SALES OUTLINE
Professor Meadows – Spring 2014
I. SCOPE
· SALE, PRICE, GOODS
o 2-102.
§ Rule: Transaction in goods
· the transaction we are looking for is a sale
§ 2-106. Sale
· Rule: Passing of title from seller to buyer for a price
· 2-304. Price
o Rule: price can be made payable in money or goods
o 2-105. Good
§ Rule: All things which are moveable at time of identification of the K
o 2-106
§ If there is a sale of good and service in the same transaction, apply either
· Predominant Purpose Test (majority)
o The court decides whether the predominant purpose of the transaction was to sell goods or services
o If it is goods, the UCC applies to the whole transaction
o If it is services then the UCC does not apply to any part of the transaction
· Gravamen of the Action Test
o The court determines whether the gravamen of the action (the source of the complaint) is with the goods part or the services part of the transaction
o If the complaint is with the goods then UCC applies
o If the complaint is with the service then UCC does not apply
o 2-107
§ Note that Art II applies only if goods are sold separately from the sale of real estate
§ (1).
· Applies to goods that are integral to the property
· Rule:
o If the seller severs, Art II applies
§ Theory: Buyer gets no interest in land and only interest in house
o If buyer severs, the K is governed by property common law rights
§ (2).
· Applies to goods that are not so integral to the property
· Rule: seller or buyer may sever
· Rule: There should be no harm to the real estate
· MERCHANTS
o 2-104. Merchant Rules
§ Rule: A person who deals in goods of the kind or otherwise holds himself out as having knowledge or skill particular to the practices or goods involved
· Cmt. 2: “almost every person in business would be a merchant” WRT business practices
· Cmt 2. Seller must be acting as a mercantile capacity
§ May be held to merchant standard by using merchant agent or broker
§ Hypo: Sawmill seller Ks to sell used saw to another sawmill. Is seller a merchant for purposes of Statute of Frauds under 2-201(2)? Yes, seller is a merchant
o Types of Merchants
§ Goods – deals in goods of the kind involved in the K
· 2-314 – IWM
o Rule: if seller is a merchant WRT to goods of that kind
§ Cmt. 3. Person making an isolated sale is not a merchant. “Isolated” is one/few sale(s)
§ Cmt. Requires a professional status as to particular kinds of goods
o Hypo: Sawmill seller Ks to sell used saw to another sawmill. Is seller a merchant for purposes of Implied Warranty of Merchantability under 2-314? No b/c seller was not in the business of selling saws.
o Hypo: Sawmill sells lumber to contractor. Is seller a merchant for purposes of Implied Warranty of Merchantability under 2-314? Yes
· 2-403(2)- entrustment
§ Practices – Holds self out as having knowledge or skill peculiar to transaction or goods involved in K. Practices includes goods merchants and the following
· 2-201(2) – SOF
o See 2-104 rules and cmts
o Hypo: Sawmill seller Ks to sell used saw to another sawmill. Is seller a merchant for purposes of Implied Warranty of Fitness under 2-315? Yes, merchant
· 2-205 – Firm offer
· 2-207 – battle of forms
· 2-509(3) – ROL no breach
o Hypo: Farmer sells his tractor to Neighbor. Would farmer be merchant for Risk of loss 2-509(3) purposes? YES, farmer is merchant WRT general business practices
o Hypo: Farmer sells personal car to neighbor. Would farmer be merchant for Risk of loss 2-509(3) purposes? Not a merchant b/c Farmer is not acting in mercantile capacity
· 2-603 – merchants duty to reship
· 2-605 – duty to particularize
· 2-609 – adequate assurance
o Merchant under 2-315
§ Rule: A non-merchant can give implied warranty of fitness.
§ Hypo: Sawmill seller Ks to sell used saw to another sawmill. Is seller a merchant for purposes of Implied Warranty of Fitness under 2-315? Merchant does not apply to this Section b/c merchant is not stated in this section.
· GOOD FAITH
o 1-201(20). Honesty in fact and the observance of reasonable commercial standards of fair dealing. Same legal standard for all parties
· LEASE
o Definition §2A-103(1)(j)
§ A transfer of the RT to possession and use of goods for a term in return for consideration.
· Difference between this and a sale?
o “Possession and use” verses “transfer of title”
· Why not property?
o Goods à §2A-103(1)(h)
§ Things that are moveable, plus RE fixtures.
§ Fixture is not defined; UCC defers to real estate
· Why? When you have a lease, you are much more likely to have a conflict with a mortgage because the fixture will likely remain fixed.
· Must be finite à if the term doesn’t end, it is a transfer of title.
o Lease v. Lease Intended as Security
§ FOR LEASE INTENDED AS SECURITY:
· No right to terminate; AND
· No value at end (no remaining economic life), or
· Must buy or renew for remaining economic life, or
· May buy or renew (for remaining economic life) for nominal consideration.
§ 1-203
· (a) Whether a transaction in the form of a lease creates a lease or security interest is determined by the facts of each case.
· (b) A transaction in the form of a lease creates a security interest payments are for the possession and use of the goods and it is not subject to termination by the lessee AND
o (1) the original term of the lease is equal to or greater than the remaining economic life of the goods
o (2) the lessee is bound to renew the lease for the remaining econom
ease is entered into
§ What is the Length of use of the good
§ How much value will the good have at the end
· If good has no value at end of lease, then that’s the end of the economic life and it is a Lease intend as a security
· DO NOT CONFUSE full payout leases with “remaining economic life”
o Payments have nothing to do with economic life
è Lease intend as security
Problem: what effect does presence of a right to buy the good or renew the lease at the end f the lease term have on the lease/LIS analysis?
Look to 1-203(c)(4)
· mere presence of a Buy out option does not make it a LIS
Problem: no right to terminate, but lease provides “lessee may purchase copier at the termination of the lease for the FMV of the copier at that time”
Look at 1-203(d)(2)
· not nominal consideration if option to come become the owner (buyout) is stated to be a FMV at time option to be performed
Note: Do not get confused and Use (c)(6). There is no fixed price stated so (c)(6) is not the correct provision.
è True lease
Problem: no right to terminate and may buy for 3k and expected to be worth 3k
Look to 1-203(c)(6)
· lessee has option to become owner of good for a fixed price >= reasonably predictable FMV at time option is to be performed
· reasonably predictable FMV
o 1-203(e)
§ determined with reference to facts and circs at time transaction entered into
§ at the time lease is entered into, what parties reasonable though goods would be worth at end of lease
o value is not determined by parties’ intent /c value is a factual determination
è true lease
Problem: no right to terminate and lessee may buy for 500
Look at 1-203(b)(4)
· If buyout is nominal then it is LIS
· Nominal
o Comparison between buyout and the reasonably predictable FMV at end of lease
o Reasonably predictable FMV – at time of formation of lease, what parties reasonable believe foods would be with at the end
o Economic realities test – does lessee have any real economic choice other than to buy it
§ Resell it for the much higher FMV
o More payment
§ Likely nominal if buyout amount is closer to a monthly payment
