Fairfield, Sales, Fall 2017
Sales: Introduction and Scope
1. Purpose of Sales
c.) Background rules (“shadow of the law”)
2. Scope Issues
a.) Definitions of “goods,” “merchants.”
b.) Relationship with CISG and 2A (leases)
Purpose of Sales: Gap-Filling and Standardization.
a.) Gap-Filling from “Outside the Code.”
· Ragus – Trade Use, Course of Dealing, and Course of Performance are part of the “Agreement.” See also [1-201(b)(3)]
· Course of Performance, Dealing, and Trade defined: [1-303]
-Performance is action during a K; -Dealing is prior dealings between parties;
-Usage of Trade is industry custom and practice.
b.) Hierarchy of Gap-Fillers. [1-303(e)]
· Express Terms govern Course of Dealing and Trade Use.
· Course of Dealing governs Trade Use.
· BUT: Course of Performance governs even express terms. (common law waiver) [1-303(f)]
c.) Gapfilling 2: “Inside the Code” (Examples)
· Implied Warranty of Merchantability (warranty that goods are of average, merchantable quality).
· Implied Warranty of Fitness for Particular Purpose (warranty that goods will suit identified special needs of the buyer).
· What use are these default rules if parties can contract around them?
· They standardize business practice, and give parties a baseline from which to start.
2. Scope: Roadmap
d.) Statute of Frauds
· UCC governs “transactions in goods;” [2-102];
· The most difficult issue with a “sale” is a disguised sale in the form of a lease.
A. Can the lessee terminate the lease?
If NO, go to part B. If YES, go to
B. Do any one of the four factors below apply?
IF YES, the lease MUST be a security interest. If NO, go to GENERAL TEST.
1. the original term of the lease is equal to or greater than the economic life of the lease (computer only good for 2 years; lease is for five.)
2. 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.
3. 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.
4. the lessee has an option to become the owner of the goods for no additional consideration or nominal additional consideration.
C. GENERAL TEST: Does the “Lessor” have a significant Meaningful Residual Interest in the asset at the end of the lease?
(Economic Realities Rule — If no rational economic actor would refuse to exercise the purchase option, then it’s a sale.)
· “All things (including specially manufactured goods) which are movable at the time of
identification to the contract for sale.” [2-105(1)]
· Adel v. Greensprings: Applies definition to hold that water supplied by a city to a pork
manufacturer is a “good.”
· Some rules apply only to merchants. [2-104 official cmt. 2]
· “Merchant” is a person who deals in goods of the kind or by his occupation holds himself
out as having knowledge or skill peculiar to the practices or goods involved in the
c.) “Merchant” (continued)
· Merchants have duties of basic bus
considered a counteroffer.
(Corollary: “Last shot rule” – If seller then performs, considered to have accepted counteroffer.)
b.) Consideration for firm offers.
· Common law requires consideration for an option contract (an offer to keep a contract deal open for a set period of time).
· Note: courts generally do not probe the value of consideration (can be fairly low).
2. Article 2 and 2A: Formation in Sales and Lease Contracts.
a.) Flexible Offer and Acceptance
· A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct. . . [2-204(2), 2A-204];
· Open terms or an indefinite moment of formation are acceptable – contract still formed. [2-204(2),(3); 2A-204]
· Offers invite acceptance in any reasonable manner, including performance. [2-206; 2A-206]
· IF seller ships non-conforming goods with a notice, that will be an accommodation, not an acceptance. [2-206]
b.) Common law rule on consideration for firm offers rescinded. [2-205; 2A-205]
· A merchant may make a firm offer to buy, sell, or lease, for no consideration; the term of the offer may not be longer than 3 months;
· Must be a writing, signed by offeror.
(Note: If the term is supplied on a form by the offeree, it must be separately signed by offeror. – No boilerplate.)
c.) Offers and varying acceptances [2-207]