows:</span></div>
<div class="MsoNormal" style="margin-left: 1.0in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">The general rule is that attorney’s fees
are not recoverable in a breach of contract action unless authorized by statute
or the agreement.<span style="mso-spacerun: yes;"> </span>However<span style="mso-spacerun: yes;"> </span>an exception to the general rule is when a
party’s breach of contract involves the non breaching party in litigation with
a <i style="mso-bidi-font-style: normal;">third party</i><span style="mso-spacerun: yes;"> </span>In such a case the non breaching party may be
entitled to recover its litigation costs resulting from the separate action.
[at page 6; Emphasis the Court’s]</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">These consequential damages are recoverable
under the language of Section 2-715(2)(a), and the general policy of Section
1-305 which seeks to make non breaching parties whole, and has a special
exception for awarding attorney’s fees when permitted under ‘other applicable
rules of law’. The rule allowing attorney’s fees in defense of third party
products is one of those exceptions.<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";">I
suggest that parties who may be involved in situations in which Section
2-607(5)(a) create a document tracking the language of that section so that
effective notice can be given in any situation in which it is required.</span></div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com1tag:blogger.com,1999:blog-1323224956435433642.post-17379080600932840932016-02-11T14:28:00.000-08:002016-02-11T14:28:33.514-08:00Merchants and the Economic Loss Doctrine
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-520092929 1073786111 9 0 415 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraph, li.MsoListParagraph, div.MsoListParagraph
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpFirst, li.MsoListParagraphCxSpFirst, div.MsoListParagraphCxSpFirst
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpMiddle, li.MsoListParagraphCxSpMiddle, div.MsoListParagraphCxSpMiddle
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpLast, li.MsoListParagraphCxSpLast, div.MsoListParagraphCxSpLast
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.0in 1.0in 1.0in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
/* List Definitions */
@list l0
{mso-list-id:1039663794;
mso-list-type:hybrid;
mso-list-template-ids:-245332024 2019590758 67698713 67698715 67698703 67698713 67698715 67698703 67698713 67698715;}
@list l0:level1
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:1.25in;
text-indent:-.25in;}
@list l0:level2
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:1.75in;
text-indent:-.25in;}
@list l0:level3
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:2.25in;
text-indent:-9.0pt;}
@list l0:level4
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:2.75in;
text-indent:-.25in;}
@list l0:level5
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:3.25in;
text-indent:-.25in;}
@list l0:level6
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:3.75in;
text-indent:-9.0pt;}
@list l0:level7
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:4.25in;
text-indent:-.25in;}
@list l0:level8
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:4.75in;
text-indent:-.25in;}
@list l0:level9
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:5.25in;
text-indent:-9.0pt;}
@list l1
{mso-list-id:1434744062;
mso-list-type:hybrid;
mso-list-template-ids:231367916 -1921226426 67698713 67698715 67698703 67698713 67698715 67698703 67698713 67698715;}
@list l1:level1
{mso-level-number-format:alpha-lower;
mso-level-text:"\(%1\)";
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:.75in;
text-indent:-.25in;}
@list l1:level2
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:1.25in;
text-indent:-.25in;}
@list l1:level3
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:1.75in;
text-indent:-9.0pt;}
@list l1:level4
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:2.25in;
text-indent:-.25in;}
@list l1:level5
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:2.75in;
text-indent:-.25in;}
@list l1:level6
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:3.25in;
text-indent:-9.0pt;}
@list l1:level7
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:3.75in;
text-indent:-.25in;}
@list l1:level8
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:4.25in;
text-indent:-.25in;}
@list l1:level9
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:4.75in;
text-indent:-9.0pt;}
ol
{margin-bottom:0in;}
ul
{margin-bottom:0in;}
-->
</style>
<br />
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">This post will conclude the discussion of
who is, or may be a merchant under Article 2. The impact of ‘merchant status’
has been discussed in general.<span style="mso-spacerun: yes;"> </span>However,
there is one point which has not been touched on, which should be.<span style="mso-spacerun: yes;"> </span>That involves the impact of the good faith
definition under Article 2 for those states that have not enacted the amended
definition of good faith in Article 1. The amended definition, if you recall requires
‘honesty in fact and the observance of reasonable commercial standards of fair
dealing’,<span style="mso-spacerun: yes;"> </span>per Section 1-201(b)(20). This
applies to merchants and non merchants alike since the definitions in Article 1
apply to all substantive Articles of the Code per Section 1-102.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">There are however, a significant number of
states which have not adopted the amended definition of good faith*, but have
instead, remained with the earlier definition of good faith which simply
requires ‘<span style="background: white; color: #333333;">honesty in fact in the
conduct or transaction concerned’. <span style="mso-spacerun: yes;"> </span>Under
Article 2 however, if a party is classified as a merchant, the good faith
definition [Section 1-103(1)(b)] is almost identical to the amended definition
under Article 1 and thus, requires the observance of reasonable commercial
standards of fair dealing in the trade by the party designated as a
merchant.<span style="mso-spacerun: yes;"> </span>Thus, the standard of conduct
is elevated in the commercial arena.<span style="mso-spacerun: yes;">
</span>Conversely, if a party is not designated as a merchant and the state law
governing has not adopted the amended the definition of ‘good faith’, the party
in question simply needs to demonstrate honesty.<span style="mso-spacerun: yes;"> </span>Moreover, there are areas outside the Code
which are dramatically impacted by whether or not a party is classified as a
merchant under Article 2.</span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="background: white; color: #333333; font-family: Arial; font-size: 12.0pt; line-height: 115%;">The latter
point is dramatically illustrated in the case of <i style="mso-bidi-font-style: normal;"><u>Regents of the University of Minnesota v. Chief Industries Inc.</u>, </i>106
F3d 1409 (8<sup>th</sup> Cir., 1997).<span style="mso-spacerun: yes;">
</span>Among the program offerings at the University of Minnesota was an
agricultural program which included the Southwest Research station, which was
one of several such agricultural research stations operated by the
University.<span style="mso-spacerun: yes;"> </span>In 1985, the University
decided to purchase a new grain dryer for the Southwest Station. After
soliciting bids, the superintendent of the Research Station purchased a drying
unit manufactured by a subsidiary of the defendant, Chief Industries.<span style="mso-spacerun: yes;"> </span>In August of 1982, a fire damaged the
structure to which the unit was attached.<span style="mso-spacerun: yes;">
</span>The University brought a cause of action alleging that the electric
solenoid valve, designed to stop the flow of fuel to the unit at a certain
temperature, failed and was the cause of the fire.<span style="mso-spacerun: yes;"> </span>In addition to damages for the allegedly
defective grain dryer, the University sought damages to the connected
structure.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">The controlling statute in the case was
Minnesota Section 604.10, which deals with the economic loss doctrine in
Minnesota. ** That section states as follows:</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: Arial;">Minn.
Stat. § 604.10.<span style="mso-spacerun: yes;"> </span>Economic loss arising
from the sale of goods.</span></i></b><span style="font-family: Arial;"> </span><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"></span></div>
<div class="MsoListParagraph" style="margin-left: .75in; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -.25in;">
<span style="font-family: Arial; mso-fareast-font-family: Arial;"><span style="mso-list: Ignore;">(a)<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-family: Arial;">Economic loss that arises from a sale of goods that
is due to damage to tangible property other than the goods sold may be
recovered in tort as well as in contract, but <i style="mso-bidi-font-style: normal;">economic loss that arises from a sale of goods between parties who are
each merchants in goods of the kind is not recoverable in tort</i>; (b) <i style="mso-bidi-font-style: normal;">Economic loss that arises from a sale of
goods, between merchants, that is not due to damage to tangible property other
than the goods sold may not be recovered in tort;</i> (c) The economic loss
recoverable in tort under this section does not include economic loss due to
damage to the goods themselves; (d) The economic loss recoverable in tort under
this section does not include economic loss incurred by a manufacturer of goods
arising from damage to the manufactured goods and caused by a component of the
goods; and (e) This section shall not be interpreted to bar tort causes of
action based upon fraud or fraudulent or intentional misrepresentation or limit
remedies for those actions. [Emphasis added].</span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">Hence, if the University of Minnesota was held to be a merchant, it would
be barred from recovery for damage to the additional structure by the economic
loss doctrine. The district court granted summary judgment against the
University concluding that the University was a ‘merchant.'</span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-tab-count: 1;"></span>The
Court of Appeals phrased the matter on appeal as follows:</span></div>
<div class="MsoNormal" style="margin-left: 1.0in;">
<span style="font-family: Arial;">This
brings us to this appeal's sole question: is the University a “merchant in
goods of the kind?" That is, is the University a merchant with respect to
grain drying heaters such as the one that allegedly caused the fire at the
Southwest station? If, as the district court concluded, the University is a
merchant with respect to grain dryers, then it may not recover in tort under
either the statute or [case law].<span style="mso-spacerun: yes;"> </span></span><i style="mso-bidi-font-style: normal;"><u><span style="background: white; color: #333333; font-family: Arial; font-size: 12.0pt; line-height: 115%;">Regents of the
University of Minnesota </span></u></i><span style="background: white; color: #333333; font-family: Arial; font-size: 12.0pt; line-height: 115%;">@ 1411</span></div>
<div class="MsoNormal">
<span style="font-family: Arial;"><span style="mso-tab-count: 1;"> </span></span><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">In addressing the issue, the court first noted the
definition of ‘merchant’ under Section 2-104(1), noting in its analysis two
ways in which a party can become a merchant: ***</span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 1.25in; mso-add-space: auto; mso-list: l0 level1 lfo2; text-indent: -.25in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Arial;"><span style="mso-list: Ignore;">1.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">By dealing in the goods involved;</span></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 1.25in; mso-add-space: auto; mso-list: l0 level1 lfo2; text-indent: -.25in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Arial;"><span style="mso-list: Ignore;">2.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">By way of specialized knowledge of the goods.</span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">After quickly dismissing avenue number one—i.e.—that the University
‘dealt in goods of the kind’ the court turned its attention to attaining merchant
status by way of specialized knowledge of the goods.<span style="mso-spacerun: yes;"> </span>In addressing that question, and affirming
the decision of the district court, the court of appeals stated: </span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-family: Arial;">In
the present case, the University's knowledge and experience with respect to
grain dryers constituted “knowledge or skill peculiar to the practices or goods
involved in the transaction.” Minn.Stat. § 336.2-104(1). </span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-family: Arial;">The
University had purchased a number of such units over the prior thirty years,
and had the advantage of a centralized purchasing department that solicited
bids for the purchase. Before purchasing the unit, the Southwest station's
superintendent (who had been responsible for other such purchases) consulted a
prominent expert in grain drying, who provided advice on such specifications
for the unit as fan size and BTU. </span></div>
<div class="MsoNormal">
<span style="font-family: Arial;"><span style="mso-tab-count: 1;"> </span></span><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">Creating ‘merchant’ status on the basis of ‘specialized
knowledge’ opens the door to finding merchant status in situations outside of
the normal professional in business.<span style="mso-spacerun: yes;">
</span>While this may not be significant in all cases, it will be in some.<span style="mso-spacerun: yes;"> </span>This is yet another example where leverage
and vulnerability can be created where the other party never saw it
coming.<span style="mso-spacerun: yes;"> </span>This creates insecurity and
facilitates a good settlement for your client.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Arial;">*Among those states are: Illinois,
Missouri and New York</span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-outline-level: 3;">
<span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";">**If you interested in an excellent
article on the Economic Loss Doctrine, please check the following: </span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-outline-level: 3;">
<span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span></span><a href="https://www.mwl-law.com/wp-content/uploads/2013/03/economic-loss-doctrine-in-all-50-states.pdf"><span style="color: #4f81bd; font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-themecolor: accent1;">Economic Loss Doctrine In All 50 States - Matthiesen
...</span></a><u><span style="color: #4f81bd; font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-themecolor: accent1;"></span></u></div>
<br />
<br />
<div class="MsoNormal">
<span style="font-family: Arial;">***The court did not mention
the third way a party can become a merchant, which is through the ‘employment
of an agent or broker or other intermediary who by his occupation holds himself
out as having such knowledge or skill’.</span></div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0tag:blogger.com,1999:blog-1323224956435433642.post-50107058555039161032016-02-04T15:01:00.000-08:002016-02-04T15:01:38.623-08:00Banks, Merchants & Article 2
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
a:link, span.MsoHyperlink
{mso-style-noshow:yes;
mso-style-priority:99;
color:blue;
text-decoration:underline;
text-underline:single;}
a:visited, span.MsoHyperlinkFollowed
{mso-style-noshow:yes;
mso-style-priority:99;
color:purple;
mso-themecolor:followedhyperlink;
text-decoration:underline;
text-underline:single;}
span.apple-converted-space
{mso-style-name:apple-converted-space;
mso-style-unhide:no;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<br />
<div class="MsoNormal" style="text-indent: .5in;">
<span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">As
discussed in the previous post, the characterization of a party as a merchant
or non merchant has great significance under Article 2.<span style="mso-spacerun: yes;"> </span>This brings us to a point where the cases add
a unique flavor to an otherwise very clear definition.<span style="mso-spacerun: yes;"> </span>These cases also illustrate the positive results
that creativity can bring to the table.<span style="mso-spacerun: yes;">
</span>Very early in these posts, the importance of utilizing the mandates of
Section 1-103 in presenting creative arguments was emphasized. By way of
review, and in the context of the case to be discussed, Section 1-103 directs
the court to ‘liberally construe and apply the code’ and to do so in a manner
which promotes the underlying purposes and policies of the Code:</span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">(a) The<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc" title="Uniform Commercial Code"><span style="background: white; color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">Uniform Commercial
Code</span></a><span class="apple-converted-space"><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"> </span></span><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">must be
liberally construed and applied to promote its underlying purposes and
policies, which are: (1) to simplify, clarify, and modernize the law governing
commercial transactions; (2) to permit the continued expansion of commercial
practices through custom, usage, and </span><a href="https://www.law.cornell.edu/ucc/1/1-201#Agreement"><span style="background: white; color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">agreement</span></a><span class="apple-converted-space"><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"> </span></span><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">of the parties; and (3) to make
uniform the law among the various jurisdictions.</span><span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"></span></div>
<div class="MsoNormal">
<span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">As you view these creative
applications of the definition of ‘merchant’, it is useful to see how many of
these purposes and policies support the broad interpretation adopted by the
courts.<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal">
<span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"><span style="mso-tab-count: 1;"> </span>The first case for consideration is <i style="mso-bidi-font-style: normal;"><u>National Microsales v. Chase Manhattan Bank</u></i><span style="mso-spacerun: yes;"> </span></span><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman";">761 F. Supp. 304
(S.D.N.Y. 1991)</span><span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"> <span style="mso-spacerun: yes;"> </span>The facts are briefly as follows:</span></div>
<div class="MsoNormal" style="background: whitesmoke; line-height: 16.75pt; margin-bottom: 8.35pt; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="color: #171e22; font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">National Microsales Corporation was
engaged in the business of buying and selling computer output microfilming
equipment. Chase Manhattan entered into negotiations with National Microsales Corporation
to sell some of its used Computer Output Microfilming equipment to NMC for
resale. When Chase subsequently sold the equipment to a third party, NMC filed suit
alleging breach of contract.</span></div>
<div class="MsoNormal" style="background: whitesmoke; line-height: 16.75pt; margin-bottom: 8.35pt; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="color: #171e22; font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">Chase moved for summary judgment
dismissing NMC's complaint on the basis of the Statute of Frauds, alleging that
the purported contract in question was over $500 and there was no writing as
required by Section 2-201(1).</span></div>
<div class="MsoNormal" style="background: whitesmoke; line-height: 16.75pt; margin-bottom: 8.35pt; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="color: #171e22; font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">National Microsales Corporation also
moved for summary judgment claiming the contract in question was covered by the
‘merchant exception’ contained in Section 2-201(2).<span style="mso-spacerun: yes;"> </span>As you may recall, that section applies only
to transactions ‘between merchants’; hence, for that section to apply, the
court would have to conclude that the bank was a ‘merchant’ under Article 2.</span></div>
<div class="MsoNormal" style="background: whitesmoke; line-height: 16.75pt; margin-bottom: 8.35pt;">
<br /></div>
<div class="MsoNormal" style="background: whitesmoke; line-height: 16.75pt; margin-bottom: 8.35pt; text-indent: .5in;">
<span style="color: #171e22; font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">In presenting its case, NMC noted that Chase sold $6.5 million
worth of used COM equipment from 1987-1989, and further that there were
established policies and procedures of Chase which had been adopted for the
purchasing new equipment as well as other ‘fixed surplus assets’.</span></div>
<div class="MsoNormal" style="background: whitesmoke; line-height: 16.75pt; margin-bottom: 8.35pt; text-indent: .5in;">
<span style="color: #171e22; font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">Chase's response was that it never purchased goods for resale
and that Chase has no specialized knowledge concerning the goods which it buys
for its own use. There was also testimony that Chase had no familiarity with
the market for the equipment which it purchased, and that when it disposed of
surplus goods, it generally sold them to resellers, rather than end users, and
usually sold the equipment for less than fair market value.</span></div>
<div class="MsoNormal" style="background: whitesmoke; line-height: 16.75pt; margin-bottom: 8.35pt; text-indent: .5in;">
<span style="color: #171e22; font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">The court found that Chase was in fact a ‘merchant for purposes
of the UCC’.<span style="mso-spacerun: yes;"> </span>As support, the court
quoted the definition of ‘merchant in Section 2-104 and Official Comment 2 to
Section 2-104 which states:</span></div>
<div class="MsoNormal" style="background: whitesmoke; line-height: 16.75pt; margin-bottom: 8.35pt; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="background: whitesmoke; color: #171e22; font-size: 13.0pt;">The special
provisions as to merchants appear only in this Article and they are of three
kinds. Sections 2-201(2), 2-205, 2-207 and 2-209 dealing with the statute of
frauds, firm offers, confirmatory memoranda, and modification rest on normal
business practices which are or ought to be typical of and familiar to any
person in business. For purposes of these sections almost every person in
business would, therefore, be deemed to be a "merchant" under the
language "who . . . by his occupation holds himself out as having
knowledge or skill peculiar to the practices . . . involved in the transaction
. . ." since the practices involved in the transaction are non-specialized
business practices such as answering mail.</span><span style="color: #171e22; font-family: Arial; font-size: 14.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="background: whitesmoke; line-height: 16.75pt; margin-bottom: 8.35pt;">
<span style="color: #171e22; font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">In applying the
definition of merchant and comment 2 above, the court stated:<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="background: whitesmoke; line-height: 16.75pt; margin-bottom: 8.35pt; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="color: #171e22; font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">This comment implies that Chase's
familiarity with the goods it purchases and sells is sufficient to establish
that it is a merchant for the purposes of § 2-201… For Statute of Frauds
purposes, the scope and extent of Chase's activities qualify it for merchant
status under the UCC.<span style="mso-spacerun: yes;"> </span><i style="mso-bidi-font-style: normal;"><u>National Microsales</u></i> at 307</span></div>
<div class="MsoNormal" style="background: whitesmoke; line-height: 16.75pt; margin-bottom: 8.35pt;">
<span style="color: #171e22; font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span>The extent of the Court’s holding on
the merchant matter is unclear.<span style="mso-spacerun: yes;"> </span>On the
one hand, the court seems to attempt to limit is holding on the merchant
question to the Statute of Frauds provision.<span style="mso-spacerun: yes;">
</span>If that were the case however, the Court could have easily so stated
without any discussion of ‘Chase’s familiarity with the goods it purchases and
sells’.<span style="mso-spacerun: yes;"> </span>The limited reading would be
found in the fact that responding to mail is something everyone in business
should do as clearly stated in the comment.<span style="mso-spacerun: yes;">
</span>In mentioning the goods and familiarity of practices with those goods,
the Court can easily be interpreted to be saying more.</span></div>
<div class="MsoNormal" style="background: whitesmoke; line-height: 16.75pt; margin-bottom: 8.35pt;">
<span style="color: #171e22; font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span>There are huge implications from
holding that the bank is a ‘merchant with respect to goods of the kind’ for at
this point, the warranty of merchantability kicks in, as well as a host of
other merchant provisions, some of which have been stated in the last
post.<span style="mso-spacerun: yes;"> </span>There is a large potential
exposure to the bank if it is classified as a ‘merchant under Article 2’, which
can create great leverage in litigation. </span></div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0tag:blogger.com,1999:blog-1323224956435433642.post-52929271582453547482016-01-28T10:17:00.000-08:002016-01-28T10:17:06.893-08:00Merchants or Non Merchants—That is the Question
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
a:link, span.MsoHyperlink
{mso-style-noshow:yes;
mso-style-priority:99;
color:blue;
text-decoration:underline;
text-underline:single;}
a:visited, span.MsoHyperlinkFollowed
{mso-style-noshow:yes;
mso-style-priority:99;
color:purple;
mso-themecolor:followedhyperlink;
text-decoration:underline;
text-underline:single;}
p.MsoListParagraph, li.MsoListParagraph, div.MsoListParagraph
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpFirst, li.MsoListParagraphCxSpFirst, div.MsoListParagraphCxSpFirst
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpMiddle, li.MsoListParagraphCxSpMiddle, div.MsoListParagraphCxSpMiddle
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpLast, li.MsoListParagraphCxSpLast, div.MsoListParagraphCxSpLast
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
span.apple-converted-space
{mso-style-name:apple-converted-space;
mso-style-unhide:no;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
/* List Definitions */
@list l0
{mso-list-id:491873728;
mso-list-type:hybrid;
mso-list-template-ids:-323190156 -1897339234 67698713 67698715 67698703 67698713 67698715 67698703 67698713 67698715;}
@list l0:level1
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:.75in;
text-indent:-.25in;}
@list l0:level2
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:1.25in;
text-indent:-.25in;}
@list l0:level3
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:1.75in;
text-indent:-9.0pt;}
@list l0:level4
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:2.25in;
text-indent:-.25in;}
@list l0:level5
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:2.75in;
text-indent:-.25in;}
@list l0:level6
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:3.25in;
text-indent:-9.0pt;}
@list l0:level7
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:3.75in;
text-indent:-.25in;}
@list l0:level8
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:4.25in;
text-indent:-.25in;}
@list l0:level9
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:4.75in;
text-indent:-9.0pt;}
ol
{margin-bottom:0in;}
ul
{margin-bottom:0in;}
-->
</style>
<br />
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">The importance
of thoroughly understanding the definitions used throughout the<span style="mso-spacerun: yes;"> </span>Uniform Commercial Code has been repeatedly
emphasized throughout the posts on the UCC Made Easy blog.<span style="mso-spacerun: yes;"> </span>As stated, Article 1 definitions apply
throughout the Code; in addition, each Article has definitions unique to its
subject content.<span style="mso-spacerun: yes;"> </span>One of the most
important definitions in Article 2 is the definition of ‘merchant’ contained in
Section 2-104(1):</span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span class="apple-converted-space"><span style="background: white; color: #333333; font-family: Arial; mso-bidi-font-family: Arial;"> </span></span><a href="https://www.blogger.com/null" name="Merchant_2-104"></a><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">"<strong><span style="font-family: Arial; font-weight: normal; mso-bidi-font-weight: bold;">Merchant</span></strong>"
means a person who deals in<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105"><span style="background: white; color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">goods</span></a><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"> of
the kind or otherwise by his occupation holds himself out as having knowledge
or skill peculiar to the practices or goods involved in the transaction or to
whom such knowledge or skill may be attributed by his employment of an agent or
broker or other intermediary who by his occupation holds himself out as having such
knowledge or skill.</span></div>
<div class="MsoNormal">
<span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"><span style="mso-tab-count: 1;"> </span></span><span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">The definition contains several routes to achieving
merchant status:</span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: .75in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial; mso-fareast-font-family: Arial;"><span style="mso-list: Ignore;">1.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">A person dealing in ‘goods of the kind’’;</span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .75in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial; mso-fareast-font-family: Arial;"><span style="mso-list: Ignore;">2.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">A person who holds himself out as having knowledge or
skills peculiar to the goods involved;</span></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: .75in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial; mso-fareast-font-family: Arial;"><span style="mso-list: Ignore;">3.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">A person to whom such knowledge can be attributed by
employment of a third party who, by his occupation holds himself out as having
such knowledge or skill.</span></div>
<div class="MsoNormal">
<span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"><span style="mso-tab-count: 1;"> </span></span><span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Merchant or non merchant status is very important under
Article 2 for a number of reasons.<span style="mso-spacerun: yes;"> </span>By
way of illustration: the reply doctrine of Section 2-201 requires that the
transaction occur ‘between merchants’ in order for that doctrine to apply, Section
2-205 deals with firm offers ‘by a merchant,’ Section 2-207(2) which deals with
incorporating certain terms into the contract via a writing in confirmation of
a contract only applies in a transaction ‘between merchants,’ the warranty of
merchantability only applies when a party is a ‘merchant with respect to goods
of the kind per Section 2-314(1), entrustment of goods under Section 2-403(2)
does not occur unless the entrustment is to a ‘merchant who deals in goods of
the kind’.</span></div>
<div class="MsoNormal">
<span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"><span style="mso-tab-count: 1;"> </span>In most cases it will be relatively clear if a person or
entity should be classified as a merchant. In a significant number of cases
however, it is not so clear.<span style="mso-spacerun: yes;"> </span>For
example, case law is generally split on whether or not a farmer is a merchant.
A large number of the cases discussing this question involved the reply
doctrine of Section 2-201(2) with a very practical impact: if the farmer in
question was a merchant, a written confirmation of the contract by the buyer
which was not answered within ten days would result in an exception to the
general statute of frauds rule.<span style="mso-spacerun: yes;">
</span>Conversely, if the farmer was not held to be a merchant, the reply
doctrine would not apply.<span style="mso-tab-count: 1;"> </span> </span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Moreover,
a person or entity may be a merchant for some purposes, but not for
others.<span style="mso-spacerun: yes;"> </span>In addition, certain entities
may be characterized as merchants where that designation may be somewhat
surprising. </span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"><span style="mso-spacerun: yes;"> </span>An example of the foregoing can be is found in
banking institutions or universities. <span style="mso-spacerun: yes;"> </span>If someone were to pose the question of
whether or not a bank or a university is a merchant for purposes of Article 2,
instinctively, most of us would say ‘no’.<span style="mso-spacerun: yes;">
</span>However, there is case law to the contrary which itself is supported by
the comments to Section 2-104:</span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">The special provisions as to
merchants appear only in this Article and they are of three kinds.<span style="mso-spacerun: yes;"> </span>Section 2-201(2), 2-207 and 2-209 dealing
with the statute of frauds, firm offers, confirmatory memoranda and
modification rest on normal business practices which are or ought to be
familiar to any person in business. For purposes of these sections almost every
person in business would therefore, be deemed to be a “merchant” under the
language “who…by his occupation holds himself out as having knowledge or skill
peculiar to practices…involved in the transaction…” since the practices
involved in the transaction are non specialized business practices such as
answering mail…. But even these sections only apply to a merchant in his
mercantile capacity; a lawyer or bank president buying fishing tackle for his
own use is not a merchant.</span></div>
<div class="MsoNormal">
<span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">It is clear from the text of
the Code and the comments noted above that one might be a merchant for certain
purposes under the Code, but not for other purposes.</span></div>
<div class="MsoNormal">
<span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"><span style="mso-tab-count: 1;"> </span>The next post will discuss cases which address the
question of whether or not a bank or university is a merchant for Article 2
purposes when it engages in the sale or purchase of certain products.<span style="mso-spacerun: yes;"> </span>As you will see, the impact of the
classification as a merchant or non merchant in these situations can be very
powerful.</span></div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com7tag:blogger.com,1999:blog-1323224956435433642.post-19980647518033758622016-01-21T07:35:00.000-08:002016-01-21T07:46:20.054-08:00Creating and Applying a Systematic Approach<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-bidi-font-family:Arial;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<br />
<div class="MsoNormal" style="line-height: normal;">
<div class="MsoNormal" style="line-height: normal;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: x-small;"> </span></span></span></span>
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:"Cambria Math";
panose-1:2 4 5 3 5 4 6 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-bidi-font-family:Arial;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<br />
<div class="MsoNormal" style="line-height: normal;">
As of this post we have worked
through Parts 1 and 2 of Article 2, the former dealing with scope and Article 2
definitions, the latter with the general formation of a contract. This content
should be considered in the context of the definitions of ‘contract’ and
‘agreement’ contained in Article 1.<span style="mso-spacerun: yes;"> </span>For
those who are interested in laying a strong foundation for approaching all
Uniform Commercial Code matters, I suggest going back to the first post on
March 5, 2015 and reading and learning subsequent posts through May 5,
2015.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal" style="line-height: normal;">
<span style="mso-tab-count: 1;"> </span>As
stated in an earlier post, contracts exist throughout all Articles of the
Uniform Commercial Code.<span style="mso-spacerun: yes;"> </span>We looked at
many under Article 3: the contracts of the maker; drawer; indorser, acceptor
and accommodation parties.<span style="mso-spacerun: yes;"> </span>In each of
these situations, as well as Article 2 and the other Articles of the Code, a
basic contract analysis will yield an enormous amount of information.<span style="mso-spacerun: yes;"> </span>Piecing together the agreement between the
parties will yield any writings which exist; what was stated between the
parties; what information can be inferred from other circumstances, such as any
course of performance or course of dealing which may exist between the
parties.<span style="mso-spacerun: yes;"> </span>Trade usage, as has been
repeatedly stated throughout these posts, is almost always going to be
relevant, for the overwhelming majority of commercial transactions are
conducted within an established trade.</div>
<div class="MsoNormal" style="line-height: normal;">
<span style="mso-tab-count: 1;"> </span>Also
referenced in an earlier post is the importance of a systematic approach to
Uniform Commercial Code problems.<span style="mso-spacerun: yes;">
</span>Understanding that the Code is like a major highway with many side
roads, it is very important to stay focused and on track.<span style="mso-spacerun: yes;"> </span>My personal approach to all UCC problems is
exactly as stated above. Over time my mind has been trained to process
information through this medium, and hence has increased efficiency in the
process.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal" style="line-height: normal;">
<span style="mso-tab-count: 1;"> </span>Once
the basic agreement is in place, we turn to the contract.<span style="mso-spacerun: yes;"> </span>This, simply stated, is the application of
The Uniform Commercial Code as applied to the facts of the agreement as
supplemented by all law not specifically displaced by the Code per 1-103(b).</div>
<div class="MsoNormal" style="line-height: normal;">
<span style="mso-tab-count: 1;"> </span>Once
your facts are in place and diagrammed, you move to the index in front of
whatever Articles are involved.<span style="mso-spacerun: yes;"> </span>At this
point, you look to the head notes in the index and process it through the facts
of your case to see if any content is relevant.<span style="mso-spacerun: yes;">
</span>By way of illustration, let’s take a look at the index to Part 2 of
Article 2:</div>
</div>
</div>
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: x-small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: xx-small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: xx-small;"><span style="font-family: "arial" , "helvetica" , sans-serif;">
</span></span><span style="font-size: xx-small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhL71udjPC4dd9S3YH1rBtKiZj4soBFkx7WOydKxcwliLqu8IgHCjvTHqkNrwzw5XHh-SDTfCY61Zjr1dDBjAearI49r-X0PzdTJutD1u6Tsfqma0uguF7FdMCYPog8wSQr5gqpK16gWKzc/s1600/Untitled1.jpg" imageanchor="1"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhL71udjPC4dd9S3YH1rBtKiZj4soBFkx7WOydKxcwliLqu8IgHCjvTHqkNrwzw5XHh-SDTfCY61Zjr1dDBjAearI49r-X0PzdTJutD1u6Tsfqma0uguF7FdMCYPog8wSQr5gqpK16gWKzc/s320/Untitled1.jpg" width="320" /></a></span></span></span></span></span></span></span></span></span><br />
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-bidi-font-family:Arial;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<br />
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: x-small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: xx-small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: xx-small;"><span style="font-family: "arial" , "helvetica" , sans-serif;">
</span></span></span></span></span></span></span></span></span><style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:"Cambria Math";
panose-1:2 4 5 3 5 4 6 3 2 4;
mso-font-charset:1;
mso-generic-font-family:roman;
mso-font-format:other;
mso-font-pitch:variable;
mso-font-signature:0 0 0 0 0 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-bidi-font-family:Arial;}
p.MsoFooter, li.MsoFooter, div.MsoFooter
{mso-style-priority:99;
mso-style-link:"Footer Char";
margin:0in;
margin-bottom:.0001pt;
mso-pagination:widow-orphan;
tab-stops:center 3.25in right 6.5in;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-bidi-font-family:Arial;}
span.FooterChar
{mso-style-name:"Footer Char";
mso-style-priority:99;
mso-style-unhide:no;
mso-style-locked:yes;
mso-style-link:Footer;
mso-ansi-font-size:12.0pt;
mso-bidi-font-size:12.0pt;
font-family:Arial;
mso-ascii-font-family:Arial;
mso-hansi-font-family:Arial;
mso-bidi-font-family:Arial;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.0in 1.0in 1.0in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style><br />
<div class="MsoNormal" style="line-height: normal;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: x-small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: xx-small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: xx-small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"> </span></span></span></span></span></span><span style="font-size: x-small;">
</span></span></span></span><style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:"Cambria Math";
panose-1:2 4 5 3 5 4 6 3 2 4;
mso-font-charset:1;
mso-generic-font-family:roman;
mso-font-format:other;
mso-font-pitch:variable;
mso-font-signature:0 0 0 0 0 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-bidi-font-family:Arial;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<br />
<div class="MsoNormal" style="line-height: normal;">
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: x-small;"> </span></span></span></span>
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:"Cambria Math";
panose-1:2 4 5 3 5 4 6 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-bidi-font-family:Arial;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<br />
<div class="MsoNormal" style="line-height: normal;">
The simple system I am proposing
essentially involves creating a factual prism through which to process the
content within the head notes.<span style="mso-spacerun: yes;"> </span>This of
course, requires a sufficient grasp of content, but as I have stated all along,
this level of expertise is available for anyone who puts in the effort. It does
not require complete mastery of the Code, which is also available with
sufficient effort, but it does require enough knowledge to look at the head
notes and have the content in the section come to mind.<span style="mso-spacerun: yes;"> </span>More detailed analysis of the sections will
occur later; for now, the basics are being put in place.</div>
<div class="MsoNormal" style="line-height: normal;">
<span style="mso-tab-count: 1;"> </span>As
the facts are processed through the head notes, certain areas within the text
will be activated.<span style="mso-spacerun: yes;"> </span>For example, if there
is no final written agreement, the Statute of Frauds will be activated; Section
2-204 regarding formation in general will also be activated, and of course, if
writings are in confirmation of an offer, Section 2-207 will be activated.<span style="mso-spacerun: yes;"> </span>This process is applied to each Part of each
relevant Article, again yielding activated sections.<span style="mso-spacerun: yes;"> </span>At the end of this process, you may have
40-50 sections activated, which when placed in proper sequence tell the ‘UCC
story’.<span style="mso-spacerun: yes;"> </span>Areas where more information is
needed will reveal themselves, and sections of particular importance will
become apparent.<span style="mso-spacerun: yes;"> </span>These sections are
dissected word by word and this process involves the application of the
purposes and policies of the Code as stated in Section 1-103(a)(1)(2)(3).</div>
<div class="MsoNormal" style="line-height: normal;">
<span style="mso-tab-count: 1;"> </span>Part
3 of Article 2 deals with General Obligation and Construction of Contract<span style="mso-spacerun: yes;"> </span>and should be read in connection with Part 5
which deals with Performance.<span style="mso-spacerun: yes;"> </span>If you
recall, Section 2-204(1) provides that the parties can consummate a contract
‘by any means sufficient to show agreement including conduct.’<span style="mso-spacerun: yes;"> </span>This is elaborated upon in Section 2-207(3)
which discusses what happens when an acceptance in confirmation of an offer
results in a contract by conduct with writings insufficient to form a
contract.<span style="mso-spacerun: yes;"> </span>In that situation Section
2-207(3):</div>
<div class="MsoNormal" style="line-height: normal; margin-left: .5in;">
<span style="background: white;">…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.</span></div>
<div class="MsoNormal" style="line-height: normal;">
Part 3 of Article 2 will supply
many of the contract terms which may not be contained in the writings.</div>
<div class="MsoNormal" style="line-height: normal;">
<span style="mso-tab-count: 1;"> </span>If
for example, the parties intended to enter into a contract but had not agreed
on a price, Section 2-305 provides a mechanism for determining price. As
discussed in a previous post, Part 3 also provides for delivery terms regarding
single or multiple lot deliveries where no such provision is made in the
contract under Section 2-307; place of delivery where none is provided under
2-308; timeliness of action required under Section 2-309; authorization for a
seller to make shipment under reservation under Section 2-310; certain options
regarding the goods such as assortment of goods and specification of goods
under Section 2-311.<span style="mso-spacerun: yes;"> </span>In addition,
various implied warranties and disclaimer of warranties are created by Section
2-314; 2-315 and 2-316 respectively.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal" style="line-height: normal;">
<span style="mso-tab-count: 1;"> </span>Most
of us are familiar with the importance of warranties and disclaimers of
warranties; however, there is tremendously important content in each of the
provisions noted, and, if in undertaking the analysis noted above, certain
terms are missing from the terms of the contract, Part 3 will often provide the
missing content.<span style="mso-spacerun: yes;"> </span>Part 5, on the other
hand, will detail what the parties are required to do to perform properly under
the contract.<span style="mso-spacerun: yes;"> </span>For example, requirements
for proper shipment of goods; proper tender of goods; payment responsibilities;
inspection rights and cure options are all dealt with in Part 5 of Article 2.</div>
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-US; mso-bidi-font-family: Arial; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;"><span style="mso-tab-count: 1;"> </span>The next series of posts will work
through Parts 3 and 5 of Article 2. </span>
</div>
</div>
<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: x-small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: xx-small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: xx-small;"><span style="font-family: "arial" , "helvetica" , sans-serif;">
</span></span></span></span></span></span></span></span></span>Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com1tag:blogger.com,1999:blog-1323224956435433642.post-4748321975941398112016-01-14T14:17:00.000-08:002016-01-14T14:20:14.732-08:00 Parol Evidence and Article 2
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:"Cambria Math";
panose-1:2 4 5 3 5 4 6 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536870145 1107305727 0 0 415 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-alt:Calibri;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-520092929 1073786111 9 0 415 0;}
@font-face
{font-family:"MS Mincho";
mso-font-alt:"MS 明朝";
mso-font-charset:128;
mso-generic-font-family:modern;
mso-font-pitch:fixed;
mso-font-signature:-1610612033 1757936891 16 0 131231 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.0in 1.0in 1.0in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 8.35pt; text-indent: .5in;">
<span style="color: #333333; font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><span style="mso-spacerun: yes;"> </span>We have discussed the basic drafting of
Article 2 insofar as it relates to the general formation of a contract, noting
that the Code has removed many formal restrictions for contract formation which
existed in pre Code law.<span style="mso-spacerun: yes;"> </span>This is
consistent with the overall drafting of Article 2 which reflects the reality of
the business world.<span style="mso-spacerun: yes;"> </span>Often, there is no
finalized contract, but instead a series of writings followed by conduct which
recognizes the existence of a contract.<span style="mso-spacerun: yes;">
</span>If there is an acceptance in ‘confirmation of an offer’ the rules of
Section 2-207 will apply.</span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 8.35pt; text-indent: .5in;">
<span style="color: #333333; font-family: Arial; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">In that situation, and
even in situations where you have a finalized contract, parties may wish to
introduce evidence which assist the court in interpreting the writings in a
manner favorable to the proponent of the evidence.<span style="mso-spacerun: yes;"> </span>In that situation, Section 2-202 comes into
play.<span style="mso-spacerun: yes;"> </span>That section reads as follows:</span></div>
<div class="MsoNormal" style="background: white; line-height: 17.6pt; margin-bottom: 8.35pt; margin-left: .25in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";">Terms with respect to which
the confirmatory memoranda of the parties agree or which are otherwise set
forth in a writing intended by the parties as a final expression of their </span><a href="https://www.law.cornell.edu/ucc/2/2-106#agreement_2-106"><span style="color: windowtext; font-family: Arial; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">agreement</span></a><span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";"> with
respect to such terms as are included therein may not be contradicted by
evidence of any prior agreement or of a contemporaneous oral agreement but may
be explained or supplemented</span></div>
<div class="MsoNormal" style="background: white; line-height: 17.6pt; margin-left: .75in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";">(a) by course of dealing or
usage of trade (Section </span><a href="https://www.law.cornell.edu/ucc/1/1-205.html"><span style="color: windowtext; font-family: Arial; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">1-205</span></a><span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";">) or by course of performance
(Section </span><a href="https://www.law.cornell.edu/ucc/2/2-208.html"><span style="color: windowtext; font-family: Arial; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">2-208</span></a><span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";">); and</span></div>
<div class="MsoNormal" style="background: white; line-height: 17.6pt; margin-left: .75in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";">(b) by evidence of consistent additional
terms unless the court finds the writing to have been intended also as a
complete and exclusive statement of the terms of the </span><a href="https://www.law.cornell.edu/ucc/2/2-106#agreement_2-106"><span style="color: windowtext; font-family: Arial; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">agreement</span></a><span style="font-family: Arial; mso-fareast-font-family: "Times New Roman";"> .</span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-tab-count: 1;"> </span>Section 2-202 once
again, underscores the importance of the individual elements of agreement in
the ultimate interpretation of the meaning of the contract.<span style="mso-spacerun: yes;"> </span>Thus, course of performance, course of
dealing, and usage of trade not only create avenues whereby conduct and trade
can supply terms of a contract, but also create an avenue by which evidence can
be introduced to ‘explain or supplement’ the terms contained in any writings
between the parties.<span style="mso-spacerun: yes;"> </span>The manner in which
this evidence is presented to the court is critical.<span style="mso-spacerun: yes;"> </span>If the evidence of course of performance,
course of dealing and trade usage is presented to ‘contradict’ the writing, it
is not acceptable. If however, such evidence is introduced to ‘explain or
supplement the writings’ the evidence is proper.<span style="mso-spacerun: yes;"> </span>This is true regardless of whether or not the
writings are intended as a ‘final expression’ of the parties’ agreement.</span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-tab-count: 1;"> </span>Section 2-202 was
discussed by the Arkansas Court of Appeals in <i style="mso-bidi-font-style: normal;"><u>L.F. Brands v Dillard’s</u></i> <span style="background: white;">314
SW 3d 736, 2009 and, like</span> most cases which have disc used Section 2-202,
reached a decision that was consistent with the statute.<span style="mso-spacerun: yes;"> </span>The case involved a breach of contract action
brought by L.F. Brands against Dillard’s.<span style="mso-spacerun: yes;">
</span>Brands was a supplier of Dillard’s with whom Dillard’s had a long
standing relationship.<span style="mso-spacerun: yes;"> </span>All transactions
between the parties were governed by a document entitled ‘Dillard’s Inc.
Purchase Order Terms, Conditions, and Instructions’.<span style="mso-spacerun: yes;"> </span>In addition to the terms contained in the purchase
orders, undisputed testimony from Brands and Dillard’s employees established
that the parties would meet at the beginning of each fashion season to discuss
profit margins.<span style="mso-spacerun: yes;"> </span>Sales were monitored
throughout the course of the season, and allowances would be processed at
various times during the year to make adjustments to the margins.<span style="mso-spacerun: yes;"> </span>At the end of the year, parties would
determine if gross margins had been met.<span style="mso-spacerun: yes;">
</span>If not, the parties would negotiate on further allowances to achieve an acceptable
resolution.</span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-tab-count: 1;"> </span>Among the provisions
contained in the Purchase Order agreement was the following provision:</span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="background: #EBEDEE; color: black; font-family: Arial;">[L.F. Brands] acknowledges by acceptance and
shipment against any Dillard Purchase Order that the terms, conditions and
instructions stated herein, in the Purchase Order, [and in two other Dillard's
documents] (collectively, the “Agreement”) shall bind [L .F. Brands] and shall
constitute the entire agreement between Dillard and [L.F. Brands], which cannot
be modified by either party except in a writing executed by both parties, or
[another method]; provided, however, that this provision shall not apply to
markdown allowance and other credits authorized by [L.F. Brands]</span><span style="background: #EBEDEE; color: black; font-family: "MS Mincho"; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial;">․</span><span style="background: #EBEDEE; color: black; font-family: Arial;"> </span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">L.F. Brands went out of business in December of 2003.<span style="mso-spacerun: yes;"> </span>In February 2004, Dillard’s deducted markdown
allowances and chargeback’s from its account balance.<span style="mso-spacerun: yes;"> </span>These markdowns and chargebacks were the
basis of Brands’ appeal.<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">The trial court denied both parties’ motion
for summary judgment determining that the entirety of the parties’ agreement
must be determined by looking at both the written documents, as supplemented by
the parties’ oral agreements.<span style="mso-spacerun: yes;"> </span>The case
was submitted to a jury with instructions with the definition of course of
dealing, and that course of dealing evidence may be used to give particular
meaning to and supplement the terms of the agreement.<span style="mso-spacerun: yes;"> </span>The jury found for Dillard’s on the
complaint, and further found for Dillard’s on its counterclaim in the amount of
$1,265,938.98</span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-tab-count: 1;"> </span>In discussing Brand’s
argument that the merger clause in the Purchase Order superceded the prior oral
agreements concerning merchandise allowances the Court stated:</span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-family: Arial;">This
argument sweeps too broadly in this case for the sale of goods governed by
Article 2 of the Uniform Commercial Code(UCC) which has a specific provision
allowing parol evidence to be introduced even in situations involving fully
integrated written agreements.<span style="mso-spacerun: yes;"> </span>Under the
UCC’s parol evidence rule, a writing intended to the parties’ final expression
of their agreement may not be contradicted by evidence of any prior agreement
or contemporaneous oral agreement, but it may be supplemented by evidence of
the parties’ course of dealing or course of performance. [citing Section
2-202(a).]</span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">The court went on to state:</span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-family: Arial;">In
such instances, the evidence of a course of dealing that explains or
supplements a contract is competent evidence of the parties’ intent and can
become a part of a contract.</span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">In affirming the trial court, the court of appeals also noted that, per
comment one to Section 2-202, there is no requirement that the contract be
ambiguous in order for such evidence to be introduced.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">This case underscores a point that has been
made repeatedly in previous posts—course of dealing and course of performance,
if they exist, are always relevant.<span style="mso-spacerun: yes;"> </span>If
however, the parties choose to do so, they can include a provision in their
contract which excludes evidence of course of dealing, course of performance or
usage of trade.<span style="mso-spacerun: yes;"> </span>If you are drafting a
contract, it is a good practice to examine each of these concepts in the
context of your situation, so that any desired adjustments can be made.</span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0tag:blogger.com,1999:blog-1323224956435433642.post-88219578576117287732016-01-06T11:08:00.000-08:002016-01-06T11:08:16.852-08:00Article 2: Facilitation of Contract Formation
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
a:link, span.MsoHyperlink
{mso-style-noshow:yes;
mso-style-priority:99;
color:blue;
text-decoration:underline;
text-underline:single;}
a:visited, span.MsoHyperlinkFollowed
{mso-style-noshow:yes;
mso-style-priority:99;
color:purple;
mso-themecolor:followedhyperlink;
text-decoration:underline;
text-underline:single;}
p
{mso-style-noshow:yes;
mso-style-priority:99;
mso-margin-top-alt:auto;
margin-right:0in;
mso-margin-bottom-alt:auto;
margin-left:0in;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:"Times New Roman";
mso-fareast-font-family:"Times New Roman";
mso-bidi-font-family:"Times New Roman";}
span.apple-converted-space
{mso-style-name:apple-converted-space;
mso-style-unhide:no;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<br />
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">By way of brief
review—Article 2 applies to ‘transactions in goods’.<span style="mso-spacerun: yes;"> </span>Some transactions are hybrid or ‘mixed
transactions’ involving a combination of a sale and services.<span style="mso-spacerun: yes;"> </span>If the ‘gravamen’ of the action or the
essence of the transaction is a sale, the transaction will be within the
purview of Article 2.<span style="mso-spacerun: yes;"> </span>Conversely, if the
transaction is primarily the delivery of services in connection with a sale,
the transaction will be outside the scope of Article 2.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Once the scope
issue has been satisfied, the question turns to the basic enforceability of the
purported contract under the Statute of Frauds provision of Section 2-201.<span style="mso-spacerun: yes;"> </span>The basic rule contained in Section 2-201(1),
requires a writing, ‘signed by the person against whom enforcement is sought’
if the value of the contract exceeds $500.<span style="mso-spacerun: yes;">
</span>The exceptions to the basic rule are contained in Section
2-201(2)(3)(a)(b)(c), and deal with the Reply Doctrine; specially manufactured
goods; court documents and admissions in court that confirm the contract; and
goods for which payment has been made or accepted.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Previous posts
also discussed Section 2-207 in the context of this basic scheme for it is
generally in the formation stages of the contract that documents are moving
back and forth among the buyer and seller.<span style="mso-spacerun: yes;">
</span>In approaching Section 2-207, one must remember that it is predicated
upon an offer having been made by the buyer or the seller prior to the
activation of that section. If the writings between the parties do not
establish a contract, but the parties have engaged in conduct which ‘recognizes
the existence of a contract’, the terms of the contract will be those on which
the writings of the parties agree with the balance of the terms being supplied
by the Code.<span style="mso-spacerun: yes;"> </span>This basic rule is
contained in Section 2-207(3).</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">As we continue
to work through Article 2, it is important to remember and consistently apply the
definition of ‘contract’ and ‘agreement’ under Article 1.<span style="mso-spacerun: yes;"> </span>The former is the ‘total legal obligation
that results from the parties’ agreement’; the agreement includes: language;
course of performance; course of dealing; usage of trade; and inference from
other circumstances.<span style="mso-spacerun: yes;"> </span>Always remember how
critically important trade usage is and the hierarchy of these concepts in the
interpretation of the meaning of the contract as stated in Section 1-303(e).</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">With that
introduction and review in place, we will continue the journey through Article
2.<span style="mso-spacerun: yes;"> </span>At the outset, it should be noted
that Article 2 is drafted in a style that facilitates contract formation by
eliminating some of the technical barriers that existed in pre Code law.<span style="mso-spacerun: yes;"> </span>Part 2 of Article 2 deals with Form,
Formation and Readjustment of Contract.<span style="mso-spacerun: yes;">
</span>Formation in general is covered in Section 2-204 with the basic rule stated
in Section 2-204(1):</span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">A<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#Contract%20for%20sale_2-106"><span style="background: white; color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">contract for sale</span></a><span class="apple-converted-space"><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"> </span></span><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">of<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105"><span style="background: white; color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">goods</span></a><span class="apple-converted-space"><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"> </span></span><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">may be made in any manner
sufficient to show<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#agreement_2-106"><span style="background: white; color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">agreement</span></a><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">,
including conduct by both parties which recognizes the existence of such a<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="background: white; color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">contract</span></a><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">.</span><span style="font-family: Arial; mso-bidi-font-family: Arial;"> </span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">The general underlying policy of facilitating
contracts is elaborated on in Section 2-204(3):</span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">Even though one or more terms are
left open a<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#Contract%20for%20sale_2-106"><span style="background: white; color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">contract for sale</span></a><span class="apple-converted-space"><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"> </span></span><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">does not fail for indefiniteness
if the parties have intended to make a<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="background: white; color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">contract</span></a><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"> and
there is a reasonably certain basis for giving an appropriate remedy.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="background: white; color: #333333; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Section 2-204(3) represents a radical departure from pre Code
law which required much more specificity in order for a contract to be
enforceable.<span style="mso-spacerun: yes;"> </span>There are two requirements
stated in order for a contract to be enforceable: first, the parties must have
‘intended to make a contract’; second, there must be ‘a reasonably certain
basis for giving an appropriate remedy’.<span style="mso-spacerun: yes;">
</span>As noted in the comments ‘<i style="mso-bidi-font-style: normal;">commercial
standards on the point of ‘indefiniteness are intended to be applied’</i>.<span style="mso-spacerun: yes;"> </span>The Code supplies certain terms which may be
missing in communications between the parties.<span style="mso-spacerun: yes;">
</span>For example, if no place of delivery is stated in the writings, Section
2-308(a)(b)(c) will supply one:</span></div>
<div class="MsoNormal" style="background: white; line-height: 14.25pt; margin-bottom: 6.8pt; margin-left: .5in; margin-right: 0in; margin-top: 0in; text-indent: .5in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">Unless otherwise agreed</span></div>
<div class="MsoNormal" style="background: white; line-height: 14.25pt; margin-left: 1.5in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">(a)
the place for delivery of </span><a href="https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105"><span style="color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">goods</span></a><span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"> is the </span><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><span style="color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">seller's</span></a><span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"> place of business or if he has none his residence; but</span></div>
<div class="MsoNormal" style="background: white; line-height: 14.25pt; margin-left: 1.5in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">(b)
in a </span><a href="https://www.law.cornell.edu/ucc/2/2-106#Contract%20for%20sale_2-106"><span style="color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">contract for
sale</span></a><span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"> of identified </span><a href="https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105"><span style="color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">goods</span></a><span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"> which to the knowledge of the parties at the time of contracting are in
some other place, that place is the place for their delivery; and</span></div>
<div class="MsoNormal" style="background: white; line-height: 14.25pt; margin-left: 1.5in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">(c)
documents of title may be delivered through customary banking channels.<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="background: white; line-height: 14.25pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span></span><span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">Similarly, if there is no provision dealing with the delivery of goods
in a single or multiple lots, Section 2-307 requires delivery in a single lot;
if there is no stated time for shipment or delivery, Section 2-309(1) requires
delivery to be within a ‘reasonable time’, which term is defined under Section
1-205(1):</span></div>
<div class="MsoNormal" style="background: white; line-height: 14.25pt; margin-left: .5in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">Whether a time for taking an<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/1/1-201#Action"><span style="background: white; color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">action</span></a><span class="apple-converted-space"><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"> </span></span><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">required
by the </span><a href="http://www.law.cornell.edu/ucc" title="Uniform Commercial Code"><span style="background: white; color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">Uniform Commercial Code</span></a><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"> is reasonable depends on
the nature, purpose, and circumstances of the action.</span></div>
<div class="MsoNormal" style="background: white; line-height: 14.25pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="background: white; font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial;">The Code is so liberal on
the formation of a contract that ‘[t]he parties if they so intend can conclude
a contract for sale even though the price is not settled’ per Section
2-305(1).<span style="mso-spacerun: yes;"> </span>Section 2-305 will be
discussed in detail in a subsequent post, but for now, attention is directed to
underscore the lengths to which the Code has gone in terms of promoting the
formation of the contract and removing sales transactions from the technical
restrictions that preceded the Uniform Commercial Code. </span><span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"></span></div>
<div style="background: white; line-height: 14.25pt; margin-bottom: 6.8pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-indent: .5in;">
<span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">Further evidence of the
Code’s liberal approach to the formation of the contract is found in Section
2-206(1)(a):</span></div>
<div style="background: white; line-height: 14.25pt; margin-bottom: 6.8pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-indent: .5in;">
<span style="color: #333333; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;"><span style="mso-spacerun: yes;"> </span>(1) Unless otherwise unambiguously indicated
by the language or circumstances</span></div>
<div class="MsoNormal" style="background: white; line-height: 14.25pt; margin-left: .5in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">(a)
an offer to make a </span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">contract</span></a><span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"> shall be construed as inviting acceptance in any manner and by any
medium reasonable in the circumstances;</span></div>
<div class="MsoNormal">
<span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">As noted in the comments to
Section 2-206:</span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">Any reasonable manner of
acceptance is intended to be regarded as available unless the offeror has made
quite clear that it will not be acceptable.<span style="mso-spacerun: yes;">
</span>Former technical rules as to acceptance, such as telegraphed offers be
accepted by telegraphed acceptance, etc., are rejected and a criterion that the
acceptance be ‘in any reasonable manner, and by any medium reasonable under the
circumstances,’ is substituted.</span></div>
<div class="MsoNormal">
<span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"><span style="mso-tab-count: 1;"> </span>The policies for keeping the deal in play are evidenced
in numerous other sections in Article 2.<span style="mso-spacerun: yes;">
</span>These will be discussed in future posts.<span style="mso-spacerun: yes;">
</span></span></div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0tag:blogger.com,1999:blog-1323224956435433642.post-61712907978898052212015-12-31T13:29:00.000-08:002015-12-31T13:35:12.559-08:00Your Brain: The Best Investment You Can Make
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:"Cambria Math";
panose-1:2 4 5 3 5 4 6 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-520092929 1073786111 9 0 415 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
a:link, span.MsoHyperlink
{mso-style-priority:99;
color:blue;
mso-themecolor:hyperlink;
text-decoration:underline;
text-underline:single;}
a:visited, span.MsoHyperlinkFollowed
{mso-style-noshow:yes;
mso-style-priority:99;
color:purple;
mso-themecolor:followedhyperlink;
text-decoration:underline;
text-underline:single;}
p.MsoListParagraph, li.MsoListParagraph, div.MsoListParagraph
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpFirst, li.MsoListParagraphCxSpFirst, div.MsoListParagraphCxSpFirst
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpMiddle, li.MsoListParagraphCxSpMiddle, div.MsoListParagraphCxSpMiddle
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpLast, li.MsoListParagraphCxSpLast, div.MsoListParagraphCxSpLast
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.0in 1.0in 1.0in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
/* List Definitions */
@list l0
{mso-list-id:292761089;
mso-list-type:hybrid;
mso-list-template-ids:-2047435484 1285088576 67698713 67698715 67698703 67698713 67698715 67698703 67698713 67698715;}
@list l0:level1
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:1.5in;
text-indent:-.25in;}
@list l0:level2
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:2.0in;
text-indent:-.25in;}
@list l0:level3
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:2.5in;
text-indent:-9.0pt;}
@list l0:level4
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:3.0in;
text-indent:-.25in;}
@list l0:level5
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:3.5in;
text-indent:-.25in;}
@list l0:level6
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:4.0in;
text-indent:-9.0pt;}
@list l0:level7
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:4.5in;
text-indent:-.25in;}
@list l0:level8
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:5.0in;
text-indent:-.25in;}
@list l0:level9
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:5.5in;
text-indent:-9.0pt;}
@list l1
{mso-list-id:1996256579;
mso-list-type:hybrid;
mso-list-template-ids:1415055276 -324883968 67698713 67698715 67698703 67698713 67698715 67698703 67698713 67698715;}
@list l1:level1
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:1.75in;
text-indent:-.25in;}
@list l1:level2
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:2.25in;
text-indent:-.25in;}
@list l1:level3
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:2.75in;
text-indent:-9.0pt;}
@list l1:level4
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:3.25in;
text-indent:-.25in;}
@list l1:level5
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:3.75in;
text-indent:-.25in;}
@list l1:level6
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:4.25in;
text-indent:-9.0pt;}
@list l1:level7
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:4.75in;
text-indent:-.25in;}
@list l1:level8
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:5.25in;
text-indent:-.25in;}
@list l1:level9
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:5.75in;
text-indent:-9.0pt;}
ol
{margin-bottom:0in;}
ul
{margin-bottom:0in;}
-->
</style>
<div class="MsoNormal" style="text-indent: .5in;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">As you approach
2016, ask yourself whether or not you are committed to personal excellence as a
way of life.<span style="mso-spacerun: yes;"> </span>If the answer is no, the
follow up is why not?</span></i></div>
<div class="MsoNormal" style="text-indent: .5in;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">If the answer is
yes, there are an infinity of ways to move forward.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>Improving
one’s mind does not have to come from text books, and indeed can come with
great power from other sources.<span style="mso-spacerun: yes;"> </span>Nothing
teaches better than life.<span style="mso-spacerun: yes;"> </span></span></i></div>
<div class="MsoNormal" style="text-indent: .5in;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">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.</span></i></div>
<div class="MsoNormal" style="text-indent: .5in;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">The post for New
Year Eve is a reposting of an earlier post concerning Brain Investment.<span style="mso-spacerun: yes;"> </span>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.</span></i></div>
<div class="MsoNormal" style="text-indent: .5in;">
<br /></div>
<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: "Times New Roman"; font-size: 20.0pt; line-height: 115%;">Your
Brain: The Best Investment You Can Make</span></i></b></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">This post will discuss some general
thoughts on:</span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 1.5in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Arial;"><span style="mso-list: Ignore;">1.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">Teaching, Writing, and Posting;</span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.5in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Arial;"><span style="mso-list: Ignore;">2.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">Motivation;</span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.5in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Arial;"><span style="mso-list: Ignore;">3.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">Higher Level Motivation and the Brain;</span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.5in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Arial;"><span style="mso-list: Ignore;">4.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">Why I Encourage Learning the Uniform Commercial Code</span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .75in; mso-add-space: auto;">
<br /></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 2.0in; mso-add-space: auto;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-spacerun: yes;">
</span>Introduction</span></i></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">I believe that the best investment anyone
can make is in her or his brain.<span style="mso-spacerun: yes;"> </span>Better
brains process information at higher levels. Better brains see more variables
which impact decisions. The bottom line is that better brains <i style="mso-bidi-font-style: normal;">make</i> better decisions, ultimately
raising an individual’s plane of existence.<span style="mso-spacerun: yes;">
</span>Those renewable rewards clearly justify a commitment to mental
development.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoListParagraph" style="margin-left: 1.75in; mso-add-space: auto; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: Arial;"><span style="mso-list: Ignore;">1.<span style="font: 7.0pt "Times New Roman";"> </span></span></span></i><i style="mso-bidi-font-style: normal;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">Teaching, Writing, and Posting</span></i></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">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.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-tab-count: 1;"> </span><span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>This involves at
the very least, two things:<span style="mso-spacerun: yes;"> </span>first,
demonstrating why the area you are teaching is important and has relevance;
second, to motivate students to learn it.<span style="mso-spacerun: yes;">
</span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">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.<span style="mso-spacerun: yes;"> </span>Additionally, from an
entrepreneurial stand point, a knowledgeable Code person could cultivate
relationships with many small businesses, particularly start ups.<span style="mso-spacerun: yes;"> </span>At last count, there was a reported 29.4
million small businesses in America, many of them functioning without the
benefit of legal counsel.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;">
</span>So, the first piece, on a very practical level, is satisfactorily in
place.<span style="mso-spacerun: yes;"> </span>Job opportunities and tremendous
new client potential establish importance and relevance to someone focusing on
a career path.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-tab-count: 2;"> </span><i style="mso-bidi-font-style: normal;"><span style="mso-tab-count: 1;"> </span><span style="mso-spacerun: yes;"> </span>2. Higher Level Motivation</i></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">The second piece—higher level motivation—is
an integral part of my approach to teaching and life in general.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;">
</span>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 <i style="mso-bidi-font-style: normal;">always</i> true.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">I explain my basic system to the students
so that they can understand the process.<span style="mso-spacerun: yes;">
</span>I approach the brain as a muscle and create teaching strategies based
upon the principles of aerobic, interval and resistance training.<span style="mso-spacerun: yes;"> </span>It works quite well. If you would like to see
some of the components of that system, they are available at </span><a href="http://www.pathwaystoexcellence.us/"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">www.pathwaystoexcellence.us</span></a><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">.<span style="mso-spacerun: yes;"> </span>A ‘mini’ version of that content can be
accessed at </span><a href="http://www.2ptpe.com/"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">www.2ptpe.com</span></a><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">. </span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;">
</span>Components of that system will be integrated into this blog.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">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.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>Think of it as adding a knowledge application
to your phone.<span style="mso-spacerun: yes;"> </span>All of a sudden it can do
things it could not previously do.<span style="mso-spacerun: yes;"> </span>That
is a wonderful payback for putting in the work.<span style="mso-spacerun: yes;">
</span></span></div>
<div class="MsoNormal" style="margin-left: 1.5in; text-indent: .5in;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">3. Higher Level Motivation and the Brain</span></i></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">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.<span style="mso-spacerun: yes;"> </span>There are certainly enough open circuits in
the brain to accommodate anything you might want to learn. </span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-spacerun: yes;">
</span>From a physiological standpoint, we all have same basic brain.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;">
</span>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.<span style="mso-spacerun: yes;"> </span>The only question is whether or not an
individual has the motivation and passion<span style="mso-spacerun: yes;">
</span>to make that happen.</span></div>
<div class="MsoNormal">
<i style="mso-bidi-font-style: normal;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-spacerun: yes;"> </span>4. Why I Encourage Learning
the Uniform Commercial Code</span></i></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">There are many reasons why I encourage
people to learn the Uniform Commercial Code.<span style="mso-spacerun: yes;">
</span>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. </span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">That stated, it certainly does not need to
be the UCC for that to happen.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>That is
where you can find a spot with the autonomy to have a much better
existence.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">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.<span style="mso-spacerun: yes;"> </span>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.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-spacerun: yes;"> </span>I
hope this post has been of some value.<span style="mso-spacerun: yes;">
</span>The next post will return to The Uniform Commercial Code.<span style="mso-spacerun: yes;"> </span>Periodically, I will integrate some of the
brain muscle strategies with explanations in the posts.<span style="mso-tab-count: 3;"> </span><span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<br /></div>
<div class="MsoNormal" style="text-indent: .5in;">
<br /></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><br style="mso-special-character: line-break;" />
<br style="mso-special-character: line-break;" />
</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<br /></div>
<div class="MsoNormal" style="text-indent: .5in;">
<br /></div>
<div class="MsoNormal">
<br /></div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0tag:blogger.com,1999:blog-1323224956435433642.post-89730562006643632332015-12-23T11:26:00.000-08:002015-12-23T11:26:05.157-08:00A Christmas Poem
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:"Lucida Console";
panose-1:2 11 6 9 4 5 4 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.0in 1.0in 1.0in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<br />
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;"><span style="mso-tab-count: 2;"> </span><span style="mso-tab-count: 1;"> </span></span><span style="font-family: "Lucida Console"; font-size: 20.0pt; line-height: 115%; mso-bidi-font-family: Arial;">A
Christmas Poem </span></div>
<div class="MsoNormal" style="margin-left: 1.0in; text-indent: .5in;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;"><span style="mso-spacerun: yes;"> </span>Author Unknown</span></i></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">‘Twas the night before Christmas</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Santa had a full load.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Most requested gift?</span></div>
<div class="MsoNormal">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">The Uniform Commercial Code.</span></i></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">He got ready to fly and looked at
the forecast.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Changed into his suit knowing soon
he’d be gone fast.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">The weather had changed, it was
going to be breezy.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">So he decided to chill and read…. </span></div>
<div class="MsoNormal">
<i style="mso-bidi-font-style: normal;"><u><span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">The Uniform Commercial Code Made Easy.</span></u></i></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Santa thought back on how things
had changed.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">In many ways things have lost all
sensibility.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Remembering clearly the day he got
sued </span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">For breach of warranty of
merchantability.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">To his Code Santa had gone and he
knew right away,</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">No case could be brought on any a
day.</span></div>
<div class="MsoNormal" style="tab-stops: 387.75pt;">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">For
Santa gave gifts, he never did sales.<span style="mso-tab-count: 1;"> </span>.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">A motion to dismiss would surely
prevail.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Out into the night, it was time to
depart.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Goods fully loaded in the Custom
Made Cart.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">As he loaded them up, there was no
debating.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Name and address was clear on each
bill of lading.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">To many came checks of varying
kinds.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">A whole lot of fun for Santa to
find.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Giving the checks was fun to
implement for</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">He knew from the Code, the holder
had gold</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">In that Article 3 negotiable
instrument.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Indorsements required in all
shapes and sizes,</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Restrictive, Special and
accommodation devices.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Day after day Santa knew the
situation,</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Each and every one would end up
with negotiation.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">On into the night Santa continued
to fly</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Never wondering whether or why.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">He always knew, no matter the
load,</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">He’d protect himself and the elves</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">With the Uniform Commercial Code.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Santa wishes the same for you.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">That you might soar beyond Article
2.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Remembering always before you are
done,</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Wherever you are there’s Article
1.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">And so as we leave</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">And you carry your load.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Rejoice in the fact</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">That you know the Code.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">No matter how far,</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">No matter the direction.</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">There’s always an answer</span></div>
<div class="MsoNormal">
<span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">There’s always a section.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Yes, my friends….</span></i></div>
<div class="MsoNormal">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">There’s always an answer</span></i></div>
<div class="MsoNormal">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "Lucida Console"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Arial;">There’s always a section.</span></i></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-left: 1.0in; text-indent: .5in;">
<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: "Lucida Console"; font-size: 22.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Merry Christmas</span></i></b></div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0tag:blogger.com,1999:blog-1323224956435433642.post-92064249179210216102015-12-17T13:35:00.000-08:002015-12-17T13:35:54.941-08:00Battle of the Forms: No Battle
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.0in 1.0in 1.0in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<br />
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">The Reply
Doctrine of Section 2-201(2) creates a logical introduction to Section 2-207—<i style="mso-bidi-font-style: normal;">Battle of the Forms</i>.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>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.</span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"><span style="mso-tab-count: 1;"> </span>Section
2-207 provides an opportunity to demonstrate the connectivity between Code
sections, and the intertwining of meaning.<span style="mso-spacerun: yes;">
</span>The skilled advocate creates a logical sequence through all of that with
a favorable outcome.<span style="mso-spacerun: yes;"> </span>For example,
standing alone you have fairly clear statutory text for Section 2-201(2).<span style="mso-spacerun: yes;"> </span>‘A writing in confirmation’ is very clear
when stated like the example given in the last post.<span style="mso-spacerun: yes;"> </span>Of course, in reality it is rarely done so
cleanly.<span style="mso-spacerun: yes;"> </span>Rather, the writing in
confirmation may be a simple purchase order, with no specific confirmation
language, and courts have so held.</span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"><span style="mso-tab-count: 1;"> </span>The
Code sections which immediately come into play are Sections 1-201(b)(3),(12), the
definitions of agreement and contract.<span style="mso-spacerun: yes;">
</span>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.<span style="mso-spacerun: yes;"> </span>These
various interpretations create a very dynamic and fertile ground for
structuring arguments or drafting provisions in a manner most favorable to your
client.<span style="mso-tab-count: 1;"> </span></span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"><span style="mso-tab-count: 1;"> </span>As
for Section 2-207, I believe that section can be understood by a careful reading
of the text of the statute.<span style="mso-spacerun: yes;"> </span>As I was
taught <i style="mso-bidi-font-style: normal;">‘The answer is always in the
Statute.’<span style="mso-spacerun: yes;"> </span></i>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’.<span style="mso-spacerun: yes;"> </span>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.]</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Section 2-207(1)
states as follows:</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">(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.</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt;">
<a href="https://www.blogger.com/null" name="2-207(2)"></a><span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">The rule
of Section 2-207(1) is clear and straightforward.<span style="mso-spacerun: yes;"> </span>It contemplates an acceptance or written
confirmation of an offer, with the acceptance presenting additional terms to
those offered.<span style="mso-spacerun: yes;"> </span>The rule is that the
acceptance is binding unless the acceptance is made conditional on the
offeror’s assent to the additional terms.<span style="mso-spacerun: yes;">
</span>In other words, it is a ‘take it or leave it’ acceptance.</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt;">
<span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span>For
example, Seller offers buyer 1,000 pairs of shoes for $18.00 per pair with no
stated delivery terms.<span style="mso-spacerun: yes;"> </span>Buyer sends the
following response:</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">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.</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt;">
<span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">Under Section 2-207(1), Buyer has
accepted Seller’s offer.<span style="mso-spacerun: yes;"> </span>Delivery in
five lots is not a condition to Buyer’s acceptance, simply a statement or
request. </span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">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).<span style="mso-spacerun: yes;"> </span>In that scenario, Buyer’s proffered
acceptance might read as follows:</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">I
accept your offer to buy 1,000 shoes at $18.00 per pair.<span style="mso-spacerun: yes;"> </span>However, I need delivery in five separate
lots of 200 units per lot or I will not do the </span><span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">deal</span><span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">.</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt;">
<span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">Buyer has made his ‘acceptance’
conditional upon Seller’s acquiescence to his delivery demand.<span style="mso-spacerun: yes;"> </span>Hence, no acceptance.</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt;">
<span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span>Section
2-207(2) explains what happens when additional terms are proposed but not made
as a condition to the acceptance:</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">The
additional terms are to be construed as proposals for addition to the </span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">contract</span></a><span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">. </span><a href="https://www.law.cornell.edu/ucc/2/2-104#Between%20Merchants_2-104"><span style="color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">Between
merchants s</span></a><span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">uch terms become part of the
contract unless:</span><span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-left: .5in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: .5in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">(a) the offer expressly limits acceptance to the terms of the offer;</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-left: .5in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: .5in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">(b) they materially alter it; or</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-left: 1.0in; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">(c)
notification of objection to them has already been given or is given within a
reasonable time after notice of them is received.</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt;">
<a href="https://www.blogger.com/null" name="2-207(3)"></a><span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">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.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>For example, one question might become
whether the proposed delivery terms ‘materially alter’ the original offer.<span style="mso-spacerun: yes;"> </span>Trade custom would have particular relevance
here.</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt;">
<span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span>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.<span style="mso-spacerun: yes;"> </span>If that offer is a ‘take it or leave it’
proposal, no additional terms will be incorporated into the contract.<span style="mso-spacerun: yes;"> </span>If the additional terms ‘materially alter’
the offer, they will not be included.<span style="mso-spacerun: yes;">
</span>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.<span style="mso-tab-count: 1;"> </span></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt;">
<span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span>So,
at this point we have two take it or leave it scenarios.<span style="mso-spacerun: yes;"> </span>Under Section 2-207(1) a ‘take it or leave
it’ acceptance results in no acceptance.<span style="mso-spacerun: yes;">
</span>Under Section 2-207(2), if the original offer was a ‘take it or leave it
offer’ no new terms will be considered. <span style="mso-spacerun: yes;"> </span>The reality is that these situations rarely
occur in orderly communications such as those hypothesized above.<span style="mso-spacerun: yes;"> </span>It happens under time and business pressures,
with many transactions ongoing.<span style="mso-spacerun: yes;"> </span>Sometimes,
forms don’t get read, and if they are, often are not understood.<span style="mso-spacerun: yes;"> </span>So, there is no formal contract and you may
have writings going back and forth with contradictory terms.</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt;">
<span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span>Yet,
the deal goes forward.<span style="mso-spacerun: yes;"> </span>Why?<span style="mso-spacerun: yes;"> </span>Everybody wants to make money and they adopt
the ‘nothing will go wrong’ approach, and of course, sometimes the deal goes
south.<span style="mso-spacerun: yes;"> </span>The beautiful wood cabinets
called for in communications were not up to the buyer’s expectations. There is
no finalized contract.<span style="mso-spacerun: yes;"> </span>Negotiations
fail, and litigation ensues.<span style="mso-spacerun: yes;"> </span>At this
point, Section 2-207(3) takes control of what happens.<span style="mso-spacerun: yes;"> </span>That section states as follows:</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"><span style="mso-spacerun: yes;"> </span>Conduct by both <span style="mso-spacerun: yes;"> </span>parties which recognizes the existence of a </span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">contract</span></a><span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"> is sufficient to establish a </span><a href="https://www.law.cornell.edu/ucc/2/2-106#Contract%20for%20sale_2-106"><span style="color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">contract for
sale</span></a> <span style="font-family: Arial; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";">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.</span><span style="font-family: Arial; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">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.<span style="mso-spacerun: yes;">
</span>Contradictory terms will be eliminated and the agreed written provisions
will be supplemented by the UCC.<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">The application
of Section 2-207(3) can have an enormous impact on a case.<span style="mso-spacerun: yes;"> </span>For example, Seller may have had some very
specific warranty provisions that are part of all of his deals.<span style="mso-spacerun: yes;"> </span>If Buyer has presented a contradictory
term—very common in a purchase order, you have the classic situation.<span style="mso-spacerun: yes;"> </span>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.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<br /></div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0tag:blogger.com,1999:blog-1323224956435433642.post-64952557488230597932015-12-10T16:15:00.000-08:002015-12-10T16:15:50.825-08:00Section 2-201(2): Reply or Cry
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:Verdana;
panose-1:2 11 6 4 3 5 4 4 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-1593833729 1073750107 16 0 415 0;}
@font-face
{font-family:Verdana;
panose-1:2 11 6 4 3 5 4 4 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-1593833729 1073750107 16 0 415 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-520092929 1073786111 9 0 415 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
color:black;
mso-themecolor:text1;
background:white;}
a:link, span.MsoHyperlink
{mso-style-noshow:yes;
mso-style-priority:99;
color:blue;
text-decoration:underline;
text-underline:single;}
a:visited, span.MsoHyperlinkFollowed
{mso-style-noshow:yes;
mso-style-priority:99;
color:purple;
mso-themecolor:followedhyperlink;
text-decoration:underline;
text-underline:single;}
p.MsoListParagraph, li.MsoListParagraph, div.MsoListParagraph
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
color:black;
mso-themecolor:text1;
background:white;}
p.MsoListParagraphCxSpFirst, li.MsoListParagraphCxSpFirst, div.MsoListParagraphCxSpFirst
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
color:black;
mso-themecolor:text1;
background:white;}
p.MsoListParagraphCxSpMiddle, li.MsoListParagraphCxSpMiddle, div.MsoListParagraphCxSpMiddle
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
color:black;
mso-themecolor:text1;
background:white;}
p.MsoListParagraphCxSpLast, li.MsoListParagraphCxSpLast, div.MsoListParagraphCxSpLast
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
color:black;
mso-themecolor:text1;
background:white;}
span.apple-converted-space
{mso-style-name:apple-converted-space;
mso-style-unhide:no;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<br />
<div class="MsoNormal" style="text-indent: .5in;">
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:</div>
<div class="MsoListParagraphCxSpFirst">
What are the terms of the agreement between
the parties?</div>
<div class="MsoListParagraphCxSpMiddle">
How does the UCC impact the parties’
agreement?</div>
<div class="MsoListParagraphCxSpLast">
How do supplemental general principles of law
impact the parties’ agreement?</div>
<div class="MsoNormal" style="text-indent: .5in;">
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 <i style="mso-bidi-font-style: normal;">‘the total legal
obligation that results from the parties agreement</i> <i style="mso-bidi-font-style: normal;"><span style="color: black; font-family: Verdana; font-size: 10.5pt; line-height: 115%;">as determined by the </span></i><a href="http://www.law.cornell.edu/ucc" title="Uniform Commercial Code"><i style="mso-bidi-font-style: normal;"><span style="color: windowtext; font-size: 11.0pt; line-height: 115%; text-decoration: none; text-underline: none;">Uniform
Commercial Code</span></i></a><i style="mso-bidi-font-style: normal;"><span style="color: black; font-family: Verdana; font-size: 10.5pt; line-height: 115%;"> as
supplemented by any other applicable laws</span></i><span style="color: black; font-family: Verdana; font-size: 10.5pt; line-height: 115%;">.</span><i style="mso-bidi-font-style: normal;">’</i><span style="mso-spacerun: yes;">
</span>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.</div>
<div class="MsoNormal" style="text-indent: .5in;">
‘Agreement’ is defined as the <span class="apple-converted-space"><span style="color: black; font-family: Verdana; font-size: 10.5pt; line-height: 115%;">‘</span></span>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.<span style="mso-spacerun: yes;"> </span>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.</div>
<div class="MsoNormal" style="text-indent: .5in;">
Once all of the terms are
understood, the second element of the definition of contract kicks in: What is
the impact of the Uniform<span style="mso-spacerun: yes;"> </span>Commercial
Code on the parties’ agreement?<span style="mso-spacerun: yes;"> </span>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?<span style="mso-spacerun: yes;"> </span>That analysis begins with
the Article 2 Statute of Frauds contained in Section 2-201.<span style="mso-spacerun: yes;"> </span>The basic rule is stated in Section 2-201(1):</div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-size: 11.0pt; line-height: 115%;">Except as otherwise provided in this section a<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="color: black; font-size: 11.0pt; line-height: 115%; mso-themecolor: text1; text-decoration: none; text-underline: none;">contract</span></a><span class="apple-converted-space"><span style="font-size: 11.0pt; line-height: 115%;"> </span></span><span style="font-size: 11.0pt; line-height: 115%;">for the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#sale_2-106"><span style="color: black; font-size: 11.0pt; line-height: 115%; mso-themecolor: text1; text-decoration: none; text-underline: none;">sale</span></a><span class="apple-converted-space"><span style="font-size: 11.0pt; line-height: 115%;"> </span></span><span style="font-size: 11.0pt; line-height: 115%;">of<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105"><span style="color: black; font-size: 11.0pt; line-height: 115%; mso-themecolor: text1; text-decoration: none; text-underline: none;">goods</span></a><span class="apple-converted-space"><span style="font-size: 11.0pt; line-height: 115%;"> </span></span><span style="font-size: 11.0pt; line-height: 115%;">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<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#Contract%20for%20sale_2-106"><span style="color: black; font-size: 11.0pt; line-height: 115%; mso-themecolor: text1; text-decoration: none; text-underline: none;">contract for sale</span></a><span class="apple-converted-space"><span style="font-size: 11.0pt; line-height: 115%;"> </span></span><span style="font-size: 11.0pt; line-height: 115%;">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<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105"><span style="color: black; font-size: 11.0pt; line-height: 115%; mso-themecolor: text1; text-decoration: none; text-underline: none;">goods</span></a><span style="font-size: 11.0pt; line-height: 115%;"> shown in such writing.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
Section 2-201(1) is clear and very
straightforward.<span style="mso-spacerun: yes;"> </span>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.’<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>Similarly, a buyer seeking to hold a person
liable as a seller must have a writing signed by the seller.</div>
<div class="MsoNormal">
<span style="mso-tab-count: 1;"> </span>The basic
rule of Section 2-201(1) has several exceptions.<span style="mso-spacerun: yes;"> </span>The Reply Doctrine of Section 2-201(2) has
particular significance for two primary reasons.<span style="mso-spacerun: yes;"> </span>First, the downside for not understanding and
following the rule of Section 2-201(2) can be devastating to a business.<span style="mso-spacerun: yes;"> </span>Second, most businesses are unaware of
Section 2-201(2) and hence are in a state of potential major liability.<span style="mso-spacerun: yes;"> </span>Section 2-201(2) states as follows:</div>
<div class="MsoNormal" style="margin-left: 1.0in;">
<a href="https://www.law.cornell.edu/ucc/2/2-104#Between%20Merchants_2-104"><span style="color: windowtext; font-size: 11.0pt; line-height: 115%; text-decoration: none; text-underline: none;">Between merchants</span></a><span class="apple-converted-space"><span style="color: windowtext; font-size: 11.0pt; line-height: 115%;"> </span></span><span style="color: windowtext; font-size: 11.0pt; line-height: 115%;">if within a reasonable time a writing in confirmation of
the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="color: windowtext; font-size: 11.0pt; line-height: 115%; text-decoration: none; text-underline: none;">contract</span></a><span style="color: windowtext; font-size: 11.0pt; line-height: 115%;"> 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.</span></div>
<div class="MsoNormal">
The best way to illustrate the impact is by way of a simple
hypothetical:</div>
<div class="MsoNormal" style="margin-left: 1.0in;">
Assume that you are a manufacturer
of tables that you sell at the wholesale level to retailers for $1,000.</div>
<div class="MsoNormal" style="margin-left: 1.0in;">
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.</div>
<div class="MsoNormal" style="margin-left: 1.0in;">
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.</div>
<div class="MsoNormal" style="margin-left: 1.0in;">
Several days later, you receive
the following email:</div>
<div class="MsoNormal" style="margin-left: 1.0in;">
<span style="mso-tab-count: 1;"> </span>Dear
Seller:</div>
<div class="MsoNormal" style="margin-left: 1.5in;">
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.<span style="mso-spacerun: yes;"> </span>I appreciate
your recognition of this large order through your discounted price.</div>
<div class="MsoNormal" style="margin-left: 1.5in;">
Sincerely,</div>
<div class="MsoNormal" style="margin-left: 1.5in;">
Buyer</div>
<div class="MsoNormal">
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).<span style="mso-tab-count: 1;"> </span></div>
<div class="MsoNormal" style="text-indent: .5in;">
Both parties are merchants, so the
first prerequisite of Section 2-201(2) is met.<span style="mso-spacerun: yes;">
</span>The writing confirms the contract and is ‘sufficient against the
sender’—i.e.—signed by the sender—in this case, the alleged buyer.<span style="mso-spacerun: yes;"> </span>Hence the second prerequisite is met.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal" style="text-indent: .5in;">
At this point, unless the seller <span style="color: windowtext;">gives written notice of objection to its contents, <span style="mso-spacerun: yes;"></span>within 10 days of receipt, buyer
will have been deemed to have satisfied the requirements of the Statute of
Frauds.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="color: windowtext;">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.<span style="mso-spacerun: yes;"> </span>Both of these can be avoided
with a simple one sentence reply denying the existence of the contract.</span></div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0tag:blogger.com,1999:blog-1323224956435433642.post-11084764999658024082015-12-03T10:11:00.000-08:002015-12-03T10:13:43.581-08:00Mixed Transactions: UCC or Non-UCC?<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-bidi-font-family:Arial;}
p.MsoListParagraph, li.MsoListParagraph, div.MsoListParagraph
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-bidi-font-family:Arial;}
p.MsoListParagraphCxSpFirst, li.MsoListParagraphCxSpFirst, div.MsoListParagraphCxSpFirst
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-bidi-font-family:Arial;}
p.MsoListParagraphCxSpMiddle, li.MsoListParagraphCxSpMiddle, div.MsoListParagraphCxSpMiddle
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-bidi-font-family:Arial;}
p.MsoListParagraphCxSpLast, li.MsoListParagraphCxSpLast, div.MsoListParagraphCxSpLast
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Arial;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-bidi-font-family:Arial;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<br />
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: inherit;"><span style="font-family: inherit; font-size: small;">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’.<span style="mso-spacerun: yes;"> </span>Some transactions involve a combination of
sales and services and have been labeled ‘mixed transactions’.<span style="mso-spacerun: yes;"> </span>By way of simple example, assume patient
ordered a set of dentures from her dentist which he later placed into her
mouth.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>These are the facts from a case I used when
teaching Sales.<span style="mso-spacerun: yes;"> </span>The court found that the
transaction between the patient and the dentist was predominantly a service, not
a sale. [<i style="mso-bidi-font-style: normal;"><u>Cook v Downing</u></i> 1994
OK CIV APP 178, 891 P2d 611, 27 UCC Rep. Serv. 2d 837 (Ct. App. Div 1 1994) ]<span style="mso-spacerun: yes;"> </span>Therefore, the Uniform Commercial Code did
not<span style="mso-spacerun: yes;"> </span>apply.</span></span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: inherit;"><span style="font-family: inherit; font-size: small;">Courts have used several tests to
determine whether or not a mixed transaction is a sale or a service.<span style="mso-spacerun: yes;"> </span>The two most common are posed in the form of
questions:</span></span></span></div>
<div class="MsoListParagraphCxSpFirst">
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: inherit;"><span style="font-family: inherit; font-size: small;">Is the gravamen of the transaction a sale or
a service?</span></span></span></div>
<div class="MsoListParagraphCxSpLast">
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: inherit;"><span style="font-family: inherit; font-size: small;">Is the primary or predominant purpose of the
transaction a sale or a service?</span></span></span></div>
<div class="MsoNormal">
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: inherit;"><span style="font-family: inherit; font-size: small;">Within these broad based questions, a variety of factors are
discussed by the courts.<span style="mso-spacerun: yes;"> </span>Before turning
to some of these factors, a more fundament question must be asked: </span></span></span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: inherit;"><span style="font-family: inherit; font-size: small;">What difference does it make
whether a transaction is determined to be a sale or service?</span></span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: inherit;"><span style="font-family: inherit; font-size: small;">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.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>[Both of these topics have been discussed in
earlier posts.]<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;">
</span>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.</span></span></span></div>
<div class="MsoNormal">
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: inherit;"><span style="font-family: inherit; font-size: small;"><span style="mso-tab-count: 1;"> </span>If the
question arises in the litigation context, the issue becomes: Where do you want
to fight the battle?<span style="mso-spacerun: yes;"> </span>That will turn on
your knowledge base and skill set.<span style="mso-spacerun: yes;"> </span>Where
are you better equipped to fight?<span style="mso-spacerun: yes;"> </span>Do you
have better weapons under the Uniform Commercial Code or outside the Code?<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>Obviously, if
you have a strong knowledge base in the Uniform Commercial Code, you will
generally prefer to have matters resolved within the Code.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>So the answer to the question
posed really boils down to what rules do you want to play under?<span style="mso-spacerun: yes;"> </span>It can be viewed as something akin to home
field advantage.</span></span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: inherit;"><span style="font-family: inherit; font-size: small;">Mixed contracts occur in a wide
variety of settings.<span style="mso-spacerun: yes;"> </span>One of the most
frequently litigated settings is found in the sale of computer systems.<span style="mso-spacerun: yes;"> </span>Often these systems involve two
elements—creation and design of the system—and the ultimate sale of the system.<span style="mso-spacerun: yes;"> </span>They also involve the sale of software and
hardware, both of which have been determined to be goods by the majority of
courts.</span></span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: inherit;"><span style="font-family: inherit; font-size: small;"><i style="mso-bidi-font-style: normal;"><u>Micro
Data Base Systems, Inc. v. Dharma Systems, Inc</u></i> 148F3d 649 (7<sup>th</sup>
Cir. 1998) involved a dispute between two software companies—MDBS and Dharma
Systems.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>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.</span></span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: inherit;"><span style="font-family: inherit; font-size: small;">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.<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>The court noted that under New
Hampshire law the determination hinges on which aspect of the transaction
‘predominates’—the sale or the service.<span style="mso-spacerun: yes;"> </span></span></span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: inherit;"><span style="font-family: inherit; font-size: small;">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.<span style="mso-spacerun: yes;"> </span>In supporting this analysis the court stated:</span></span></span></div>
<div class="MsoNormal" style="tab-stops: 58.9pt;">
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: inherit;"><span style="font-family: inherit; font-size: small;"><span style="mso-tab-count: 1;"> </span></span></span></span></div>
<div class="MsoNormal" style="margin-left: 1.0in;">
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: inherit;"><span style="font-family: inherit; font-size: small;"><span style="font-size: 11.0pt; line-height: 115%;">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. <i style="mso-bidi-font-style: normal;"><u>Micro Data Base Systems, Inc,.</u></i>at
655.</span></span></span></span></div>
<div class="MsoNormal">
<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: inherit;"><span style="font-family: inherit; font-size: small;"><span style="mso-tab-count: 1;"> </span>There are
cases going both ways on the question of whether developmental software which
is later sold is a sale or a service.<span style="mso-spacerun: yes;">
</span>The case under discussion is illustrative of the importance of the
choice of law provisions of the Code [discussed in an earlier post].<span style="mso-spacerun: yes;"> </span>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.<span style="mso-spacerun: yes;"> </span>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.</span></span></span></div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com1tag:blogger.com,1999:blog-1323224956435433642.post-35585940562894706332015-11-25T07:19:00.000-08:002015-12-03T10:12:36.374-08:00Thanksgiving and the UCC!<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-520092929 1073786111 9 0 415 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.0in 1.0in 1.0in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
-->
</style>
<br />
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: inherit;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">Thanksgiving has always been my favorite
Holiday.<span style="mso-spacerun: yes;"> </span>One of the reasons this is so
is because it transcends any particular belief or religious system, and focuses
instead upon something that is universal—gratitude.<span style="mso-spacerun: yes;"> </span>Obstacles are an inevitable reality of life,
and everyone who has ever accomplished anything of value has experienced this
reality.<span style="mso-spacerun: yes;"> </span>In the face of adversity and
everything that goes with it however, there is always a place for
gratitude.<span style="mso-spacerun: yes;"> </span>This may require a shift in
perspective, and the utilization of the intellect to overcome feelings, but
this is doable and, I submit, necessary.</span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: inherit;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">This blog is certainly not the place to
discuss what I am personally grateful for, but on this point, I will say that I
start everyday focusing on precisely that.<span style="mso-spacerun: yes;">
</span>In the context of this blog, I am grateful to have an avenue through
which to communicate and promote a legitimate business.<span style="mso-spacerun: yes;"> </span>I am also grateful for the knowledge gained
in this process, both as to the substantive content of certain Code sections,
as well as the knowledge gained through the discipline of the writing
process.<span style="mso-spacerun: yes;"> </span>These blogs are challenging
which creates a pathway toward personal improvement.</span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: inherit;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-spacerun: yes;"> </span>I am
grateful for the opportunities that the Uniform Commercial Code has created for
me throughout my lifetime.<span style="mso-spacerun: yes;"> </span>Through the
Uniform Commercial Code I had the privilege of knowing and working with some of
the finest legal minds in history, who taught me as a student and from whom I
continued to learn as a professor.<span style="mso-spacerun: yes;"> </span>After
twenty-one years out of the legal world—working with abused, neglected and
incarcerated minors in California—the Uniform Commercial Code opened the door
to my return to teaching law. <span style="mso-spacerun: yes;"> </span>The
change from Los Angeles County Central Juvenile Hall to the Stetson University
College of Law was so dramatic it was humorous.<span style="mso-spacerun: yes;">
</span>This after all, was the first group of students in twenty years who weren’t
sentenced to be with me—although a couple of them felt like they were.</span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: inherit;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">The teaching led to the rewrite of <i style="mso-bidi-font-style: normal;"><u>The Uniform Commercial Code Made Easy</u></i>
which has been extremely helpful at all levels of my dealings with the legal
community. I believe the manner in which the book presents the UCC was
instrumental in providing me the opportunity to teach the UCC in one day for
CLE credit to bar associations throughout the United States, as well as the consulting
opportunities which have followed. Of equal significance, the UCC has opened
doors for me to present programs on children at risk to bar associations and
staff in residential and correctional facilities.<span style="mso-spacerun: yes;"> </span>On March 18, 2016, for example, I have the
great opportunity to present to the Missouri Juvenile Justice Association and
attorneys and judges who work with the full spectrum of children at risk, the
day after a UCC presentation for members of the Missouri Bar Association.</span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: inherit;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">I am also grateful that I had the opportunity
to be educated which made the UCC experience possible.<span style="mso-spacerun: yes;"> </span>Being given a shot at life is all anyone can
ask for.<span style="mso-spacerun: yes;"> </span>When I witnessed the incredible
obstacles and barriers faced by children with no money, little food and no
hope, I understood in a whole new way how fortunate I was to be born into a
home where I was offered the opportunity to go to college and then law
school.<span style="mso-spacerun: yes;"> </span>Within this context, the biggest
blessing that I had was the absolute, rock solid belief that life is very
important and that the best investment I could make was to invest my full
energy and resources into improving my mind and improving myself as a person.</span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: inherit;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">We all have the opportunity everyday to
create our reality. I submit that a reality that incorporates gratitude as a
cornerstone principle will create a better life.<span style="mso-spacerun: yes;"> </span>In an earlier post I presented the concept of
the reactionary mind and how to overcome automatic reactions that the brain has
to certain events and input presented by life.<span style="mso-spacerun: yes;">
</span>This discussion offers a very practical example of the application of some
of those principles:</span></span></div>
<div class="MsoNormal" style="margin-left: .5in; text-indent: 2.25pt;">
<span style="font-family: inherit;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">Each time your
brain reacts negatively—<i style="mso-bidi-font-style: normal;">to anything</i>—respond
by thinking of something you are grateful for.<span style="mso-spacerun: yes;">
</span></span></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">It’s all physics.</span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: inherit;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;">In 2007 I was doing a presentation in
Irvine California.<span style="mso-spacerun: yes;"> </span>The room I had been
given was right next to the elevator, which had a <i style="mso-bidi-font-style: normal;">very</i> loud ring each time someone exited—which seemed to be very
often.<span style="mso-spacerun: yes;"> </span>Initially I was furious each time
the elevator opened and deprived me of sleep.<span style="mso-spacerun: yes;">
</span>I could feel my blood pressure rise and of course the corresponding
anger.<span style="mso-spacerun: yes;"> </span>After suffering through this
experience for several hours, I had a breakthrough. I decided that each time I
heard the elevator bell, instead of being angry, I would be grateful I could
hear! ……………<i style="mso-bidi-font-style: normal;">It worked.</i></span></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;"><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%;"><span style="mso-tab-count: 1;"> </span><span style="mso-tab-count: 1;"> </span></span><i style="mso-bidi-font-style: normal;"><span style="font-family: Arial; font-size: 14.0pt; line-height: 115%;"><span style="mso-tab-count: 2;"> </span>Happy Thanksgiving</span></i></span></div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0tag:blogger.com,1999:blog-1323224956435433642.post-85043163666714884912015-11-19T16:10:00.000-08:002015-11-19T16:12:07.926-08:00What are the Goods? <style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:-536859905 -1073711037 9 0 511 0;}
@font-face
{font-family:Verdana;
panose-1:2 11 6 4 3 5 4 4 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Verdana;
panose-1:2 11 6 4 3 5 4 4 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:"Times New Roman";
mso-ascii-font-family:"Times New Roman";
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:"Times New Roman";
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:"Times New Roman";
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
a:link, span.MsoHyperlink
{mso-style-noshow:yes;
mso-style-priority:99;
color:blue;
text-decoration:underline;
text-underline:single;}
a:visited, span.MsoHyperlinkFollowed
{mso-style-noshow:yes;
mso-style-priority:99;
color:purple;
mso-themecolor:followedhyperlink;
text-decoration:underline;
text-underline:single;}
p
{mso-style-priority:99;
mso-margin-top-alt:auto;
margin-right:0in;
mso-margin-bottom-alt:auto;
margin-left:0in;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:"Times New Roman";
mso-fareast-font-family:"Times New Roman";}
p.MsoListParagraph, li.MsoListParagraph, div.MsoListParagraph
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:"Times New Roman";
mso-ascii-font-family:"Times New Roman";
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:"Times New Roman";
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:"Times New Roman";
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpFirst, li.MsoListParagraphCxSpFirst, div.MsoListParagraphCxSpFirst
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:"Times New Roman";
mso-ascii-font-family:"Times New Roman";
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:"Times New Roman";
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:"Times New Roman";
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpMiddle, li.MsoListParagraphCxSpMiddle, div.MsoListParagraphCxSpMiddle
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:"Times New Roman";
mso-ascii-font-family:"Times New Roman";
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:"Times New Roman";
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:"Times New Roman";
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpLast, li.MsoListParagraphCxSpLast, div.MsoListParagraphCxSpLast
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:"Times New Roman";
mso-ascii-font-family:"Times New Roman";
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:"Times New Roman";
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:"Times New Roman";
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
span.apple-converted-space
{mso-style-name:apple-converted-space;
mso-style-unhide:no;}
p.text-level2, li.text-level2, div.text-level2
{mso-style-name:text-level2;
mso-style-unhide:no;
mso-margin-top-alt:auto;
margin-right:0in;
mso-margin-bottom-alt:auto;
margin-left:0in;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:"Times New Roman";
mso-fareast-font-family:"Times New Roman";}
span.definedterm
{mso-style-name:definedterm;
mso-style-unhide:no;}
p.text-level3, li.text-level3, div.text-level3
{mso-style-name:text-level3;
mso-style-unhide:no;
mso-margin-top-alt:auto;
margin-right:0in;
mso-margin-bottom-alt:auto;
margin-left:0in;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:"Times New Roman";
mso-fareast-font-family:"Times New Roman";}
p.text-level4, li.text-level4, div.text-level4
{mso-style-name:text-level4;
mso-style-unhide:no;
mso-margin-top-alt:auto;
margin-right:0in;
mso-margin-bottom-alt:auto;
margin-left:0in;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:"Times New Roman";
mso-fareast-font-family:"Times New Roman";}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
mso-ascii-font-family:"Times New Roman";
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:"Times New Roman";
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:"Times New Roman";
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.0in 1.0in 1.0in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
/* List Definitions */
@list l0
{mso-list-id:311063410;
mso-list-type:hybrid;
mso-list-template-ids:-2052426810 -2080884984 67698713 67698715 67698703 67698713 67698715 67698703 67698713 67698715;}
@list l0:level1
{mso-level-text:"\(%1\)";
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:.75in;
text-indent:-.25in;}
@list l0:level2
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:1.25in;
text-indent:-.25in;}
@list l0:level3
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:1.75in;
text-indent:-9.0pt;}
@list l0:level4
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:2.25in;
text-indent:-.25in;}
@list l0:level5
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:2.75in;
text-indent:-.25in;}
@list l0:level6
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:3.25in;
text-indent:-9.0pt;}
@list l0:level7
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:3.75in;
text-indent:-.25in;}
@list l0:level8
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:4.25in;
text-indent:-.25in;}
@list l0:level9
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:4.75in;
text-indent:-9.0pt;}
@list l1
{mso-list-id:1495102042;
mso-list-type:hybrid;
mso-list-template-ids:-1314617290 1194349480 67698713 67698715 67698703 67698713 67698715 67698703 67698713 67698715;}
@list l1:level1
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:1.75in;
text-indent:-.25in;}
@list l1:level2
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:2.25in;
text-indent:-.25in;}
@list l1:level3
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:2.75in;
text-indent:-9.0pt;}
@list l1:level4
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:3.25in;
text-indent:-.25in;}
@list l1:level5
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:3.75in;
text-indent:-.25in;}
@list l1:level6
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:4.25in;
text-indent:-9.0pt;}
@list l1:level7
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:4.75in;
text-indent:-.25in;}
@list l1:level8
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:5.25in;
text-indent:-.25in;}
@list l1:level9
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:5.75in;
text-indent:-9.0pt;}
ol
{margin-bottom:0in;}
ul
{margin-bottom:0in;}
-->
</style>
<br />
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%;">As of this writing, most of Articles 1 and
3 have been completed, and while there are other sections which could be
discussed in Article 3, I am confident that anyone who understands the posts to
date will be able to analyze those sections.<span style="mso-spacerun: yes;">
</span>Going forward, I will be combining posts from Articles 2, 7, and 9.<span style="mso-spacerun: yes;"> </span>Article 2 deals with sales of goods; Article
7 deals with movement and storage of goods via documents of title; and Article
9 deals with secured financing, and while there are many types of non goods
collateral, Article 9 has many provisions which deal with the secured financing
of goods at the wholesale and retail level.<span style="mso-spacerun: yes;">
</span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%;">At the outset, it must be noted that
although Article 2 deals with sales, the scope of Article 2 applies to
‘transactions in goods’:</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial"; mso-fareast-font-family: "Times New Roman";">Unless the context otherwise
requires, this Article applies to transactions in </span><a href="https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105"><span style="color: windowtext; font-family: "arial"; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">goods</span></a><span style="font-family: "arial"; mso-fareast-font-family: "Times New Roman";">; it does
not apply to any transaction which although in the form of an
unconditional </span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="color: windowtext; font-family: "arial"; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">contract</span></a><span style="font-family: "arial"; mso-fareast-font-family: "Times New Roman";"> to
sell or </span><a href="https://www.law.cornell.edu/ucc/2/2-106#present%20sale_2-106"><span style="color: windowtext; font-family: "arial"; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">present sale</span></a><span style="font-family: "arial"; mso-fareast-font-family: "Times New Roman";"> is
intended to operate only as a security transaction nor does this Article impair
or repeal any statute regulating </span><a href="https://www.law.cornell.edu/ucc/2/2-106#sale_2-106"><span style="color: windowtext; font-family: "arial"; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">sales</span></a><span style="font-family: "arial"; mso-fareast-font-family: "Times New Roman";"> to
consumers, farmers or other specified classes of </span><a href="https://www.law.cornell.edu/ucc/2/2-103#Buyer_2-103"><span style="color: windowtext; font-family: "arial"; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">buyers</span></a><span style="font-family: "arial"; mso-fareast-font-family: "Times New Roman";">.</span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0in; tab-stops: 117.0pt;">
<span style="font-family: "arial"; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: "arial";"><span style="mso-tab-count: 7;"> </span>Section
2-102</span></div>
<div class="MsoNormal">
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%;">Most of the time, the applicability of Article 2 will be very
straightforward—the transaction involved will be a typical sale of goods and
Article 2 will apply.<span style="mso-spacerun: yes;"> </span>In some situations
however, the transaction involved will be a combination of a sale and a service
requiring further analysis to determine whether or not a particular combined
transaction is within the scope of Article 2. </span></div>
<div class="MsoNormal">
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%;"><span style="mso-tab-count: 1;"> </span>Before addressing the
scope issue as it relates to mixed transactions, a more basic question must be
addressed; namely, what are ‘goods’, the essential ingredient of Article 2.
Goods are defined under Section 1-205 as follows:</span></div>
<div class="MsoListParagraph" style="margin-left: .75in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<a href="https://www.blogger.com/null" name="Goods_2-105"></a><span style="font-family: "arial"; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-fareast-font-family: Arial; mso-fareast-theme-font: major-latin; mso-hansi-theme-font: major-latin;"><span style="mso-list: Ignore;">(1)<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="background: white; font-family: "arial"; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">"<b><span style="font-family: "arial"; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">Goods</span></b>" means
all things (including specially manufactured goods) which are movable at the
time of identification to the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#Contract%20for%20sale_2-106"><span style="background: white; font-family: "arial"; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">contract for sale</span></a><span class="apple-converted-space"><span style="background: white; font-family: "arial"; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> </span></span><span style="background: white; font-family: "arial"; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">other than the money in which the price is to be
paid, investment securities (Article 8) and things in action. "Goods"
also includes the unborn young of animals and growing crops and other
identified things attached to realty as described in the section on goods to be
severed from realty (Section<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-107.html"><span style="background: white; font-family: "arial"; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">2-107</span></a><span style="background: white; font-family: "arial"; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">).</span></div>
<div class="MsoNormal">
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">Goods, therefore, are tangible personal
property which are ‘movable’ at the time of identification to the contract for
sale.<span style="mso-spacerun: yes;"> </span>Note that when money is used as a
payment mechanism, it is excluded from the definition of goods.<span style="mso-spacerun: yes;"> </span>If however, money is being sold as a commodity,
it will come within the definition of goods.<span style="mso-spacerun: yes;">
</span>This point is specifically addressed in comment 1 to Section 2-105 which
states as follows:</span></div>
<div class="MsoNormal" style="margin-left: .5in;">
<span style="font-family: "arial"; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">Goods is intended to cover the sale of money when money is being
treated as a commodity but not to include it when money is the medium of
payment.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="background: white; font-family: "verdana"; font-size: 12.0pt; line-height: 115%;">In order for an interest
in goods to pass, the goods must be ‘existing and identified’:</span></div>
<div class="MsoNormal" style="margin-left: 1.0in;">
<span style="background: white; font-family: "arial";">Goods must be both existing and identified before any
interest in them can pass. Goods which are not both existing and identified are
"<a href="https://www.blogger.com/null" name="future_goods_2-105"></a><b><span style="font-family: "arial";">future</span></b>"
goods. A purported<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#present%20sale_2-106"><span style="background: white; font-family: "arial";">present sale</span></a><span class="apple-converted-space"><span style="background: white; font-family: "arial";"> </span></span><span style="background: white; font-family: "arial";">of future goods or of any interest
therein operates as a </span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="background: white; font-family: "arial";">contract</span></a><span style="font-family: "arial";"> <span style="background: white;">to sell.<span style="mso-tab-count: 2;"> </span>Section 2-105(2)</span></span></div>
<div class="MsoNormal">
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">Several exceptions/qualifications to this
general rule are contained in Section 2-107 which is cross referenced in
Section 2-105(1).<span style="mso-spacerun: yes;"> </span>Section 2-107(1)
states as follows:</span></div>
<div style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 1.0in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">A<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">contract</span></a><span class="apple-converted-space"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> </span></span><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">for the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#sale_2-106"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">sale</span></a><span class="apple-converted-space"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> </span></span><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">of minerals or the like (including oil and
gas) or a structure or its materials to be removed from realty is a contract
for the sale of<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">goods</span></a><span class="apple-converted-space"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> </span></span><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">within this Article if they are to be severed
by the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">seller</span></a><span class="apple-converted-space"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> </span></span><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">but until severance a purported<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#present%20sale_2-106"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">present sale</span></a><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> thereof
which is not effective as a transfer of an interest in land is effective only
as a contract to sell.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">There are three situations
contemplated by Section 2-107(1):</span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 1.75in; mso-add-space: auto; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-fareast-font-family: Arial; mso-fareast-theme-font: major-latin; mso-hansi-theme-font: major-latin;"><span style="mso-list: Ignore;">1.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">Sale of minerals ‘or the like’, specifically
including oil and gas;</span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.75in; mso-add-space: auto; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-fareast-font-family: Arial; mso-fareast-theme-font: major-latin; mso-hansi-theme-font: major-latin;"><span style="mso-list: Ignore;">2.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">Sale of a structure to be moved from realty;</span></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 1.75in; mso-add-space: auto; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-fareast-font-family: Arial; mso-fareast-theme-font: major-latin; mso-hansi-theme-font: major-latin;"><span style="mso-list: Ignore;">3.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">Sale of the materials of a structure to be
removed from realty.</span></div>
<div style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 0in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial"; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">In order for a sale of the foregoing to be within Article 2,
severance of those items must be undertaken by the seller.<span style="mso-spacerun: yes;"> </span>Further, until severance, there can be no
present sale of those items unless there is an accompanying transfer of the
real estate interest.<span style="mso-spacerun: yes;"> </span>Absent such a real
estate transfer, any contract for the sale of the items listed will be treated’
only as a contract to sell’.</span></div>
<div style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 0in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial"; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"><span style="mso-tab-count: 1;"> </span>The foregoing is
consistent with basic real estate law. Oil, gas and mineral rights generally
are treated as part of the real estate on which they are located.<span style="mso-spacerun: yes;"> </span>Hence, absent a sale of the land, there is no
sale of these goods.<span style="mso-spacerun: yes;"> </span>This is also
consistent with Article 9 which characterizes oil, gas and mineral rights as
‘as extracted collateral’, which is defined under Section 9-102(a)(6) as
follows:</span></div>
<div class="text-level2" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 31.85pt; margin-right: 31.85pt; margin-top: 0in;">
<span style="font-family: "arial"; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"><span style="mso-tab-count: 3;"> </span></span><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">"<a href="https://www.blogger.com/null" name="das-extractedcollateral"></a><span class="definedterm"><span style="mso-bidi-font-weight: bold;">As-extracted collateral</span></span>"
means:</span></div>
<div class="text-level3" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 44.6pt; margin-right: 31.85pt; margin-top: 0in;">
<span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">(A) oil, gas,
or other minerals that are subject to a security interest that:</span></div>
<div class="text-level4" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 57.35pt; margin-right: 31.85pt; margin-top: 0in;">
<span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">(i) is
created by a<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/9/article9#ddebtor"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">debtor</span></a><span class="apple-converted-space"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> </span></span><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">having an interest in the minerals before extraction;
and</span></div>
<div class="text-level4" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 57.35pt; margin-right: 31.85pt; margin-top: 0in;">
<span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">(ii) attaches
to the minerals as extracted; or</span></div>
<div class="text-level3" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 44.6pt; margin-right: 31.85pt; margin-top: 0in;">
<span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">(B) ….</span></div>
<div style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 0in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial"; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">While the oil, minerals and gas are in the ground, they are
treated as real estate.<span style="mso-spacerun: yes;"> </span>Upon extraction
they become goods, and hence within the scope of a secured transaction under
Article 9.</span></div>
<div style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 0in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial"; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"><span style="mso-tab-count: 1;"> </span>The scenario
contemplated by Section 2-107(1) is to be distinguished from the situation
where the goods involved are attached to realty but are capable of removal
without ‘material harm’ to the realty:<span style="mso-tab-count: 1;"> </span></span></div>
<div style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: .5in; margin-right: 0in; margin-top: 0in; text-indent: 2.25pt;">
<a href="https://www.blogger.com/null" name="2-107(2)"></a><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">A<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#contract_2-106"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">contract</span></a><span class="apple-converted-space"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> </span></span><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">for the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#sale_2-106"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">sale</span></a><span class="apple-converted-space"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> </span></span><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">apart from the land of growing crops or other
things attached to realty and capable of severance without material harm
thereto but not described in subsection (1) or of timber to be cut is a
contract for the sale of<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">goods</span></a><span class="apple-converted-space"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> </span></span><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">within this Article whether the subject matter
is to be severed by the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-103#Buyer_2-103"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">buyer</span></a><span class="apple-converted-space"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> </span></span><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">or by the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-103#Seller_2-103"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">seller</span></a><span class="apple-converted-space"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> </span></span><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">even though it forms part of the realty at the
time of contracting, and the parties can by identification effect a<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/2/2-106#present%20sale_2-106"><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;">present sale</span></a><span style="font-family: "arial"; font-size: 11.0pt; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> before
severance.</span></div>
<div class="MsoNormal">
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"><span style="mso-spacerun: yes;"> </span>In the
situation contemplated by Section 2-107(2), severance can be made by either
party, and the parties can conduct a present sale of those goods before
severance by identification of the goods involved.</span></div>
<div style="border-bottom: solid windowtext 1.5pt; border: none; mso-element: para-border-div; padding: 0in 0in 1.0pt 0in;">
<div class="MsoNormal" style="border: none; mso-border-bottom-alt: solid windowtext 1.5pt; mso-padding-alt: 0in 0in 1.0pt 0in; padding: 0in;">
<span style="font-family: "arial"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-theme-font: major-latin; mso-hansi-theme-font: major-latin;"><span style="mso-tab-count: 1;"> </span></span></div>
</div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com1tag:blogger.com,1999:blog-1323224956435433642.post-37688503645488680142015-11-12T08:05:00.000-08:002015-11-12T08:05:05.767-08:00Imposters, Fictitious Payees & Effective Indorsements
<style>
<!--
/* Font Definitions */
@font-face
{font-family:Arial;
panose-1:2 11 6 4 2 2 2 2 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:"Courier New";
panose-1:2 7 3 9 2 2 5 2 4 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
@font-face
{font-family:Wingdings;
panose-1:5 0 0 0 0 0 0 0 0 0;
mso-font-charset:2;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:0 268435456 0 0 -2147483648 0;}
@font-face
{font-family:Wingdings;
panose-1:5 0 0 0 0 0 0 0 0 0;
mso-font-charset:2;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:0 268435456 0 0 -2147483648 0;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;
mso-font-charset:0;
mso-generic-font-family:auto;
mso-font-pitch:variable;
mso-font-signature:3 0 0 0 1 0;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
a:link, span.MsoHyperlink
{mso-style-noshow:yes;
mso-style-priority:99;
color:blue;
text-decoration:underline;
text-underline:single;}
a:visited, span.MsoHyperlinkFollowed
{mso-style-noshow:yes;
mso-style-priority:99;
color:purple;
mso-themecolor:followedhyperlink;
text-decoration:underline;
text-underline:single;}
p.MsoListParagraph, li.MsoListParagraph, div.MsoListParagraph
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpFirst, li.MsoListParagraphCxSpFirst, div.MsoListParagraphCxSpFirst
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpMiddle, li.MsoListParagraphCxSpMiddle, div.MsoListParagraphCxSpMiddle
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:0in;
margin-left:.5in;
margin-bottom:.0001pt;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpLast, li.MsoListParagraphCxSpLast, div.MsoListParagraphCxSpLast
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0in;
margin-right:0in;
margin-bottom:10.0pt;
margin-left:.5in;
mso-add-space:auto;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
span.apple-converted-space
{mso-style-name:apple-converted-space;
mso-style-unhide:no;}
p.text-level1, li.text-level1, div.text-level1
{mso-style-name:text-level1;
mso-style-unhide:no;
mso-margin-top-alt:auto;
margin-right:0in;
mso-margin-bottom-alt:auto;
margin-left:0in;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:"Times New Roman";
mso-fareast-font-family:"Times New Roman";
mso-bidi-font-family:"Times New Roman";}
p.text-level2, li.text-level2, div.text-level2
{mso-style-name:text-level2;
mso-style-unhide:no;
mso-margin-top-alt:auto;
margin-right:0in;
mso-margin-bottom-alt:auto;
margin-left:0in;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:"Times New Roman";
mso-fareast-font-family:"Times New Roman";
mso-bidi-font-family:"Times New Roman";}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:Calibri;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:10.0pt;
line-height:115%;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.25in 1.0in 1.25in;
mso-header-margin:.5in;
mso-footer-margin:.5in;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
/* List Definitions */
@list l0
{mso-list-id:486243478;
mso-list-type:hybrid;
mso-list-template-ids:-1490240330 67698689 67698691 67698693 67698689 67698691 67698693 67698689 67698691 67698693;}
@list l0:level1
{mso-level-number-format:bullet;
mso-level-text:;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:2.0in;
text-indent:-.25in;
font-family:Symbol;}
@list l0:level2
{mso-level-number-format:bullet;
mso-level-text:o;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:2.5in;
text-indent:-.25in;
font-family:"Courier New";
mso-bidi-font-family:"Courier New";}
@list l0:level3
{mso-level-number-format:bullet;
mso-level-text:;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:3.0in;
text-indent:-.25in;
font-family:Wingdings;}
@list l0:level4
{mso-level-number-format:bullet;
mso-level-text:;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:3.5in;
text-indent:-.25in;
font-family:Symbol;}
@list l0:level5
{mso-level-number-format:bullet;
mso-level-text:o;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:4.0in;
text-indent:-.25in;
font-family:"Courier New";
mso-bidi-font-family:"Courier New";}
@list l0:level6
{mso-level-number-format:bullet;
mso-level-text:;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:4.5in;
text-indent:-.25in;
font-family:Wingdings;}
@list l0:level7
{mso-level-number-format:bullet;
mso-level-text:;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:5.0in;
text-indent:-.25in;
font-family:Symbol;}
@list l0:level8
{mso-level-number-format:bullet;
mso-level-text:o;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:5.5in;
text-indent:-.25in;
font-family:"Courier New";
mso-bidi-font-family:"Courier New";}
@list l0:level9
{mso-level-number-format:bullet;
mso-level-text:;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:6.0in;
text-indent:-.25in;
font-family:Wingdings;}
@list l1
{mso-list-id:617756786;
mso-list-type:hybrid;
mso-list-template-ids:24292690 1717854786 67698713 67698715 67698703 67698713 67698715 67698703 67698713 67698715;}
@list l1:level1
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:1.5in;
text-indent:-.25in;}
@list l1:level2
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:2.0in;
text-indent:-.25in;}
@list l1:level3
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:2.5in;
text-indent:-9.0pt;}
@list l1:level4
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:3.0in;
text-indent:-.25in;}
@list l1:level5
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:3.5in;
text-indent:-.25in;}
@list l1:level6
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:4.0in;
text-indent:-9.0pt;}
@list l1:level7
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:4.5in;
text-indent:-.25in;}
@list l1:level8
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:5.0in;
text-indent:-.25in;}
@list l1:level9
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:5.5in;
text-indent:-9.0pt;}
@list l2
{mso-list-id:1657102686;
mso-list-type:hybrid;
mso-list-template-ids:-1162543196 -1435497486 67698713 67698715 67698703 67698713 67698715 67698703 67698713 67698715;}
@list l2:level1
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:1.5in;
text-indent:-.25in;}
@list l2:level2
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:2.0in;
text-indent:-.25in;}
@list l2:level3
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:2.5in;
text-indent:-9.0pt;}
@list l2:level4
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:3.0in;
text-indent:-.25in;}
@list l2:level5
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:3.5in;
text-indent:-.25in;}
@list l2:level6
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:4.0in;
text-indent:-9.0pt;}
@list l2:level7
{mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:4.5in;
text-indent:-.25in;}
@list l2:level8
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
margin-left:5.0in;
text-indent:-.25in;}
@list l2:level9
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
margin-left:5.5in;
text-indent:-9.0pt;}
ol
{margin-bottom:0in;}
ul
{margin-bottom:0in;}
-->
</style>
<br />
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">The basic rule
regarding liability on an instrument is expressed in Section 3-401: if a person
does not sign the instrument, he or she is not liable on the instrument.<span style="mso-spacerun: yes;"> </span>In addition to this basic rule, Section
3-401(a) also provides the first exception to the general rule by providing
that a party can be liable on an instrument by an agent’s signature.<span style="mso-spacerun: yes;"> </span>It was noted in our discussion of Section
3-402 that the principal in such a situation can be held liable on an
instrument even if not specifically named by the agent, assuming that the
authority did in fact exist.<span style="mso-spacerun: yes;"> </span>Another
exception to the general rule was discussed in connection with Section
3-406.<span style="mso-spacerun: yes;"> </span>In that situation, a person whose
negligence ‘substantially contributed’ to the forgery will be precluded from
asserting the forgery against a ‘person who, in good faith, pays the instrument
or takes it for value or for collection’.<span style="mso-spacerun: yes;">
</span>Hence, liability can be established without the signature having been
made.</span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"><span style="mso-tab-count: 1;"> </span>This
post will discuss a different scenario pertaining to signatures which is activated
by the imposter and fictitious payee rules of Section 3-404.<span style="mso-spacerun: yes;"> </span>Section 3-404(a) states as follows:</span></div>
<div class="MsoNormal" style="margin-left: .5in; text-indent: 2.25pt;">
<span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">If an
impostor, by use of the mails or otherwise, induces the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/3/3-105#Issuer"><span style="background: white; color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">issuer</span></a><span class="apple-converted-space"><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"> </span></span><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">of an<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/3/3-104#Instrument"><span style="background: white; color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">instrument</span></a><span class="apple-converted-space"><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"> </span></span><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">to<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/3/3-105#Issue"><span style="background: white; color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">issue</span></a><span class="apple-converted-space"><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"> </span></span><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">the
instrument to the impostor, or to a person acting in concert with the impostor,
by impersonating the payee of the instrument or a person authorized to act for
the payee, an<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/3/3-204#Indorsement"><span style="background: white; color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">indorsement</span></a><span class="apple-converted-space"><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"> </span></span><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">of the instrument by any person in
the name of the payee is effective as the indorsement of the payee in favor of
a person who, in<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/3/3-103#Goodfaith"><span style="background: white; color: windowtext; font-family: Arial; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">good faith</span></a><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;">, pays
the instrument or takes it for value or for collection.</span></div>
<div class="MsoNormal">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Section 3-406(a) envisions two situations:<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="margin-left: .75in; text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"><span style="mso-spacerun: yes;"> </span>Situation #
1:</span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 1.5in; mso-add-space: auto; mso-list: l2 level1 lfo1; text-indent: -.25in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial; mso-fareast-font-family: Arial;"><span style="mso-list: Ignore;">1.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">An imposter;</span></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 1.5in; mso-add-space: auto; mso-list: l2 level1 lfo1; text-indent: -.25in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial; mso-fareast-font-family: Arial;"><span style="mso-list: Ignore;">2.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">An issuer who has been ‘induced by the imposter’—by the mails or
otherwise-- to issue the instrument to the imposter;</span></div>
<div class="MsoNormal" style="margin-left: 2.0in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"><span style="mso-spacerun: yes;"> </span>Situation # 2:</span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 1.5in; mso-add-space: auto; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial; mso-fareast-font-family: Arial;"><span style="mso-list: Ignore;">1.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">An imposter induces the issuer to issue the instrument to: </span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 2.0in; mso-add-space: auto; mso-list: l0 level1 lfo3; text-indent: -.25in;">
<span style="font-family: Symbol; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">A person acting in concert with the imposter who impersonates the payee
of the instrument; or</span></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 2.0in; mso-add-space: auto; mso-list: l0 level1 lfo3; text-indent: -.25in;">
<span style="font-family: Symbol; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">A person acting in concert with the imposter who impersonates a person
authorized to act for the payee.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Examples of the
application are relatively simple and straightforward.<span style="mso-spacerun: yes;"> </span>In situation # 1, the imposter is simply
pretending to be someone he or she is not. The issuer has bought into the
scheme and issues an instrument to the imposter.<span style="mso-spacerun: yes;"> </span>In situation #2, the accomplice of the
imposter is pretending to be the intended payee or someone authorized to act
for the payee.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Section 3-406(a)
goes on to state that if an instrument so issued is subsequently indorsed ‘by
any person’ in the name of the payee to a person ‘who, in good faith, pays the
instrument or takes it for value or collection’, such indorsement is ‘effective
as that of the payee’.<span style="mso-spacerun: yes;"> </span>Assume for
example that Imposter induced Issuer to deliver a check for $25,000.00 to the
Imposter who claimed to be Fred Jones.<span style="mso-spacerun: yes;"> </span>The
Imposter’s signature as ‘Fred Jones’ is effective as that of Fred Jones as
regards a person who in good faith paid the instrument or took it for value or
for collection.<span style="mso-spacerun: yes;"> </span>As such, the drawer is
liable on his or her drawer’s contract, at least initially. [Exception to be
discussed below.]</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"><span style="mso-spacerun: yes;"> </span>The signature in the foregoing example is
‘effective’ even though Fred Jones does not exist. Similarly, if Imposter
induced Issuer to deliver a $25,000.00 check payable to Fred Jones to someone
pretending to be Fred Jones, or someone authorized to act for Fred Jones, a
subsequent indorsement in the name of Fred Jones is effective as that of Fred
Jones <span style="mso-spacerun: yes;"> </span>to a person who in good faith paid
the instrument or took it for value or collection.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Note that the
language states that the indorsement ‘<span style="background: white;">by <i style="mso-bidi-font-style: normal;">any</i> person in the name of the payee is
effective as the indorsement of the payee in favor of someone who pays in good
faith or has taken the instrument for value or collection’.<span style="mso-spacerun: yes;"> </span>Therefore, if the Imposter or his colleague loses
the check and someone else picks it up and indorses ‘Fred Jones’ that too will
be considered an effective indorsement to someone who in good faith paid the
instrument or took it for value or collection.</span></span><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">The
policy of section 3-404(a) is simple: it was the drawer of the check that got
duped into issuing the check.<span style="mso-spacerun: yes;"> </span>Therefore,
the drawer will not be relieved of liability on the check to a person who in
good faith paid the instrument or took it for value or consideration.<span style="mso-spacerun: yes;"> </span>This is analogous to the rule discussed in
the last post, and consistent with the general policy of the Uniform Commercial
Code in placing responsibility on parties whose culpable conduct set the series
of transactions in motion.</span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Section
3-404(b) applies to cases dealing with not just fictitious payees, but also
instruments issued</span><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"> </span><span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">to existing</span><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"> </span><span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">payees that the issuer does not intend to have any
interest in the instrument.<span style="mso-spacerun: yes;"> </span>That section
also states certain rules with regard to such an instrument prior to any
special indorsement on the instrument:</span><span style="background: white; font-family: Arial; mso-bidi-font-family: Arial;"></span></div>
<div class="text-level1" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 31.85pt; margin-right: 31.85pt; margin-top: 0in;">
<span style="color: black; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;">(b) If (i) a person whose intent determines to whom an<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/3/3-104#Instrument"><span style="color: #005c72; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">instrument</span></a><span class="apple-converted-space"><span style="color: black; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;"> </span></span><span style="color: black; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;">is payable (Section<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/3/3-110#3-110a"><span style="color: #005c72; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">3-110(a)</span></a><span class="apple-converted-space"><span style="color: black; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;"> </span></span><span style="color: black; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;">or (b)) does not intend the
person identified as payee to have any interest in the instrument, or (ii) the
person identified as payee of an instrument is a fictitious person, the
following rules apply until the instrument is negotiated by special </span><a href="https://www.law.cornell.edu/ucc/3/3-204#Indorsement"><span style="color: #005c72; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">indorsement</span></a><span style="color: black; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;">:</span></div>
<div class="text-level2" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 31.85pt; margin-right: 31.85pt; margin-top: 0in;">
<span style="color: black; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;">(1) Any person in possession of the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/3/3-104#Instrument"><span style="color: #005c72; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">instrument</span></a><span class="apple-converted-space"><span style="color: black; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;"> </span></span><span style="color: black; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;">is its holder.</span></div>
<div class="text-level2" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 31.85pt; margin-right: 31.85pt; margin-top: 0in;">
<span style="color: black; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;">(2) An<span class="apple-converted-space"> </span><a href="https://www.law.cornell.edu/ucc/3/3-204#Indorsement"><span style="color: #005c72; text-decoration: none; text-underline: none;">indorsement</span></a><span class="apple-converted-space"> </span>by any person in the name of the payee
stated in the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/3/3-104#Instrument"><span style="color: #005c72; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">instrument</span></a><span class="apple-converted-space"><span style="color: black; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;"> </span></span><span style="color: black; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;">is effective as the indorsement of the payee in favor of a person
who, in<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/3/3-103#Goodfaith"><span style="color: #005c72; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">good faith</span></a><span style="color: black; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;">, pays the instrument or takes it for value or for collection.</span></div>
<div class="text-level1" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 19.1pt; margin-right: 31.85pt; margin-top: 0in;">
<br /></div>
<div class="text-level1" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 19.1pt; margin-right: 31.85pt; margin-top: 0in; text-indent: 12.75pt;">
<span style="color: black; font-family: Arial; mso-bidi-font-family: Arial;">It
is interesting to note that in such a situation, an indorsement in the name of
the payee ‘substantially similar’ to that of the payee will be effective and
further, if such an instrument is taken to a depository bank and deposited in
an account in a name ‘substantially similar’ to the payee, it will be treated
as an effective indorsement.<span style="mso-spacerun: yes;"> </span>The latter
is true even if the instrument has not been indorsed:</span></div>
<div class="text-level1" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 1.0in; margin-right: 31.85pt; margin-top: 0in;">
<span style="font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;">(c) Under
subsection (a) or (b), an<span class="apple-converted-space"> </span><a href="https://www.law.cornell.edu/ucc/3/3-204#Indorsement"><span style="color: windowtext; text-decoration: none; text-underline: none;">indorsement</span></a><span class="apple-converted-space"> </span>is made in the name of a payee if (i)
it is made in a name substantially similar to that of the payee or (ii) the<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/3/3-104#Instrument"><span style="color: windowtext; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">instrument</span></a><span style="font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;">, whether
or not indorsed, is deposited in a depositary bank to an account in a name
substantially similar to that of the payee<span style="color: black;">.</span></span></div>
<div class="text-level1" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 0in; margin-right: 31.85pt; margin-top: 0in;">
<a href="https://www.blogger.com/null" name="3-404d"></a><span style="font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;"><span style="mso-tab-count: 1;"> </span></span><span style="font-family: Arial; mso-bidi-font-family: Arial;">As stated in Section 3-404(a), the
effectiveness of the Impostor’s indorsement is in favor of a ‘person who, in
good faith, pays the instrument or takes it for value or collection.’<span style="mso-spacerun: yes;"> </span>As discussed in a previous post, good faith
under Article 3 means ‘honesty in fact and the observance of<span style="mso-spacerun: yes;"> </span>reasonable commercial standards of fair
dealing’ either via Section 3-103(a)(6) for those states that have not enacted
the amended definition of good faith or via 1-201(b)(20) for those that have.
The exception is New York who has neither enacted the amended definition of
good faith or the amendments to Article 3.</span></div>
<div class="text-level1" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: 0in; margin-right: 31.85pt; margin-top: 0in;">
<span style="font-family: Arial; mso-bidi-font-family: Arial;"><span style="mso-tab-count: 1;"> </span>As was also discussed, the use of the words ‘reasonable
commercial standards of fair dealing’ are intended to focus on the fairness of
conduct, not the commercial reasonableness of conduct.<span style="mso-spacerun: yes;"> </span>The absence of commercial reasonableness in
conduct in the Imposter/Fictitious Payee situation has been addressed in
Section 3-404(d):</span></div>
<div class="text-level1" style="background: white; line-height: 15.75pt; margin-bottom: 7.5pt; margin-left: .5in; margin-right: 31.85pt; margin-top: 0in;">
<span style="font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;">(d) With
respect to an<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/3/3-104#Instrument"><span style="color: windowtext; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">instrument</span></a><span class="apple-converted-space"><span style="font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;"> </span></span><span style="font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;">to which subsection (a) or (b)
applies, if a person paying the instrument or taking it for value or for
collection fails to exercise<span class="apple-converted-space"> </span></span><a href="https://www.law.cornell.edu/ucc/3/3-103#Ordinarycare"><span style="color: windowtext; font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial; text-decoration: none; text-underline: none;">ordinary care</span></a><span class="apple-converted-space"><span style="font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;"> </span></span><span style="font-family: Arial; font-size: 11.0pt; mso-bidi-font-family: Arial;">in paying or taking the
instrument and that failure substantially contributes to loss resulting from
payment of the instrument, the person bearing the loss may recover from the
person failing to exercise ordinary care to the extent the failure to exercise
ordinary care contributed to the loss.</span></div>
<div class="MsoNormal">
<span style="background: white; font-family: Arial; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;">Therefore, the broad
statement dealing with the effectiveness of the indorsement under Section
3-404(a) is limited not only by the good faith requirement, but also by a
requirement to exercise ordinary care in paying the instrument or taking it for
value or collection.<span style="mso-spacerun: yes;"> </span>Ordinary care was
discussed in detail in the previous post, but it clearly requires the
‘observance of reasonable commercial standards’ in addition to the commercial
fairness requirement of good faith.</span></div>
Anonymoushttp://www.blogger.com/profile/00385256536251745084noreply@blogger.com0