Sales and Leases – Outline – Spring 2008
Professor Meadows
I. Scope of Article 2
A. Scope – 2-102 – covers transaction in goods
B. Sale = passing of title from seller to buyer for a price (transaction) – 2-106(1)
C. Price = consideration = contract
D. Goods = things that are movable at time of identification of the contract
1. Includes unborn young – 2-105(1)
2. Goods & real estate: depends on who severs the goods whether Article 2 applies
a. Only if seller severs from real estate are the following Art. 2 goods – 2-107(1)
1) Oil, mineral, gas
2) Structure & its materials
b. Whether severed by buyer or seller, following are Article 2 goods – 2-107(2)
1) Goods attached to realty & capable of severance without material harm to real estate (generally fixtures)
a) Crops
b) Timber to be cut
E. Sales/service hybrid – determining whether Article 2 applies or not
1. Predominant purpose test OR
a. Majority rule
b. Used in PA
c. Look to what real purpose was behind contract
1) If service predominant = Article 2 does NOT apply
a) Ex: seeking skill of professional painter – service predominant
2) If good predominant = Article 2 does apply
d. All or nothing – Article 2 either applies to entire transaction or none of it
e. Theory behind rule – humans aren’t perfect so Article 2 should not apply to services
2. Gravaman test
a. If plaintiff complaining about quality of good, then Article 2 – if complaining about service, then NOT Article 2
b. Applies to actual dispute, not transaction
c. Part of contract can be within UCC and part in common law
d. Theory – seller in better position to assume cost of injury/harm
3. Case – Analysts International – buyer contracted for creation of software – court used predominant purpose test and found Article 2 applied
a. If truly a specially-manufactured good, it’s an Article 2 transaction
b. If software sold as hardware, it’s a good under Article 2
c. Conception to creation of product – service oriented so Article 2 does not apply
d. Courts inconsistent with computer software and Article 2 application
F. Merchants
1. Merchant as to goods = “one who deals in goods of that kind” – Comment 2 of 2-104
a. Narrow definition
b. Language of UCC will tell you if it’s a
Lease distinguished from security – 1-203
B. Lease interest = right to possession and use for finite period of time
1. At end of defined time, property reverts back to owner
2. Leasehold = interest that is passed in lease
C. When see term “lease” ask:
1. Is it a true lease OR
2. Is it a lease intended as security
D. Leases intended as security – 1-203
1. Article 2A does NOT apply
2. If silent regarding right to terminate – presumption is no right to do so
3. No right to terminate – “lessee must make all payments and is not excused for any cause” – sample language
4. Security interest if
a. No termination allowed by lessor AND
1) Original term equal to or greater than economic life OR
2) Lessor bound to renew OR
3) Renew for remaining economic life with no additional consideration OR
4) Lessor can become owner with no additional consideration or nominal additional consideration
