BUSINESS LAW TODAY
Essentials 9th Ed.
Roger LeRoy Miller - Institute for University Studies, Arlington, Texas
Gaylord A. Jentz - University of Texas at Austin, Emeritus
Chapter
11
Sales and Leases:
Formation, Title, and Risk
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Learning Objectives
 How do Article 2 and Article 2A of the UCC


differ? What types of transactions does
each article cover?
In a sales contract, if an offeree includes
additional or different terms in an
acceptance, will a contract result? If so,
what happens to these terms?
What exceptions to the writing
requirements of the Statute of Frauds are
provided in Article 2 and Article 2A of the
UCC?
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Learning Objectives
 Risk of loss does not necessarily pass with

title. If the parties to a contract do not
expressly agree when risk passes and the
goods are to be delivered without
movement by the seller, when does risk
pass?
What law governs contracts for the
international sale of goods?
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Scope of UCC Article 2 (Sales)
and 2A (Leases)
 UCC:
Article 2/2A—sale or lease of goods.
Articles 3-5—negotiable instruments and
banking.
Article 6—bulk transfers.
Article 7—warehousing and shipping.
Article 8—securities.
Article 9—secured transactions.
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Law Governing Contracts
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Article 2—”Sale” of “Goods”
 What is a “Sale”: passing title from seller to

buyer for a price.
What are “Goods”: must be tangible and
movable (not land, services or intangibles).
 Goods Associated With Land.
 Goods and Services Combined.
 CASE 11.1
Jannusch v. Naffziger (2008). Terms
of oral contract were definite enough to form an
enforceable contract for sale of business.
Naffzigers made payment and breached it.
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Article 2— “Merchants”
 Who is a “Merchant”?
Generally, Article 2 deals with sale of ALL
goods. However certain higher standards
apply to merchants as opposed to casual
sellers or “consumers”.
A merchant is one who deals in goods of the kind
sold, and is presumed to posses a high degree of
expertise.
A merchant holds himself out as having special
skill or knowledge.
A person who employs a merchant as a broker or
agent has the status of merchant in that situation.
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Scope of Article 2A--Leases
 Lease Agreement between Lessor and
Lessee.
Lessor: sells the right to possession and use of
goods.
Lessee: acquires right to possess and use
goods under a lease.
 Article 2A: applies to all commercial and
consumer lease/financing of goods.
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Formation of Sales and Lease Contracts
 UCC modifies the common law of
contracts as follows:
Where UCC speaks, it preempts the common
law;
Where UCC is silent, the common law
governs.
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Offer: Open Terms
 OFFER: UCC valid offer may include
“open” (missing) terms:
Open Price Term: court will determine a
reasonable price at time of delivery and enforce
the contract.
Open Payment Term: payment is due at the
time and place at which buyer is to receive
goods.
Open Delivery Term: buyer takes delivery at
seller’s place of business.
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Offer: Open Quantity
 Open Quantity.
If no quantity is
specified, there is NO contract, unless:
Requirements Contract: buyer has agreed to
purchase all he needs from seller.
Output Contract: buyer has agreed to
purchase all the products the seller
manufactures or produces.
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Merchant’s ‘Firm Offer’
 Under common law, an offer can be revoked

at any time before acceptance, unless there
is an option contract (offeree pays
consideration for offeror’s irrevocable
promise).
UCC creates a second exception:
Firm offer occurs when merchant-offeror gives
assurances in a signed writing that the offer will
remain open.
No consideration is necessary for a reasonable
period (up to 3 months).
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Acceptance
 Methods of Acceptance: Seller can specify


manner of acceptance. If not, any reasonable
means.
Promise to Ship/Prompt Shipment of
conforming goods is acceptance.
Non-Conforming Goods: Prompt shipment of
non-conforming goods is both an acceptance
and a breach, unless the seller notifies the
goods are only an “accommodation.” Notice
of the accommodation must indicate no
contract has been formed.
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Additional Terms
 Common Law: terms must be the same
for contract or battle of the forms.
 UCC: additional/different terms
permitted, depending on the status of
the parties:
Either Non-merchant: only original terms
accepted.
Both Merchants: additional terms form
contract unless there is prohibition or new
terms or terms materially alter contract, or the
party objects.
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Consideration
 Modifications must be made in good
faith.
 When modifications without
consideration require a writing:
If contract itself prohibits changes without a
writing.
If consumer is dealing with merchant, who
supplies non-oral modification form, consumer
must sign separate acknowledgment.
Any modification that brings contract under
UCC 2 Statute of Frauds.
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Statute Of Frauds
 Contracts for Sale of Goods over $500 or


lease over $1,000 must be in writing.
Special Rules Between Merchants: written
confirmation after oral agreement.
Exceptions:
 Specially Manufactured Goods.
 Admissions. CASE 11.2 Glacial Plains
Cooperative v. Lindgren (2009). Unsigned contract
is ordinarily not enforceable, unless defendant makes
admissions that a contract existed.
 Partial Performance.
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Major Differences between
Contract and Sales Law
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Parol Evidence
 Generally, terms of a written agreement
or memo cannot be contradicted by
prior, extrinsic evidence, unless the
evidence is:
Consistent, Additional Terms.
A Course of Dealing and Usage.
A course of Performance, or
Rules of Construction or Interpretation.
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Unconscionability
 Contract that is so unfair and one-side that it
would be unreasonable to enforce it. Court
can:
 Refuse to enforce it.
 Enforce contract without unconscionable clause, or
 Limit impact of contract to avoid unconscionable
result.
 CASE 11.3
Jones v. Star Credit (1969). Jones
contracted to pay $1,234 for a $300 freezer. Court
held contract was unconscionable and reformed it,
requiring no further payments.
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Title and Risk of Loss
 Sale of goods requires different rules
than real property transactions: risk
should not always pass with title.
 UCC replaces common law notions of
title with:
Identification 
Risk of Loss 
Insurable Interest 
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Identification
 Before title to goods can pass from seller to


buyer, they must exist and be identified.
Identification: takes place when specific
goods are designated as subject matter of
contract. Gives buyer the right to obtain
insurance on the goods and to recover
damages from third parties.
Existing Goods: identification takes place at
time contract is made.
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Identification
 Future Goods:
If sale of unborn animals (or crops) within 12
months, identification occurs at conception (or
planting).
Any other goods, identification takes place
when goods are shipped.
 Goods Part of a Larger Mass.
Identified when goods are shipped, marked or
designated.
Exception: Fungible Goods.
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Passage of Title
 Title passes when agreed to by the
Parties.
 If there is no agreement, under Article 2401 title of identified goods passes to the
Buyer at the time and place the Seller
physically delivers the goods.
Shipment and Destination Contracts. 
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Passage of Title: Shipment
and Destination Contracts
 If there is no agreement, passage of title
to buyer depends on whether the
contract is a 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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Title: Delivery Without
Movement of Goods
 Unless the parties have agreed
otherwise, title passes:
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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Title: Sales or Leases by Nonowners
 Void Title (Theft): true owner gets goods
back.
 Voidable Title: Seller has power to
transfer goods, so good faith purchaser
(with no knowledge) has valid title to
goods.
 Entrustment Rule: entrusting goods to
merchant who deals in those goods, gives
her power to transfer all rights in the
ordinary course of business.
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Risk of Loss (ROL) :
Delivery With Movement of Goods
 When contract calls for movement of
goods without agreement on when ROL
passes, courts determine whether:
It is a shipment contract, and ROL
passes when seller tenders goods to
carrier.
It is a destination contract, and ROL
passes when goods tendered at
destination by carrier.
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Risk of Loss- 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 actual 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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Risk of Loss: When Seller
Breaches Contract
 Shipment of Non-Conforming Goods -- risk
stays with seller. ROL does not pass to
buyer until:
 Seller “cures” the defect (goods are replaced or
repaired), or
 Buyer accepts non-conforming goods and waives
right to reject.
 Buyer revocation of acceptance after
discovery of latent defect -- risk passes back
to seller to the extent that buyer’s insurance
does not cover the loss.
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Risk of Loss: Buyer’s Breach
 Generally, loss passes to buyer if buyer
breaches, with following limitations:
Goods must be identified by seller or lessor.
Buyer bears risk for only a commercially
reasonable time.
Buyer is liable for only deficiency in seller’s
insurance coverage.
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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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Contracts for
International Sale of Goods
 Contracts for the International Sale of
Goods (CISG-1980).
As of 2010, signed by 70 countries, including
U.S., Mexico, Canada, and Europe.
 CISG Applicability.
Applies to International sale of goods like UCC
2 applies to domestic sale of goods.
 Comparison between CISG and UCC 2.
Offers can be irrevocable without writing.
Acceptances are required to be ‘mirrors’ of the
offer.
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