Reference no: EM131659284

Question: Businesspersons have always been involved with the sale of goods. Laws governing sales of goods date back centuries to the Middle Ages when merchants developed their own rules regarding the sale of and payment for goods (called the Law Merchant). Today, Articles 2 and 2A of the Uniform Commercial Code (UCC) and the United Nations Convention on Contracts for the International Sale of Goods (CISG) establish the rules for many sales and lease contracts. In recent years, leasing goods has become more popular, particularly when advances in technology can lead to a product becoming obsolete in a short period of time. For example, hospitals often lease rather than buy expensive technical equipment because they know that more advanced equipment will soon be available to meet the demands of diagnosis and patient care. Leasing of automobiles and trucks is becoming more popular every year. Some Issues of Concern for Purchasers and Lessees When entering into a contract to purchase or lease goods, a buyer or lessee needs to be familiar with the UCC's rules on several issues. (Although the remainder of this discussion applies generally to both sales and lease contracts, for simplicity it will refer only to buyers and sales.) A key issue is whether the transaction is a sale of goods or a contract for services. Determining which is the main object of the contract can be a problem when goods and services are combined. Courts and statutes have had to deal with whether providing a blood transfusion in a hospital, supplying electricity, or serving food and drink in a restaurant is a sale of a good or the performance of a service.

When a contract involves both goods and services, the courts use the predominantfactor test to determine whether the UCC will apply. Another area of concern is what terms will govern the contract. Both sellers and buyers should be aware that if their agreement leaves terms open, the UCC allows the courts to fill in the open terms. Thus, a contract can exist even with missing terms. For example, if no delivery term is stated, the UCC stipulates that delivery takes place at the seller's place of business (or residence if the seller has no place of business). Buyers should also be concerned with avoiding the "battle of the forms." Because sellers use their own sales forms that contain terms and conditions, and buyers use purchase orders that also include terms and conditions, disputes can arise over which terms apply to the sale. Terms in one form may conflict with those in the other, or one form may contain terms that are not in the other form. When both forms are used to create a contract and it is not clear which terms will govern, the UCC provides guidance to a court in making the determination [UCC 2-207]. If a court must make the determination, however, it is already too late because a dispute has arisen. The parties should try to avoid costly and time-consuming litigation over the terms of a contract by clarifying their intentions beforehand

CHECKLIST FOR CONTRACT PURCHASES AND LEASES

1 If there is any doubt as to whether the contract is for a good or a service, the parties should clarify their intent in the contract. A simple statement indicating that the contract falls under the state's UCC statute is usually sufficient to indicate that a contract for goods is intended.

2 Be sure your contract includes all essential terms. Remember that a contract can be formed with open terms, such as those for price, payment, and time and place of delivery. The UCC permits the courts to supply the missing terms.

3 Try to ensure that the final contract contains terms and conditions from the form of only one party (either the seller or the buyer). The terms that will apply should be decided before the transaction, not afterward when a dispute can arise. (Make it a rule to always read through the other party's form prior to entering into a contract. That way you can raise any objections you might have to the form's terms or conditions before obtaining the goods.)