Sales and Leases
Professor Robyn Meadows
Fall 2012
I. Scope
a. Article 2: Sales
i. Applies to transactions in goods UCC § 2-102
1. Transactions
a. Sales—passing of title from seller to buyer for a price UCC § 2-106(1)
i. Seller: One who sells or contracts to sell UCC § 2-103(1)(d)
ii. Buyer: One who buys or contracts to buy UCC § 2-103(1)(a)
b. Exchanges
2. Goods
a. Things which are movable at the time of identification of the contract for sale UCC § 2-105(1)
i. Minerals removed from realty UCC § 2-107(1)
1. Removed by the seller
ii. Growing crops, building materials inside of building UCC § 2-107(2)
1. Attached to realty
2. Severed without material
3. Removed by buyer or seller
b. Manufactured goods UCC § 2-105
i. Specially manufactured goods
1. appear to request service of mfg. the good BUT
2. the mfg of goods is covered under Article 2 (see below: hybrid transactions)
ii. Hybrid Transactions
1. Predominate Purpose Test (all or nothing: either Article 2 applies or it does not)
a. If the primary purpose for entering into the contract was for the goods, Article 2 applies
b. If the primary purpose for entering into the contract was for the service, Article 2 does not apply: common law will apply
c. Doctors—under this test, doctors are presumed to provide services; thus, Article 2 will not apply to doctors
2. Gravamen Test (Modern Law) (Both Article 2 and the common law can apply)
a. If the point of complaint is towards the good, Article 2 (and common law) applies
b. If the point of complaint is towards the service, Article 2 will not apply: common law will apply
c. Benefits
i. Draft the complaint under the UCC (because UCC and Common law can apply)
ii. Broadens the scope of the UCC
iii. Fairness
1. Focus on the substance of the transaction rather than the form
d. Applies primarily in Consumer transactions, not between businesses
3. Examples
a. P goes to eye doctor for glasses. On one contract, P pays 100 for exam, 175 for glasses. They break and injure P. Under predominate purpose test, P has no Article 2 relief because healthcare is predominately a service. Under the gravamen test, P may have a cause of action under Article 2 because the point of complaint was the good—here, the glasses.
b. P goes to doctor for exam. Doctor gives exam, bills P, and refers him to D for glasses. P buys glasses from D, gets billed by D, and is injured by glasses. Again, the predominate purpose test would not allow recovery against the doctor under Article 2 because the doctor provided a service. P could recover against the D because D mfg. the eye glasses.
iii. Article 2 applies to merchants and nonmerchants
1. Merchants UCC § 2-104
a. Dealer of particular goods OR
b. One with knowledge or skill peculiar to goods or practices OR
c. One whom acquires knowledge or skill by hiring an agent with such knowledge or skill
2. What kind of merchant
a. Any person in business acting in mercantile capacity (lawyer or banker buying fishing tackle for own use not a merchant)
i. Statute of frauds UCC § 2-201(2)
ii. Firm Offers UCC § 2-205
iii. Confirmatory Memoranda UCC § 2-201(2)/2-207
iv. Modifications of Contracts UCC § 2-209
b. Merchant with respect to goods of that kind
i. Implied Warranty of merchantability UCC § 2-314
1. Specific and professional sellers
2. Not isolated sales
a. Siemen v. Alden—D was a lumber dealer and sold a saw. Held: not a merchant under 2-314 because he was not a merchant with respect to saws, but a merchant with respect to lumber.
c. Good Faith UCC § 2-103(1)(b)
i. Any person in the business acting in mercantile capacity
1. Good Faith Standard for merchants UCC § 2-103(1)(b)
a. Honesty in fact UCC § 1-201(19) AND
b. Observance of reasonable commercial standards of fair dealing in the trade
d. New Merchants
i. Comparable to other new merchants
e. ALL MERCHANTS MUST FOLLOW GOOD FAITH STANDARD FOR MERCHANTS
f. “Between Merchants” UCC § 2-104(3)
i. Both buyer and seller must be merchants
b. Article 2A: Leases Applies to any transaction that creates a lease UCC § 2A-102
i. Definition of a Lease UCC § 2A-103(j)
1. Transfer of the right to possess and use
2. Goods
3. For a term
a. Finite, fixed amount of time—at end of term, goods return to lessor
4. In exchange for consideration (not gratuity—$$$)
ii. Security Interests (distinguished from leases)
1. Whether the substance of a transaction is a true lease OR disguised sale with lessor financing the sale
a. Can the lessee terminate the lease? (termination Clause)
i. Factual determinations
1. If the lessee CAN terminate, then it is a true lease
2. If the lessee CANNOT terminate, then it may be a security interest
b. If there is no value at the end of the term
i. Useful economic life is over at the end of the term, then it is a security interest
1. useful economic life measured in years/time
2. speaks to the length of time the good has any value
a. depreciation evidence
b. experts
c. clients
c. If the lessee can buy at the end (Case-by-case determination)
i. Can be a true lease if there is an opt
he D
8. Only gives P her day in court
a. burden of proof remains with the P to establish the contract and terms
9. D can always dispute the terms of the agreement
10. Example of Merchant exception: Bazak—oral agreement between P (buyer) and D (seller) followed by purchase order sent by P (usually used by P as a seller, but here he was a buyer). Court held that there was objective evidence of the oral agreement and the purchase orders, although normally mere offers, were sufficient against P (sender) because they were specific, sent from seller, 4 orders were very detailed and the final order was a summary of the agreement and date of alleged oral agreement.
ii. Specially Manufactured Goods exception
1. specially manufactured goods for the BUYER
a. seller mfg’s for buyer
b. items not usually in stock
c. unique specifications
2. not suitable for sale to others in the ordinary course of seller’s business
a. cannot by advertising or buyer list sell the goods
b. efforts made
c. uniqueness of goods
d. scarcity of use for good
e. how many potential buyers
f. more expensive to build specific goods
g. mere fact that seller takes a loss is not enough to satisfy the element
h. there must be detriment to the seller
3. Seller has made a substantial beginning to manufacture OR made commitments for the procurement
a. Seller is bound to another party for parts specific to buyer’s spec. goods
4. before buyer gives notice of repudiation to seller
5. Under circumstances that reasonably indicate the goods are for the buyer
6. Example of exception: Golf Ball Tank: Buyer (city) orders tank to look like golf ball. City sends check for $3000 as down payment. Seller starts to make it and nearly finishes but buyer (new administration in city) informs seller that there is no agreement. Goods were spec. mfg. (golf ball tank); not suitable for resale; they made a subst. beginning because they completed the tank before repudiation; circumstances indicated goods were for city because “c” was painted. This might not be enough, so show delivery schedule, what other projects you are working on at the time, records, etc.
