Chapter 21
Introduction to Sales
and Lease Contracts
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
The Uniform Commercial
Code (UCC):
A uniform/model law that governs
commercial transactions, including contracts
for the sale of goods, leases, and secured
transactions
21-2
UCC Outline (Articles and Topics)

Article 1: General Provisions

Article 5: Letters of Credit

Article 2: Sales

Article 6: Bulk Transfers

Article 2(A): Leases

Article 7: Documents of Title

Article 3: Negotiable Instruments

Article 8: Investment Securities

Article 4: Bank Deposits and
Collections

Article 9: Secured Transactions

Article 4(A): Wire Transfers
21-3
UCC Article 2
Applies to contracts for the sale of
goods
21-4
UCC Article 2 Terminology

Sale: The passing of title from seller to buyer for a price

Goods: Tangible things that can be moved (Examples: Automobiles, furniture,
electronics)

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

Merchants: Buyers or sellers who

Deal in goods of the kind involved in contract

By occupation, represent themselves as having knowledge and skill unique to
goods involved in transaction, or

Employ a merchant as a broker, agent, or other intermediary
21-5
UCC Article 2(A)
Applies to contracts for the lease of
goods
21-6
UCC Article 2(A) Terminology

Leases: Transfers of right to possession and use of
goods for a term, in return for consideration

Special Leases: Consumer leases and financial leases
21-7
How Sales and Lease Contracts Are Formed Under
The UCC

Formation in General: UCC more lenient than common law regarding
contract formation; courts evaluate intent of parties to sales or lease contract

Offer and Acceptance
 Offers valid even if terms left open
 “Mirror-image” rule does not apply
 Courts evaluate each case individually to determine whether additional
terms allowed

Consideration: Mutual consideration required upon forming agreement.
When sales/lease contracts modified, modifications need not be supported by
additional consideration
21-8
Exhibit 21-4: The UCC and Open Terms
Term Left Open, and Interpretation Under UCC

Price: “Reasonable Price” at time of delivery

Payment: When buyer receives goods

Delivery: Seller’s place of business

Time for Performance: “Reasonable” time

Duration of Contract: “Reasonable” period of time, with termination allowed in good
faith, and upon notice

Quantity: Contract fails for lack of definiteness
21-9
UCC Statute of Frauds
General Rule: Contracts for sale of goods must be
in writing if goods valued at $500 or more; lease
contracts that require payments of $1,000 or more
must also be in writing
21-10
UCC Statute of Frauds Exceptions

Specifically-manufactured goods



Buyer/lessee ordered goods made to meet his/her specific needs
Goods not suitable for sale/lease to others in “ordinary course of
business; and
Seller/lessor has substantially begun manufacture of goods, or made
commitments for their procurement

Admission (In legal pleadings, testimony, or court)

Partial Performance: Enforceable to extent payment made and accepted, or
to extent goods received and accepted
21-11
UCC Contracts/Leases and the Admissibility of
Parole Evidence—Evidence Outside Written
Contract Admissible If:

Additional terms consistent with contract terms

Information helps interpret agreement, including:

Course of performance

Course of dealing

Usage of trade
21-12
Interpretation of Sales and Lease Contracts:
Priority of Evidence

Express contract terms

Course of performance (regarding subject contract)

Course of Dealings (between subject parties)

Usage of trade (industry standard)
21-13
Unconscionability
(Definition):
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
21-14
Contracts for the International Sale of Goods
(CISG)

Definition: Treaty governing international “business-tobusiness” sales contracts

Many major trading nations have signed the CIS

Significance of CISG: Important because CISG (rather than
UCC) governs international sales contracts

Advantage of CISG: Provides clarity, predictability, and
uniformity for global businesses
21-15