Chapter 11:
Sales and Leases
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Introduction
• The Uniform Commercial Code (UCC)
facilitates commercial transactions.
• UCC Article 2 governs the Sale of Goods.
– Modifies or preempts common law of contracts
in some areas.
– Where UCC2 is silent, common law governs.
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§1: The Scope of UCC 2
• UCC 2 applies to the “sale of goods.”
– A “sale” is the passing of title of “goods”
to/from a “merchant” (seller or buyer) for a
price (money, goods, services,etc).
– “Goods” are tangible and movable. UCC2 does
not govern real estate nor stocks or bonds.
– A “merchant” has special business expertise
and is not a casual buyer/seller.
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§2: Scope of UCC 2A-Leases
• Contract for lease of personal goods
between a lessor and a lessee.
• Consumer Leases (total payments less than
$25,000).
• Finance Leases (involves a 3rd partysupplier).
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§3: Formation of Sales Contracts
• At common law once a valid offer is
unequivocally accepted, a binding contract
is formed.
• UCC is more flexible, and allows for open
pricing, payment, and delivery terms.
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Offer: Open Terms [1]
• UCC 2-204: even if terms of are
undetermined, contract may still exist.
– Open Terms: “Indefiniteness” is OK as long as
the parties intended to make a contract and
there is a reasonable basis for a court to grant a
remedy.
– Open Price Terms: If parties have not agreed on
pricing, court can determine “reasonable price
at the time of delivery.”
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Offer: Open Terms [2]
• Open Payment Terms: Unless otherwise
agreed, payment is due on delivery (COD).
• Open Delivery Terms: Unless otherwise
agreed, buyer takes delivery at the Seller’s
place of business.
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Offer: Open Terms [3]
• Open Quantity Terms: generally courts will
not impose a quantity. Exceptions:
– Requirements Contract: buyer agrees to
purchase what the buyer needs or requires.
– Output Contract: buyer agrees to buy all of
seller’s production or output.
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Merchant’s Firm Offer
• At common law, an offer could be revoked
any time prior to acceptance, unless there
was some consideration.
• At UCC, offer made by merchant is
irrevocable for reasonable period of time if
writing assurance is given. No consideration
necessary.
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Acceptance
• Any reasonable means under the
circumstances is permissible.
• Promise to ship or prompt shipment is
acceptance.
– Shipment of non-conforming goods is both an
acceptance and a breach unless goods sent as an
“accommodation” to buyer (UCC2-206).
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Additional Terms
• If either party is a non-merchant, the
contract is formed according to the original
terms of the offer.
• If both parties are merchants, contract
incorporates new terms unless: (1) original
offer expressly limits terms or (2) material change
or (3) Offeror objects within reasonable time.
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§4: Consideration
• UCC requires consideration and
modifications must be made in good faith.
• Modification must be in writing if required
by Statute of Frauds.
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§5: Statute of Frauds
Sale of goods over $500 must have a signed
writing to be enforceable. Oral agreement is
enforceable with a written memorialization.
Exceptions to this rule:
–
–
–
–
Specially manufactured goods.
Admissions by breaching party.
Partial performance.
Merchant doesn’t object within 10 days.
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§6: Title, Risk
and Insurable Interest
• Sale of goods requires different rules than
real property transactions: risk should not
always pass with title.
• UCC replaces title with identification, risk,
and insurable interest.
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Identification
For any interest to pass to buyer, goods must
be:
– In existence; and
– Identified as specific goods in the sales contract
(by serial numbers and/or physically separated
from others, except for fungible goods which
do not need separation).
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Identification [2]
• Gives the buyer the right:
– To obtain insurance on the goods.
– To recover from third parties who damage the
good.
• Identification occurs:
– If goods are designated when contract is made.
If goods are not designated when contract is
made, then identified at time of designation.
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When Title Passes to Buyer
• Title passes when agreed by the parties; or
• If no agreement, depends on whether
contract is shipment or destination contract.
– Shipment: title passes at time and place of
shipment.
– Destination: title passes when goods are
tendered at the destination.
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When Title Passes to Buyer [2]
• If delivery is “without movement” of the
goods, title passes when agreed by the
parties; or
– With document of title: when and where
document delivered.
– Without document: when sales contract is
made, if goods have been identified or when
identification occurs if they have not been
identified.
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Risk of Loss (ROL)
• ROL does not necessarily pass with title. ROL
is important because of insurance concerns.
• Unless agreed otherwise, ROL passes to
Buyer depending on whether delivery is with
or without movement of the goods.
• Delivery With Movement of the Goods.
– Shipment vs. Destination Contracts. 
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ROL: Delivery with
Movement of Goods
• In a shipment contract, ROL passes when
seller tenders goods to carrier.
– Case 11.1: Windows Inc. v. Jordan Panel
System (1999).
• In a destination contract, ROL passes when
goods tendered at destination.
• Shipping terms. 
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ROL: Shipping Terms
Term
Definition
F.O.B.
Free on Board. Sales price includes shipping to specific FOB
place in contract. Example: FOB Chicago.
F.A.S.
Free Along Side. Requires seller to deliver goods alongside
the ship before ROL passes to buyer.
C.I.F.
Cost, Insurance and Freight. Seller puts the goods in
possession of a carrier
Delivery Ex- Deliver from Carrying shipping vessel. ROL passes to buyer
Ship
when goods leave the ship or unloaded.
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ROL: Delivery Without
Movement of Goods
• Goods Held by Seller:
– Document of Title is generally not used.
– If Seller is a merchant, ROL passes when buyer
takes physical possession of goods.
• Goods Held by Bailee (Warehouse). ROL
passes when:
– Buyer receives document of title; Bailee
acknowledges Buyer’s right to goods and buyer
receives title and has reasonable time to pick up.
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ROL: Conditional Sales
• Sale on Approval.
– ROL passes when buyer approves expressly or
implicitly.
• Sale or Return. (Consignment is sale or
return unless it complies with Art. 9.)
– ROL passes to buyer with possession.
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ROL: Seller Breaches Contract
• Generally breaching party bears ROL.
• Seller’s Breaches the contract by shipping
non-conforming goods.
– Buyer Rejects Goods: ROL stays with Seller.
– Buyer Revokes Acceptance: ROL passes back
to Seller to the extent that buyer’s insurance
does not cover the loss.
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ROL: Buyer Breaches Contract
• If Buyer breaches the agreement, then ROL
passes immediately to Buyer. But:
– Goods must identified;
– Buyer bears ROL for a commercially
reasonable amount of time after Seller learns of
the breach; and
– Buyer is liable only to the extent that Seller’s
insurance does not cover loss.
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Insurable Interest
• Buyer has an insurable interest in goods that
have been identified.
• Seller has an insurable interest in goods as
long as they retain title or a security interest.
• Both buyers and sellers can have an
insurable interest at the same time.
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§7: Performance
• Seller has a duty to deliver conforming
goods.
• Buyer’s duty is to accept and pay for
conforming goods.
• In the absence of an agreement between
Seller and Buyer, UCC 2 controls as set out
below.
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Good Faith Requirement
• Good Faith (“honesty in fact”) is the
foundation of every UCC commercial
contract.
• For a merchant, “good faith” means honesty
in fact and observance of reasonable
commercial standards of fair dealing in the
trade. Merchants are held to a higher
standard of care than non-merchants.
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Seller’s Obligations
• Seller has a duty to “tender” delivery of
“conforming goods” to:
– The agreed–upon place of delivery;
– With reasonable notice;
– At a reasonable hour; and
– In a reasonable manner.
• Seller must tender exactly the goods
ordered, unless otherwise agreed.
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“Place of Delivery” [Carriers]
• In a Shipment contract, the Seller has a duty to:
– Put goods into hands of independent carrier.
– Make contract for transportation.
– Obtain and promptly deliver or tender to the Buyer any
documents necessary.
– Promptly notify Buyer that shipment has been made.
• In a Destination contract, the Seller has a duty to:
– Tender the goods at a reasonable hour and hold
conforming goods at the Buyer’s disposal for a
reasonable period of time.
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“Place of Delivery” [Non-Carriers]
• Buyer picks up at Seller’s place of business
or, if Buyer has no place of business, then
Buyer’s residence.
• If both parties know the goods are
elsewhere (at a warehouse), then place of
delivery is where the goods are.
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The “Perfect Tender” Rule
Seller has a duty to deliver “conforming
goods.” If goods, or tender of delivery, fail
in any respect to conform to the contract,
the Buyer has the right to:
– Accept the goods;
– Reject the entire shipment; or
– Accept part and reject part.
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Exceptions to the
Perfect Tender Rule
Click on the Links Below
•
•
•
•
•
•
•
•
Agreement of the Parties.
Seller’s Cure.
Substitution of Carriers.
Installment contracts.
Commercial Impracticability.
Destruction of identified goods.
Partial Performance.
Proceed to Next Section
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Buyer’s Obligations
• Furnish facilities reasonably suited for receipt of
the goods.
• Make payment at the time and place the Buyer
receives the goods.
– Credit has to be prearranged. Credit period begins on
the date of shipment.
– Pay with cash, credit card, check unless Seller asks for
cash, then Seller has to give Buyer time to get cash.
• Buyer has right to inspect.
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Acceptance
Buyer can accept goods:
– By words or conduct.
– If Buyer had reasonable amount of time and
failed to reject.
– Buyer performs an act which indicates he
thinks he is the owner.
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Buyer’s Revocation
of Acceptance
• Must notify Seller of breach.
• May revoke acceptance only if substantial
nonconformity and:
– Buyer accepted on the reasonable assumption
that the Seller would cure the non-conformity;
OR
– Buyer did not discover the nonconformity
because defect was latent or hard to discover.
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Anticipatory Repudiation
• Occurs when a party communicates she will not
perform by time of contract performance.
• Non-breaching party may suspend performance
and:
– Treat the repudiation as material breach and pursue a
remedy; or
– Wait a reasonable time.
• Case 11.2: Banco International v. Goody’s Family
Clothing (1999).
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§8: Remedies For Breach
Click on the Links Below
Seller’s Breach §2Buyer’s Breach
If Goods in
Seller’s Possession
If Goods in
Carrier’s Possession
If Goods in
Buyer’s Possession
If Goods in
Seller’s Possession
If Seller delivers nonconforming goods
Proceed 
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Contractual Provisions
Affecting Remedies
• Parties to a contract can vary their rights
and duties that preempt UCC provisions.
• Parties can stipulate whether contractual
provisions are “exclusive”. However,
provisions limiting consumer rights may be
unconscionable.
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Contractual Provisions
Affecting Remedies
• Limitation of Damages.
• Limitation of Remedies.
• Waiver of Defenses.
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§9: Warranties
• A warranty is an assurance of fact upon
which a party may rely.
–
–
–
–
Warranty of Title.
Express Warranty.
Implied Warranty of Merchantability.
Implied Warranty of Fitness for a Particular
Purpose.
– Implied warranty arising from the course of
dealing or trade usage.
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Warranty of Title
• Automatically arises in most commercial sales
transactions.
• UCC-312 creates 3 warranties:
– Good Title.
– No Liens.
– No Infringements.
• Warranty of title can generally be disclaimed only
with specific language in contract.
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Express Warranties
• Can be oral or written-- don’t have to use the
words “warrant” or “guarantee.”
– Can be any affirmation or promise, description, sample
or model.
• Express warranty creates affirmation of a fact that
becomes the “basis of the bargain” and Buyer
must rely on warranty when he enters into
contract.
• Statements of Opinion or Value are “puffery”, not
warranties. Case 11.4: Felley v. Singleton (1999).
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Implied Warranties
• Warranty inferred at law based on the
circumstances or nature of the transaction.
• Under the UCC, merchants warrant the
goods they sell are “merchantable,” i.e., fit
for the ordinary purpose for which such
goods are sold.
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Implied Warranty of
Merchantability
• Automatically arises from merchants.
• Goods are of average, fair, or mediumgrade.
• Adequately packaged and labeled.
• Conform to promises on label.
• Have a consistent quality and quantity
among the commercial units.
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Implied Warranty of Fitness
for a Particular Purpose
• Arises by any Seller who:
– Knows the particular purpose for which the
goods are being bought; and
– Knows the Buyer is relying on Seller’s skill and
judgment to select suitable goods.
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Implied Warranty Arising
from Course of Dealing or
Trade Usage
• Arises when both parties to a contract have
knowledge of a well-recognized trade
custom.
• Courts infer that both meant this custom to
apply to their transaction.
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Warranty Disclaimers
• Express Warranties can be disclaimed:
– If they were never made (evidentiary matter).
– If a clear written disclaimer in contract with
specific, unambiguous language and called to
Buyer’s attention (e.g., BOLD CAPS
UNDERLINED).
– Case 11.5: Borden Inc. v. Advent Inc.
(1997).
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Warranty Disclaimers [2]
• Implied Warranties:
– Merchantability: “As Is,” “With All Faults”.
– Fitness for a Particular Purpose: must be in
writing and conspicuous.
– If Buyer has the right to fully inspect and
either: does so or refuses to do so, warranties
are disclaimed as to defects that could
reasonably be found.
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Law on the Web
•
•
•
•
•
National Conference of Commissioners.
U. Penn Final Draft of Uniform Laws.
UCC at Cornell U..
GMPerformanceparts.com.
“As is” warranty.
Legal Research Exercises on the Web
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Agreement of the Parties
• Parties agree that some defective goods will
be acceptable.
• Parties agree that defective goods can be
replaced or repaired within a certain time.
Return
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Seller’s Cure
• Seller has the right to “Cure” (ship
conforming goods to Buyer) if:
– The agreed time of performance has not yet
expired; or
– If Seller had reasonable grounds to expect that
Buyer would accept non-conforming goods, i.e.,
these goods are better than goods ordered, or
Buyer has accepted non-conforming goods in the
past.
Return
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Substitution of Carriers
If a carrier becomes impracticable or
unavailable through no fault of either party,
a commercially reasonable substitute is
acceptable.
Return
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Commercial Impracticability
• Occurrence of an unforeseen contingency
that makes performance impracticable.
• Nonoccurrence was a basic assumption on
which the contract was made.
• If only partial impracticability, Seller must
allocate what he has.
Return
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Installment Contracts
• Installment Contracts can be rejected if:
– Installment is substantially non-conforming and
can’t be cured; or
– Non-conforming installment substantially
impairs the entire contract.
Return
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Destruction of Goods
• If no fault of either party and
• It occurs before risk passes to Buyer then
• Both Seller and Buyer are excused from
performance.
Return
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Partial Performance
• Sometimes unforeseen event only partially
affects Seller’s capacity to perform.
• In that event, Seller has duty to reasonably
allocate any remaining production capacity
to fulfilling contractual performance.
• Buyer has the right to reject.
Return
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Goods in Seller’s Possession [1]
• Seller may withhold delivery of the goods:
– If material breach by Buyer, Seller can
withhold delivery of all goods.
– If non-material breach, Seller can withhold
delivery of this installment.
• Seller can withhold delivery of all goods if
Buyer is insolvent.
Next
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Goods in Seller’s Possession [2]
• Seller may rescind the contract.
• Seller may identify the goods to the
contract.
• Seller may sell raw materials for scrap or
finish production.
Next
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Goods in Seller’s Possession [3]
• Seller may resell the goods and:
– Recover damages: the difference between the
contract price and the resale price plus
incidental damages + damages = the market
price at the time & place of tender + incidental
damages - expenses saved
– If No Damages, Seller can sue for lost profits.
Next
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Goods in Seller’s Possession [4]
• Seller may sue Buyer for breach of contract.
– Recover Damages = the market price at the
time & place of tender + incidental damages.
– If there are no damages, Seller can sue for lost
profits.
Return
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Goods in Transit [1]
• Goods are “in transit” when Seller has
tendered goods to Carrier.
• Goods are in transit until:
– Buyer is given negotiable document of title to
goods.
– Buyer is given non-negotiable document of title
or Bailee has acknowledged Buyer’s right to
have the goods.
– Buyer has had a reasonable time to pick up the
goods.
Next
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Goods in Transit [2]
• Seller has the right to stop the goods in
transit if:
– Buyer is insolvent: Seller can stop entire
shipment of goods.
– Buyer is in breach: Seller may stop a whole
truckload or whole container.
Return
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Goods in Buyer’s Possession
• Seller may sue for the purchase price.
– Seller may also sue Buyer if goods were
“specially-made” which Seller cannot resell.
– Seller may also sue for the purchase price if the
goods were destroyed and the risk had already
passed to the Buyer.
• Seller can reclaim goods received by an
insolvent Buyer if demand made within 10
days of receipt.
Return
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Goods in Seller’s Possession
• If Buyer wants goods, she may:
– Ask a Court for specific performance or replevin;
– Recover goods from Seller if Seller becomes
insolvent within 10 days after receiving first
payment.
• If Buyer does not want goods, he may:
– Rescind the contract; or
– Cover or do not cover and sue for breach of
contract.
Return
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Seller Delivers
Nonconforming Goods [1]
• If Seller does not make perfect tender Buyer
has the right to reject all or part of goods:
– Buyer must timely notify Seller of rejection and
reasons and follow Seller’s directions.
– Buyer is entitled to commission for selling
perishable goods.
– Buyer may store the goods and retain a security
interest in the goods for his costs.
Next
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Seller Delivers
Nonconforming Goods [2]
• If Buyer has accepted non-conforming
goods, she may:
–
–
–
–
Sue for breach of warranty
Sue for ordinary damages
Deduct damages from purchase price
Case 11.3: Yates v. Pitman Manufacturing
(1999).
Return
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