Chapter 21
Introduction to Sales and Lease Contracts
Hypothetical
While traveling on Interstate 10 in the vast, arid land between Phoenix and
Los Angeles, a traveler’s “worst nightmare” occurs. Transmission failure
forces tourist Penn Lay to the emergency lane of the highway, and at that
time Lay realizes the true value of a cell phone. Lay calls a Phoenix
towing company, and his car is transported to S. Li Ping Transmission
Repair, Inc.
The repair bill amounts to $4,500. On the bill, transmission parts total
$4,000, and labor hours total $1,000 (5 hours at $200 per hour.) Lay
believes that the principles of capitalism do not extend to such an
exorbitant sum, and he further believes that S. Li Ping interpreted his outof-state, North Carolina license plate as a “license to steal.”
Who wins? In litigation between the parties, does the Uniform Commercial
Code (UCC) apply, or ordinary contract law (“common” law?) If ordinary
contract law applies, should North Carolina or Arizona law apply? Does S.
Li Ping have a legal and/or ethical obligation to charge “out-of-staters”
the same repair price as “in-staters?”
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Introduction
o Facilitates commercial transactions.
o UCC Article 2: Sale of Goods.
o Modifies common law of contracts of
some areas.
o UCC 2 preempts common law.
o Where UCC2 is silent, common law
governs.
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UCC Outline (Articles and Topics)
o Article 1: General
Provisions
o Article 5: Letters of
Credit
o Article 2: Sales
o Article 6: Bulk Transfers
o Article 2(A): Leases
o Article 7: Documents of
Title
o Article 3: Negotiable
Instruments
o Article 4: Bank Deposits
and Collections
o Article 4(A): Wire
Transfers
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o Article 8: Investment
Securities
o Article 9: Secured
Transactions
UCC Article 2 Terminology
o Sale: The passing of title from seller to buyer for a price
o Goods: Tangible things that can be moved (Examples: Automobiles,
furniture, electronics)
o Mixed goods and services contracts: Contracts that include both
goods and services. UCC Article 2 applies to contract if goods are
“predominant part” of transaction
o Merchants: Buyers or sellers who
o Deal in goods of the kind involved in contract
o By occupation, represent themselves as having knowledge and
skill unique to goods involved in transaction, or
o Employ a merchant as a broker, agent, or other intermediary
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The Scope of UCC 2-The Sale of Goods
o Does not apply to real estate unless
there is a “good” that can be severed
by the Seller. If the good is severed by
the Buyer, then UCC2 does not apply.
o Generally contracts for services are
not governed by UCC2.
o What if Goods and Services
combined?
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Scope of Article 2
o UCC2 applies to the “sale of goods.”
o A “sale” is the passing of title of “goods”
to/from a “merchant” (seller or buyer) for
a price (money, goods, services,etc).
o “Goods” are tangible and movable.
o A “merchant” has special business
expertise and is not a casual
buyer/seller.
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UCC Article 2(A) Terminology
o Leases: Transfers of right to possession and
use of goods for a term, in return for
consideration
o Special Leases: Consumer leases and
financial leases
Scope of UCC 2A—Leases
o Contract for lease of personal goods
between a lessor and a lessee.
o Consumer Leases (total payments
less than $25,000).
o Finance Leases (involves a 3rd partysupplier).
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Formation of Sales and Lease Contracts
o At common law once a valid
offer is unequivocally accepted,
a binding contract is formed.
o UCC is more flexible, and allows
for open pricing, payment, and
delivery terms.
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How Sales and Lease Contracts Are Formed Under
The UCC
o Offer and Acceptance
o Offers valid even if terms left open
o “Mirror-image” rule does not apply
o Courts evaluate each case individually to determine
whether additional terms allowed
o Consideration: Mutual consideration required upon
forming agreement. When sales/lease contracts
modified, modifications need not be supported by
additional consideration
Open Terms
o UCC 2-204: even if terms of are
undetermined, a contract may still
exist.
o 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.
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Open Terms
o Open Price Term: If parties have not
agreed on pricing, court can determine
“reasonable price at the time of
delivery.” UCC2-305
o Open Payment Term: Unless otherwise
agreed, payment is due on delivery
(COD). UCC2-310(a)
o Open Delivery Term: Unless otherwise
agreed, buyer takes delivery at the
Seller’s place of business. UCC2-308(a)
o Time for Performance: “Reasonable”
time
o Duration of Contract: “Reasonable”
period of time, with termination allowed
in good faith, and upon notice
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Open Terms
o Open Quantity: generally courts will
not impose a quantity. UCC2-306.
Exceptions:
o Requirements Contract: buyer
agrees to purchase what the buyer
needs or requires.
o Output Contract: buyer agrees to
buy all of seller’s production or
output.
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Statute of Frauds
o Sale of goods over $500 must have a signed
writing to be enforceable.
o Exceptions to this rule (see next slide):
o Specially manufactured goods.
o Admissions by breaching party.
o Partial performance.
o Merchant doesn’t object within 10 days.
o Oral agreement enforceable after written
confirmation between merchants.
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UCC Statute of Frauds Exceptions
o Specifically-manufactured goods
o Buyer/lessee ordered goods made to meet his/her specific
needs
o Goods not suitable for sale/lease to others in “ordinary
course of business; and
o Seller/lessor has substantially begun manufacture of goods,
or made commitments for their procurement
o Admission (In legal pleadings, testimony, or court)
o Partial Performance: Enforceable to extent payment made
and accepted, or to extent goods received and accepted
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UCC Contracts/Leases and the Admissibility of Parol
Evidence—Evidence Outside Written Contract Admissible If:
o Additional terms consistent with contract terms
o Information helps interpret agreement,
including:
o Course of performance
o Course of dealing
o Usage of trade
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Interpretation of Sales and Lease
Contracts: Priority of Evidence
o Express contract terms
o Course of performance (regarding subject contract)
o Course of Dealings (between subject parties)
o Usage of trade (industry standard)
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Unconscionability (Definition):
o In context of UCC contract for sale of
goods or lease, an agreement that is
so unfair or “one-sided” that court
refuses to enforce it
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