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Sales & Leases
University of Toledo School of Law
Eisler, Beth A.

Sales outline.

1. What law applies?
Scope of laws—UCC 2-102, 2-105, 107
2.K formation
a. Offer
b. Acceptance
c. Terms
UCC 2-204
UCC 2-206
2-202; 1-205
Chapter 1. Introduction
E. Related Statutes
1. United Nations Convention on Contacts for the International Sale of Goods (CISG). The scope of CISG: under Article 6, they buyer and seller may agree to “opt out” of the entire Convention(CISG) or parts thereof. The CISG does not apply to consumer transactions, and issues of “validity” such as fraud, duress, mistake and unconscionability, are not within its coverage. Moreover, ratifying countries may make “declarations” or “reservations” under which they will not be bound by certain CISG Articles—it remains subject to domestic law applicable under a valid choice-of-law clause or, in the absence of such a clause, conflict of laws rules.

Part 2: Scope of Article 2 and Related Statutes
A. Questions of Scope—“Transactions in Goods”
. Scope of Article 2Article 2 applies to “transactions in goods” Then what is “transaction”? Article 2 covers “sales of goods” Article 2 apply only to “sales” or “contracts for sales” ( both a present sale of goods and a K to sell gods in the future). Ex: Article 2 does not apply to a “gift” that is given just for kindness and “lending” a car from a friend. It does not apply to the true lease of goods. Does article 2 apply to transactions involving computer software? –what the transferee obtains only a license to use the software under certain well-defined circumstance?
Ex: a buyer buys a car and a dealer is given a “secured interest” as collateral. èthe sales aspects of this transaction are governed by Art 2. § 2-201 makes clear that the form does not control. If the transaction is intended “to operate only as a security transaction, the Art 2 does not control.
Q: what is “goods”? Goods includes all things which is movable at the time of identification to the K for sale. §2-105(1)
Article 2 covers any sale, no matter how small or how large, as long as the subjects is goods. Article 2 covers the single consumer transaction. Ex: K that a buyer will buy books when those publish. àArt 2 governs because by the time they are to be “identified to the K” they will exist, and at that time they will be moveable. § 2-105(2) “goods must be not both existing and identified before any interest in them can pass (books to sell later when published). Goods are not existing and identified are “future” good. Future goods are goods (ex: unborn puppy or animals). Food at a restaurant? à Art 2 govern under 2-313( EW)
UCC governs? A mineral (such as gravel)? àif the seller dig out them and sell them to a buyer. How about a buyer goes into a land and gets timber? àStrangely, UCC governs the sale of standing timber under 2-107(2) “whether or not the subject matter is to be severed by the buyer or by the seller”. (Ex. Growing crops or other things attached to realty and capable of severance without material harm is governed by Art 2.
▫ Most courts would hold that an end user’s purchase of a standardized preexisting “off-the-rack” program from a retail outlet would be a sale of goods. But a court hold that a K under which one party agreed to create for the other “software from scratch” was not governed by Art 2. How about a K providing that a program company would provide a program after checking what program needs and agreed to install and user training and support? àA court held that the K “was predominantly for goods and only incidentally for services, thus Art 2 governs.
●Loughridge v. Goodyear tire & Rubber Co.
Facts: Ps bought hydraulic radiant heating systems from Heatway and a hose that manufactured by Goodyear. The horse leaks and cranks. Sue both against both as a third-party beneficiaries under the UCC. Goodyear argues that the horse is not “movable.”(because of the issue of warranty)
Issue: whether a fixture” of realty is considered as “a good” in the terms by UCC—the language “for the sale of goods”
. Q: Is good which is later installed in home = goods? UCC 2-102, 2-105. GE hybrid =mixed goods and service. GE provided services and parts for turbines.
Princess cruises v. General electric company(a mixed or hybrid sale case: goods or services, which law governs?)
.Does UCC apply? Why important? Test: predominant purpose do goods or service predominate? Sale of good w/service incidentally involved (install water heater ) or service w/good incidentally involved (artist paints portrait)
.Significant factors: 1. language 2. business of supplier, 3. worth of materials, [4. gravamen of complaint](—what is complained of—service or goods)
Facts: Princess made a maritime contract with GE for inspection and repair services. GE argues that the DC erroneously applied UCC.
Issue: when there is confusion about whether a transaction was the sale of goods or service, which law governs the K?
A court must first determine whether the predominant purpose of the transaction is the sale of goods—that is, whether the K primarily concerns the furnishing of goods or the rendering of services. Then decide whether the common law, the UCC, or other statutory law governs the transaction. In determining the nature of the K, three factor should be consider:
1> the language of the K, –Although P’s standard fine-print terms and conditions mention the sale of goods, P’s actual purchage description requests a GE “service engineer” to perform service functions: the opening of valves for survey and the inspection of the ship’s port main turbine. And The final Price Quotation lists the scope of the contemplated work—opening, checking, cleaning, inspecting, disassembling.(service functions. The parts were incidental to the K’s predominant purpose.
2> the nature of the business of the supplier, —Although GE is known to manufacture goods, GE’s correspondence and Quotations came from GE’ s Installation an Service Engineering Department.
3> the intrinsic worth of the material. This cannot be determined because The P’s purchase Order and GE’s Final Price Quotation separately itemized the value of the materials. They blend the cost of the materials into the final price of a services K, thereby confirming that services rather than materials predominated.
When no federal statute or well-established rule of admiralty exists, admiralty law may look to the common law or to state law, either statutory or decisional, to supply the rule of decision. The majority of states refer to common law principle when assessing Ks predominantly for services.
Under the common law, acceptance that varies the terms of the offer is a counteroffer which rejects the original offer. (A reply to an offer which purports to accept is but is conditional on the offeror’s assent to terms additional to or different from those offered is not an acceptance but is a counter-offer. –GE’s final price Quotation materially altered the terms of P’s Purchase Order by offering a different price, limiting damages and liability, and excluding warranties.
At common law, an offeror who proceeds under a K after receiving the counteroffer can accept the terms of the counteroffer by performance. The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act. So GE’s final Price Quotation control liability and damages because P accepted the Quotation by paying the money.
Software Contracts
Does UCC apply to K for sale of software?
Why important?
Dealer MGT. Systems v. Design automotive group, Inc.
.Off-the-track software v. new “new scratch”
.IP rights v. mere license, what predominates?
.Why does it matter whether UCC 2 applies or not? State of fraud applied? No? then, K. When some is creating a computer program, then it is likely that it would be service, not goods.
Facts: P bought from D “computer programs and other services.” P agreed to provide D with an “Accounting Information Management” system consisting of various separately priced software components. D argues that they did not sign the purchase order as the statute of frauds requires, to evidence a K for the sales of goods. P argues that because K was wholly or predominantly for the provision of services and thus not subject to the statute of frauds.
► Professionals like doctors are not selling goods. It is service.

B. “Sale” and “K for Sale”—“Title” (2-106)
2-106: a sale is the “passing of title from the seller to the buyer for a price.
. But, the K, not title, dominates art. 2 inquiry.
Concord General Mutual Insurance company v. Sumner
Fact: before Automater passes the title to Carey but Carey provided a check for payment and put Carey’s dealer’s plates on it, an employee of Carey had an accident.
. Title, most of time, would not determine the liability.
. 2-4019(2) title passes when S completes physical delivery irrespective of when certificate of title was assigned.
■ UCC 2A leases è “a lease of goods” <lease of “personal property” not lease of “real property”> Art 2A is intended to govern only the arrangement that refer to as the TRUE LEASE, which has not just the forms of a lease but also establishes a relationship that actually operated in the economic sense.
. 2A-102: applies to any transaction that creates a lease, regardless of form. A “sale” or “the creation of a security interest” is not a lease.
. 2A-103(1)(j): lease = transfer of right to possess and use of goods for a term. Not sale, security interest.
. 2A-101 comment—use Art. 2 cases/comment.
.1-203: true lease must leave lessor meaningful economic interest in residual.
. 2A-103(1)(h): goods
▫ If a owner of personal property(lessor) leases goods to lessee with a secured interest or “chattel mortage” in the goods in case the lessee does not pay “installment payment” or payment to agree to pay later (thus, the owner retains interest in the goods), and if the owner is returned the goods with some economic value, it is the lease governed Art 2A. However, where the supposed lease term is chosen to extend at least through the full anticipated economic life of the collateral, that lese is not a lease (“disguised sale”). èSale of goods governed by Art 2, Secured Transaction governed by Art 9. Court look at first whether a goods has a useful economic life when returned, and second, a lessee has a right to terminate the lease prior to the expiration of the term in determining it was a true lease or not, and third whether a lessee’s available option to buy a goods upon the expiration of term was if he can buy it for” no additional consideration or nominal additional consideration” . Ex: a lessee leases a new car from a dealer. The lease says that he can buy it upon the expiration of the 1 year lease term for exchange for $20,000. àthis is not “nominal” consideration,, thus it is a true lease. But the lease “requires” the lessee to buy the new car upon the expiration of the 1 year, then it is not a true lease but a “lease intended as security.” Ex: a lease of a copying machine of installment payment for 60 months with option to purchase goods for only $10 upon the expiration of the term àit is not lease but sale with secured interest retained by the seller..
C. Secured Transactions

D. Leases and Secured Transactions—Article 2A
A lease of goods does not purport to transfer ownership of the goods. It merely allows a party other than owner to possess and use the goods for a certain time.
E. Scope and Structure of The United Nations on International Sales of Goods (CISG): Both countries must be ratified. Nationality does not matter if its place of business (if more than one, then the closest relationship to the K and its performance) is in the
Zhejiang v. Microflock Tex.
Does CISG apply? Yes. CISG 1(1)(a)
Facts: MT in the US. bought goods from Zhejian of China, but failed to pay the remaining amount. Suit is in the U.S. and China. MT said that it orally modified the K. Thus the issue is that modification is enforceable?
●Must K be in writing? Not required.
Must modification be written? 11,22,29,96 ènot required. Mere agreement is enough.
What law applies wrt modification? When a contracting country requirs a modification in writing in its law, then Article 11, 29 does not apply to the country (Artcle 96)–

Chapter 2: The Contract Law of the UCC—Electronic Ks.
■ Who is a “merchant” and Why it Matters (§ 2-104)
Merchant definition: who “deals in goods of that kind” or “hold himself out” as having any “special knowledge or skill.” The professional status may be based on specialized knowledge as to the goods, as to business practice, and both and which kind of specialized knowledge may be sufficient to establish merchant status is indicated under this provision. (Comment 2 to 2-104)
Comment 3 2-314 says “a person making an ‘isolated sale’ of goods is not a “merchant” and thus no WOM would apply. Ex: What if a person, a lawyer, sells several dogs advertising it and has a name of the business àthen he would be held as “merchant.” çthe point is how extensively an individual have been involved in the sales transaction or activities (letterhead?) or how long a party has been involved in the activities of buying and providing goods.
.UCC Art 2 governs any transaction of goods whether he is an individual or “merchant.”
▫ Significance: merchants are held to a fair dealing in the trade standard; non-merchants have only a duty fo honesty in fact. , 2> WoM only apply to merchants (not fitness for a pt purpose), 3> Merchant’s confirmatory memo exception to the SoF, 4> Firm offer (2-205), 6> in 2-207—under some circumstance, merchants who have exchanged form Ks can add nonmaterial terms to the acceptance without the other part’s consent.
But unless in the Code, “merchant” is in the code, all Art 2 applies to both merchants and individuals. Ex: a buyer only benefits from “warranty of merchantability” when the “seller is a merchant with respect to goods of that kind.”: a buyer get WoM from a seller only if the seller is defined as “merchant.” (in that case, a buyer must look for another remedy).
▫ whether or not a furniture owner is new or not in the business, because the owner “hold hims

ircumstances” to constitute acceptance, and whether there has been an acceptance, as determined by a reasonable person standard, are ordinarily question of fact for a facfinder to resolve. But if reasonable person could draw only one conclusion from the evidence, these matters become questions of law.
● Under UCC 2-201(1), contracts for the sale of goods at a price of $500 or ore must ordinarily be in writing and signed by the party against whom enforcement of the contract is sought. But under UCC 2-201(2)—exception of 2-201(1), statute of frauds is satisfied between merchants “if within a reasonable time, a writing in confirmation of the K and sufficient against the sender is received, the party receiving it has reason to know its contents,” and written objection to its contents is not “given within ten days after it is received.
Scoular v. Denney
Facts: Denney, a farmer, and Scoular, a grain company used to make a forward K in the past. On one occasion, relying on D’s offer of selling millet at $5 per hundred weight of product, Scoular sold the millet to a buyer. But after harvesting, D sold the millet to a different buyer. S sues. D argues that it was not in writing, not bound based on oral K, S’s selling the millet to a third party did not constitute an acceptance of his offer. (S oral offer, B resold to TP, B called S (and accepted? Or S revoked?), B sent signed K to S, S sold to another.) TCt: for Buyer.
Look to 2-102, 2-105, 2-204, 2-205, 2-206, 2-201.
S: 1. oral offer to sell is not K, a. offer is not 2-205 firm offer(I have right to revoke), b. B rejected offer (–>terminating power of acceptance), c. B did not accept offer or S revoked on phone (remand—(seller revoked)). 2. sale by B to TP is not 2-206 acceptance of S’s oral offer, 3. S/F applies and not satisfied.
Issue: 1. whether the seller revoked on the phone before the buyer accepted the offer. Is the sale “a reasonable mode of acceptance”? B argues “I sent you a piece of accepting paper (triggering “mail box rule”)
2. Selling the grain to a third party is acceptance?(issue 2-206<–acceptance by conduct.). Court said that it is not “beginning of performance.”
One of the “Beginning of performance under 2-206 would be “starting paying”or start making parts etc.
●UCC 2-205
CISG 16(2)(a) needs no writing, and have no statuary time limit.
●Ways of acceptance 1“prompt shipment”, 2.Shipping—either conforming or nonconfirming goods. 3.
▫ Sending a non-confirming goods is acceptance unless seller notifies buyers of the non-confirming goods(then, counteroffer).
● The “firm offer” under 2-205 must be “an offer by a merchant” The narrow definition of “merchant” in 2-104 is a person who regularly deals in goods of the kind. Under 2-314, such a “merchant” makes the implied wrranty of merchantability in the sale of goods in which the merchant deals.
C. The “Battle of the Forms”—2-207
The UCC did away with the mirror-image rule. Thus, if there is a variation between offer and acceptance, does the return document containing an additional or different term become a counteroffer or acceptance?
It takes two to make a deal. A triggering question is if each party relies upon or insists upon its own form, and the two forms differ as they almost invariably will.
▫ “dickered term” : item number, description, price.
Under common law, exchanging forms would not result in a binding K unless the acceptance terms are exactly same as terms in the offer (“Mirror image rule). Under common law, any additional or different terms in the response makes that response into a counteroffer.
Seller ships the goods and Buyer accepts them. Now is there a K if so, what are its terms?
■■ 2-207===============
1. changes the common law rule of mirror image
2. Only applies to K for goods
3. A, B
RD = A, B & C
4. if the offer by the Or contains the terms A and B, and the return document by the Oee contains the terms A, B, and C, the norm is that O + A = K, thus there is a contract, and the only remaining question is: What happens to term C? -This is answered by 2-207(2).
If the offer by the Or contains the terms A and B, And the return document by the Oee contains the terms A, B, and C, What happens to term C??? This is the question that 2-207 will answer.

2-207(1) : GR: an acceptance adding new terms creates K based on the original or offer, unless the acceptance very clearly states otherwise. Under 2-207(1), a communication which is 1> either “a definite and seasonable expression of acceptance” 2> or a” written confirmation which is sent within a reasonable time” operates as an acceptance, even though that communication states terms additional to or different from those offered or agreed upon. When a communication in response to an offer operates as an acceptance; to operate as an acceptance is to bind both parties. Q: how do you know “a definite and seasonable expression of acceptance?–>under this article, a proposed deal which in commercial understanding has in fact been closed is recognized as a K (looking a real commercial world of the parties and how they themselves treated the communication. So the fact that the parties has not yet actually begun to perform as if they had a K should not matter in deciding there is acceptance as long as the responding communicate states a “dickered terms” ex: B sent a preprinted order form and S sent back a letter stating a preprinted order form with price, quantity. Then there is acceptance considering that in commercial setting parties make a K like this way. But to act as an acceptance, a return communication must be “seasonable” or “sent within a reasonable time.” The offeror