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CHAPTER 11
DOMESTIC AND INTERNATIONAL SALES
INTRODUCTION TO THE UCC—The UCC is state law and is based on a “model” statute.
History of Commercial Law—Commercial codes, formal and informal, developed around the
world over the centuries to govern trade relations. The rules developed in practice were often
adopted, as they were in England, as the basis of contract law. Contract law had developed
different rules in various states. This increased the cost of doing business. The first uniform state
laws were developed around 1900. By the early 1940s, there was business and political support
for a more comprehensive uniform law. After several years and revisions, the Uniform
Commercial Code or UCC was developed. Every state had adopted all or important parts of the
UCC.
Application of the UCC—Article 2 of the UCC governs contracts for the sale of goods. Article
2 uses the basic principles of the common law of contracts, but makes some important changes.
Common law contracts governs unless the UCC specifically over rides it. Article 2 is a
specialized part of contract law. Transactions excluded from the UCC specifically include
insurance contracts, employment contracts, service contracts, contracts involving real property
(real estate), and contracts involving intangible property (such as stocks, bank accounts, patents,
and copyrights).
CASE: Paramount Contracting v. DPS Industries (Ct. App., GA 2011)—Paramount needed
hundreds of truckloads of dirt at a construction site. DPS offered to sell the dirt and haul it to the
site. DPS claimed Paramount accepted the offer; Paramount denied that it did, so DPS sued for
breach. The jury found for DPS. Paramount appealed, contending there never had been a
contract.
Decision: Affirmed. UCC Art. 2 applies to the sale of goods. Which dominated here? The dirt (a
good) or the hauling (a service)? The bid from DPS clearly stated dirt would be delivered to the
Questions: Why did Paramount push for this to be seen as a common law contract?
Because it was not clear that there was a meeting of the minds as may be required if the common
law had been applied. There had been an offer made by DPS, but not clearly accepted by
2. Why do you suppose Paramount failed to make its position clear earlier?
Probably just carelessness, not any particular bad intent.
Add. Case: Propulsion Technologies v. Attwood Corp. (5th Cir., 2004)--Attwood operated a
foundry and produced rough castings of propellers used by PowerTech in making boat propellers
that used a unique "segmented blade" technique. PowerTech sued Attwood for breach of
contract. Attwood contended that the UCC governed the agreement and that its statute of frauds
barred recovery because the contract lacked a written quantity term or a written specification
that the buyer will purchases exclusively from the seller. The district court held for PowerTech,
awarding over $7 million in damages. It held that the contract was for both goods and services
and that services dominated the contract. Therefore, it fell under the common law, so the statute
of frauds from § 2.201 of the USS did not apply. Attwood appealed.
Decision: Reversed and rendered. The contract to produce custom designed propeller castings was a contract for
the sale of goods within the meaning of the UCC even though the castings were turned into finished goods by
PowerTech. Unfinished products are goods under the UCC, not a service. The contract referred to the propellers as
Add. Case: i.LAN Systems v. NetScout Service Level Corp. (D. Mass., 2002)--i.LAN
contracted to sell NextPoint software. A dispute arose over the extent of the resale rights held by
i.LAN. There three contracts: a purchase order, a Value Added Reseller (VAR) agreement, and a
clickwrap agreement on the software that could apply. The court had to sort out which
provisions dominated and if it was common law or UCC.
Decision: The UCC presumes that although software sales are usually called licenses, in fact is
it the same as a sale, so Article 2 governs. The UCC best fulfills the parties’ reasonable
Add. Case: Southern Tank Equipment v. Zartic (Ct. App., Ga., 1996)--Southern provided
Zartic chemical mixing equipment for $77,000 and installed the equipment for $62,000. A
dispute arose; Zartic did not pay the final $39,000, and the critical issue was whether it was a
contract under the common law, because it was not a sale of goods (and hence have a six year
statute of limitations), or if it was a sale of goods under the UCC (and hence have a four year
statute of limitations). The trial court held that the UCC applied; Southern appealed.
Decision: Affirmed. This was a sale of goods under Article 2 of the UCC because the majority of
the value of the contract ($77,000) was for goods; the installation, which was service, was for
Add. Info.—The stated purposes of Article 2 are to:
1. simplify, clarify, and modernize the law governing sales.
2. permit further development of business practices through custom, usage, and agreement of the
parties.
3. make the laws uniform among the various state jurisdictions.
Add. Info.—UCC and Mixed Transactions: Service contracts—such as a contract to do
maintenance work not involving any replacement parts or other sales of goods—are not covered
by the UCC. However, a contract can involve both service and a sale of goods—a mixed
transaction. For example, a company buys a photocopier and a maintenance agreement for it. Is
the contract a service contract under the common law, or a sale of goods under the UCC? The
courts generally look to see if the dominant feature of the contract “as a whole” is a sale of
goods or of services. The relationship between the parties will be governed by the law that
applies to the dominant feature.
Add. Case: Design Data v. Maryland Casualty (Sup. Ct., Neb., 1993)--Design Data sold
computers to HHB. The contract included license to use the software, a training seminar, and
installation of the software and hardware. The system was damaged in shipping. Design sought
to collect from its insurance company, Maryland Casualty. The policy covered systems used or
rented by Design. Maryland refused to pay because the system was not “owned” by Design,
which sued. Did the UCC apply? If it did, then Design gave up ownership upon giving the
system to the shipper and the insurance policy was not effective. If the UCC did not cover the
transaction, then the common law would find that Design still owned it and the policy was
effective. The trial court found that the UCC did not apply and held for Design. Maryland
appealed.
Decision: Reversed. The issue depends on an “examination of the entire contract.” The UCC
applies when the principal purpose of the contract is the sale of goods. If the contract is mainly
Add. Case: Myrtle Mills Assoc. v. Bethel Roofing (Conn. Super., 1993)--Bethel installed a
new roof on Myrtle’s offices. It leaked and a replacement roof also leaked. Myrtle sued. Bethel
moved to strike the complaint on the grounds that it alleged the existence of a contract for
services and not a sale of goods. As such, it falls outside the purview of Article 2 of the UCC and
must be stricken.
Decision: Bethel is correct; complaint stricken. Myrtle described the transaction as “repairs to
roof.” The proposal specified: “remove ... roofing, ... install insulation, ... apply ... mat, ...
reflash drains.” Under the UCC, goods are defined as “all things, including specially
Goods, Merchants, Sales, and Titles under the UCC—For the UCC to apply, it must be
determined that the sales contract falls within the scope of the UCC. As a general rule,
transactions involving a sale of goods fall under the UCC. The UCC sometimes, but not always,
requires that the parties to the contract be merchants before some parts of Article 2 apply to the
sale.
Goods—Goods are “all things which are movable at the time of identification to the contract for
sale.” 2-105(1) That is, the subject matter of a sales contract is not a good under Article 2 unless
it is tangible and movable.
Merchants—Article 2 requires honesty of merchants. Merchants are treated differently from
other parties because they possess business expertise. A seller or buyer is a merchant when she
(1) regularly deals in goods of the kind involved in the transaction; (2) by occupation presents
himself or herself as having knowledge or skill specialized to the transaction; or, (3) employs an
agent or broker who holds himself of herself out as having the requisite knowledge or skill.
2-104(1)
Add. Case: Univ. of Minnesota v. Chief Industries (8th Cir., 1997)--UM runs ag research
stations. It bought a new grain dryer for a station. The head of the station is a specialist in
drying grains. Seven years later, the grain dryer malfunctioned, causing a fire. UM sued the
dryer maker for damages in tort for product liability. The maker defended that UM is a merchant
under the UCC, and so could not sue in tort. Its cause of action would be limited to damages
allowed under the UCC. The trial court held that the university is a merchant under the UCC.
UM appealed.
Decision: Affirmed. UM is a merchant in this kind of good by virtue of its specialized knowledge
Sale —Under Article 2, a sale occurs when there is a “passing of title from the seller to the buyer
for a price.” 2-106(1) The transaction must involve a “passing of title” and a price must be paid
for the goods. Under this definition, many transactions are not sales of goods; e.g., gifts and
bailments.
Add. Info.: Bailment—Suppose you place goods in another company’s warehouse for storage.
You are a bailor and the warehouse is a bailee. The storage contract—the bailment contract—
does not give the bailee title to your goods. The bailee keeps your goods for the length of time
stated in the contract. Thus, the contract is not a sale of goods subject to Article 2.
Titles—Legal title generally exists when the good exists and is identified to the contract. In such
cases, the parties may pass title when they wish–at either end or in between, as specified. 2-401
Sales of stolen goods does not pass good title. [But see following case—not always.]
Add. Case: West v. Roberts (Sup. Ct., Colo., 2006)--West agreed to sell his Corvette to a man
claiming to be Robert Wilson, who gave him a cashier’s check. West signed over the title and
gave him the car but then learned the check was forged. He filed a stolen vehicle report. Two and
a half years later it turned up in the possession of Roberts who has a title. She bought the car
from her brother who bought it from a personal sale through a newspaper ad. West sued Roberts
to establish ownership. The trial court held that UCC 2-403 applied. Roberts was a good faith
purchaser and was the rightful owner. The Colorado high court reviewed the case.
Decision: Affirmed. Roberts was a subsequent good faith purchaser for value under the UCC.
That gives her a superior right over West. For the traditional rule that stolen property returns to
FORMING A SALES CONTRACT—Sales contracts are governed by the common law of
contracts unless the UCC specifically changes or modifies the rule. The UCC is less formal.
Intent to Contract—Under the common law, a contract is not formed until there is clear offer
and acceptance. Article 2 relaxes this rule; a contract can be formed in any manner that shows an
agreement between the parties. 2-204
CASE: Crest Ridge Construction v. Newcourt (5th Cir. 1996)—The Browers had a construction
company and won a bid to install wall panels. Newcourt gave a quote of $760,000 for the
materials, which the Browers based their bid on. A clause in Newcourt’s standard contract said it
was subject to approval by the credit department. Six months later the credit department
demanded payment in full, rather than the industry usual 45 days after shipment. The Browers
did not have the money so ordered materials from another company, paying a higher price. They
sued for the difference in price and a jury awarded $70,214 damages. Newcourt appealed, citing
the clause in the contract.
Decision: Affirmed. The jury believed that based on the on-going dealings between the Browers
and Newcourt that both partied believed they had a contract. To wait six months to point to a
Questions: 1. The appeals court affirmed that a contract existed even though a specific term had
been ignored. Didn’t Newcourt have good reason to worry about the ability of a little company
like Crest Ridge to pay its bill?
Yes, but its behavior indicated it was not a big deal—otherwise Newcourt would not have
continued serious discussions and finalize plans for six months. To lead Crest Ridge along is not
2. Suppose a credit search found that Crest Ridge had financial problems; could Newcourt have
ended the deal then?
Yes, it had every right to cancel the deal—had it acted in a reasonable time manner to search the
An Indefinite Offer—The common law requires an offer to specify all relevant terms. Article 2 is
less demanding. If the parties intend to enter into a binding agreement on the basis of an offer, a
Add. Case: Zapatha v. Dairy Mart (Sup. Jud. Ct., Mass., 1980)--Zapatha signed a franchise
agreement with Dairy. Either party could terminate without cause with 90 days written notice.
Four years later, Dairy refused to sign an amended franchise agreement because it believed the
terms too burdensome. Dairy gave Zapatha notice of its intention to cancel the contract. Zapatha
sued to enjoin Dairy from canceling the contract, alleging Dairy failed to act in good faith in
violation of UCC §§ 1-203, 2-103. The trial court held for Zapatha; Dairy appealed.
Decision: Reversed. There was no evidence that Dairy failed to observe reasonable business
standards in its dealings with Zapatha or that Dairy acted dishonestly. Even if the termination
Merchant’s Firm Offer—Under the common law of contract, an offer can be revoked any time
before acceptance (except for option contracts). Article 2 provides an exception: if an offeror
gives assurances in writing that the offer will remain open for a given period, the offer is
irrevocable or “firm” (and does not need consideration). If the period is not stated in the offer,
the offer stays open for a reasonable time (looking to industry practices) not to exceed 3 months.
2-205
Add. Case: Audio Visual v. Sharp Electronics (4th Cir., 2000)--AV, planning to sell calculators
to another party, asked Sharp about calculators and was quoted $62.99 each. Sharp later told
AV the price was lowered to $31 as part of a close-out. AV then faxed an order form for 1,400
calculators at $31 and said on the form “Do not release order before you [have] received
written or verbal authorization from Lunsford or Dvorak” (managers). Sharp responded that it
would not sell the calculators. AV sued for breach. Trial court dismissed; AV appealed.
Decision: Affirmed. Under the UCC, terms of a proposed transaction are often modified by
communications. Flexibility is encouraged. But, AV cannot claim to have accepted Sharp’s offer
Acceptance—Article 2 modifies the common law rules for acceptances by providing greater
flexibility in the way acceptance can be communicated. 2-206(1) An acceptance may be valid
even if the offeree includes additional terms or changes existing terms in an offer. 2-207(1)
Conflicting Terms—Forms going back and forth in an order often contain boilerplate terms that
conflict. When an acceptance is made on a form that contains conflicting terms, there is a valid
acceptance based on the offeror’s terms. 2-207(1) The different terms in acceptance are part of
the contract only if accepted by the offeror. Offeree must specifically note that acceptance is
contingent on offeror accepting changed terms for the different terms to become part of the deal.
CASE: Orkal Industries v. Array Connector (S.Ct., NY, 2012)—Orkal, from NY, bought
airplane-related products from Array, from Florida, by sending purchase order forms. Array
confirmed with its own form that contained forum selection clause. In case of dispute—go to
Florida courts. Orkal said nothing. Later, Orkal sued Array in NY court; Array moved to enforce
the forum selection clause. The trial court in NY agreed. Orkal appealed.
