Business Law 4510 Chapter 14 Notes The Formation of Sales and Lease Contracts I II The Scope of the UCC uniform commercial code a UCC makes laws governing all phases of sales and lease contracts uniform clearer and simpler i Once acts are adopted they become statutory law in that state ii UCC has been adopted in whole or in part by all of the states except Louisiana The Scope of Article 2 Sales a Article 2 deals with the sale of goods not real estate services or intangible property stocks i The rules may vary depending on if the buyer or seller is a merchant b What is a Sale c What are Goods i Sale the passing of title evidence of ownership from the seller to the buyer for a price 1 Price can be payable in cash or other goods or services i Good tangible touched or seen and moveable ii Goods Associated with Real Estate 1 A contract for the sale of minerals oil gas or a structure building is a contract for the sale of goods if severance or separation is made by the seller a If the buyer is to sever separate the minerals or structure from the land the contract is considered to be a sale of real estate governed by the real property law not UCC 2 A sale of growing crops or timber to be cut is considered to be a contract for the sale of goods regardless of who severs them a Other things attached to realty window air conditioner etc but capable of severance without material harm to the land are also considered to be a contract for the sale of goods regardless of who severs them 1 Predominant factor test used to determine whether a contract is primarily for the sale of goods or for the sale of services a UCC covers services provided under a mixed contract that is predominantly for goods b UCC won t cover anything in a contract predominantly for services including the goods 2 Jannusch v Naffziger a b Issue were the goods the predominant factor in the sale of this business Yes There was a contract formed under the UCC which the Naffziger s breached The oral agreement was sufficiently definite to form a sales contract iii Goods and Services Combined d Who is a Merchant i Merchant a person who possess or uses an expertise specifically related to the goods being sold merchant status can arise in three ways 1 A person who deals in goods of the kind involved in the sales contract 2 A person who by occupation holds himself out as having knowledge and skill unique to the practices or goods involved in the transaction 3 A person who employs a merchant as a broker agent or other intermediary III The Scope of Article 2A Leases a b Definition of a Lease Agreement Lease a transfer of the right to possess and use goods for a period of time in exchange for payment i A lessor and lessee s bargain with respect to the lease of goods as found in their language and as implied by other circumstances including course of dealing and usage of trade or performance 1 2 Lessor one who transfers the right to the possession and use of goods under a lease Lessee one who acquires the right to the temporary possession and use of goods under a lease c Consumer Leases i Three elements 1 A lessor who regularly engages in the business of leasing or selling 2 A lessee except an organization who leases the goods primarily for a personal purpose 3 Finance Leases Total lease payments that are less than a dollar amount set by state statute d i The lessor buys or leases goods from the supplier and leases or subleases them to the lessee 1 2 Lessor is simply financing the transaction Lessee must perform and continue to make payments even if the leased equipment is defective IV The Formation of Sales and Lease Contracts a Parties are free to establish any terms UCC comes into play when the parties have failed to provide a contingency that gives rise to a dispute b Offer i Open Terms terms when accepted 1 Common law of contracts offer must be definite enough for parties to ascertain its essential 2 UCC Sales or lease contract will not fail for indefiniteness even if one or more terms are left open as long as a The parties intended to make a contract i The more things left blank the less likely courts will find that the parties intended to make a contract b There is a reasonably certain basis for the court to grant an appropriate remedy ii Open Price Term 1 2 If no price determined the courts will determine the reasonable price at the time If either the buyer or seller determines the price the price is fixed in good faith a Good faith honesty in fact and the observance of reasonable commercial standards of b fair dealing in the trade commercial reasonableness If price fails to be fixed through fault of one of the parties the other can cancel the contract or fix a reasonable price 1 When left unspecified payment is due at the time and place at which the buyer is to receive the If payment is to happen in cash the seller must give the buyer a reasonable amount of time to obtain it 1 When left unspecified the buyer normally takes delivery at the seller s place of If goods are located elsewhere delivery is made there if both parties know If delivery shipment time is unclear courts will infer a reasonable time iii Open Payment Term goods a iv Open Delivery Term business residence a b v Duration of an Ongoing Contract 1 In this situation either party may terminate the ongoing contractual relationship with reasonable notification before termination vi Options and Cooperation Regarding Performance 1 When no shipping arrangements are specified but the contract contemplates shipment of the goods the seller has the right to make these arrangements in good faith 2 When the contract omits terms relating to the assortment of goods the buyer can specify the assortment in good faith vii Open Quantity Term 1 Hard for courts to determine reasonable quantities in the absence of a specific quantity 2 Two exceptions a Requirements contract i When the buyer agrees to purchase and the seller agrees to sell all or up to a ii stated amount of what the buyer needs or requires Involves implicit consideration since the buyer gives up the right to buy from any other seller 1 If the buyer promises to purchase only if the buyer wishes to do so or if the buyer reserves the right to buy the goods from someone else the promise is illusory without consideration and unenforceable b Output contract i When a seller agrees to sell and buyer agrees to buy all or up to a stated amount of what the seller produces 1 Implicit consideration since seller forfeits right to sell