Business Law and the Business Law and the Regulation of BusinessRegulation of Business

Chapter 19: Introduction to Sales and LeasesChapter 19: Introduction to Sales and Leases

ByByRichard A. MannRichard A. Mann

&&Barry S. RobertsBarry S. Roberts

Topics Covered in this ChapterTopics Covered in this Chapter

I. Nature of Sales and LeasesI. Nature of Sales and LeasesA. DefinitionsA. DefinitionsB. Fundamental Principles of Article 2 B. Fundamental Principles of Article 2 and 2A and 2A

II.II. Formation of a Sales and Lease Formation of a Sales and Lease ContractsContractsA. Manifestation of Mutual AssentA. Manifestation of Mutual AssentB. ConsiderationB. ConsiderationC. Form of the ContractC. Form of the Contract

Nature of Sales and LeasesNature of Sales and Leases GoodsGoods – – movable personal propertymovable personal property SaleSale – – transfer of title to goods from seller to transfer of title to goods from seller to

buyer for a pricebuyer for a price LeaseLease – – a transfer of right to possession and a transfer of right to possession and

use of goods in return for considerationuse of goods in return for consideration– Consumer LeasesConsumer Leases – – leases by a merchant to an leases by a merchant to an

individual who leases for personal, family, or individual who leases for personal, family, or household purposes for no more than $25,000household purposes for no more than $25,000

– Finance LeasesFinance Leases – – special type of lease special type of lease transaction generally involving three parties: the transaction generally involving three parties: the lessor, the supplier, and the lesseelessor, the supplier, and the lessee

Transactions in GoodsTransactions in Goods

Transfer of Title

Transfer of Possession

Governing law

Yes Usually, but not necessarily

Article 2

Yes Yes Common Law

No Yes Common Law and Article 7

No Yes Common Law or Article 2A

No No Article 9

Sale

Gift

Bailment

LeaseSecurityInterest

Governing LawGoverning Law Sales TransactionsSales Transactions – – governed by Article 2 of the governed by Article 2 of the

Code, but where general contract law has not been Code, but where general contract law has not been specifically modified by the Code, general contract specifically modified by the Code, general contract law continues to apply.law continues to apply.

Lease TransactionsLease Transactions – – governed by Article 2A of governed by Article 2A of the Code, but where general contract law has not the Code, but where general contract law has not been specifically modified by the Code, general been specifically modified by the Code, general contract law continues to apply.contract law continues to apply.

Transactions outside the CodeTransactions outside the Code – – service service contracts, contracts, eemployment contracts, insurance mployment contracts, insurance contracts, contracts involving real property, and contracts, contracts involving real property, and contracts for the sale of intangibles.contracts for the sale of intangibles.

Law of SalesLaw of Sales

LAW OF

CONTRACTS

LAW OF PROPERTY

LAW OF SALES

Real Property

PersonalProperty

Fundamental Principles of Fundamental Principles of Article 2 and Article 2AArticle 2 and Article 2A

PurposePurpose – – to modernize, clarify, to modernize, clarify, simplify, and make uniform the law of simplify, and make uniform the law of sales and leases.sales and leases.

Good FaithGood Faith – – the Code requires all the Code requires all sales and lease contracts to be sales and lease contracts to be performed in good faith, which means performed in good faith, which means honesty in fact in the conduct or honesty in fact in the conduct or transaction concerned; in the case of a transaction concerned; in the case of a merchant, it also includes the merchant, it also includes the observance of reasonable commercial observance of reasonable commercial standards.standards.

UnconscionabilityUnconscionability UnconscionabilityUnconscionability – – a court may a court may

refuse to enforce an unconscionable refuse to enforce an unconscionable contract or any part of a contract found contract or any part of a contract found to be unconscionable.to be unconscionable.– Procedural Unconscionability Procedural Unconscionability – –

unfairness of the bargaining process.unfairness of the bargaining process.– Substantive Unconscionability Substantive Unconscionability – –

oppressive or grossly unfair contractual oppressive or grossly unfair contractual provisions.provisions.

Expansion of Commercial PracticesExpansion of Commercial Practices Course of DealingCourse of Dealing – – a sequence of a sequence of

previous conduct between the parties previous conduct between the parties establishing a common basis for establishing a common basis for interpreting their agreement.interpreting their agreement.

Usage of TradeUsage of Trade – – a practice or method a practice or method of dealing regularly observed and of dealing regularly observed and followed in a place, vocation, or trade.followed in a place, vocation, or trade.

Sales by and between MerchantsSales by and between Merchants The Code establishes separate rules The Code establishes separate rules

that apply to transactions between that apply to transactions between merchants or involving a merchant (a merchants or involving a merchant (a dealer in goods or a person who by his dealer in goods or a person who by his occupation holds himself out as having occupation holds himself out as having knowledge or skill peculiar to the goods knowledge or skill peculiar to the goods or practice involved, or who employs an or practice involved, or who employs an agent or broker whom he holds out as agent or broker whom he holds out as having such knowledge or skill).having such knowledge or skill).

Selected UCC Rules Selected UCC Rules Applicable to MerchantsApplicable to Merchants

Section of UCC Merchant Rule Chapter in TextWhere Discussed

2-103(1)(b) Good faith 12

2-201 Confirmation of oral contracts 9, 12

2-205 Firm offers 7, 12

2-207(2) Battle of the forms 7, 12

2-312(3) Warranty of title 14

2-314(1) Warranty of merchantability 14

2-327(1)(c) Sales on approval 13

2-402(2) Retention of possession of goods by seller 13

2-403(2) Entrusting of Goods 13

2-509(3) Risk of loss 13

2-603(1) Duties after rightful rejection 13

Battle of the FormsBattle of the Forms

Is acceptance expressly conditional upon assent to

additional or different terms?

Is acceptance identical to offer?

Does acceptance include different terms?

Does acceptance include additional terms?

Contact formed based on offeror’s terms

No contract formed

Contract formed(1) different terms cancel each other out, or (2) offeror’s terms control, or(3) additional term test applied

Contract formed based on offeror’s terms without additional terms

Yes

No

No

No

Yes

Yes

No

Yes

Then,

Battle of the Forms (cont.)Battle of the Forms (cont.)

Does offer limit acceptance to its terms?

Are both parties merchants?

Do additional terms materially alter the offer?

Has the offeror objected to the additional terms?

Has offeror assented to the additional terms?

Contract formed with additional terms

Yes

No

No

Yes

Yes

YesYes

No

No

No

Contract formed based on offeror’s terms without additional terms

Liberal Administration of RemediesLiberal Administration of Remedies

Freedom of ContractFreedom of Contract – – most most provisions of the Code may be varied by provisions of the Code may be varied by agreement.agreement.

Validation and Preservation of Sales Validation and Preservation of Sales ContractContract – – the Code reduces formal the Code reduces formal requisites to the bare minimum and requisites to the bare minimum and attempts to preserve agreements attempts to preserve agreements whenever the parties manifest an whenever the parties manifest an intention to enter into a contract.intention to enter into a contract.

FormationFormation Manifestation of Mutual Assent Manifestation of Mutual Assent

Definiteness of an OfferDefiniteness of an Offer – – the Code the Code provides that a sales or lease contract provides that a sales or lease contract does not fail for indefiniteness even does not fail for indefiniteness even though one or more terms may have though one or more terms may have been omitted; the Code provides been omitted; the Code provides standards by which missing essential standards by which missing essential terms may be supplied for sales of terms may be supplied for sales of goods.goods.

Irrevocable OffersIrrevocable Offers OptionOption – – a contract to hold open an offer.a contract to hold open an offer. Firm OfferFirm Offer – – a signed writing by a merchant a signed writing by a merchant

to hold open an offer for the purchase or sale to hold open an offer for the purchase or sale of goods for a maximum of three months.of goods for a maximum of three months.

Variant AcceptancesVariant Acceptances – – the inclusion of the inclusion of different or additional terms in an acceptance different or additional terms in an acceptance is addressed by focusing on the intent of the is addressed by focusing on the intent of the parties.parties.

Manner of AcceptanceManner of Acceptance – – an acceptance an acceptance can be made in any reasonable manner and can be made in any reasonable manner and is effective upon dispatch.is effective upon dispatch.

Consideration Consideration Contractual ModificationsContractual Modifications – – the Code the Code

provides that a contract for the sale or provides that a contract for the sale or lease of goods may be modified without lease of goods may be modified without new consideration if the modification is new consideration if the modification is made in good faith.made in good faith.

Firm OffersFirm Offers – – are not revocable for lack are not revocable for lack of consideration.of consideration.

Form of the Contract Form of the Contract Statute of FraudsStatute of Frauds – – sale of goods costing sale of goods costing

$500 or more (or lease of goods for $1,000 $500 or more (or lease of goods for $1,000 or more) must be evidenced by a signed or more) must be evidenced by a signed writing to be enforceable.writing to be enforceable.– Written ComplianceWritten Compliance – – the Code requires writing the Code requires writing

to indicate that a contract has been made to indicate that a contract has been made between the parties, signed by the party against between the parties, signed by the party against whom enforcement is sought or by her whom enforcement is sought or by her authorized agent, including a term specifying the authorized agent, including a term specifying the quantity of goods.quantity of goods.

– Alternative Methods of ComplianceAlternative Methods of Compliance – – written written confirmation between merchants, admission, confirmation between merchants, admission, specially manufactured goods, and delivery or specially manufactured goods, and delivery or payment and acceptance.payment and acceptance.

Parol EvidenceParol Evidence

Contractual terms that are set forth in a Contractual terms that are set forth in a writing intended by the parties as a final writing intended by the parties as a final expression of their agreement may not be expression of their agreement may not be contradicted by evidence of any prior contradicted by evidence of any prior agreement or of a contemporaneous oral agreement or of a contemporaneous oral agreement, but such terms may be agreement, but such terms may be explained or supplemented by course of explained or supplemented by course of dealing, usage of trade, course of dealing, usage of trade, course of performance, or consistent additional performance, or consistent additional evidence.evidence.

Contract Law Compared with Contract Law Compared with Law of SalesLaw of Sales

Contract Law of SalesDefiniteness Contract must include all material

terms.Open terms permitted ifparties intend to make a

contract

Counteroffers Acceptance must be a mirror image ofoffer. Counteroffer and conditional

acceptance are rejections.

Battle of Forms.

Modification ofContract

Consideration is required. Consideration is notrequired.

IrrevocableOffers

Options. Options.Firm offers up to threemonths’ duration bindingwithout consideration.

Statute ofFrauds

Writing must include all materialterms.

Writing must includequantity term. Speciallymanufactured goods. Confirmation by merchants. Delivery or payment andacceptance. Admissions.