Sales and Leases Checklist

Sales

Scope of Article 2
2-102 Transactions in Goods (Transactions Not Defined)
2-106 Sales—passing of title from seller to buyer for price
2-105 Goods—movable at the time of identification to the contract
Sales-Service (Hybrid Transaction)
Majority Rule—Predominate Purpose Test (Circumstances)
Minority Rule—Gravamen Test (Complaint either for Goods or Service)
Merchants
Comments to 2-104
Any merchant acting in mercantile capacity
2-201 Statute of Frauds and Exceptions
2-205 Firm Offers
2-207 Exchange of Forms as Acceptance
Merchant with respect to goods of that kind
2-314 Implied Warranty of Merchantability
Good Faith
Honesty in Fact (1-201(19)) AND
Observance of Reasonable Commercial Standards of Fair Dealing in the Trade (2-103)
New Merchants
Between Merchants (2-104)
Non-Merchants
Good Faith
Honesty in Fact (1-201(19))

Contract Formation
Statute of Frauds (2-201) (One Party Denies Existence of Contract) (Does not Mean A Contract Exists—Only Means Aggrieved Party Gets Day in Court)
Requirements
Sale of goods for total price of $500 or more
Writing Required—intentional reduction to tangible form (1-201(46))
Sufficient to indicate existence of an agreement (objective evidence of agreement)
Signed by party to be charged
Any symbol with present intention to authenticate (1-201(39))
Listing determinable quantity
Exceptions
Merchant Exception (2-201(2))
Between Merchants
Confirmatory Writing after Oral Agreement (objective guarantee that oral agreement rests on real transaction)
Sufficient Against Sender
Writing sufficient to indicate agreement was made, signed by sender indicating quantity
Sent and Received W/I Reasonable Time
Recipient Knows of its Contents (Sent to proper place)
Objection of Recipient
Written objection to the confirmatory memo ("We have no Contract") made W/I 10 days of receipt of confirmation
Specially Manufactured Goods Exception (Where BUYER Denies Existence of Contract)
Specially Manufactured Goods for the Buyer
Not Suitable for Sale to Others in Seller's Ordinary Course of Business (Circumstances)
Seller Substantially Began Manufacture OR Arranged for Procurement of Manufacture
Before Buyer Notifies Seller of Repudiation
Under Circumstances Reasonably Indicating the Goods are for the Buyer
Admissions
Once Party Admits Existence of Contract, SOF cannot be at issue
Performance Exception
Buyer Makes Payment AND Seller Accepts
Seller Delivers, Buyer Receives, AND Buyer Accepts and Retains Goods
Part Payment—enforceable to the extent paid
More than One Item: Court Apportions Goods
One Item: No Apportionment
Formation in General (2-204)
Contract made in any manner sufficient to show agreement including conduct whether or not moment of making is undetermined
If terms left open, contract is sufficiently definite so long as a reasonably certain basis to determine remedies exists
Firm Offers (2-205)
Offer to buy or sell goods
Offeror is any merchant under 2-104
Signed Writing (If oral, must be supported by consideration)
Assurance that offer is held open
Offer revocable for time specified, not exceeding three (3) months
Offer and Acceptance (2-206)
UNLESS OTHERWISE UNAMBIGUOUSLY INDICATED, Offer to make a contract is construed as inviting acceptance in any reasonable manner
Prompt Shipment or Promise to Ship means acceptance can be either
Conforming goods shipped acts as acceptance
Non-Conforming Goods shipped with timely and seasonable notification that the goods are accommodations IS NOT acceptance UNLESS buyer accepts the nonconforming goods
Beginning of Performance acts as acceptance
Notification of the beginning of performance must be sent to buyer
Additional Terms Included in Acceptance (2-207(1))
Definite and Seasonable Expression of Acceptance Including Different or Additional Terms Acts as an Acceptance
Where Acceptance is "Expressly Made Conditional to Offeror's Assent to Different or Additional Terms," there is no Acceptance UNTIL Offeror Expressly Assents
MUST STATE THESE EXACT WORDS

Breach of the Contract
First, Define the Contract Terms
Parole Evidence Rule (2-202) (Parties Agree That There is A Contract BUT One Party Tries to Introduce or Rely on Term OUTSIDE the Writing)
A non-integrated writing can be modified by parole evidence
One Writing Signed By Both Parties
Fully Integrated Writing (Under All Circumstances, writing is absolutely complete)
Parole evidence is inadmissible. UOT COP COD can be used for limited purpose, namely, to explain or supplement the writing; it CANNOT contradict the writing
Partially Integrated Writing (Under All Circumstances terms in writing are agreed to, but the contract is not complete)
Agreed-to terms CANNOT be contradicted by the parole evidence
However, consistent, additional evidence is admissible
Where the contract is silent OR
Parties have not yet agreed to that term
UOT COP COD can also be used to explain or supplement the writing UNLESS Contradictory to the agreed-upon terms
Confirmatory Memos Sent By Each Party
Terms to Which Both Writings Agree CANNOT be contradicted by parole evidence
Where One Writing is Silent OR Where the Writings do NOT Agree
Consistent, additional evidence is admissible
Party Relying on Terms Included in their Form (2-207(2) or (3))
Oral Agreement Followed by Confirmatory Memorandum, terms determined by subsection (2)
Between Merchants AND Additional Term
Additional Term is part of the Contract UNLESS
Material alteration (also, where offer limits acceptance to offeror's terms or offeror objects to any additional terms)
Objective and subjective surprise OR
Substantial Economic Hardship
Disclaimer of warranties
Knowingly and unilaterally imposing hardship on buyer
Not Between Merchants and Additional Term
Additional term is a proposal to the contract
Different Terms
Knockout Rule
Master of Offer OR
Reasonable
Where the Exchange of Forms = Offer and Acceptance
Definite and seasonable expression of acceptance = acceptance, Terms determined by subsection (2)
Between Merchants AND Additional Term
Additional Term is part of the Contract UNLESS
Material alteration
Objective and subjective surprise OR
Substantial Economic Hardship
Disclaimer of warranties
Knowingly and unilaterally imposing hardship on buyer
Not Between Merchants and Additional Term
Additional term is a proposal to the contract
Different Terms (Three Approaches)
Knockout Rule
Master of Offer OR
Reasonable
Acceptance Made Expressly Conditional to Buyer's Assent to Different or Additional Terms
NO ACCEPTANCE UNLESS OFFEROR EXPRESSLY ASSENTS
If offeror assents to additional terms, there is no issue
IF NO ASSENT, Writings do not establish the contract
Where writings do not establish the existence of a contract, but Subsequent Performance Indicates Agreement (2-207(3))
Terms consists of those terms to which the parties agreed AND
Gap fillers in the code
Gap Fillers
2-305 Open Price Term
Reasonable Price @ time of delivery IF price not included, left to be agreed upon and fail to agree, or parties let market decide the price
2-311 Allocation of Quantity
Specifics left to one party
Specifications must be done in good faith within commercial reasonableness
Where party refuses to set specifications
Other party may treat the refusal as a breach and be excused from performance OR
May proceed to set specifications himself in a reasonable manner
Other presumptions: Unless otherwise agreed
Entire K is to be delivered at one time. UCC 2-307
Tender of delivery is at seller's place of business. UCC 2-308
Time for Delivery is a reasonable time. 2-309(1)
Payment is due at the time and place of delivery upon receipt of goods 2-310(a)
Warranties
Warranty of Title (2-312)
Created in the sale of goods
Extent
Good Title Conveyed (2-403)
Void Title—involuntarily giving up goods
Voidable Title—voluntarily giving up goods
GFPV—good faith standards; voluntary transfer of interests, for value (sale)
Transfer Rightful
GFPV has power to transfer good title, but not the right (True owner has the right to transfer)
No security interests or liens to which buyer does NOT actually know
If BUYER furnishes specifications to seller, buyer must hold seller harmless from any claim arising from the specifications
Breach
Good Title not conveyed
Transfer is not rightful
Seller fails to disclose security interest
If BUYER requires specifications and specifications give rise to claim against seller, the buyer has breached the warranty of title
Proximate Causation
Buyer's Damages (2-714 and 2-715)
Difference between value of goods as promised and goods as transferred (FMV)
Actual costs of litigation if buyer must defend cloud on title
Incidental and consequential damages
Vouching In under 2-607
Disclaimer (2-312)
Specific language OR
Circumstances
Express Warranties (2-313)
Created
Affirmation of Fact, Promise, Description, Sample, Model
Extent (TEST)
Representations
Made by seller to buyer
Relating to the goods
Form the basis of the bargain
No reliance required BUT
Seller rebuts by showing buyer did not rely
Breach
Goods do NOT conform to representations made by seller
Proximate Causation
Damages (2-714 and 2-715)
Difference between the value of the goods as promised and the value of the goods as transferred
Incidental or consequential damages
Disclaimer (2-316)
Where Language of the contract both creates express warranties AND limits express warranties, court construes as consistent
If inconsistent, the disclaimer of express warranties drops out
Attempt to Disclaim
Seller must assure that the writing is fully integrated or integrated with respect to disclaimer of warranty term
Seller should add a "lack of authority" clause if salespersons are used
Seller should have buyer sign the disclaimer separately to prevent unbargained-for disclaimer and surprise
Implied Warranty of Merchantability (2-314)
Created
Sale of goods
Seller is a merchant with respect to goods of that kind
"Goods of that kind" interpreted broadly or narrowly depending on type of contract (Consumer = broad interpretation)
Extent
Goods Fit for its ORDINARY purpose
Food warranties
Reasonable anticipation test
Allergic reaction
Seller has reason to know the reaction was possible in some "appreciable" class of consumers (Circumstances)
Breach
Goods not fit for ordinary purpose
Proximate Causation
Damages (2-714 and 2-715)
Difference between the value of the goods as promised and the value of the goods as transferred AND
Incidental or consequential damages
Disclaimers (2-316)
General Rule
Must contain the word "merchantability" AND
Must be conspicuous (reasonable person ought to have noticed it)
Some courts allow "actual" knowledge to supplant conspicuousness although it is not in the code
Exceptions: Alternatives
Conspicuous "As is" or "with all faults" language
Seller demands inspection by buyer and buyer should have found the defect
UOT COP COD
Implied Warranty of Fitness for Particular Purpose (2-315)
Created
Seller knows or has reason to know of the buyer's needs
Seller knows or has reason to know the buyer is relying on seller to select or furnish suitable goods
Seller actually selects or furnishes goods
Buyer actually relies on seller's skill or judgment to select or furnish the goods
ALL at time of contracting
Extent
Goods are fit for buyer's particular purpose
Breach
Goods are not fit for buyer's particular purpose
Proximate Causation
Damages (2-714 and 2-715)
Difference between the value of the goods as promised and the value of the goods as transferred
Incidental or consequential damages
Disclaimer (2-316)
General Rule
Must be in writing AND
Conspicuous
Need not be specific language (no implied warranties in this sale)
Exceptions: Alternatives
Conspicuous "As is" or "with all faults" language
Seller demands inspection by buyer and buyer should have found the defect
UOT COP COD
Beneficiaries of Warranties 2-318
Alternative A (Narrow) (PA)
Natural persons
In family or household OR
Guests in home
Reasonably expected to use, consume, or be affected by the goods
May recover for personal injury resulting from breach of warranty
Alternative B (Moderate)
Natural Persons
Reasonably expected to use, consume, or be affected by the goods
May recover for personal injury resulting from breach of warranty
Alternative C (Broad)
Any person, including corporations
Reasonably expected to use, consume, or be affected by the goods
May recover for ANY injury (personal and property) for breach of warranty
Seller's Defense to Breach of Warranty Claim 2-607
Buyer MUST NOTIFY seller of the breach of warranty under all circumstances
Within a reasonable time
To ensure negotiations, give seller opportunity to cure and allow seller to inspect before curing
Content of notice need not be specific but must inform the seller that the transaction is "troublesome and needs to be watched"
Limitation of Warranties (2-719)
Remedy Limited to Repair or Replace
IF Parties expressly agreed that the repair or replace remedy would be exclusive (code presumes that it is in addition to other warranties, so parties must expressly agree that it is exclusive) AND
Limitation fails of its essential purpose (what is the purpose)
Limitation drops out and code remedies apply
Limitation of Consequential Damages
Limitation permitted unless unconscionable
Limitation of damages for personal injury in consumer contract is prima facie unconscionable
Limitation of damages for economic injury is not prima facie unconscionable
Limitation of consequential damages where exclusive remedy is repair or replace (and remedy fails of its essential purpose)
In consumer contracts, they both drop out and the code remedies come in
In commercial contracts, the repair or replace clause ALONE drops out (limitation of consequential damages stays in)
Unconscionability (2-302)
Substantive (terms etc) AND Procedural (unfair process) unconscionability must be found by the court in order to refuse to enforce the contract or a clause thereof
Next, Determine Performance Obligations
General Obligations (2-301)
Seller must tender conforming goods
Buyer must accept conforming goods and tender payment
General Rule—Payment is sufficient when made by any means or in any manner generally accepted in the business
Exception—When seller demands payment in cash, seller must give buyer a reasonable time to procure cash, and buyer must act with due diligence
Code contemplates a contemporaneous transfer, but 2-507 and 2-511 provide that seller's tender of conforming goods is conditioned upon buyer's payment, and vice versa, in the event of non-contemporaneous transfer
Overview
When buyer receives goods, buyer has reasonable time to inspect so as to assure the goods are conforming
Buyer MUST accept OR reject based on whether the goods conform or not
Whether goods conform depends on the contract terms
"In accordance with the obligations under the contract" (2-106(2))
IF the goods conform, buyer MUST accept
IF the goods do NOT conform, buyer has right to reject
Perfect tender rule in a single delivery contract OR
Rejection in accordance with provisions for installment contracts
Rejection
Single Delivery Contracts (2-601)
Buyer has Right to Reject IF
Tender fails to conform in any respect with the TERMS OF THE CONTRACT (Perfect Tender Rule)
Reject the whole
Accept the whole
Accept commercial unit(s) and reject the rest
Procedure for Rejection (2-602) AFTER REASONABLE OPPORTUNITY TO INSPECT
Buyer must seasonably notify the seller of rejection
Buyer must refrain from exercising ownership of goods AND
Hold goods for reasonable time and in a reasonable manner so seller can remove them
Additional Obligations
Merchant Buyers are under additional obligations under 2-603
Buyer must reship goods (at seller's cost) IF
Seller requests AND
Seller has no place of business in the market
If Goods are perishable
Buyer must make reasonable attempts to resell without seller's demand, but buyer is entitled to commission
Buyer must also state defects that could have been found upon reasonable inspection under 2-605 IF
Seller could cure (2-508)
Seller has absolute right to cure IF time for Seller's performance has not expired
IF seller has reasonable grounds to believe that the goods or tender are acceptable, seller has right to cure within a reasonable time after rejection (not forever)
Reasonable grounds determined by all circumstances including UOT COD COP
Seller demands statement
Where statement is required and not given, buyer CANNOT rely on those defects to show breach
Installment Contracts (separate lots, separately accepted) (2-612)
Buyer has Right to Reject IF AFTER REASONABLE OPPORTUNITY TO INSPECT
Goods are non-conforming
Non-conformity substantially impairs the value of the installment to the buyer
Purpose of the goods, time, quantity, assortment, resale, damage
Non-conformity cannot be cured by the seller
Seller has absolute right to cure in installment contracts
If seller cures, buyer MUST accept
ANY PARTY has the right to reject the ENTIRE INSTALLMENT CONTRACT IF
Seller's Nonconformity OR Buyer's Default
Substantially impairs the value of the whole contract
Cumulative effect of the nonconformity based on all the circumstances
Purpose, price, good will, harm to other customers, reputation etc.
Substantial impairment acts as a breach of the whole contract
*PRESUMPTION IN COURT is that nonconformities do not substantially impair value to the parties—encourage performance of contracts
Procedure
Buyer MUST seasonable notify seller and give seller opportunity to cure
Acceptance
Generally
Buyer must pay for accepted goods (2-607)
Acceptance precludes rejection (2-607)
Buyer bears the burden of proving any breach with respect to goods accepted (2-607)
Acceptance (2-606)
After reasonable opportunity to inspect
Buyer makes an overt indication of acceptance to the seller
Fails to make an effective rejection under 2-602
Failure to seasonably notify seller of rejection within a reasonable time
Exercise of ownership
Fail to reasonably hold goods in reasonable manner so seller can retrieve the goods OR
Does any act inconsistent with the seller's ownership
Acceptance of any part of a commercial unit is acceptance of the entire unit
Revocation of Acceptance (2-608)
Right to Revoke Acceptance (2-608(1))
Nonconformity BASED ON THE CONTRACT TERMS
Regardless if seller knows of buyer's circumstances
Nonconformity substantially impairs the value of goods to the buyer
Subjective determination of THIS buyer's needs AND
Objective determination of the value to a reasonable person with THIS buyer's needs
AND BUYER
Knowingly accepts goods with the nonconformity based on a reasonable assumption that the seller would cure OR
Buyer was induced to accept because the defect was difficult to discover
Procedure (2-608(2))
Notification of revocation of acceptance must occur within a reasonable time after buyer discovers OR should have discovered the defect AND
Before any substantial change in condition of goods not caused by the defect
Once buyer rightfully revokes acceptance, buyer has the same rights and obligations as if he rejected the goods
Cannot exercise of ownership
Hold goods for reasonable time and with reasonable care so seller can retrieve them
Merchant buyers may also have additional obligations (2-603)
Other Matters
Identification 2-501
Generally
Determines the exact goods seller will give to buyer
Buyer obtains limited property interest and insurable interest at time of ID
Comments suggest that all doubts should be resolved in favor of ID
ABSENT EXPLICIT AGREEMENT
Existing goods are identified at the time of contracting
Identification of an undivided share in identified fungible bulk occurs at the time of contract
Undivided share means ownership
Identified fungible bulk means container of goods
Fungible means identical equivalent
Future goods are identified when
Goods are shipped
Marked OR
Otherwise designated by the seller as goods to which the contract refers
NEED NOT BE DELIVERABLE
Crops or unborn young
Identification occurs when crops are planted IF
Harvested within the year OR
At the end of the next normal harvesting season
Whichever is longer
Risk of Loss: NO BREACH AND NO AGREEMENT (2-509) (After Identification)
2-509(1): IN Shipment Contracts ROL shifts when goods are duly delivered to the carrier
F.A.S. (2-319) is always a shipment contract
Requires seller to deliver goods on the dock of the vessel
Obtain negotiable bill of lading
2-504 also requires seller to
Form a reasonable contract to ship with the carrier
Obtain all necessary documents for shipment AND
Promptly notify buyer of shipment
C.I.F. (2-320) is always a shipment contract
Requires seller to obtain a negotiable bill of lading
Load the goods and obtain the receipt
Obtain insurance for the goods
2-504 also requires seller to
Form a reasonable contract to ship with the carrier
Obtain all necessary documents for shipment AND
Promptly notify buyer of shipment
C & F (2-320) is always a shipment contract
Same as C.I.F. except no insurance requirement (buyer has a blanket insurance policy for all goods)
F.O.B. (2-319) CAN be a shipment contract if the named place is the seller's location
Requires seller to put the goods in possession of the carrier
2-504 also requires seller to
Form a reasonable contract to ship with the carrier
Obtain all necessary documents for shipment AND
Promptly notify buyer of shipment
2-509(1): IN Destination Contracts, ROL shifts when carrier tenders delivery at the particular destination
Ex-Ship is always a destination contract
Goods must be unloaded
F.O.B.