Sales & Leases
Prof. Korzec
Spring 2011
*Article 2 applies when there is a transaction in goods that are moveable at the time of purchase.*
TRANSACTION IN GOODS
Transactions
· 2-102 – Unless the context otherwise requires, this article applies to transactions in goods
o broader then just the sale
· 2-106(1) – In this article unless the context otherwise requires “contract” and “agreement” are limited to those relating to the present or future sale of goods.
o “Contract for Sale” includes both a present sale of goods and a contract to sell goods at a future time.
o A “sale” consists in the passing of title from the seller to the buyer for a price.
o A “present sale” means a sale in which is accomplished by the making of a contract.
Goods
· 2-105 –
o (1) Goods means all things including specialty manufactured goods which are movable at the time of identification to the contract for sale other than the money in which the price to paid, investment securities and things in action. “Goods” also includes the unborn young of animals growing crops and other identified things attached to realty as described in the section on goods to be severed from realty.
o (2) Goods must be both existing and identified before any interest in them can pass. Goods which are not both existing and identified are “future” goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.
Hybrid Contracts
· Dependant upon whether the hybrid K is more for services or goods. There are 3 approaches. Only 2 are relevant:
o Predominant purpose test (majority, including Maryland). Ask what is the main purpose of my K, the goods or the labor.
§ Looking at the amounts of money involved is not helpful. Look at the purpose of the transaction. Is the labor incidental to the goods or the goods incidental to the labor?
o Gravamen Test – the main part of the issue, what went
Merchants
· Article 2 will only apply to a sale of goods if one of the parties of the sale is a merchant dealer in goods of the kind. Usually the seller.
o No particular amount of time is required to become a merchant dealer of goods of the kind. If you hold yourself out as a seller of a particular good, but have never sold one before, then you are still a merchant dealer in goods of the kind.
§ Additionally, if a person sells something on a consistent basis and it account for a large portion of their income, they can be considered a merchant dealer in goods of the kind. (e.g. Farmer).
LEASING
Article 2A of the UCC is for leases
· Test must be passed for 2A to be triggered. If not 2A then 2 or 9.
o Secured Transaction – as under the original definition, if at the end of the lease period the lessee becomes the owner of the property for little or no consideration, a secured transaction and not a lease has been created.
o Lease – if the contract contains a clause that permits the lessee to terminate the lease at anytime and return the leased good, a true lease has been created. Such a right of termination is not attributed to a sale of goods.
o Disguised Sale – if the lease is for the entire economic life of the leased good, with or without renewal.
· SCOPE OF ARTICLE 2A
o Article 2A applies to any transaction regardless of form that is a lease.
§ Unsecured General Credit – has gotten a judgment and is waiting to be paid. There are a lot of people in front of you. The IRS, Comptroller, Secured general creditor.
§ Security Interest – 1-201 (37) – definition
§ Consumer lease – lease that a lessor who is regularly engaged in the habit of leasing is engaged with a leasee that take primarily for the purpose of family of household use
§ Finance Lease – 3 party transaction, a lessor, a leasee and a supplier The supplier manufactures of supplies the good pursuant to the leasee’s specifications. There is a lease between the lessor and the supplier, and then a sub-lease between the lessor and the leasee. (supplier gives you the quality of the goods)
§ Lease – leasee obtains rights to possession and use of the lease for a term.
· There are express and implied warranties in 2A just as there are in
MERCHANTS
· A transaction does not require for a merchant to be involved.
Merchants are defined in 2-104.
· “Merchant” means a person who deals in goods of the kind (needed for implied warranty of merchantability) or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practice or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill (unsophisticated version, in that business and must be acting in a merchant capacity).
Statute of Frauds
· You have to have a contract form before you have a statute of frauds issue.
o Personal service K which by its form cannot be complete within one year
o Promises and contemplation of marriage
· Under the code it is simple:
o $500 or more, you fall within the statue of frauds.
§ It is price, not value. (the revision raises the price to 5K but that is not the law, so for our purposes it is $500.
Terminology: it falls within the statute of frauds, it satisfies the statute of frauds.
· UCC 2-201 – Needs a writing if the K is for $500 or more, all missing terms can be supplied, except for quantity of goods.
o Exceptions:
§ Merchant conformation letters
§ Special manufacture
§ Partial performance; and
§ Admission of legal proceedings (party admits under oath that a K has been formed)
UCC 2A-201 – greater then $1000; describe goods and lease terms.
Parol Evidence Rule
Parol Evidence only applies to things that happen prior to the writing or contemporaneously therewith. The parties have to have an agreement and the agreement must say that the writing is the final intent of the parties in order to keep out parol evidence. The question is are you actually contradiction the terms of the writing or explaining the term? After the trier of fact has heard the additional terms, then they must decide whether or not to incorporate them.
· 2-202 Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the
f the original terms and the additional terms are proposals for additional terms to the contract.
· If the terms can not be reconciled, then either party may back out of the deal prior to the beginning of performance it performance has begun then:
o 2-207(3) where there might not be an agreement based on the writings of the parties, actions speak louder then words. Conduct recognizing the existence of the K has to be from both parties. In this case the terms will be ones in which the conduct showed to have agreed on plus any supplementary terms from the code e.g. implied warranty of merchantability
§ If no answer is received within a reasonable time after additional terms are proposed it is fair to assume that they are agreed on
ú However when the forms conflict, then each party is seen as objecting to the other, and the conflicting terms with drop-out per the “knock-out rule”
§ If one party is not a merchant that all proposed additional terms have to be expressly agreed upon.
§ If both parties are merchants then all additional terms become party of the contract unless it is limited to its own terms or objection is given ahead of time or in a reasonable amount of time, or they materially alter the K, which generally will involve some sort of surprise hardship to one party.
· Arbitration clauses are a per se material alteration and require express agreement.
Warranties – contractual obligation by the seller to remedy potential defects
Warranties of Title – 2-312
· subject to a disclaimer every time there is a contract for sale, its title is good and its conveyance is rightful.
· Pretty minimal, essentially the seller has the right to convey
o The only way you could exclude or modify is by specific language or by circumstances known by the buyer that the seller doesn’t have title E.G. auction
· Derivative Title – you can only transfer what you have. Exception: if a person has a voidable title. That person has the power to transfer a good title to a person for value to a goof faith purchaser.
· Good faith purchaser for value: Purchase includes taking by sale, discount, negotiation, mortgage, pledge lien, security interest, issue or reissue, gift or any other voluntary transaction creating an interest in property. The gives “value” consideration. In Good Faith – honesty in fact in the conduct or transaction concerned.
· A higher standard of good faith applies to merchants. It includes an observance of reasonable industry requirements.
· Very precise and unambiguous language must be used to exclude a warranty so basic to the sale of goods as title.
