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T OPICS C OVERED C HAPTER 19:
I NTRO TO S ALES AND L EASES
I. Nature of Sales and Leases.
A. Definitions.
B. Fundamental Principles of Article 2 and 2A.
II. Formation of a Sales and Lease
Contracts.
A. Manifestation of Mutual Assent.
B. Consideration.
C. Form of the Contract.
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2

D EFINITIONS

Goods – movable personal property.

Sale – transfer of title to goods from seller to buyer for a price.

Lease – a transfer of right to possession and use of goods in return for consideration. 
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3

D EFINITIONS

Lease.
• Consumer Leases – by merchant to an individual for personal, family, or household purposes, less than $25,000.
• Finance Leases – special type generally involving three parties: the lessor, the supplier, and the lessee.
• C ARTER V . T OKAI F INANCIAL S ERVICES , I NC . (1998).
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4

D EFIINITIONS

Sales Transactions.
• Governed by Article 2 of the Code, but where general contract law has not been specifically modified by the Code, general contract law continues to apply. 
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5

D EFINITIONS

Sales Transactions.
• Transactions outside the Code – service contracts, employment contracts, insurance contracts, contracts involving real property, and contracts for the sale of intangibles.
• P ITTSLEY V . H OUSER (1994). 
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6

D EFINITIONS

Sales Transactions.
• Lease Transactions – governed by
Article 2A of the Code, but where general contract law has not been specifically modified by the Code, general contract law continues to apply.
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7

F UNDAMENTAL P RINCIPLES OF
A RTICLE 2 AND A RTICLE 2A

Good Faith.
• The UCC requires all sales and lease contracts to be performed in good faith, which means honesty in fact in the conduct or transaction concerned.
• In the case of a merchant, it also includes the observance of reasonable commercial standards.
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8

F UNDAMENTAL P RINCIPLES OF
A RTICLE 2 AND A RTICLE 2A

Unconscionability – a court may refuse to enforce an unconscionable contract or any part of a contract found to be unconscionable.
• Procedural Unconscionability – unfairness of the bargaining process. 
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9

F UNDAMENTAL P RINCIPLES OF
A RTICLE 2 AND A RTICLE 2A

Unconscionability.
• Substantive Unconscionability – oppressive or grossly unfair contractual provisions.
• C ONSTRUCTION A SSOCIATES , I NC . V . F ARGO
W ATER E QUIPMENT , C O . (1989).
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F UNDAMENTAL P RINCIPLES OF
A RTICLE 2 AND A RTICLE 2A

Expansion of Commercial Practices.
• Course of Dealing – a sequence of previous conduct between the parties establishing a common basis for interpreting their agreement.
• Usage of Trade – a practice or method of dealing regularly observed and followed in a place, vocation, or trade.
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11

F UNDAMENTAL P RINCIPLES OF
A RTICLE 2 AND A RTICLE 2A

Sales by and between Merchants.
• UCC has special rules for transactions between merchants or transactions involving a merchant (dealer in goods, or who holds himself out with special knowledge or skills).
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12

F UNDAMENTAL P RINCIPLES OF
A RTICLE 2 AND A RTICLE 2A

Liberal Administration of Remedies.
• Code provides various remedies to place the injured party in a position as good as the one she would have held, had the defaulting party fully performed.
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F UNDAMENTAL P RINCIPLES OF
A RTICLE 2 AND A RTICLE 2A

Freedom of Contract – most provisions of the Code may be varied by agreement.

Validation and Preservation of Sales
Contract – the Code reduces formal requisites to the bare minimum and attempts to preserve agreements whenever the parties manifest an intention to enter into a contract.
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M ANIFESTATION OF
M UTUAL A SSENT

Definiteness of an Offer.
• A sales or lease contract does not fail for indefiniteness even though one or more terms may have been omitted.
• Open Price.
• Open Quantity: Requirement and
Output Contracts.
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15

M ANIFESTATION OF
M UTUAL A SSENT

Irrevocable Offer.
• Option – a contract to hold open an offer.
• Firm Offer – a signed writing by a merchant to hold open an offer for the purchase or sale of goods for a maximum of three months.
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16

M ANIFESTATION OF
M UTUAL A SSENT

Variant Acceptances.
• UCC modifies the common law “mirror image” rule.
• Battle of the Forms.
• Additional Terms: If both parties merchants, proposed terms become part of contract if they do not materially change contract, and if no objection.
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17

M ANIFESTATION OF
M UTUAL A SSENT

Variant Acceptances.
• Battle of the Forms.
• Different Terms: proposed by offeree do not become part of contract unless specifically accepted by offeror.
• If terms cancel each other out, majority of courts look to UCC for missing terms.
• C OMMERCE & I NDUSTRY I NSURANCE C O . V .
B AYER C ORPORATION (2001).
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B ATTLE OF THE F ORMS
Is acceptance identical to offer?
No
Yes
Contact formed based on offeror’s terms
Is acceptance expressly conditional upon assent to additional or different terms?
Yes
No contract formed
No
Does acceptance include different terms?
Yes
Then,
Contract formed
(1) different terms cancel each other out, or
(2) offeror’s terms control, or
(3) additional term test applied
No
Does acceptance include additional terms?
Yes
No
Contract formed based on offeror’s terms without additional terms
Continues on next slide  …
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B ATTLE OF THE F ORMS (2)
No
Are both parties merchants?
Yes
Yes
Does offer limit acceptance to its terms?
No
Yes
Do additional terms materially alter the offer?
No
Has the offeror objected to the additional terms?
Yes
No
Contract formed based on offeror’s terms without additional terms
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No
Has offeror assented to the additional terms?
Yes
Contract formed with additional terms

M ANIFESTATION OF
M UTUAL A SSENT

Manner of Acceptance.
• Offeror determines how the offer will be accepted.
• An offer can be accepted upon dispatch by offeree.
• An offer can be accepted by shipment.
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M ANIFESTATION OF
M UTUAL A SSENT

Auctions.
• With-Out Reserve: auctioneer may not withdraw the good unless no bid is made within a reasonable time.
• With Reserve: auctioneer may withdraw goods at any time until completion.
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22

C ONSIDERATION

Contractual Modifications – the Code provides that a contract for the sale or lease of goods may be modified without new consideration if the modification is made in good faith.

Firm Offers – are not revocable for lack of consideration.
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F ORM OF THE C ONTRACT

Statute of Frauds.
• Sale of goods costing $500 or more (or lease of goods for $1,000 or more) must be evidenced by a signed writing or electronic record (UETA or E-SIGN) to be enforceable. 
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F ORM OF THE C ONTRACT

Statute of Frauds.
• Modification of Contracts: must be in writing if the resulting contract within the Statute of Frauds. On the other hand, if resulting contract is outside the
Statute of Frauds, oral is enforceable.

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F ORM OF THE C ONTRACT

Statute of Frauds.
• Writing(s) or Record: Code requires a writing or record:
• (1) Sufficient to indicate a contract has been formed.
• (2) Signed by party against whom enforcement is sought, and
• (3) Include quantity of goods.
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26

F ORM OF THE C ONTRACT

Statute of Frauds.
• Exceptions:
• Other party admits contract made.
• Specially manufactured goods.
• Delivery and acceptance of goods.
• Payment and acceptance of goods.
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27

F ORM OF THE C ONTRACT

Parol Evidence Rule.
• Terms may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement.
• Unless terms explain course of dealing, usage of trade, course of performance, or consistent additional evidence.
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