Chapter 17 Notes- The Formation of Sales and Lease Contracts Flashcards
Based on the Uniform Commercial Code (UCC) which has been adopted as law by all of the states.
State Stautory Law Governing Sales and Lease Transactions
Seeks to promote commerce. The goal is to simplify and to streamline commercial transactions.
- Allows parties to form sales and lease contracts, including those entered into online, without observing the same degree of formality used in forming other types of contracts.
- Article 2 (sales)
- Article 2A (Leases)
Uniform Commercial Code (UCC)
Governs international sales contracts. A model uniform law that applies only when a nation has adopted it.
United Nations Convention on Contracts for the International Sale of Goods (CISG)
A contract for the sale of goods.
Sales Contract
- Governs Sales Contracts
- Modifies some of the common law contract requirements.
- To the extent that it was not been modified by the UCC, however, the common law of contracts also applies to sales contracts. The common law requirements for a valid contract- agreement, consideration, capacity and legality are also applicable to sales contracts.
Article 2- Sales
When a UCC provision address a certain issue, the UCC governs, but when the UCC is silent, the common law governs.
General Rule- UCC vs Common Law
- Article 2 deals with the sale of goods. It does not deal with real property (real estate), services, or intangible property such as stocks and bonds. Thus, if the subject matter of a dispute is goods, the UCC governs. If it is real estate or services, the common law applies.
- In some situations, the rules can vary depending on whether the buyer or the seller is a merchant.
2 Points to Keep in Mind in Regard to Article 2
The passing of title to property from the seller to the buyer for a price.
- Price may be payable in cash (or its equivalent) or in other goods or services.
Sale (UCC definition)
In order to be characterized as this, the item of property must be tangible and it must be moveable.
Good
Property that has physical existence and can be distinguished by the senses of touch and sight.
Tangible Property
Property that cannot be touched but exists only conceptually, such as corporate stocks. Such property is not governed by Article 2 of the UCC.
Intangible Property
An item that can be moved from place to place.
Moveable
Because real estate cannot be moved from place to place, it is excluded from Article 2. The goods associated with real estate often fall within the scope of Article 2.
- Severance, or separation must be made- minerals, oil or natural gas must be severed by the seller.
- Contract for the sale of growing crops or timber to be cut is a contract for the sale of goods regardless of who severs them from the land.
Goods Associated with Real Estate
- Courts generally usethe Predominant-factor Test to determine whether a contract is for the sale of goods or for the sale of services.
- If a court decides that a mixed contract is primarily a goods contract, any dispute, even a dispute over the services portion, will be decided under the UCC.
Goods and Services Combined
A test courts use to determine whether a contract is primarily for the sale of goods or for the sale of services.
Predominant Factor Test
Presumes that certain special business standards out to be imposed because of _____ relatively high degree of commercial expertise. Such standards do not apply to the casual or inexperienced seller or buyer (consumer).
Mechants
- A merchant is a person who deals in goods of the kind involved in the sale contract. Thus, a retailer, a wholesaler, or a manufacturer is a merchant of those goods sold in the business. A merchant for one type of goods isnot necessarily a merchant for another type.
- A merchant is a person who, by occupation, holds himself or herself out as having special knowledge and skill related to the practices or goods involved in the transaction. This broad definition may include banks or universities.
- A person who employs a merchant as a broker, agent, or other intermediary has the status of merchant in that transaction.
Section 2-104- Three Ways Merchant Status can Arise:
Under the UCC, a person who deals in the goods of the kind involved in the sales contract or who holds herself or himself out as having skill or knowledge peculiar to the practices or goods being purchased or sold.
- Courts are split on whether farmers are included
Merchant
Under Article 2A of the UCC, a transfer of the right to possess and use goods for a period of time in exchange for payment.
Lease
- Created to fill the need for uniform guidelines for leases
- Covers any transaction that creates a lease of goods, as well as subleases of goods. (includes commercial and consumer leases)
- Essentially a repetition of article 2, except that it applies to leases of goods rather than sale of goods and thus varies to reflect differences between sales and lease transactions.
Article 2A- Leases
An agreement in which one person (the lessor) agrees to transfer the right to the possession and use of property to another person (the lessee) in exchange for rental payments.
Lease Agreement
A person who transfers the right to the possession and use of goods to another in exchange for rental payments.
Lessor
A person who acquires the right to the possession and use of another’s goods in exchange for rental payments.
Lessee
- A lessor who regularly engages in the business of leasing and selling.
- A lessee (except an organization) who leases the goods “primarily for a personal, family, or household purpose.”
- Total lease payments that are less than a dollar amount set by state statute.
Consumer Leases