Sales and leases
Professor Keele
Spring 2016
Introduction
Definition of the Uniform Commercial Code- a code of laws governing various commercial transactions, including the sale of goods, banking transactions, secured transactions in personal property , and other matters designed to bring uniformity in these areas to the laws of the various states, and that has been adopted with some modifications in all states and districts.
Sale and leases also known as “the law of leftovers” since so many areas of law have been codified and spun off from the central core of contracts.
Sales and leases are two of the subjects that have been codified and stand apart from the general study of contracts.
Article 2 of the UCC applies to transactions in good, including all contracts, but where the common law and Article 2 differ, article 2 prevails.
Article 2 of the uniform commercial code (UCC of code deals with the sale of goods, whereas article 2A deals with the lease of goods
Article 2
Article 2 refer to a buyer or a seller or to a “contract” for the sale of goods
Sec 2-102 provides:
Unless the context otherwise requires , this article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this article impair or repeal any statue
regulating sales to consumers, farmers, or other specified classes of buyers.
Sale – is the passing of title of goods from the seller to the buyer for a price
Transaction- The doingor performance of business between two or more persons’
Contract- the total legal obligation which results from the parties’ agreement
Agreement- the bargain on fact of the parties as found in their language or implied by:
Course of performance.
Course of dealing
Usage of trade.
Goods
UCC 2-105(1) defines goods as all things that are at the time of identification to the contract for sale.
Article 2 does not apply to services:
If the transaction involves the sale of goods and the rendering of a service, Article 2 will govern if:
The basis of the contract is the furnishing of goods, even if there is no separate charge for the stated goods; and
The cause of action arose from the goods, rather than the actual services
Unborn young of animals are goods (2-205(1))
Restaurant food and/or drink consumed either on or off the premises are goods (2-314 (1))
Article 2 does not apply to the sale of real estate
Hybrid Transactions
The UCC offers no guidance, so the courts have developed the following:
1. Dominant Purpose Test – The transaction is characterized as a sale of goods or a contract for services based upon whichever dominates the purpose of the agreement.
Majority Rule.
Gravamen Test – Is the alleged injury a result of defective goods or defective workmanship? If defective goods, then UCC applies.
Minority Rule
The Scope of Article 2A
Lease of Goods
§2A-102 – Article 2A applies to any transaction that creates a lease.
§2A-103(1) (j) – A lease is a transfer of a right to possession and use of goods for a term in return for consideration.
A lease does not transfer title, only usage rights.
Lessor retains a residual interest in the goods and holds title thereto.
Hell or high water clause (UCC 2A-407) Irrevocable promises, finance leases.
(A) In the case of a finance lease that is not a consumer lease, the lessee’s promises under the lease contract become irrevocable and independent upon the lessee’s acceptance of the goods.
Official Comment
1. This section extends the benefits of the classic “hell or high water” clause to a finance lease that is not a consumer lease.
Leases vs. Sales with Security Interest
§1-203. Lease Distinguished from Security Interest – Transactions in the form of a Lease.
(b) – The “Economic Realities” Test
It’s a sale with a security interest if:(i) the lessee has the right to possession and use of the good for the term of the lease; (ii) lessee cannot unilaterally terminate; and (iii) one of the following factors is present:
(1) term of the lease > = remaining economic life of goods
(2) lessee bound to renew for remaining economic life or to become owner
(3) lessee has option to renew for REL or become owner for no additional consideration or for nominal additional consideration (see subsection (d)).
(c) list of factors which do not necessarily create security interest
This determination is extremely determinant on the facts of the case.
The reason this matters is for certain tax and accounting reasons, as well as filing requirements under Art. 9 if a security interest.
The Scope of the CISG
International Sale of Goods
Applies to (i) contracts for sale (ii) of goods (iii) between parties whose “places of business” are in different States (when the States are contracting States or the law of a contracting state applies). Art 1
Exclusions – Art 2 & 3
Does not apply to goods meant for personal us
or defense unless there is some type of written agreement.
Does not necessarily have to be a signature per se. If the name of a corporation were printed on the letterhead of a document that otherwise evidenced the transaction, this would probably constitute as a signed writing.
Failure to comply with the statue of frauds merely makes the contract voidable. The parties may continue with the contract without it being in writing if they choose to.
Exceptions
Specially manufactured goods (2-201 (3) (a))
If good (i) speciallymanufactured for buyer, (ii) not suitable for sale to other in ordinary course of seller’s business ; and (iii) seller has substantially begun or made commitments for obtaining the goods. Then, contract enforceable despite SOF.
This exception is based on reliance
Admission in Court (2-201(3) (b)
Enforceable if existence of contract admitted by party against whom enforcement sought, but not beyond quantity admitted.
This admission must be “in his pleading, testimony or otherwise in court” so it must be made in court. A casual admission may not suffice.
Partial Performance (2-201 (3) (c))
If partial payment or partial acceptance of goods are made in anyway then enforceable despite SOF
Between merchant exception (2-201(b))
– A confirmation letter, if received within a reasonable amount of time constitutes a sufficient writing for the statue of frauds purposes as long as: (i) recipient has reason to know its contents and (ii) recipient doesn’t give written notice of objection within 10 days of receipt.
– Two parties must be merchants for this exception (any kind of merchants will suffice)
*if the SOF is satisfied within ten days if there is written notice of objection Sugar mills v. Streit
Merchant confirmation letters are one of the four exceptions to the written contract requirement under the statue of frauds along with special manufacture, part performance and admission in legal proceedings
More exceptions: An acronym of remembering when a writing signed by the party to be charged is not required for the sale of goods is, SCAPE.
