Sales
Professor Eric Johnson
Fall 2016
I. FORMATION, APPLICABLE LAW AND OTHER BASICS
Topic 1: The Role and Scope of Codes in Sales System
1-201(b)(3):
Definition of Agreement
“Agreement” = “bargain of parties in fact as found in their language or by implication from other circumstances…”
Subject matter areas talked about but not formally agreed on (like price protection) can be part of the “agreement” even if no express terms on it – if you can tell that that was a condition of the agreement
1-302
variation of UCC rules by agreement.
1-303(a)(b)(c)(d)
course of performance – what has been done; arises in a single transaction when there are repeated occasions for performance. The fact that one party repeatedly accepts a performance without objection leads the other party to believe that its performance is acceptable.
course of dealing – all the transactions between the two parties; arises when the same parties have had previous transactions with each other;
usage of trade – when a practice is so common in a particular place or particular trade that it is presumed to be part of the agreement.
relevant in ascertaining the meaning of the parties agreement, may give particular meaning to specific terms of the agreement, may supplement or qualify the terms of the agreement.
2-102
general scope of Article 2
this Article applies to transactions in goods
2-105(1):
defines “Goods” as “all things movable @ the time of IDENTIFICATION to the contract for sale”
Includes Specially Manufactured Goods
Acreage; structures not movable
Does not apply to security transactions
“Identification” defined in 2-501
2-104
definition of Merchant:
Person who deals w/ goods of the kind
Otherwise by occupation holds self out as having knowledge or skill peculiar to practices or goods involved in transaction
Such knowledge or skill may be imputed through employment of agent, broker, etc.
2-308(a)
gap filler for place of delivery:
if not specified is the seller’s place of business, or if none exists, the seller’s residence.
if the parties know that the goods are located elsewhere at contract formation, then that place.
Topic 2: Scope Issues with Leases, CISG, and Real Estate
2A-103(1)(j)
definition of lease
“Lease” means a transfer of the right to possession and use of goods for a term in return for consideration, but a sale, including a sale on approval or a sale or return or retention or creation of a security interest is not a lease.
in a true lease, the lessor enjoys a reversionary interest in the property; the lessee must return the goods at the end of the lease (e.g. rent-to-own transaction where a lessee agreents to rent a TV for 52 weeks for $20 a week and has the right to terminate at any time àtrue lease.
1-203(b)(1)-(4)
lease v. security interest:
Whether a transaction in the form of a lease creates a lease or security interest is determined by the facts of each case (key facts that indicate whether the lessor retains a meaningful residual interest in the goods/whether the lessor gets the goods back while they still have useful economic life).
A transaction in the form of a lease creates a security interest if the consideration the lessee is to pay the lessor for the right of possession and use of the goods is an obligation for the term of the lease and is NOT subject to termination by the lessee, and: (if the lessee is obligated to pay and cannot terminate the lease and must show one of the elements below, then it is a security interest; if the lessee is not bound for the term of the lease, it is a true lease):
the original term of the lease is equal to or greater than the remaining economic life of the goods (by the end of the term of the lease, the goods are going to be used up – the goods will have no value; Lease Term ≥ Economic Life of the Good)
the lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods (if the lease will renew over and over until the valuable economic life of the good is used up – then a security interest)
the lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement (lessee will exercise its ability to purchase for nominal consideration)
the lessee has an option to become the owner of the goods for no additional consideration or nominal consideration upon compliance of the lease agreement.
A transaction in the form of a lease does not create a security interest merely because:
the present value of the consideration the lessee is obligated to pay the lessor for the right of possession and use of the goods is substantially equal to or is greater than the fair market value of the goods at the time the lease is entered.
the lessee assumes risk of loss of the goods
the lessee agrees to pay, with respect to the goods, taxes, insurance, filing, recording or registration fees, or service or maintenance costs
the lessee has an option to renew the lease or become the owner of the goods
the lessee has an option to renew the lease for a fixed rent that is equal to or greater than the reasonably predictable fair market rent for the use of the goods for the term of the renewal at the time the option is to be performed.
the lessee has an option to become the owner of the goods for a fixed price that is equal to or greater than the reasonably predictable fair market value of the goods at the time the option is to be performed.
Additional consideration is nominal if it is less than the lessee’s reasonably predictable cost of performing if the option is not exercised. It is not nominal if the renewal rental or optimal purchase price is based on predicted fair market values at the time the option is to be performed.
The “remaining economic life of the goods” and “reasonably predictable” fair market rent, fair market value or cost…must be determined with refe
14 days” or “this offer is firm.”
Writing in 1-201(b)(46) –provides that “writing includes printing, typewriting, or any other intentional reduction to tangible form.”
Signed in 1-201(b)(37) – “includes any symbol executed or adopted with present intention to adopt or accept a writing.”
2-206: Offer and Acceptance
Definition of “offer” and “acceptance” is not found in the code because their definition is incorporated from the common law by 1-103.
Acceptance is very flexible unless unambiguously indicated by language or circumstances:
2-206 (a): in any manner and by any reasonable medium
(an offer can invite acceptance in any reasonable manner)
2-206 (b): by shipment (actual performance) of either conforming or non-conforming goods unless the seller indicates that the shipment is only an accommodation
(an offer can be accepted by shipping goods:
shipping conforming goods counts as acceptance
even shipping non-conforming goods can count as an acceptance
but a shipment of non-conforming goods will be construed as a counter-offer it is offered as an “accommodation,” which the seller can do so by seasonably notifying the buyer that the shipment is intended as an accommodation.)
2-206(2) – beginning performance prevents revocation for a reasonable time but the performer must notify the offeror of acceptance within that reasonable time.
Key points: Shipment is an acceptance even if the goods shipped don’t conform to the terms of the offer. If there is an acceptance, there is a contract. If the goods don’t conform to the terms of the contract, then there is a breach. So the seller can both accept the offer and breach the contract!
Avoids the unilateral contact trick of seller, denying contract formation if buyer reject goods and insisting on the contract price if buyer accepts goods.
2-207: Battle of the Forms
intended to change the common-law rules where the offer and acceptance are not the same; permits contract formation even where offer and acceptance are not the same, abrogating the mirror image rule; no more harsh results of the “last shot” rule.
2-207(1): A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the different or additional terms.
