Sales & Leases Outline

ARTICLE 2
 
§2-102 → Scope
Article 2 applies to transactions in goods; it does not apply to security transactions. It does not impair or repeal any statute regulating sales to consumers, etc.
 
In MD, if you are contributorily negligent your negligence case is barred!
 
DEFINITIONS
 
GOODS
 
§2-105 → Definition of goods
Must be both existing and identified before any interest in them may pass. Goods not existing and identified are “future goods”. Present sale of future goods operates as a contract to sell. 
 
Goods are all things that are moveable at the time of identification to a contract for sale.
 
§2-106 → Definitions – sale
Sale is defined as passing title from seller to buyer for a price.
 
MERCHANTS
 
§2-104 → Types of merchants
Merchant means that a person that deals in good of the kind holds itself out by occupation as having knowledge or skill peculiar to the practices or goods involved in the transaction or to which the knowledge or skill may be attributed by the person’s employment of an agent that holds itself out by occupation as having the knowledge or skill. This covers a general practice merchant and a specialized merchant.
 
Anyone in business is a merchant (referred to as a general practice merchant). A merchant dealer in goods of that kind is someone that sells a type of good regularly. (If you do it everyday, you are a merchant dealer).
 
In order to show that a person is a general practices merchant she must demonstrate that her knowledge is somehow involved in her occupation – can’t just have knowledge because you like the subject, you must be employed in the area where you will use your knowledge. In addition, you employ an agent or broker. 
 
All code transactions have to be in good faith (“honesty in fact”). For a merchant, good faith means honesty in fact and the observance of reasonable commercial industry standards. 
 
UCC specifically forbids waivers of good faith – it is essential to all commercial transactions.
 
No merchant status is needed for this status to apply, however, really only applies to sales. 
 
Implied warranty of merchantability → goods will pass on market without objection as to what they are and they are fit for their general purpose to be used for.
 
LEASES
 
Leasing may be an attractive option because it doesn’t reflect on the balance sheet as an asset/liability, thus improving ratios.
 
Code rules have stretched to accommodate leases since article 2 usually requires a sale first.
 
Bright line tests:
If at the end of lease period the lessee becomes the owner of property for little or no consideration → secured transaction.
If the contract contains a clause that permits the lessee to terminate the lease at any time and return the leased goods (walk away test) → lease.
If the lease is for the entire economic life of the leased good, with or without renewal → disguised sale.
 
Difference between a lease and a sale is that a sale involves a transfer in title where a lease is only transfer of possession. If it is a disguised sale it is governed by article 2 or 9. 
 
STATUTE OF FRAUDS
 
Must first look at contract formation first (§2-204 → §2-207)
 
Only applies when you have goods greater than $500.
 
If agreement is not in writing, but buyer has used the goods, SOF is satisfied.
 
PAROLE EVIDENCE RULE
 
Answers question of how to interpret agreements. 
 
ANALYSIS:
                1. Did the parties intend this to be a final expression of agreement? If no, then exception to PE.
             2. Is it unconscionable?
             3. Is it fraudulent? Is there duress?                                                                                                                                                  
 
Steps for interpretation:
Language of the agreement
Course of performance → how parties behaved in this contract
Course of dealing → how parties have behaved in the past
Trade usage → customs within the industry
 
Parole evidence will come up when there are questions about the meaning of a word and/or whether there can be a collateral agreement.
 
Court decides if the trier of fact gets to hear the evidence. 
 
§2-202 → Final expression in a record; parol or extrinsic evidence
(1)     Terms with respect to which the confirmatory records of the parties agree or which are otherwise set forth in a record intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of the prior agreement or of a contemporaneous oral agreement but may be supplemented by evidence of:
a.        Course of performance, course of dealing or usage of trade and
b.        Consistent additional terms unless the court finds the records to have been intended also as a complete and exclusive statement of the terms of agreement
(2)     Terms in a record may be explained by evidence of court of performance, course of dealing or usage of trade without a preliminary determination by the court that the language used is ambiguous.
 
Subsequent agreements are admissible.
 
OFFER AND ACCEPTANCE
 
§2-204 → Formation in general
(1)     A contract for sale of goods may be made in any manner sufficient to show agreement, including offer and acceptance, conduct by both parties which recognizes the existence of a contract, the interaction of electronic agents, and the interaction of an electronic agent and an individual.
(2)     An agreement sufficient to constitute a contact for sale may be found even if the moment of its making is undetermined.
(3)     Even if one or more of the terms are left open, a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
 
Depends on whether the parties intend to contract.
 
For hybrid contracts, use predominant purpose test.
 
Gravamen test → In MD, if there is something wrong with the goods, then article 2 applies but if there is something wrong with the service, then the common law applies.
                ♣Predominant test is main test, however gravamen test is available.
 
§2-205 → Firm offers
An offer by a merchant to buy/sell goods in a signed record that by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if not time is stated for a reasonable time, but in no event may the period of irrevocability exceed 3 months. Any such term of assurance in a form supplied by the offeree must be separately signed by the offeror.
 
Only a merchant can hold open for period of time an irrevocable offer and may fix terms. Must be signed. If not specified, term is 3 months.
 
Provisions that reference merchants mean general practice merchants.
 
§2-206 → Offer and acceptance in formation of a contract
(1)     Unless otherwise unambiguously indicated by the language or circumstances
a.        An offer to make a contract shall be construed as inviting acceptances in