Sales law and article 2 and 2-104 and merchant and statute of frauds and professional

We have already come across merchants when we studied the Statute of Frauds (2-201). On that occasion, I just mentioned the "between merchants" section of the SoF (2-201(2)) and then said we would be defining merchants "soon." In addition, we recall that the court in Decatur spent a lot of time trying to determine if a farmer was a merchant under the Code (p. 62). Now is the time for our consideration of what a merchant is under Article 2. There are obvious and not so obvious features of Article 2's definition of a merchant. I will try to bring out both in this mini-essay.

The chief point for general orientation to merchants is that Article 2 treats merchants and non-merchants differently in several of its sections. Because merchants are charged with greater knowledge about the products in which they deal, the law will provide comparatively fewer protections to them--i.e., they are assumed to be more vigilant and informed than the casual buyer of goods. 2-104 is the basic section defining what a merchant is. Our focus will be in 2-104(1) and (3) and Cmts 2 and 3 to 2-104.

2-104(1)

Let's start with the Code's definition.

"'Merchant' means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the pracxtices 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 himslef out as having such knowledge or skill."

Under 2-104(1) a merchanteither (1) deals in goods of the kind [sells, buys, manufactures or enters into transactions in goods]; (2) or has special knowledge of the goods; (3) or has special knowledge of the practices involved in the transaction of the goods. This definition obviously includes those who buy, sell, or trade in "widgets" but it also would cover those who run a general purpose store in which widgets are items they carry. It includes people who don't actually sell goods but have specialized knowledge of goods which may be involved in a transaction that concerns them. The term used by the Cmts to contrast with merchant is "casual or inexperienced seller or buyer." A common catch-all term which we use in our speech today to capture what a merchant is, is "professional." Every merchant is a professional. But, the reverse question, "is every professional a merchant?" gets us into the following non-obvious area.

Two Kinds of Merchants Under Article 2

Comment 2 to 2-104 is probably the most important comment in Article 2. Beginning in the second paragraph we read, "The special provisions as to merchants appear only in this Article and they are of three kinds." Only two of these "kinds" will concern us now. First, when merchants are referred to in 2-201 (SoF), 2-205 (firm offers), 2-207 (battle of the forms) and 2-209 (contract modification), a very broad, and somewhat counterintuitive, definition of merchant applies. The Cmt says, "For purposes of these sections almost every person in business would, therefore, be deemed to be a 'merchant' under the language (then cites 1-204(1))..since the practices involved in the transaction are non-specialized business practices such as answering mail. In this type of provision, banks or even universities, for example, well may be 'merchants.'"

Cmt 3 goes on to specify this last statement. You should know it. It says that the "knowledge" or "skill" prongs of the merchant definition can apply even to universities "if they have regular purchasing departments or business personnel who are familiar with business practices and who are euqipped to take any action required." Really?? [By the way, the "really?" is MY comment, not the Code's!]. Let me try to explain after we learn the other "kind."

The Cmt goes on to say, "On the other hand, in Section 2-314 (warranty)....warranty is implied only "if the seller is a merchant with respect to goods of that kind." The Cmt goes on, "Obviously this qualification restricts the implied warranty to a much smaller group than anyone who is engaged in business and requires a professional status as to particular kinds of goods."

In Fact, Three Categories

What the Code is really trying to get at is that there really are three types of transaction where the definition of merchant may or may not apply. First, are those under 2-314 (we will get to this later) where a strict definition is required in order to trigger its protections. Second, is a relaxed defintion of merchant which covers nearly everyone in business and relates to the four sections of Art. 2 mentioned above. Finally, there are "casual" sales of "inexperienced" sellers or buyers where the merchant provisions are not triggered at all. Trying to determine the difference between the second and third categories is often difficult.

A brief example will illustrate these provisions. Let us say we have a florist, Ms. Flora. She has flowers and display cases and refrigerators in her business. She also has a fax machine and phone and desk. If she sells flowers, she is selling as a merchant under the strict definition above, and all the warranties of 2-314 apply. However, if she wants to sell her fax machine, she is acting as a merchant in the relaxed sense, and only provisions such as the SoF or the other three apply to her transaction. If she has a fishing rod lying around that she wants to sell, and sells it, she will not be considered a merchant at all for this transaction.

We will consider other examples in class on 2/1.