The Sale, Lease, and Distribution of Goods

The Sale, Lease, and Distribution of Goods

Contracts for the sale, lease, and/or distribution of goods are primarily governed by state law. Specifically, most states have adopted the Uniform Commercial Code (UCC) with regard to these topics. An attorney who is experienced with the UCC can help you with your questions.

Sale of goods

A "sale of goods" is governed by Article 2 of the UCC. Section 2-106 of the UCC defines a "sale" as a transaction in which title to goods passes from the seller to the buyer for a price. Section 2-105 identifies "goods" as all things which are movable at the time of identification of the contract for sale. The Code does not apply to any sale that is simply intended to operate as a security transaction. In general, Article 2 is similar to the traditional common law of contracts. However, it does differ in some important aspects because it was tailored with modern commercial transactions in mind.

Article 2 provides rules for all phases of a sales contract, including formation, modification, and remedies upon breach. Detailed discussion of these topics is beyond the scope of this article. Review the UCC or contact an attorney for more detail.

Warranties

An important part of Article 2 of the UCC pertains to warranties. Under the UCC there are four types of warranties: the warranty of title, the implied warranty of merchantability, the implied warranty of fitness for a particular purpose, and express warranties.

• Any seller of goods must warrant that the title of the goods that will be transferred is good. This would mean that there are no liens or encumbrances on the title of which the buyer is unaware.
  
  
• In any sale by a merchant who regularly deals in goods of the kind being sold, there is an implied warranty that the goods are merchantable. In essence, this means that the goods are "fit for sale." The UCC specifies the qualities of a good that is "fit for sale" in section 2-314.
  
  
• In any sale of goods there is an implied warranty of fitness for a particular purpose. This warranty arises when a seller knows the particular purpose for which the goods are to be used and the buyer is relying on the seller's judgment, skill and experience to select the goods that are best suited to that purpose. This rule is stated in UCC section 2-315.
  
  
• A seller of goods can also create an express warranty. According to UCC section 2-313 an express warranty is created by an affirmation of fact which relates to the goods and becomes part of the basis of the bargain. In addition, any description of the goods that is made as part of the basis of the bargain creates a warranty that the goods will conform to the description. Finally, any sample or model that is made part of the basis of the bargain creates a warranty that the whole of the goods is the same as the sample or model.
  
  

Good Faith

It should also be noted that there is a duty of "good faith" under UCC section 1-203 that is applicable to all UCC sections including the sales provisions. "Good faith" can be defined as the duty to make an honest and sincere effort to fulfill obligations under the contract. There can be no fraud or intentional seeking of unfair advantage.

Lease of Goods

The leasing of goods is regulated by Article 2A of the UCC. Like Article 2, it has been adopted in most states. A detailed treatment of Article 2A is beyond the scope of this article. Consult Article 2A or an attorney for more details.

Conclusion

As discussed, the sale and lease of goods is primarily governed by the UCC. In general the UCC adopts much of the common law of contracts. However, there are important differences of which a seller, buyer, lessee, or lessor of goods must be aware. An attorney with UCC experience can help you with your questions.