Outline: Review Session Sales

I. Introduction
 Purpose of Sales Law
 Gap Fillers: designed for common contract elements such as
price, warranty, delivery terms, and payment terms.
 Gap Fillers Exclusions: Contract-specific features, like quantity, typically do
not have gap fillers to avoid overcomplication.
 Focus is on identifying elements common to most contracts, ensuring a
reasonable approach to gap filling.
 Standardization
 Background rules ("shadow of the law")
II. Scope Issues
 Definitions and applications:
 “Goods”  means all things (including specially manufactured
goods) which are movable at the time of identification to the
contract for sale other than the money in which the price is to be
paid, investment securities (Article 8) and things in action.
“Goods” also includes the unborn young of animals and growing
crops and other identified things attached to realty as described
in the section on goods to be severed from realty
 “Merchants”  means a person who deals in goods of the kind
or otherwise by his occupation holds himself out as having
knowledge or skill peculiar to the practices or goods involved in
the transaction or to whom such knowledge or skill may be
attributed by his employment of an agent or broker or other
intermediary who by his occupation holds himself out as having
such knowledge or skill.
 “Between merchants” means in any transaction with respect to which
both parties are chargeable with the knowledge or skill of merchants.
 Factors:
 Regularity of transactions
 Expertise in the field, and
 Professional status
III. Purpose of Sales
 Gap-Filling from "Outside the Code"
 Express Terms govern Course of Dealing and Trade Use.
 Course of Dealing governs Trade Use.
 BUT: Course of Performance governs even express
terms. (common law waiver) [1-303(f)]
b. Usage of Trade use: is any practice or method of dealing
having such regularity of observance in a place, vocation, or
trade as to justify an expectation that it will be observed with
respect to the transaction in question.
 The existence and scope of such a usage must be proved
as facts. If it is established that such a usage is embodied

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 in a trade code or similar record, the interpretation of the
record is a question of law.
c. Course of dealing: is a sequence of conduct concerning
previous transactions between the parties to a particular
transaction that is fairly to be regarded as establishing a
common basis of understanding for interpreting their expressions
and other conduct
 Even with a merger clause, you can add course of
performance, dealing, etc. to explain the arrangement
d. Course of performance: is a sequence of conduct between the
parties to a particular transaction that exists if:
 (1) the agreement of the parties with respect to the
transaction involves repeated occasions for performance
by a party; and
 (2) the other party, with knowledge of the nature of the
performance and opportunity for objection to it, accepts
the performance or acquiesces in it without objection.
 Hierarchy of Gap-Fillers: Rules on prioritizing express terms, course
of dealing, and trade use
a. Express Terms: The clear and explicit terms of the contract are
given the highest priority. If the contract expressly covers a
point, that expression controls.
b. Course of Dealing: This refers to a sequence of previous conduct
between the parties to the contract that is fairly to be regarded
as establishing a common basis of understanding for interpreting
their expressions and other conduct. Essentially, it looks at how
the parties have acted in past transactions to fill in gaps or
clarify ambiguities in the current contract.
c. Course of Performance: If a contract involves repeated occasions
for performance by a party, and the other party, with knowledge
of the nature of the performance and opportunity for objection,
accepts the performance or acquiesces in it without objection,
this is a course of performance that can be used to interpret the
contract. It's particularly important for contracts that are
extended over a period of time where the parties have an
opportunity to object to a pattern of performance but do not.
d. Trade Usage: If both parties are in the same trade, the court may
infer that both parties had reason to know of and to contract in
light of a well-recognized trade usage. Trade usage fills in gaps
by considering what is deemed normal or customary within a
particular industry.
 Gap-Filling "Inside the Code" – implied warranties
 Implied Warranty of Merchantability (warranty that goods
are of average, merchantable quality).
 Implied Warranty of Fitness for Particular Purpose (warranty
that goods will suit identified special needs of the buyer).

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 b. 2-313: Express Warranties by Affirmation, Promise, Description, Sample.
(1) Express warranties by the seller are created as follows:
o (a) Any affirmation of fact or promise made by the seller to the buyer which
relates to the goods and becomes part of the basis of the bargain creates an
express warranty that the goods shall conform to the affirmation or promise.
o (b) Any description of the goods which is made part of the basis of the bargain
creates an express warranty that the goods shall conform to the description.
o (c) Any sample or model which is made part of the basis of the bargain creates an
express warranty that the whole of the goods shall conform to the sample or
model.
(2) It is not necessary to the creation of an express warranty that the seller use formal
words such as “warrant” or “guarantee” or that he have a specific intention to
make a warranty, but an affirmation merely of the value of the goods or a
statement purporting to be merely the seller's opinion or commendation of the
goods does not create a warranty.
b. §2-314: Implied Warranty: Merchantability; Usage of Trade.
(1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be
merchantable is implied in a contract for their sale if the seller is a merchant with respect
to goods of that kind. Under this section the serving for value of food or drink to be
consumed either on the premises or elsewhere is a sale.
(2) Goods to be merchantable must be at least such as
o (a) pass without objection in the trade under the contract description; and
o (b) in the case of fungible goods, are of fair average quality within the
description; and
o (c) are fit for the ordinary purposes for which such goods are used; and
o (d) run, within the variations permitted by the agreement, of even kind, quality
and quantity within each unit and among all units involved; and
o (e) are adequately contained, packaged, and labeled as the agreement may require;
and
o (f) conform to the promise or affirmations of fact made on the container or label if
any.
(3) Unless excluded or modified (Section 2-316) other implied warranties may arise from
course of dealing or usage of trade.
c. §2-315: Implied Warranty: Fitness for Particular Purpose.
 Where the seller at the time of contracting has reason to know any particular
purpose for which the goods are required and that the buyer is relying on the
seller's skill or judgment to select or furnish suitable goods, there is unless
excluded or modified under the next section an implied warranty that the
goods shall be fit for such purpose.
IV. Standardization
- What use are these default rules if parties can contract around them?
- They standardize business practice, and give parties a baseline from
which to start.
- “Sales”  UCC governs “transactions in goods;” [2-102];
o The most difficult issue with a “sale” is a disguised sale in the
form of a lease.

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 - First, you do the mandatory test: [1-203]
o A. Can the lessee terminate the lease?
 If NO, go to part B. If YES, go to GENERAL TEST.
o B. Do any one of the four factors below apply?
 IF YES, the lease MUST be a security interest. If NO, go to
GENERAL TEST.
o 1. the original term of the lease is equal to or greater than the
economic life of the lease (computer only good for 2 years; lease
is for five.)
o 2. the lessee is bound to renew the lease for the remaining
economic life of the goods or is bound to become the owner of
the goods.
o 3. the lessee has an option to renew the lease for the remaining
economic life of the goods for no additional consideration, or
nominal additional consideration.
o 4. the lessee has an option to become the owner of the goods for
no additional consideration or nominal additional consideration.
- C. GENERAL TEST: Does the "Lessor" have a significant Meaningful
Residual Interest in the asset at the end of the lease?
o (Economic Realities Rule -- If no rational economic actor would
refuse to exercise the purchase option, then it’s a sale.)
- “Goods”  “All things (including specially manufactured goods) which
are movable at the time of identification to the contract for sale.” [2-
105(1)]
- “Goods” vs. “Services”
o “Predominant Purpose” test – court looks to whether a
hybrid contract (one for both goods and services) is mostly for
goods, or mostly for services.
o “Gravamen” test – court looks to whether the action focuses
on object or service.
- “Merchant”
o Some rules apply only to merchants. [2-104 official cmt. 2]
o “Merchant” is a person who deals in goods of the kind or by his
occupation holds himself out as having knowledge or skill
peculiar to the practices or goods involved in the transaction. [2-
104(1)]
o “Merchant” (continued)
 Merchants have duties of basic business practices ([2-
201(2); 2-205; 2-207; 2-209 on statute of frauds, firm
offers, confirmatory memoranda and modification]);
Merchants also are responsible for implied warranties ([2-
314; 2-315])
o But, even these rules only apply to merchants in their mercantile
capacity. [2-104, Comment 2]

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 o Cook v. Downing: Court decided that dentists couldn’t be
merchants, and that there was no warranty for fitness for
particular purpose.
o Dissent: Dentists are obviously merchants, and warranty of
merchantability might have been violated.
- Scope: Statute of Frauds [2-201]
o Written memorandum required where price is $500 or more
(“authenticated record” and $5000 required in the revision).
o If contract is modified so that price goes above $500, written
memorandum needed.
V. Common Law vs. UCC Formation
 Common Law formation:
 Offer and Acceptance
 Mirror Image Rule: if Acceptance varies from offer, offer is
refused and acceptance is considered a counteroffer.
 (Corollary: “Last shot rule” – If seller then performs,
considered to have accepted counteroffer.)
 Consideration for firm offers.
 Common law requires consideration for an option contract
(an offer to keep a contract deal open for a set period of
time).
 Note: courts generally do not probe the value of
consideration (can be fairly low).
 UCC's flexibility in contract formation
 Offer and Acceptance
 A contract for sale of goods may be made in any manner
sufficient to show agreement, including conduct. . .[2-
204(2), 2A-204];
 Open terms or an indefinite moment of formation are
acceptable – contract still formed. [2-204(2),(3); 2A-204]
 Offers invite acceptance in any reasonable manner,
including performance. [2-206; 2A-206]
 IF seller ships non-conforming goods with a notice, that will
be an accommodation, not an acceptance. [2-206]
VI. Article 2 and 2A: Formation in Sales and Lease Contracts
 Offer and acceptance under UCC
 Consideration for firm offers
 Battle of the Forms (UCC Section 2-207)
VII. Formalization
 Statute of Frauds
 Requirements for written contracts
 Parole Evidence Rule
 When external evidence is admissible
VIII. Basic Warranties
 Implied and express warranties
 Actions for breach of warranty

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IX. Disclaimers and Defenses
 State and federal laws on disclaiming warranties
 Legal defenses like impracticability and unconscionability
X. Closing and Risk of Loss
 Procedures and rules for the transfer of risk
 Specific considerations for finance leases
XI. Seller’s and Buyer’s Remedies
 Remedies available for breaches, including actions for the price,
damages, and specific performance
XII. Conclusion
 Recap of key points
 Open Q&A or discussion prompts