Sales and Leases

Spring 2002

Professor Robyn Meadows

  1. Scope
  2. Article 2: Sales
  3. Applies to transactions in goods UCC § 2-102
  4. Transactions
  5. Sales—passing of title from seller to buyer for a price UCC § 2-106(1)
  6. Seller: One who sells or contracts to sell UCC § 2-103(1)(d)
  7. Buyer: One who buys or contracts to buy UCC § 2-103(1)(a)
  8. Exchanges
  9. Goods
  10. Things which are movable at the time of identification of the contract for sale UCC § 2-105(1)
  11. Minerals removed from realty UCC § 2-107(1)
  12. Removed by the seller
  13. Growing crops, building materials inside of building UCC § 2-107(2)
  14. Attached to realty
  15. Severed without material
  16. Removed by buyer or seller
  17. Manufactured goods UCC § 2-105
  18. Specially manufactured goods
  19. appear to request service of mfg. the good BUT
  20. the mfg of goods is covered under Article 2 (see below: hybrid transactions)
  21. Hybrid Transactions
  22. Predominate Purpose Test (all or nothing: either Article 2 applies or it does not)
  23. If the primary purpose for entering into the contract was for the goods, Article 2 applies
  24. If the primary purpose for entering into the contract was for the service, Article 2 does not apply: common law will apply
  25. Doctors—under this test, doctors are presumed to provide services; thus, Article 2 will not apply to doctors
  26. Gravamen Test (Modern Law) (Both Article 2 and the common law can apply)
  27. If the point of complaint is towards the good, Article 2 (and common law) applies
  28. If the point of complaint is towards the service, Article 2 will not apply: common law will apply
  29. Benefits
  30. Draft the complaint under the UCC (because UCC and Common law can apply)
  31. Broadens the scope of the UCC
  32. Fairness
  33. Focus on the substance of the transaction rather than the form
  34. Applies primarily in Consumer transactions, not between businesses
  1. Examples
  2.  goes to eye doctor for glasses. On one contract,  pays 100 for exam, 175 for glasses. They break and injure . Under predominate purpose test,  has no Article 2 relief because healthcare is predominately a service. Under the gravamen test,  may have a cause of action under Article 2 because the point of complaint was the good—here, the glasses.
  3.  goes to doctor for exam. Doctor gives exam, bills , and refers him to  for glasses.  buys glasses from , gets billed by , and is injured by glasses. Again, the predominate purpose test would not allow recovery against the doctor under Article 2 because the doctor provided a service.  could recover against the  because  mfg. the eye glasses.
  1. Article 2 applies to merchants and nonmerchants
  2. Merchants UCC § 2-104
  3. Dealer of particular goods OR
  4. One with knowledge or skill peculiar to goods or practices OR
  5. One whom acquires knowledge or skill by hiring an agent with such knowledge or skill
  6. What kind of merchant
  7. Any person in business acting in mercantile capacity (lawyer or banker buying fishing tackle for own use not a merchant)
  8. Statute of frauds UCC § 2-201(2)
  9. Firm Offers UCC § 2-205
  10. Confirmatory Memoranda UCC § 2-201(2)/2-207
  11. Modifications of Contracts UCC § 2-209
  12. Merchant with respect to goods of that kind
  13. Implied Warranty of merchantability UCC § 2-314
  14. Specific and professional sellers
  15. Not isolated sales
  16. Siemen v. Alden— was a lumber dealer and sold a saw. Held: not a merchant under 2-314 because he was not a merchant with respect to saws, but a merchant with respect to lumber.
  17. Good Faith UCC § 2-103(1)(b)
  18. Any person in the business acting in mercantile capacity
  19. Good Faith Standard for merchants UCC § 2-103(1)(b)
  20. Honesty in fact UCC § 1-201(19) AND
  21. Observance of reasonable commercial standards of fair dealing in the trade
  22. New Merchants
  23. Comparable to other new merchants
  24. ALL MERCHANTS MUST FOLLOW GOOD FAITH STANDARD FOR MERCHANTS
  25. "Between Merchants" UCC § 2-104(3)
  26. Both buyer and seller must be merchants
  1. Article 2A: Leases Applies to any transaction that creates a lease UCC § 2A-102
  2. Definition of a LeaseUCC § 2A-103(j)
  3. Transfer of the right to possess and use
  4. Goods
  5. For a term
  6. Finite, fixed amount of time—at end of term, goods return to lessor
  7. In exchange for consideration (not gratuity—$$$)
  8. Security Interests (distinguished from leases)
  9. Whether the substance of a transaction is a true lease OR disguised sale with lessor financing the sale
  10. Can the lessee terminate the lease? (termination Clause)
  11. Factual determinations
  12. If the lessee CAN terminate, then it is a true lease
  13. If the lessee CANNOT terminate, then it may be a security interest
  14. If there is no value at the end of the term
  15. Useful economic life is over at the end of the term, then it is a security interest
  16. useful economic life measured in years/time
  17. speaks to the length of time the good has any value
  18. depreciation evidence
  19. experts
  20. clients
  21. If the lessee can buy at the end (Case-by-case determination)
  22. Can be a true lease if there is an option to buy
  23. must buy at the fair market value at the end of the lease to be a true lease
  24. If the lessee buys for NOMINAL consideration, it is a lease intended as a security interest
  25. Nominal consideration determined by
  26. Comparing the consideration paid WITH
  27. Reasonably anticipated fair market value at the time of the original agreement
  28. Rationale—what did the parties think the goods would be worth at the end of the lease
  29. Summary: a security interest is created IF
  30. "No Termination" clause AND
  31. Either
  32. Term and economic life are equal
  33. Lessee is bound to buy
  34. Renewal for nominal consideration OR
  35. Buyout at end of term for nominal consideration
  1. Contract Formation
  2. Statute of Frauds UCC § 2-201(1) *apply when one party denies existence of contract*
  3. IF sale of goods AND
  4. $500 or more (total price of the contract) THEN
  5. writing is required
  6. Intentional writing into tangible form
  7. Printing, typewriting, e-records or other tangibles UCC § 1-202(46)
  8. Need not be mailed, delivered, or seen by the  in order to qualify
  9. sufficient to indicate the existence of an agreement
  10. some objective evidence to believe an agreement was made
  11. signed by the party to be charged (person who claims there is no contract)
  12. any symbol WITH
  13. present intent to authenticate UCC § 1-201(39) AND
  14. listing the quantity (code cannot fill in the quantity term, so you must have it)
  15. not exact quantity
  16. can be determined by good faith or reasonableness
  17. Exceptions to the statute of frauds
  18. UCC § 2-201(2) Merchant Exception
  19. IF between merchants
  20. both parties must be merchants
  21. Any person in the business acting in mercantile capacity (2-104(3) comments)
  22. writing that confirms the contract
  23. probably after oral agreement; this is pretty much a given, but my darling girlfriend wanted it included in the outline, and because I lover her, I will so include said element.
  24. Oral agreement followed by confirmatory memo: Bazak
  25. Some objective guarantee that the oral agreement rests on a real transaction
  26. Sufficient against the sender (would bind the sender: requirements of 2-201(1))
  27. writing
  28. sufficient to indicate agreement was made
  29. signed by sender AND
  30. indicating quantity
  31. Sent and received within a reasonable time
  32. fairness to the receiver of the memo
  33. To determine reasonable, look to goods
  34. Perishable
  35. Depreciation
  36. Reasonable industry standards
  37. Recipient has reason to know of the memo's contents
  38. reason to know means the sender sent the memo to the appropriate place
  39. recipients are expected to read mail
  40. THEN no statute of frauds UNLESS
  41. written
  42. no phone calls
  43. objection made to confirmatory memorandum
  44. must object to the contract completely "we have no contract"
  45. cannot be used to get out of a deal you actually made
  46. Made within 10 days of receipt of the confirmation
  47. The exception only eliminates the statute of fraud defense for the 
  48. Only gives  her day in court
  49. burden of proof remains with the  to establish the contract and terms
  50.  can always dispute the terms of the agreement
  51. Example of Merchant exception: Bazak—oral agreement between  (buyer) and  (seller) followed by purchase order sent by  (usually used by  as a seller, but here he was a buyer). Court held that there was objective evidence of the oral agreement and the purchase orders, although normally mere offers, were sufficient against  (sender) because they were specific, sent from seller, 4 orders were very detailed and the final order was a summary of the agreement and date of alleged oral agreement.
  52. Specially Manufactured Goods exception
  53. specially manufactured goods for the BUYER
  54. seller mfg's for buyer
  55. items not usually in stock
  56. unique specifications
  57. not suitable for sale to others in the ordinary course of seller's business
  58. cannot by advertising or buyer list sell the goods
  59. efforts made
  60. uniqueness of goods
  61. scarcity of use for good
  62. how many potential buyers
  63. more expensive to build specific goods
  64. mere fact that seller takes a loss is not enough to satisfy the element
  65. there must be detriment to the seller
  66. Seller has made a substantial beginning to manufacture OR made commitments for the procurement
  67. Seller is bound to another party for parts specific to buyer's spec. goods
  68. before buyer gives notice of repudiation to seller
  69. Under circumstances that reasonably indicate the goods are for the buyer
  70. Example of exception: Golf Ball Tank: Buyer (city) orders tank to look like golf ball. City sends check for $3000 as down payment. Seller starts to make it and nearly finishes but buyer (new administration in city) informs seller that there is no agreement. Goods were spec. mfg. (golf ball tank); not suitable for resale; they made a subst. beginning because they completed the tank before repudiation; circumstances indicated goods were for city because "c" was painted. This might not be enough, so show delivery schedule, what other projects you are working on at the time, records, etc.
  71. Admission of existence of agreement UCC § 2-201(3)(b)
  72. once party admits the existence of the contract, that party cannot raise SOF defense
  73. must be admitted in court
  74. pleading, testimony, or otherwise
  75. written pleading
  76. stipulation
  77. oral statement
  78. Performance, Part Performance, Part Payment Exception (Based on common law (unjust enrichment)
  79. buyer makes payment AND seller accepts OR
  80. seller delivers, buyer receives, AND buyer accepts and retains goods
  81. Part payment
  82. Contract is enforceable to the extent the goods were received and accepted
  83. If more than one item is involved:
  84. Court must apportion the goods: If buyer pays for part of the goods, court can make seller deliver paid-for goods
  85. If only one item is involved
  86. Guarantees the deal BECAUSE
  87. Cannot apportion the goods
  88. Statute of Frauds for Leases: UCC § 2A-201 (same as above unless otherwise indicated)
  89. Lease price must be $1000
  90. Description of the goods
  91. Lease term (length of term)
  92. Reasonably identifiable
  93. There is no merchant exception
  94. There is no part performance exception
  95. Spec. mfg. goods exception same as above
  96. Admissions exception same as above
  97. Part performance exception applies ONLY to the goods that have been received and accepted
  98. Parole Evidence Rule UCC § 2-202 and § 2A-202 *Parties Agree that there is a Contract But One Party Tries to Introduce a Term Outside of the Writing*
  99. Determine the type of Writings (3 Types)
  100. Two Confirmatory memos of the parties
  101. One from Buyer AND One from Seller
  102. With Terms that parties agree to
  103. Writing Intended as Final Expression of agreement by both parties with respect to the terms in the writing
  104. Partially Integrated
  105. Terms agreed to in that contract, other terms are missing
  106. Complete and exclusive statement of the terms agreed to by both parties
  107. Fully Integrated (NO PE unless COT/UOT/COP)
  108. Determining Fully or Partially Integrated
  109. Negotiations
  110. Length (Time)
  111. Arm's length negotiations or adhesion contract
  112. Details
  113. What is the term to be added?
  114. Contradictory, additional, etc.
  115. Would it certainly have been in the writing?
  116. Context of the transaction
  117. Completeness
  118. Merger Clause—sometimes not enough to fully integrate by itself
  119. Performance
  120. Type of Evidence
  121. Contradictory Terms
  122. Always excluded BUT:
  123. If the contract is silent, the term cannot contradict
  124. Use liberal approach—try to find that it does not contradict
  125. Mere ambiguity in the contract does not mean the term contradicts
  126. Court construes terms as consistent with contract if reasonable to do so
  127. If unreasonable to construe as consistent, then
  128. Express terms
  129. Course of performance
  130. Course of Dealing
  131. Usage of Trade
  132. Supplemental/Explanatory
  133. Usage of Trade, Course of Dealing, Course of Performance
  134. Usage of trade UCC § 1-205(2): common understanding among everyone in the industry
  135. Both parties must be privy to the industry standards
  136. Requires two commercial parties
  137. Course of Dealing
  138. UCC § 1-205(1): sequence of previous conduct between the parties establishing a common understanding between the parties
  139. Previous conduct fairly to be regarded as a common basis of understanding between the parties (it's fair to let this evidence in)
  140. Course of Performance UCC § 2-208: parties dealing regarding the contract in dispute
  141. Look to how strictly the parties were adhering to the terms of the K
  142. Determines what parties meant by the contract
  143. COP/COD/UOT ALWAYS ADMISSIBLE UNLESS CONTRADICTS THE WRITING
  144. Consistent Additional Terms
  145. Allowed unless writing is fully integrated
  146. Parole Evidence Analysis
  147. Identify the type of writing
  148. Confirmatory Memorandum
  149. Writing Intended as final agreement (Partially Integrated)
  150. Complete and exclusive statement of the terms agreed to by both parties (Fully Integrated)
  151. Confirmatory Memos
  152. Contradictory Evidence is not admissible
  153. Consistent Additional Terms are admissible
  154. UOT/COD/COP is admissible unless contradictory
  155. Partially Integrated Writing
  156. Contradictory Evidence is not admissible
  157. Consistent Additional terms are admissible
  158. UOT/COD/COP is admissible unless contradictory
  159. Fully Integrated Writing
  160. Contradictory Evidence is not admissible
  161. Consistent Additional terms are not admissible
  162. UOT/COD/COP is admissible unless contradictory

Type of Evidence

Type of Document

/ Contradictory Evidence / Consistent Additional Term / Usage of Trade, Course of Performance, Course of Dealing

Non-integrated Writing

/ Evidence Admissible / Evidence Admissible / Evidence Admissible if Consistent
Confirmatory Memos OR Partially Integrated Writings / Evidence Inadmissible under 2-202 / Evidence Admissible under 2-202(a) / Evidence admissible under 2-202(a) if consistent
Fully Integrated Writings (Complete & Exclusive) / Evidence Inadmissible / Evidence inadmissible under 2-202(b) / Evidence Admissible under 2-202(a) if consistent
  1. Offer and Acceptance
  2. Offer to make a contract shall be construed as inviting acceptance in any reasonable manner unless otherwise unambiguously indicated UCC § 2-206(1)(a)
  3. If ambiguous, then any reasonable acceptance is permitted
  4. Example: "reply by return mail" is ambiguous, thus, acceptance by shipment means prompt shipment
  5. No need to know when acceptance formed the contract UCC § 2204(2)
  6. Where the beginning of performance is a reasonable mode of acceptance, the offeree MUST notify offeror of the acceptance within a reasonable time in order to bind the offeror UCC § 2-206(2).
  7. Shipment of conforming/non-conforming goods as acceptance UCC § 2-206(b)
  8. Where acceptance requires prompt shipment or current shipment
  9. Construed as inviting acceptance by prompt promise to ship or prompt shipment
  10. Conforming goods must be in accordance with contract requirements
  11. Shipment of non-conforming goods is an acceptance and a breach BUT
  12. If seller ships non-conforming goods AND
  13. Seasonably (Timely) notifies buyer that the goods are an accommodation
  14. THEN there is no acceptance
  15. Buyer can return the goods (No contract) OR
  16. Buyer can accept the goods (Contract formed)
  17. Formation in General
  18. Requires evidence of intent to make a contract UCC § 2-204(1)
  19. Any manner sufficient to show agreement
  20. Conduct or otherwise
  21. Shows the existence of a contract
  22. Need not know the moment of the making of the contract UCC § 2-204(2)
  23. Although terms are left open, contract does not fail for indefiniteness as long as there is a reasonably certain basis to provide for remedies
  24. Gap fillers in the code to supply terms and remedies
  25. Firm Offers UCC § 2-205
  26. IF Offer to buy or sell goods
  27. Offeror is a merchant
  28. Knowledge of business practices AND
  29. Acting in mercantile capacity
  30. Must be a signed writing
  31. If oral, must be supported by consideration AND
  32. Assurance that the offer is held open
  33. THEN offer is irrevocable even without consideration
  34. Offer is valid for three month maximum
  35. If offer is open for only twenty days, it is irrevocable for twenty days
  36. Code provides the maximum time—parties can contract for less time
  37. If offeree has the writing with the assurance by the offeror
  38. The offeror must sign the assurance separately
  39. Example—A writes note to B in law school class on 2/7 offering to sell car by end of summer; gives B option to buy until June 1—signed by A. 2/15 she sells to C. 4/25 B tells A he will give her 10,000 for the car (which is worth 16,000). A tells B the car is sold. B sues for 6,000 loss.
  40. UCC § 2-207 *Where parties dispute the terms of the contract*
  41. Oral agreement followed by confirmatory memorandum
  42. If there is an additional term AND both parties are merchants (any merchants), Term is included UNLESS
  43. Offer limits acceptance to the terms in the offer
  44. Term is a material alteration to the contract
  45. Test: surprise or hardship
  46. Surprise is subjective and objective determination
  47. UOT/COD/COP
  48. Reasonable limitations of remedies are not material alterations
  49. Hardship is a substantial economic hardship
  50. Consider contexts
  51. Likelihood of consequential damages of the goods
  52. Unilaterally imposing a hardship onto the buyer with knowledge of its economic effect
  53. Mandatory arbitration is a hardship unless standard in the industry
  54. Disclaimer of implied warranty of merchantability is normally a hardship
  55. If alterations are
  56. Reasonable
  57. Consistent with the UCC AND
  58. Consistent with the industry, it is normally not a material alteration
  59. Party objects to the additional term
  60. If there is an additional term AND one party is not a merchant, the terms are mere proposals to the contract.
  61. The other party must expressly assent to the different terms
  62. If the terms are different: 3 approaches
  63. Different terms knock each other out and supply gap filler in the code
  64. Argument—lack of assent anyway so knock out the terms
  65. Easy, fair, and neutral
  66. Take terms of offeror
  67. Offeror is the master of the offer
  68. Do what is reasonable, regardless of party
  69. Use facts
  70. UOT/COP/COD
  71. Exchange of forms are offer and acceptance (Do offer and acceptance analysis: usually, buyer sends a purchase order form [offer] and seller sends acknowledgement form [acceptance])
  72. Definite and seasonable acceptance including different or additional terms
  73. Seasonable—within time specified in contract OR if silent, within a reasonable time
  74. Definite: Specific and express agreement to the additional or different terms
  75. If no definite and seasonable acceptance, there is no contract UNLESS
  76. Parties continue to perform as if there was a contract 2-207(3)
  77. Contract consists of the terms agreed upon AND
  78. Any gap fillers provided in the code
  79. Acceptance expressly made conditional on assent to the additional or different terms
  80. Express—cannot be implied, so construe as not expressly conditional
  81. Conditional—party will not perform unless condition is met
  82. Assent—from offeror to the offeree
  83. If conditional, and no express assent to different or additional terms AND
  84. Parties continue to perform as if there was a contract: go to 2-207(3)
  85. Contract consists of the terms agreed upon AND
  86. Any gap fillers provided in the code
  1. Warranties
  2. Warranty of Title UCC 2-312
  3. Warranty of title attaches
  4. Where there is a contract for the sale of goods UCC 2-312(1)
  5. Warranty of title can be disclaimed by
  6. Specific language
  7. Very difficult to disclaim
  8. Must be a very specific disclaimer and assent by the buyer
  9. Cannot be disclaimed under UCC 2-316: only under UCC 2-312(2) OR
  10. Circumstances
  11. Buyer has reason to know that the seller does not claim title
  12. Example—buyer buys watch from seller on street corner in NYC
  13. Extent of the warranty of title
  14. Good title is conveyed
  15. General rule: transferee receives all that the transferor has
  16. Good title—transferee receives good title
  17. Voidable title
  18. True owner voluntarily departs with good subject to express/implied condition.