Ch 18: Formation of Sales & Lease Contracts

Uniform Commercial Code (UCC)

Model act that includes comprehensive laws that cover most aspects of commercial transactions.

UCC Article 2 (sales) and Article 2A (leases)

• govern personal property sales + leases

  • Intended to provide clear, easy-to-apply rules that place the risk of loss of the goods on the party most able either to bear the risk or insure against it

Person

• defined by UCC as individual, corporation, business trust, estate, trust, partnership, limited liability company, association, government, governmental subdivision, agency, a protected series of entities, or any other legal or commercial entity

Sale

• passing of title from a seller to a buyer for a price

Goods

• tangible things that are movable at the time of their identification to a contract

  • Includes specially manufactured goods and unborn young of animals

Not Goods:

• Money and intangible property, real estate. Mineral, growing crops, and items severable from real estate are goods

• Goods vs. Services

• Contracts for the provision of services are not covered by Article 2 (e.g., legal services, accounting services, and other professional services)

Hybrid Transactions

• Sale of goods also involves the provision of a service; Article 2 applies to mixed sales only if the goods are predominantly part of the transaction

Predominate purpose test:

• If the sale-of-goods predominates, then it is considered a sale of goods

• If the services predominant then Article 2 only applies to that part of the transaction involving goods

• Court apply on a case-by-case basis

Merchants

• Person who deals in the goods of the kind involved in the transaction.

• Person who by occupation holds himself or herself out as having knowledge or skill peculiar to the goods involved in the transaction

• UCC rules sometimes apply differently to merchants vs non-merchants. Generally, rules are stricter for merchants

Lease

Transfer of right to possession and use of named goods for a set term, in return for certain consideration

• Finance lease:

• Three-party transaction consisting of a lessor, a lessee, and a supplier (or vendor). Lessor acquires title to the goods in connection with the terms of the lease

Gap-Filling Rule

• Says an open term can be read into a contract

• Contract does not fail because of indefiniteness if:

  • Parties intended to make a contract

  • There is a reasonably certain basis for giving an appropriate remedy

Open Terms

• Price: “Reasonable price” in implied

• Payment: Due at time and place goods are received

• Delivery: Delivery is seller’s place of business or residence, or product located another place known to by the parties that would be place of delivery

• Time: Performance must be within a reasonable time

Consideration

• Required for the formation of sales and lease contracts

• Under UCC, modifications to sales and lease contracts require no consideration

  • Different from common law rule

  • Modification must be made in good faith

Firm Offer Rule

• Merchant who:

  • Makes an offer to buy, sell, or lease goods

  • Assures the other party in a separate writing that the offer will be held open

• Cannot revoke the offer for the time stated or, if no time is stated, for a reasonable time

Battle of the Forms

• If both parties are merchants, then additional terms contained in the acceptance may become part of the sales contract if certain requirements are met unless:

1. offer expressly limited acceptance

2. additional terms materially alter the offer

3. original offeror objects to the terms within a reasonable time after notice

Exceptions to the UCC Statute of Frauds

• Specially manufactured goods

• Oral contracts where buyer may not assert Statute of Frauds against enforcement

• Goods are not suitable for sale or lease to others in the ordinary course of business

• If the seller substantially performed

• Part acceptance (goods received and accepted or payment received and accepted)

Confirmation Rule

• Both parties to oral sales or lease contract are merchants, Statute of Frauds satisfied if:

  • One of the parties to an oral agreement sends a record confirmation of the sale or lease within a reasonable time after contracting

  • Other merchant does not provide record notice of an objection to the contract within 10 days after receiving the confirmation record

Parol Evidence Rule (“Four Corners” Rule)

• If express terms are not clear on their face, reference can be made to outside sources:

  • Course of performance

  • Course of dealing

  • Usage of trade