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Sales and Leasing
Stetson University School of Law
Zierdt, Candace

Sales and leases
Zierdt
Fall 2007
 
I.                     Scope
a.        Article 2: Sales
                                                                i.      Applies to transactions in goods UCC § 2-102
1.        Transactions           
a.        Sales—passing of title from seller to buyer for a price UCC § 2-106(1)
                                                                                                                                        i.      Seller: One who sells or contracts to sell UCC § 2-103(1)(d)
                                                                                                                                       ii.      Buyer: One who buys or contracts to buy UCC § 2-103(1)(a)
b.        Exchanges
2.        Goods
a.        Things which are movable at the time of identification of the contract for sale UCC § 2-105(1)
                                                                                                                                        i.      Minerals removed from realty UCC § 2-107(1)
1.        Removed by the seller
                                                                                                                                       ii.      Growing crops, building materials inside of building UCC § 2-107(2)
1.        Attached to realty
2.        Severed without material
3.        Removed by buyer or seller
b.        Manufactured goods UCC § 2-105
                                                                                                                                        i.      Specially manufactured goods
1.        appear to request service of mfg. the good BUT
2.        the mfg of goods is covered under Article 2 (see below: hybrid transactions)
                                                               ii.      Hybrid Transactions
1.        Predominate Purpose Test  *MAJORITY RULE (all or nothing: either Article 2 applies or it does not)
a.        If the primary purpose for entering into the contract was for the goods, Article 2 applies
b.        If the primary purpose for entering into the contract was for the service, Article 2 does not apply: common law will apply
c.        Doctors—under this test, doctors are presumed to provide services; thus, Article 2 will not apply to doctors
2.        Gravamen Test (Modern Law) (Both Article 2 and the common law can apply)
a.        If the point of complaint is towards the good, Article 2 (and common law) applies
b.        If the point of complaint is towards the service, Article 2 will not apply: common law will apply
c.        Benefits
                                                                                                                                        i.      Draft the complaint under the UCC (because UCC and Common law can apply)
                                                                                                                                       ii.      Broadens the scope of the UCC
                                                                                                                                      iii.      Fairness
1.        Focus on the substance of the transaction rather than the form
d.        Applies primarily in Consumer transactions, not between businesses
 
 
3.        Examples
a.        P goes to eye doctor for glasses. On one contract, P pays 100 for exam, 175 for glasses. They break and injure P. Under predominate purpose test, P has no Article 2 relief because healthcare is predominately a service. Under the gravamen test, P may have a cause of action under Article 2 because the point of complaint was the good—here, the glasses.
b.        P goes to doctor for exam. Doctor gives exam, bills P, and refers him to D for glasses. P buys glasses from D, gets billed by D, 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. P could recover against the D because D mfg. the eye glasses.  
                                                              iii.      Article 2 applies to merchants and nonmerchants
1.        Merchants UCC § 2-104
a.        Dealer of particular goods OR
b.        One with knowledge or skill peculiar to goods or practices OR
c.        One whom acquires knowledge or skill by hiring an agent with such knowledge or skill
2.        What kind of merchant
a.        Any person in business acting in mercantile capacity (lawyer or banker buying fishing tackle for own use not a merchant) comment 2
                                                                                                                                        i.      Statute of frauds UCC § 2-201(2)
                                                                                                                                       ii.      Firm Offers UCC § 2-205
                                                                                                                                      iii.      Confirmatory Memoranda UCC § 2-201(2)/2-207
                                                                                                                                     iv.      Modifications of Contracts UCC § 2-209
b.        Merchant with respect to goods of that kind
                                                                                                                                        i.      Implied Warranty of merchantability UCC § 2-314 (No need to prove negligence)
1.        Specific and professional sellers
2.        Not isolated sales
a.        Siemen v. Alden—D 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.
c.        Good Faith UCC § 2-103(1)(b)
                                                                                                                                        i.      Any person in the business acting in mercantile capacity
1.        Good Faith Standard for merchants UCC § 2-103(1)(b)
a.        Honesty in fact UCC § 1-201(19) AND
b.        Observance of reasonable commercial standards of fair dealing in the trade
d.        New Merchants
                                                                                                                                        i.      Comparable to other new merchants
e.        ALL MERCHANTS MUST FOLLOW GOOD FAITH STANDARD FOR MERCHANTS
f.         “Between Merchants” UCC § 2-104(3)
                                                                                                                                        i.      Both buyer and seller must be merchants
b.        Article 2A: Leases Applies to any transaction that creates a lease UCC § 2A-102
                                                                i.      Definition of a Lease UCC § 2A-103(j)
1.        Transfer of the right to possess and use (no title passes)
2.        Goods
3.        For a term
a.        Finite, fixed amount of time—at end of term, goods return to lessor
4.        In exchange for consideration (not gratuity—$$$)
                                                               ii.      Security Interests (distinguished from leases)
1.        Whether the substance of a transaction is a true lease OR disguised sale with lessor financing the sale
a.        Can the lessee terminate the lease? (termination Clause)
                                                                                                                                        i.      Factual determinations
1.        If the lessee CAN terminate, then it is a true lease
2.        If the lessee CANNOT terminate, then it may be a security interest
b.        If there is no value at the end of the term
                                                                                                                                        i.      Useful economic life is over at the end of the term, then it is a security interest
1.        useful economic life measured in years/time
2.        speaks to the length of time the good has any value
a.        depreciation evidence
b.        experts
c.        clients
c.        If the lessee can buy at the end (Case-by-case determination)
                                                                                                                                        i.      Can be a true lease if there is an option to buy
1.        must buy at the fair market value at the end of the lease to be a true lease
                                                                                                                                       ii.      If the lessee buys for NOMINAL consideration, it is a lease intended as a security interest
1.        Nominal consideration determined by
a.        Comparing the consideration paid WITH
b.        Reasonably anticipated fair market value at the time of the original agreement
c.        Rationale—what did the parties think the goods would be worth at the end of the lease
2.        Summary: a security interest is created IF
a.        “No Termination” clause AND
b.        Either
                                                                                                                                        i.      Term and economic life are equal
                                                                                                                                       ii.      Lessee is bound to buy
                                                                                                                                      iii.      Renewal for nominal consideration OR
                                                                                                                                     iv.      Buyout at end of term for nominal consideration
II.                    Contract Formation
a.        Statute of Frauds UCC § 2-201(1) *apply when one party denies existence of contract*
                                                                i.      IF sale of goods AND
                                                               ii.      $500 or more (total price of the contract) THEN
                                                              iii.      writing is required
1.        Intentional writing into tangible form
a.        Printing, typewriting, e-records or other tangibles UCC § 1-202(46)
2.        Need not be mailed, delivered, or seen by the P in order to qualify
                                                             iv.      sufficient to indicate the existence of an agreement
1.        some objective evidence to believe an agreement was made
                                                              v.      signed by the party to be charged (person who claims there is no contract)
1.        any symbol WITH
2.        present intent to authenticate UCC § 1-201(39) AND
                                                             vi.      listing the quantity

2A-201 (same as above unless otherwise indicated)
                                                                i.      Lease price must be $1000
                                                               ii.      Description of the goods
                                                              iii.      Lease term (length of term)
1.        Reasonably identifiable
                                                             iv.      There is no merchant exception
                                                              v.      There is no part performance exception
                                                             vi.      Spec. mfg. goods exception same as above
                                                            vii.      Admissions exception same as above
                                                           viii.      Part performance exception applies ONLY to the goods that have been received and accepted
d.        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*
                                                                i.      Determine the type of Writings (3 Types)
1.        Two Confirmatory memos of the parties
a.        One from Buyer AND One from Seller
b.        With Terms that parties agree to
2.        Writing Intended as Final Expression of agreement by both parties with respect to the terms in the writing
a.        Partially Integrated
b.        Terms agreed to in that contract, other terms are missing
3.        Complete and exclusive statement of the terms agreed to by both parties
a.        Fully Integrated (NO PE unless COT/UOT/COP)
                                                               ii.      Determining Fully or Partially Integrated
1.        Negotiations
a.        Length (Time)
b.        Arm’s length negotiations or adhesion contract
c.        Details
2.        What is the term to be added?
a.        Contradictory, additional, etc.
b.        Would it certainly have been in the writing?
3.        Context of the transaction
4.        Completeness
a.        Merger Clause—sometimes not enough to fully integrate by itself
5.        Performance
                                                              iii.      Type of Evidence
1.        Contradictory Terms
a.        Always excluded BUT:
                                                                                                                                        i.      If the contract is silent, the term cannot contradict
                                                                                                                                       ii.      Use liberal approach—try to find that it does not contradict
                                                                                                                                      iii.      Mere ambiguity in the contract does not mean the term contradicts
                                                                                                                                     iv.      Court construes terms as consistent with contract if reasonable to do so
                                                                                                                                      v.      If unreasonable to construe as consistent, then
1.        Express terms
2.        Course of performance
3.        Course of Dealing
4.        Usage of Trade
2.        Supplemental/Explanatory
a.        Usage of Trade, Course of Dealing, Course of Performance
                                                                                                                                        i.      Usage of trade UCC § 1-205(2): common understanding among everyone in the industry
1.        Both parties must be privy to the industry standards
a.        Requires two commercial parties
b.        Course of Dealing
                                                                                                                                        i.      UCC § 1-205(1): sequence of previous conduct between the parties establishing a common understanding between the parties
1.        Previous conduct fairly to be regarded as a common basis of understanding between the parties (it’s fair to let this evidence in)
Course of Performance UCC § 2-208: parties dealing