All posts tagged Learn the UCC

UCC Supplemental General Principles of Law: Potential Impact Can Be Huge

bookcover-for-facebook1.jpgAs stated in an earlier Blog, it is my belief that Article 1 is the most important Article under the Uniform Commercial Code.  One of the many reasons I believe this to be the case is found in the text of Section 1-103(b).  That section states as follows:

Unless displaced by the particular provisions of the Uniform Commercial Code, the principles of law and equity, including the law merchant and the law relative to the capacity to contract, principal and agent, estoppels, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating and invalidating cause shall supplement its provisions.

The potential impact of Section 1-103(b) is enormous.  The essence of the section is that unless the Uniform Commercial Code specifically displaces a substantive principle of law, including, but not limited to those listed, those principles of law survive the enactment of the UCC and ‘supplement’ its provisions.

In Re Invenux, Inc. 298 B.R. 442 (Bkrtcy. D. Colo. 2003), 51 UCC Rep Serv 2d, clearly illustrates the impact of Section 1-103.  The case was  before the court on defendant/trustee’s motion to dismiss and plaintiff’s cross motion for summary judgment.

In its Motion for summary judgment plaintiff was seeking a reformation of the Security Agreement between itself and Debtor.  The court noted that:

Although the UCC-1 financing statement which Plaintiff filed to perfect its security interest is worded broadly enough to embrace an interest in the Stock [the collateral], it does not appear as part of the collateral in the security agreement.  In Re Invenux, Inc. at 445-446

In order for a security interest to be enforceable, Section 9-203(b)(3)(A) requires that a description of the collateral be contained in the security agreement. Section 9-203 provides in relevant part as follows:

(a)     A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment.

(b)    Except as otherwise provided in subsections (c) through (i), a security interest is enforceable against the debtor and third parties with respect to the collateral only if:

(1)    value has been given;

(2)    the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and

(3)    One of the following conditions has been met:

(A)   the debtor has authenticated a security agreement that provides a description of the collateral….

(B)   – (D) …

It is clear from the language of Section 9-203(b)(3)(A) [the other sections do not apply in the case] that in order for the security interest to be enforceable, the debtor must have authenticated a security agreement and such agreement must provide a description of the collateral.

The trustee took the position that since there was no description as required by Section 9-203, the security agreement was invalid.  The court framed the issue as follows:

The issue for this Court is whether Colo. Rev. Stat. Section 4—9—203 displaces Colorado’s common law such that the right of reformation due to mutual mistake—a common law right available to contracting parties generally—is not available to parties intending to create a security agreement under Article 9 of the U.C.C. id at 446

In finding for the Plaintiff on this point of law, the court said:

There is no question that Section 4—9—203 is in the nature of a statute of frauds because it requires a security agreement to be in writing. Colo.Rev.Stat. Section 4—9—203 Commernt 3.  But the fact that an agreement must be in writing to satisfy a statute of frauds is not inconsistent with reformation of that written agreement if, by reason of mutual mistake, the true agreement of the parties is not expressed in the writing. id at 447

The court found that the security agreement was reformed per the common law of reformation and mutual mistake which existed in Colorado, and therefore, the fact that there was no written description of collateral as provided for in Section 9-203 did not render the security agreement unenforceable.

In Re Invenux powerfully illustrates the potential impact of Section 1-103 in its application of the general contract principles noted.  When one factors in the multitude of general contract principles which apply and supplement the UCC one can clearly begin to see the magnitude of Section 1-103 on the many contracts which exist under the UCC.  When one superimposes the many bodies of law which similarly apply, the power and pervasive applicability of Section 1-03 becomes very clear.

Robert M. LeVine, J.D., Adjunct Professor and UCC mentor. Visit our website for more information.

http://www.ucc-madeeasy.com

Contact Rob at rob@ucc-madeeasy.com

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by learntheucc on March 16, 2013  •  Permalink
Posted in Article 1 - General Provisions, Article 9 - Secured Transactions, Learn the UCC
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Posted by learntheucc on March 16, 2013

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Uniformity of Law: Cases From Other Jurisdictions Can Make YOUR Case

Make YOUR Case
Although it is clear from the name itself—i.e.—the Uniform Commercial Code, the drafters of the Code explicitly stated the policy of uniformity in Section 1-103(a)(3):

(a)  [The Uniform Commercial Code] 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 agreement of the parties; and

(3)  to make uniform the law among the various jurisdictions.

Traditionally, courts are reluctant and often unwilling to consider the case law from other jurisdictions.  However, in furtherance of the uniformity of law policy of the Uniform Commercial Code, courts regularly look to the law of other jurisdictions in determining disputes before the court.  Attorneys who understand and actively employ this policy, have an arsenal of cases from all jurisdictions which can be used to support a theory or argument presented to the court.  This is obviously a great advantage over the attorney who is singularly focused on the law of his or her jurisdiction.

In the case of In re Hispanic American Television Co., Inc. 113 B.R. 453 (Bkrtcy.) N.D. Ill. 1990) 11 UCC Rep Serv 2d),  the legal issue before the court was the question of whether or not the contract between Motorweek Productions and Hispanic American Television Co., designated as a lease, was in fact a lease or a security agreement.  If the contract was in fact a true lease, Motorweek, as lessor, would be entitled to repossess the equipment as provided for in the lease.  If on the other hand, the contract was deemed to be a security agreement, the equipment would become property of the Debtor’s estate.  Under the purported lease, Hispanic American Television Co. was required to make monthly payments of $55,624.97 over a five year term.  At the time of default, Hispanic American Television Co. owed Motorweek $525,000.

The controlling law at the time of the case was Section 1-201(37), which contained the definition of “Security interest” and addressed the specific question of whether or not a lease is in fact a lease or a lease intended as security.  The latter question is now specifically addressed in Section 1-203, and the definition of “Security interest” is now contained in Section 1-201(35).

The case is particularly interesting for two reasons.  First, although the Court made a determination that the parties to the contract did in fact intend the contract to be a true lease; the Court nevertheless found that the contract between the parties was in fact a security agreement. Of course, the law determines the answer to the legal question of whether a transaction is a true lease or a security agreement, but the determination that the parties did in fact intend a lease is significant.  The characterization of the transaction however, must also be viewed outside the context of the parties to the agreement.  In addition to the controlling law, the agreement must be viewed in the context of the interests of other creditors of the Debtor who have a very high stake in the determination of the nature of the agreement.  As noted earlier, if the contract is a true lease, Motorweek can retake its equipment; if not, the equipment becomes part of the Debtor’s estate and hence available to other creditors.

The second reason that the case was particularly interesting is that the contract contained a choice of law provision which stated that the law of New York was to govern the transaction.  This certainly would include the case law of New York. Notwithstanding this provision however, the court stated:

Section 1-201(37) of the U.C.C. is identical in New York and Illinois.  The case law from both states is relevant on the issue of distinguishing a “true lease” from a security agreement.  In Re Hispanic Television Co., Inc. at 456

The court went on to state:

Further, given the uniformity purpose of the UCC, decisions from other states which have adopted its standard provisions are also relevant.  Id at 456-457

There are many cases which support these statements from In Re Hispanic Television Co., Inc..  They present a great arsenal for the attorney who utilizes their potential impact on his or her case.

Robert LeVine, Professor, Author the book The Uniform Commercial Code Made Easy

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by learntheucc on February 18, 2013  •  Permalink
Posted in Article 2 - Sales transactions, Article 9 - Secured Transactions, Learn the UCC, Twitter
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Posted by learntheucc on February 18, 2013

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Article 1 Purposes and Policies of the UCC: Impact Cases

In approaching the text of the Uniform Commercial Code, it is critical to remember that Article 1 applies to every transaction under the UCC:

This article applies to a transaction to the extent that it is governed by another article of the Uniform Commercial Code.  Section 1-102

Hence, in any UCC transaction, there will always be at least two Articles which are activated—Article 1 and the substantive content area involved, e.g. Sales, Leases, Negotiable Instruments, Bank Deposits and Collections, Electronic Funds Transfers, Letters of Credit, Documents of Title and Secured Transactions.  The application of Article 1 to any of the substantive Articles can have an enormous impact on the transaction, and the interpretation of the documents governing the transaction.

The next series of blogs will discuss the impact of Article 1 on transactions governed by the UCC.  The starting point for this analysis is Section 1-103 which sets forth rules for the construction of the UCC as well as supplemental principles of law which impact UCC transactions.  Couched in general terms, these vital principles are often overlooked rather than utilized by the advocate and draftsperson.

Section 1-103(a) states:

(a)  The Uniform Commercial Code 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 agreement of the parties;

(3)  to make uniform the law among the various jurisdictions.

The advocate who properly utilizes Section 1-103(a) has a tremendous opportunity to guide the court to a desired result by properly aligning his or her case with the one or more enunciated policies to make that happen.  In looking at the language of Section 1-103(a)(1)(2)(3), it is clear that courts are directed to interpret and apply the Code in a particular manner;  the advocate merely acts as a guide by lining up appropriate purposes and polices to facilitate the court in this regard.

.Custom Communications Engineering, Inc. v. E.F. Johnson Co., 269 N.J. Super 531, 636 A. 2d 80; 22 UCC Rep. Serv. 2d 971 (App. Div.1993) illustrates the importance of some of the policies stated in Section 1-103. In Custom, the critical issue on appeal was whether or not the four year statute of limitations for the sale of goods contained in the UCC applied to the matter under consideration by the court.  That in turn depended on whether or not the distributorship agreement between Custom and Johnson was to be characterized as a contract for the sale of goods in which case it would be governed by the UCC and its four year statute of limitations, or whether it was predominantly a services contract in which case it would be governed by the six year statute of limitations rule in effect for non UCC contracts..

The court used one of the standard tests in making its determination—the ‘predominant purpose’ test; i.e., was the contract under consideration predominantly a sales contract with incidental services, or was the contract predominantly a services contract with incidental sales. In reaching its conclusion that the contract was predominantly a sales contract, the court stated:

The common theme expressed in nearly all of the cases is that, although most dealership or distributorship agreements involve more than a mere sale of goods, the sales aspect of the relationship predominates. Custom  p. 84

The court found that the sales and distributorship agreement was predominantly a sale and hence that the transaction was governed by the UCC with the four year statute of limitations.  In reaching its decision, the court utilized the policy considerations stated in the Code:

We adopt the majority rule as sound, since it is entirely consistent with the underlying purposes of the UCC: to foster consistency and predictability in the commercial marketplace….This fundamental theme of the UCC is particularly pertinent in applying a statute of limitations to claims arising under Article 2.  The purpose of Section 7-725(1) is ‘to introduce a uniform statute of limitations for sales contracts’ thus eliminating jurisdictional variations. Id

In any situation the advocate has great creative flexibility to facilitate a desired result, by lining up the facts of his or her case with applicable purposes and policies and guiding the court accordingly.

Your feedback and discussions are welcomed.

Robert LeVine, Professor, Author the book The Uniform Commercial Code Made Easy

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by learntheucc on January 30, 2013  •  Permalink
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Posted by learntheucc on January 30, 2013

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Taking Aim: Lining Up the Case

As noted in the last blog, the drafters of the Uniform Commercial Code were very specific in their directions to the courts regarding the manner in which the UCC is to be interpreted:

The Uniform Commercial Code must be liberally construed and applied to promote its underlying purposes and policies…. Section 1-103(a).

The underlying purposes and policies of the Code are stated in Sections 1-103 (a)(1)(2)(3) as follows:

(1)   to simplify, clarify, and modernize the law governing commercial transactions;

(2)   to permit the continued expansion of commercial practices through custom, usage, and agreement of the parties; and

(3)   to make uniform the law among the various jurisdictions.

As an attorney and legal consultant, I have found the strategies utilized to implement these purposes and policies to be the most enjoyable component in the analytical process, in that it provides a limitless opportunity for creativity to achieve the desired result.  There are four steps involved in the process:

  1. Delineating the facts;
  2. Application of the facts to the relevant substantive provisions involved;
  3. Isolating the key provisions upon which the case will most likely be determined;
  4. Identifying a purpose or policy which supports the interpretation being advocated.

The first component is critical.  There are two basic directions that this portion of the case can take.  First, there may be two distinct versions of the facts, each of which will support a verdict if proven to be true.  Second, there may be no dispute as to the critical facts, in which case the result will depend on the interpretation of the law as applied to the facts.

In the second stage, the statute comes to life.  The UCC is, in many instances, a distillation of commercial fact patterns which have repeated themselves over time, in many cases, over hundreds of years.  A given section may contain many independent rules, which may or may not be activated when the facts are superimposed on the relevant statutory provision.  Once the applicable portions of the statute have been activated, the advocate is placed in the position of creating the arguments which will carry his or her side to victory.

The question then becomes: which of the purposes or policies can be utilized to guide the court to the desired result?  This is where the great art of advocacy comes into play.  The skilled advocate will be able to use the facts of his or her case, line it up with a particular policy, and demonstrate to the court why the result being advocated will support the policy being activated.

Once the appropriate policy is identified, the advocate directs the court’s attention the mandate of ‘liberal construction and application of the Uniform Commercial Code’ to support the policy identified, and why, in the case under consideration, the result so advocated precisely accomplishes that goal.

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by learntheucc on December 17, 2011  •  Permalink
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Posted by learntheucc on December 17, 2011

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Article 1: An Advocate’s and Drafter’s Best Friend

Article 1 of the Uniform Commercial Code is the most overlooked and critical Article of the Uniform Commercial Code.  No Article provides as much creative freedom in terms of drafting contracts and shaping litigation as Article 1. Of particular significance is the fact that Article 1 applies to all transactions under the Uniform Commercial Code, regardless of the substantive Articles which apply in a given situation.  This follows by reason of section 1-102 which states as follows:

This article applies to a transaction to the extent that it is governed by another article of the Uniform Commercial Code.

We have already discussed the very important definitions of ‘contract’ and ‘agreement’, defined in Article 1 in sections 1-201(b)(12) and 1-201(b)(3) respectively.  Likewise as to the very important connected definitions and application of ‘course of performance’, ‘course of dealing’, and ‘usage of trade’ under sections 1-303(a)(b)(c).

The next series of blogs are designed to guide the reader through a detailed analysis of Article 1.  In addition to discussing the meaning of the text, examples of the application of various sections will be undertaken.  Cases will also be used to illustrate certain concepts.

The starting point for analysis is the introductory language of section 1-103(a):

The Uniform Commercial Code must be liberally construed and applied to promote its underlying purposes and policies…. [Emphasis added]

The importance of this language cannot be overestimated.  At the outset, the drafters are giving two very important mandates to the courts; one pertaining to the construction and application of the Uniform Commercial Code; the other pertaining to the utilization of policies upon which the Uniform Commercial Code was drafted.  The court is directed, in the first instance, to ‘liberally construe and apply’ the Uniform Commercial Code; in the second instance the court is directed to do so in a manner which ‘promotes the underlying purposes and policies’ of the Uniform Commercial Code.

The advocate, within the structure of this mandate, has extraordinary ability to shape litigation and guide the court to reach the desired result.  The essence of the strategy is to line up the interpretation of relevant statutory provisions and the facts of the case with enumerated policies which support the interpretation of the position being advocated.  This positioning provides enormous flexibility and creativity for advocates and drafters alike.  The manner for utilizing these concepts will be discussed in upcoming blogs.

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by learntheucc on December 10, 2011  •  Permalink
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Posted by learntheucc on December 10, 2011

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The Second Element of Contract: Application of the Uniform Commercial Code to the Agreement

At this point in our mission to “Learn the UCC”, we have discussed the first element in determining what a contract is under the Uniform Commercial Code: namely, the ‘agreement’ of the parties as determined by the application of the criteria stated in Section 1-203(b)(3).  As discussed in Blogs 4 – “What IS a Contract”  & 5 – “Course of Performance: Impact on Contract”, there are two more elements which must be addressed before one can determine what the contract is in reality, or if in fact there is a ‘legal obligation between the parties’.  These elements include the application of relevant UCC provisions to the agreement between the parties, and the application of supplemental general principles of law which are also applicable to the agreement.  It is only upon the application of these criteria to the parties’ agreement, that the ‘legal obligation’ among the parties can be determined.

The laws which apply to a sales contract under the Uniform Commercial Code are those laws contained in Article 2, Sales, and the laws contained in Article 1, General Provisions.  It is extremely important to remember at all times that Article 1 applies to the whole Uniform Commercial Code per section 1-102; hence, regardless of the substantive article which applies to a given transaction, it will always be supplemented by the provisions of Article 1.  This is often overlooked, and in such a situation, a huge body of law, with enormous implications is not activated.

As we have already seen, the definition of ‘contract’ is found in Article 1 as are the terms comprising the definition of agreement.  Further, the application of these concepts as envisioned by Sections 1-201(b)(3) and 1-303, can have an enormous impact on the ultimate meaning of the parties agreement, and hence, their contract. Article 1 will be discussed in detail in upcoming Blogs.

Once the parties ‘agreement’ is determined, I believe that most logical next step is to determine whether or not the ‘agreement’ is enforceable under the Statute of Frauds.  While the totality of Article 1 applies to the ‘agreement’, it is irrelevant if the agreement itself has no legal import due to the Statute of Frauds.  The basic rule of Section 2-201(1), and the reply doctrine of Section 2-201(2), were discussed in Blog # 3 – “Monopoly and the UCC”.  If there is a written contract signed by the party against whom enforcement is sought, or the requisite confirmatory memoranda under Section 2-201(2), the contract is enforceable.  If however, neither of these criteria is met, there are still three possible exceptions to the writing requirement of Section 2-201(1).

Two of these exceptions are quite easy.  Under Section 2-201(3)(b), the contract is enforceable “if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made”  Obviously, in such a situation, the contract has been admitted, and hence should be enforced.  Another situation which is very straightforward is the exception to the basic Statute of Frauds rule “with respect to goods for which payment has been made and accepted or which have been received and accepted”.  Payment for goods or acceptance of goods is an unmistakable statement that the contract exists.

The final exception is stated under Section 2-201(3)(a) which states as follows:

A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable

(a) if the goods are to be specially manufactured for the buyer and are not suitable to sell to others in the ordinary course of the seller’s business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement.

There are thus four questions which must be answered in order to determine if Section 2-201(3)(a) applies in a given case:

(a)    Are the goods to be specifically manufactured for the alleged buyer?

(b)    Are the goods in question suitable for sale to others in the ordinary course of the seller’s business?

(c)   Did the seller make the “substantial beginning” of the manufacture of the goods in question or “commitments for their [its] procurement”?

(d)   Was the foregoing done before notice of repudiation was received, and under circumstances which reasonably indicate that the goods are for the buyer?

In order for the contract to be enforceable under the Statute of Frauds per Section 2-201(3)(a), the questions must be answered as follows:

(a)   yes; (b) no; (c) yes; (d) yes.

The policy behind Section 2-201(3)(a) is predicated upon the commercial reality that a seller is unlikely to undertake the manufacture of a product which cannot be sold in the seller’s ordinary course of business for no reason.  Such a move, involving time and expense is unlikely to be undertaken if there wasn’t a basis, provided by the buyer, for the seller’s going forward.  It should be noted however, that even if the criteria of Section 2-201(3)(a) are satisfied, the seller will still have to prove his or her case, for the satisfaction of those criteria merely eliminates the barrier of the Statute of Frauds.  It does not result in a conclusive presumption that the seller is entitled to judgment.

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by learntheucc on November 20, 2011  •  Permalink
Posted in Article 1 - General Provisions, Article 2 - Sales transactions, Article 3 - Negotiable Instruments, Article 9 - Secured Transactions, Learn the UCC, Twitter
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Posted by learntheucc on November 20, 2011

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Usage of Trade: Impact on Agreement

Usage of Trade: Impact on Agreement

Although there may be many agreements between parties which do not include a “course of performance” [Blog #5] or “course of dealing” [Blog #6], there will rarely be an agreement which does not have a “usage of trade”.

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…. Section 1-303(c)

There are thus three vehicles through which a “usage of trade” can be established:

  1. Place
  2. Vocation
  3. Trade

As to each of these elements, there must be “a method of dealing having such regularity of observance…as to justify an expectation that it will be observed with respect to the transaction in question”.  With that level of regularity, a “usage of trade” can literally change what otherwise appears to be the plain language of a contract.

An excellent illustration of the foregoing is found in the Illinois case of Ragus Co. v. City of Chicago  628 N.E. 2d 999 (Ill. App. Ct. 1993).  In Ragus, the City of Chicago was seeking bids for a certain brand of rodent traps.  The announcement which the City put out called for: 150 cases of 5½” x 11”; 24 per case; 75 cases of 11” x 11”; 12/case.  Ragus submitted a bid that was accepted.

Ragus’ delivery to the City contained 150 cases containing 24 traps per case, and 75 cases with 12 per case.  The delivery was refused by the City because the tender by Ragus did not contain pairs of the rodent traps which was the expectation of the City; rather, the delivery contained individual traps.

Upon addressing the question of what the bid actually called for, the court found that the usage of trade required that the traps be delivered in pairs, and that therefore, the tender by Ragus was defective.

In reaching its decision, the court implied that an ambiguity of the contract made the inclusion of trade usage proper; however, no ambiguity is necessary to include usage of trade in the interpretation of the meaning of a contract.  Under Section 2-202(a), usage of trade may be used to supplement or explain the meaning of terms used in a contract regardless of whether or not there is an ambiguity.

One of the many interesting things about transactions governed by the Code is the fact that each industry brings its unique set of rules and customs into play, and in so doing can have a dramatic impact on what the terms of the contract are in fact. I recommend reviewing trade journals or other similar sources when dealing with Uniform Commercial Code transactions. Where time does not justify such a review, a simple search on Google will yield enough information quickly to create a framework from which to proceed.

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by learntheucc on November 6, 2011  •  Permalink
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Posted by learntheucc on November 6, 2011

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“Course of Dealing”: Impact

This is third post dealing with one of the most critical and fundamental issues of the Uniform Commercial Code: The agreement of the parties. The first element was the language used by the parties involved; second, is ascertaining if there is a course of performance, a certain type of behavior between the parties to a particular transaction which sheds light on the actual meaning of the agreement. 

One of the three remaining elements to the definition of agreement is course of dealing:

A “course of dealing” is a sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis for interpreting their expressions and other conduct.  Section 1-303(b)

In approaching Section 1-303(b), and Code sections in general, it is important to remember that any given Code section can have up to seven or eight rules or qualifiers.  Every word is important.   A careful look at Section 1-303(b) reveals a number of avenues through which various words can be utilized or attacked.

The conduct which gives rise to a course of performance must:

  1. Be a sequence of conduct;
  2. The conduct must involve transactions which occurred before the particular  transaction;
  3. Conduct must “fairly regarded” as a common basis for interpreting their expressions and other conduct.

Section 1-303(b) makes good sense as it incorporates the realities which attend a history of knowing someone into a particular transaction.

All of the elements are important; however, one bears direct comment and examination.  This arises in connection with the requirement that a course of dealing requires “previous transactions” between parties.  It is clear that conduct which occurs between parties in past business dealings is relevant in understanding what the parties mean in a current transaction and is within the definition of course of dealing.

I think it is also important to integrate non transactional interactions between parties when these relationships give rise to the basis of understanding referred to in the section.  Certainly, one can learn a great deal about someone from knowing them outside a direct transactional basis, and to the extent this sheds light on what the parties meant in a particular transaction, I believe it should be incorporated into ascertaining what the agreement is.

With language, course of performance, and course of dealing having been discussed, the next blog will focus on the final two elements of ‘agreement: usage of trade and inferences from other circumstances.

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by learntheucc on October 31, 2011  •  Permalink
Posted in Article 1 - General Provisions, Article 2 - Sales transactions, Learn the UCC
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Posted by learntheucc on October 31, 2011

https://learntheucc.wordpress.com/2011/10/31/%e2%80%9ccourse-of-dealing%e2%80%9d-impact/

Monopoly and the UCC

Monopoly and the UCC

There are millions of businesses and hundreds of millions Americans who are impacted by the Uniform Commercial Code every day.  Some of these entities interact with the UCC hundreds or thousands of times per day.  Regardless of the volume of transactions, if you are in business, you need to know the meaning and operations of the Uniform Commercial Code.

I have often analogized various aspects of life to a board game.  When playing a board game, it is very helpful, if not essential, to understand the rules of the game.  Moreover, the better one understands the rules of the game, the greater the likelihood of winning.  Take Monopoly for example.  People who understand the rules: which properties pay the most in rent; how to get a monopoly, and then how to build houses and hotels, are ready to play the game and ready to win.

If you compare the foregoing individual to someone who has no clue what the rules of Monopoly are, it is quickly apparent the latter has virtually no chance of winning.  The reason is simple: he doesn’t’ know what to do.  He knows to select a piece for the game, and how to roll the dice, but has no understanding of how to succeed.  He may be able to move around the board for a long time.  But eventually, he will lose.

The same is true in business.  You need to know the rules.  You need to understand the legal structure of the world you have entered, and particularly how to avoid a mistake that can cost you everything.  Like the uninformed Monopoly player, without sufficient understanding of the rules of the game, you may be able to move around the board, but the risks you take every day by being uninformed can cost you everything.

Nowhere is this more evident than in the Reply Doctrine of the Statute of Frauds contained in  Section 2-201(2).  The basic Statute of Frauds rule contained in Section 2-201(1) requires sales contracts with a value of $500 or more “must be signed by the party against whom enforcement is sought…”.  Assume for example, that Seller agrees to sell Buyer 1000 tables worth $500.00 per table.  That is a great deal for buyer and he is excited about the deal.  A week later, Seller meets Buyer #2 who offers seller $750.00 per table. Seller accepts and sells the tables to Buyer #2.  If Buyer #! Brings a cause of action against Seller and there is no written contract, Seller will prevail.

Section 2-201(2) can change that result in a very dramatic way.  Assume Seller and Buyer are discussing a sale of the tables for $500.00 per table, and the parties agree to the sale of the 1000 tables at that price.  Three days later, on October 1, 2011 Buyer writes Seller and states the following:  “Pursuant to our phone conversation on September 28, 2011, I hereby agree to buy 1000 tables from you for $350.00 per table.”   Seller reads the letter, tears it up and throws it away.  He doesn’t’ want to waste any more time dealing with this Buyer..

What Seller should have done is immediately write Buyer back and state that “there was no deal at $350.00 per table.  The deal was for $500.00.”  Seller’s failure to reply to Buyer’s “confirmation of the contract” within ten days, results in a waiver of the Statute of Frauds rule of 2-201(1).  Translation: Buyer can sue Seller for Seller’s alleged breach of contract to sell the tables at $350.00 per chair.  While Buyer would still have to prove his case, Seller would not be able to use the basic Statute of Frauds rule as a defense, and would face the costs of litigation, as well as the risk of losing.

Obviously, it is far better to answer  your mail in a timely manner in a situation such as this, and eliminate the possibility of the result faced by not taking timely and appropriate action.  This is an example of a single instance where not knowing the appropriate provisions of the UCC can result in a potential disaster. Conversely, understanding the law, and proceeding accordingly, will result in ultimate protection for your business.

www.ucc-madeeasy.com

 

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by learntheucc on October 9, 2011  •  Permalink
Posted in Article 1 - General Provisions, Article 2 - Sales transactions, Article 3 - Negotiable Instruments, Article 4 - Bank Deposits, Article 5 - Letters of Credit, Article 7 - Documents of Title, Article 9 - Secured Transactions, Learn the UCC, Twitter
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Posted by learntheucc on October 9, 2011

https://learntheucc.wordpress.com/2011/10/09/monopoly-and-the-ucc/

Commitment to Learning

The decision to undertake the challenge of learning any major area, regardless of the discipline, is itself a major decision.  Success is predicated upon a lot of discipline and hard work.  A lot of time and energy is expended in pursuit of the highest knowledge possible.   Each of us must choose how to best improve our minds, which I consider critically important www.2ptpe.com.

Therefore, the initial question is:  What do I gain by learning this material?  Does the gain justify the commitment?  This is true regardless of the area under consideration.  For purposes of the Uniform Commercial Code, there are distinct groups with varying needs.

If for example, you are a law student, you absolutely, unequivocally, must know the UCC, in the first instance to graduate from law school, and in the second instance to pass the Bar Exam.  Whatever it takes, however much you need to study, you need this information.

One of the things that has not changed during my time in the legal community is the fact that there are so few UCC specialists in law firms.  By specialist, I mean someone who understands the totality of the Code, and who deals with the UCC as a designated specialty like other areas of the law,  Obviously, there are many highly intelligent and knowledgeable people who do a great job in a particular UCC area;  generally, however,  they do not move outside those boundaries.  An attorney who has reached a high level of understanding of the overall meaning and structure of the UCC—has created for him or herself a unique position of particular significance in today’s Society.

That attorney is in a position not only to provide quality service to clients impacted by the Code, but also to make certain that the facts of any situation are filtered through the whole UCC.  Second, this attorney is in a position to attract clients.  There are numerous critically important provisions that any business should know what they mean and how they apply.

www.ucc-madeeasy.com

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by learntheucc on October 1, 2011  •  Permalink
Posted in Learn the UCC, Twitter
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Posted by learntheucc on October 1, 2011

https://learntheucc.wordpress.com/2011/10/01/commitment-to-learning-the-ucc/