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Sales and Leasing
St. Johns University School of Law
Hennigan, John

Short Sales Outline
Kelly Glass

GAP FILLERS AND SALE OR SERVICE (UCC AND CISG)

GAP FILLERS and the UCC APPROACH
o Price: if price is not specified then use the UCC gap filler of Market price. 2-305 (Open Price Term) says the price should be what is reasonable in good faith at time of delivery. If the goods are unique or rare there can be no gap filler of price.
o Quantity: its too difficult to fill the gap with quantity b/c its more specific and tailored to the parties needs.
o Delivery: if parties don’t agree on delivery 2-308 says it will be seller’s place unless specified in the K where to deliver.
o How Do we Decide what the Gap filler should be? We only fill the gap if the parties don’t agree on something AND there is no CP, CD, TU to tell us what to fill in.
§ Course of Performance 1-303a- performance between parties to that particular K. NO need to fill the gap with price, quantity or delivery if this exists.
§ Course of Dealing 1-303b- it is sequence of “conduct” concerning previous transactions.
§ Trade Usage 1-303c- practice, method or custom of dealing. If this exists, no need to fill the gap.
§ Heirarchy of Control 1-303e
· Express terms
o The meaning of an express term in a K is subject to CP, CD, TU.
· Course of performance
· Course of dealing
· Trade Use

o Sale of Goods v. Service: the UCC only applies if the transaction is for “goods”- it will not apply for services.
§ Predominant Purpose test: look to see what the main purpose of the transaction is. If its more of sales then UCC applies. Look to see if the price is “higher” then normal. That would reflect the service portion so it might be more of a service.
§ Gravaman of the Action test: the ct decides if its sales or services from the source of the complaint. If the complaint is about the “impurities in the goods” then UCC applies. If the complaint is negligence it might indicate a service k.
§ Rule: Before you analyze whether a buyer can “disclaim warranties” make sure that the UCC applies and that the transaction is a goods case, not a services case.
§ Real estate: Some personal property is included in the sale of goods
· 2-107(1): A k for the sale of things which are to be removed form realty (minerals, oil, gas or structures attached to the land) are goods.
· 2-107(2): the sale of timber as well as things not covered in section (1) that can be removed are included without harming the realty.
§ Definition of a merchant 2-104
· (1) Person who deals in goods of the kind OR
· (2) Otherwise by his occupation holds himself out as having knowledge and skill of goods OR
· (3) Whom such knowledge or skill may be attributed by his employment of an agent or broker or by intermediary who holds himself out as having the knowledge and skill.
o A merchant will not be a person who sells a service (ie: dentist)
o Comment 2: it only applies to merchants in a “mercantile” capacity- if a party buys for their own use they wont be considered a merchant.

CISG GAP FILLERS AND SALE OR SERVICE

o Article 1: The CISG only applies if the goods sold between the parties whose places of business are in different countries.
o Article 10: If the party has more then one place of business the place which counts is the one which has the closest relationship to the K and its performance having regard to the circumstances known to be contemplated by the parties.
o Article 2: The CISG ONLY applies to the sale of goods, but NOT for personal use, unless the seller at the time of or at the conclusion of the Knew or ought to know that the goods were bought for such use.
o Article 3(2):The convention doesn’t apply to services. To see if it’s a service look to see if there is an abnormally high price.
§ Its not clear if the buyer buys some goods for personal use and some goods for business use whether the CISG applies

IS IT A LEASE OR IS IT A SALE

LEASES IN DISGUSE
o Today, the court doesn’t care if the parties intended the k to be a true lease as opposed to a sale. Instead, the ct applies the Economic Realities Test to see if the K is actually a sale instead. If there is a reasonable likelihood of reversion then it’s a lease, not a sale.
§ Sale apply UCC Article 2
§ Lease apply Article 2a

o Article I 1-203
· Make sure to always evaluate the deal at the TIME the K is entered into 1-203e
o See 2.1(f) page 41
o Example: if the leasee has a 3yr lease, and then complains because the goods are worn out, it wont matter b/c it is measured @ time of K
1-203A
§ 1st, if there is any likelihood of reversion then it’s a Lease automatically. (ie: if the K has an option to terminate, that means there is reversion and it’s a lease)
· If there is an option to terminate that shows that its probably a lease b/c of reversion. BUT even if there is an option to terminate it still might be a sale.
· If the leasee is unlikely to use its option to terminate apply 1-203a.
o If a party is not likely to exercise the option to terminate then it’s a sale
§ It’s a good deal for the leasee he wont ever terminate even though there is that option.
§ The lease is = or greater then the economic life (ie: option to terminate but lease is 5 yrs and the goods life is 5 yrs)
§ Ask ho far along the deal is- if the lease is not too far along the leasee might want to exercise an option to buy so in this case its more likely a sale, not a lease.
§ Ask if there are hefty penalties- if so the leasee wont terminate so it’s a sale.
§ Look to see if 3d parties are involved- if to parties have a lease that can be re characterized as a sale b/c the leasee will not exercise his option to terminate, the 3d party has all the rights that he got from the transferor.
1-203B
§ 2nd if there is no reversion or NO option to terminate, then go to 1-203b. If there is no option to terminate this means that by law its not a lease. As soon as you recognize there is NO option to terminate ask yourself 1, 2, 3, 4 from 1-203b
· Is the original term of the lease = or greater then the economic value of the life of goods
· Is the leasee bound to renew the lease or buy it out b/c its economically sensible
· Ask if the leasee has an option to renew for nominal consideration
· Ask if the leasee has an option to buy out for nominal consideration
o If any of these factors apply and there is NO option to terminate, the lease can be re characterized as a sale.

1-202 c
§ 3rd a lease doesn’t automatically become a sale if one of the factors listed in section C is present
o The consideration leasee pays is more then present value.
o Leasee assumes risk of loss or insurance
o Leasee pays taxes, etc.
o Lease has an option to renew or become the owner
o Leasee has an option to renew for fixed rent that is = or > then market value at time option is exercised.
o Leasee has an option to buy for = or > then fair market value
o How to get the effect of both a sale and a lease
§ 1st a party should put in an option to terminate so that by law it’s a lease. (reversion). Then make the leasee put a higher up front payment which makes it more like a sale. (the lower the down payment the more of a lease).
§ 2nd provide that if the customer wishes to exercise his option to terminate and return the goods the customer is given a credit for another purchase in the store so that the prospects of return are high but the merchandise is still moving.

CONTRACT FORMATION & ADDITIONAL TERMS IN A CONTRACT

UCC APPROACH TO K formation & ADDITIONAL TERMS

o RULE: We must know WHEN the k is formed to decide WHAT is in the K. The rule on additional terms doesn’t apply if the K was formed already. Once the K is formed the terms are set. Any additions will be modifications.
· Example: S and B have a K to sell goods. B writes that he wants all remedies in the K. S agrees and ships the goods. If S then sends an acknowledgement then those are modifications, not additions. The K was made when S accepted.
· Example: B and S have an oral K that is agreed on and not subject to SF. Any additions that the seller makes in an acknowledgment or confirmation that has additional or different terms will be considered modifications, not additions under 2-207.
§ 2-206: Contact Formation
· An offer is construed as inviting acceptance in ANY manner reasonable under the situation
· Acceptance can occur by promise to ship or prompt shipment
· So, once there is shipment of goods any additions after that are modifications and 2-207 is inapplicable.
· Note, that shipment of non conforming goods is not an acceptance by the seller if the seller notifies the buyer that the shipment is offered as an accommodation.
· In addition, Where the beginning of a requested performance is a reasonable mode of acceptance, the offeror who is NOT notified of acceptance within a reasonable time can treat the offer as lapsed before acceptance.
§ 2-204 Formation in General
· Even if one or more terms are left open, a K doesn’t fail for indefinateness if the parties have intended to make a K and there is a reasonable basis for giving a remedy.

§ Additional Terms Policy for 2-207
· Mirror Image rule: the common law rule was that the acceptance has to mirror the offer. This is no longer the UCC rule b.c it was becoming unfair.
§ Injustice-if the last person to send acceptance had a minor difference than what was in the offer that party could easily slip out claiming the MIR.
§ Last shot rule-the party that fired the last shot had an unwarranted advantage- so if the person sends the acceptance with an additional term that was small boiler plate and the other party didn’t object b/c they just kept the goods unknowing of the term, that party would be bound.
§ Note: With 2-207 silence can be acceptance as long as the 3 exceptions don’t apply. This was a change in the common law where silence was never an acceptance.
o 2-207 Additional Terms- Battle of the Forms
§ Is there a definite and seasonable expression of acceptance? (there will be no definite and seasonable expression if B orders 10 Widgets and S confirms with 20 widgets.)
· (1) Yes
o Is it conditional on assent?
· Yes
o Was Assent given?
§ Yes
§ So, now the additional or different terms are in the K
· (2) Yes
o Is it conditional on assent?
§ Yes
o Was assent given?
§ No
§ So, now you go to section 3 and look to the conduct of the parties to see if is shows the additions should be in. Use UCC gap fillers(note – there is no gap filler for arbitration)
§ see example 3.3d p 67
· (3) Yes
o Is it conditional on assent
§ NO
o Now go to Section 2
o Additional and {different} terms become proposals
o If between merchants additions and different terms will be in UNLESS
§ there is a material alteration (aka unreasonable surprise- look to custom and industry to see if it would be a surprise)
§ the offer limits acceptance to the terms in the offer
§ notification of objection to the additional or different terms.
· (4) No
o The terms will not be in the K

· Common law knockout rule: if the major terms in the acceptance and the offer are the same but there are minor differences in boilerplate language the different terms will be knocked out.
o Note- if there is a “definite and seasonable expression of acceptance” and its NOT “conditional on assent” we go to section 2. But in the UCC, section 2

ufficient objection
· (5) 2-201 Payment is made on the goods
o If buyer and seller have a K and the seller sends a check for the goods, this is enough for a writing and the K is enforceable
§ Quantity rule: if the payment is sent by the buyer and accepted by the seller the k is only enforceable up to the amount paid by the buyer.
ARTICLE 2A LEASES AND THE STATUTE OF FRAUD

o 2a-201- Statute of frauds
§ The rules are basically the same as in Article 2
§ Section (1): A lease must be in writing if its 1,000 or more
§ Section (2): More is required in writing of a lease then in the sale of goods
· (1) Signature of party charged
· (2) the lease is made
· (3) Description of the goods

§ Statutory Exceptions-Even though oral it will be enforced if
· Partial Performance Section 4c- if a lease is oral but should have been in writing if there is partial performance the lease will be enforced.
o Paying full yr rent: One month’s rent is paid upfront that is not enough to enforce the oral lease. If the entire years rent is paid in full, then the lease will probably be enforceable despite the lack of writing.
§ See comment 2a for section 4c-the act of payment is not sufficient to get around the writing requirement b/c most leases are monthly
§ Remember!!: ONLY the COMMEN suggests that payment of a full years worth of rent is o.k. This is NOT the law, but it can be argued.
o Receiving the goods and using them-this will be enough to enforce an oral lease.
· Admission in a pleading
· Reasonable lease term (see 7.1(c) p 129)
§ If there is an oral lease the term of the lease is only enforceable if
o (1) there is a writing signed by party charged
o (2) there is an admission in pleading or testimony by party charged
o (3) A reasonable lease term can be implied.
o Example: B and S have an oral lease for $1,000 for one year with an option to renew for 150$. After 2 months of the lease, B takes the lease and subleases to C for $2,000. S wants to cancel the K b/c he would rather sublease it like B is doing. S will claim Statute of frauds. S will lose b/c B already took the goods and began using it.
§ Important issue: Since the sublease is now longer then the original lease that B has with S, B will want to exercise her option to renew. Under section 5 of 2a-201 the term of oral lease is only enforceable in 3 situations. If there is no writing re the term, the court may imply a that the term is reasonable. Look to S’s form leases to see if the term is reasonable.
CISG AND THE STATUTE OF FRAUDS
o Article 11: no writing requirement for international sales
o Article 6: parties to CISG K can always choose to vary the rule and apply a statute of frauds requirement.
o Article 96- says that no SF is required but parties can make one. If there is a K with the US there is no SF requirement unless parties specify.

PAROL EVIDENCE RULE

ARTICLE 2 AND PER
o PER only comes into play after there is a writing. Sometimes when a k is in writing a party tries to claim that oral evidence from BEFORE or CONTEMPORANEOUS to the written agreement should come in as evidence.
o Partial integration: stuff can come in to supplement, not to contradict
o Total integration: nothing can come in
o Course of Performance, Course of dealing and Trade use CAN ALWAYS come in whether it’s partial or total, but it just cannot contradict
§ Parol Evidence rule: extrinsic evidence from before the K is made is barred when the agreement is a fully integrated document that expresses the full intention of the parties.
· Factors to consider if the K is a full integration
o Merger clause- that shows it s a full integration and all extrinsic evidence from before is barred.
o Certainty-If the parties would have “certainly” put the term in, but failed to, then the extrinsic evidence cannot come in.
o Sophistication of parties
o Nature and scope of prior negotiations
2-202 Parol Evidence
§ If Terms with respect to the confirmatory memoranda show the K is a final expression of intent of the parties, extrinsic evidence cannot contradict but can be used to supplement or explain.
· So, if there is only one writing, that is not enough for a final expression or a confirmatory memo. A final expression is when both parties definitely agree. Then if that exists PER comes into play
o Example: B and S have an oral K. S sends confirmation changing the terms of the oral agreement. The oral agreement is admisable b/c the agreement was not a final expression of the terms. The writing may, however be enough for SF.