HOMEWORK AID – CHAPTER 9
When answering the questions and case problems, look at them from the perspective of the learning objectives of the chapters. Justify your answers.
Sample Case Problem:
On November 1, the Kansas City Post Office Employees Credit Union merged into the Kansas City Telephone Employees Credit Union to form the Communications Credit Union (Credit Union). Systems Design and Management Information (SDMI) develops computer software programs for credit unions, using Burroughs (now Unisys) hardware. SDMI and Burroughs together offered to sell to Credit Union both a software package, called the Generic System, and Burroughs hardware. In November 1986, a demonstration of the software was held at SDMI's offices, and the Credit Union agreed to purchase the Generic System software. This agreement was oral. After Credit Union was converted to the SDMI Generic System, major problems with the system immediately became apparent. SDMI filed suit against Credit Union to recover the outstanding contract price for the software. Credit Union counterclaimed for damages based upon breach of contract and negligent and fraudulent misrepresentation. Does the UCC apply to this contract? Explain.
Answer: Uniform Commercial Code. Judgment for SDMI. We must determine whether the oral agreement between SDMI and Credit Union was for goods or services. The test when dealing with a mixed contract is "not whether they [goods or services] are mixed, but, granting that they are mixed, whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of service, with goods incidentally involved . . . or is a transaction of sale, with labor incidentally involved."
Prior to entering into an agreement for the Generic System software, Credit Union attended a demonstration of the program at SDMI's place of business. Therefore, we conclude the software was movable at the time of identification to the contract, satisfying that requirement of the definition of goods. SDMI installed the Generic System software on Credit Union's computer and was present to attempt modifications and corrections of the program so the accounting system would run more efficiently. These services are incidental to the sale of the software because, without Credit Union buying the Generic System program, the services would not be necessary. Therefore, the sale of the software is predominant. SDMI remains the owner of the accounting program as intellectual property. Credit Union purchased only a reproduction or the result of the programmer's skill. Credit Union is interested only in the outcome of running the program and whether the program will perform the functions for which it was purchased.
We hold this software to be goods and subject to the provisions of the U.C.C. This holding is consistent with the purpose of the U.C.C. It simplifies commercial transactions. It provides a uniform rule for courts to follow.
HOMEWORK AID – CHAPTER 9