Article 2 and UCC and sales and 2-102 and 2-105 and goods and transactions in goods and chose in action and investment securities and contract for sale

The purpose of this and the next two pages is to discuss four issues that are crucial for understanding the scope of Article 2. You always must ask, when first approach a statute, what its scope of application is. If you were looking for remedies against environmental polluters in the Family and Medical Leave Act, for example, you would be out of luck. The four issues discussed here are: (1) the language of significant Code sections; (2) the meaning of 2-107; (3) the problem of "information" as it relates to Article 2 and (4) the issue of "hybrid" transactions. (1) will be considered in this essay.

(1) The Language of the Statute

Remember that this class is a Code class. What that means for me is that the language of the Code is the most significant thing we have to learn. Language is our currency in law, and language well mastered is the first step of good lawyering. In this connection, the debate between Hawkland and Kripke in pp. 8-11 of the text is only of rather minor significance. You should know the debate--whether Article 2 is more like a European Code, with the implication that all or nearly all answers are found within the Code and that interpretations from other jurisdictions are as important as those from your own in construing its provisions, OR if it is simply a statute, which itself bears witness to the need for outside resources to interpret it-- but it should not bulk too large in your mind at this time.

What should concern you is the interlocking nature of the Code provisions and the words used. The general provision describing what the overall purpose of the UCC is appears in 1-103. I emphasized this section in the previous essay, and I need say no more here. You should also know 1-304, which states what is implied in every transaction governed by the UCC--that every contract imposes "an obligation of good faith in its performance and enforcement." The official comment to old 1-304 (1-203 in old Article 1) lists a series of sections of the code where the phrase "good faith" is used (p. 1177), but the new offical comment dispenses with that seriatim listing and simply states that the applicability of the duty is broader than merely those situations (1-304, cmt. 1). The significant point is that "this section does not support an independent cause of action for failure to perform or enforce in good faith." Rather, the cause of action will be for failure to deliver in time or failure to deliver undamaged goods; breach of good faith may be an element in your cause of action.

Turning to Article 2

But this is a course about Article 2, even if we need to advert to Article 1 on occasion for general definitions or interpretive principles. When we turn to Article 2, the first thing we must ask is the scope of Article 2. 2-102 tells us that the Article deals with "transactions in goods." Some courts try to make a distinction between a "transaction" and a "sale" (see p.23 in the case book), but in general the two terms are construed identically. This means that whatever cannot be construed as a sale will take us out of Article 2. A lease is not a sale (2A of the UCC is about these). A gift is not a sale. A loan is not a sale. What about barter? What do you think?

The only other distinction which the text of 2-102 makes which you should notice is that Article 2 does not deal with sales that are "intended to operate only as a security transaction." This refers to the large subject of purchase money security interests, which is covered in Article IX. Some of you have already studied that.

What, then, is a good or, more properly, "what is goods?" Though many texts refer to things as "a good," Article 2 only knows of "goods." A book, therefore, is "goods," according to Article 2. 2-105 provides the crucial definition for us. Lets begin with the first sentence.

"'Goods' means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action (2-105(1))."

I pointed out in class that a potential ambiguity in the definition has been resolved by the drafters of new Article 2 (2-103(k), p. 65)). Two things should be noted in the definition so far. (A) Goods are "movable." Cmt 1 says that this language is meant to replace the "chattels personal" language of the Uniform Sales Act of 1906 ("USA"), a sign that Article 2 is very aware of its linguistic and legal heritage even as it gives us the "language of today." So, goods are movable. That means that a real estate sale will not be goods. Law considers land and the structures on it as "immovable."

Limitations of 2-105

(B) As with the language of "sale" in 2-102, the language in 2-105(1) also limits the scope of Article 2. Three categories of things are excluded: (i) money in which price is to be paid; (ii) investment securities and (iii) things in action. I noted in class last time that if you wanted to purchase euros for a European vacation, the Euros would be goods but the cash which you paid for them would not be goods. Cmt 1, p. 1189 distinguishes between money "as a commodity" and money as the "medium of payment." Investment securities should be clear. You may have a stock certificate for 100 shares of Intel, but the certificate, which is obviously "movable," is not the transaction. It represents or memorializes the transaction. Finally, a "thing in action" is the modern way of saying a "chose in action," which is the common law and USA term. A thing in action may be defined as an "incorporeal right upon which one may bring an action in law." This definition by itself is not hyper-illuminating, but if you know that the two most prevalent things in action are trademarks (including patents and copyrights) and insurance policies, you will also understand this exclusion.

You should also note from 1-205(2) that "Goods which are not both existing and identified are 'future' goods." Thus, there is no need for goods to be in existence when you conclude a contact for sale. (Note that the definition of "contract for sale" in 2-106(1) includes "both a present sale of goods and a contract to sell goods at a future time.") It still is goods and the transaction would be covered under Article 2.

Conclusion

Thus, we have some clear categories that are being created in very few words. An Article 2 transaction would include a textbook bought in the bookstore or even a textbook ordered which is out of stock. It would not include the lectures I give (if I wanted to charge admission). However, if I reduced my lectures to print and sold them it would be included in that transaction. If they wanted to make a movie of my lectures, and I got "royalties" from the movie, it would not include these, since this would be a chose in action. We have made a good start. Next page will examine (2) and (3) above.