International and domestic sales of goods.

It is increasingly common to make transactions with businesses in other countries. If you are purchasing goods not for personal or household use, Article 2 of the Uniform Commercial Code ("UCC art. 2") or the United Nations Convention on Contracts for the Sale of Goods ("CISG") apply.

All 50 states have enacted the UCC. As of December 2012, 78 nations ratified the CISG. Wikipedia, United Nations Convention on Contracts for the Sale of Goods, http://en.wikipedia.org/wiki/United_Nations_Convention_on_Contracts_for_the_International_Sale_of_Goods (last visited February 21, 2013). Parties can generally contract around UCC art. 2 or the CISG, as long as other requirements for a valid contract exist. There are some things that cannot be varied by agreement, such as good faith, diligence, reasonableness and care. (If a party enters a contract in bad faith with the intention to take advantage of the other party, the other party would likely have a cause of action for fraud.)

In many cases, the parties do contract around the provisions of the UCC or CISG. In international transactions, when the parties are both contracting states and the contract is silent regarding choice of law, the CISG applies.

There are minor differences between the two. CISG art. 18 provides that acceptance of an offer is valid when it reaches the offeror. In American law, acceptance is valid when dispatched, when that is the method by which acceptance is to be effectuated. CISG art. 19 provides that a reply to an offer that appears to be an acceptance but adds additional terms or limitations operates as a rejection and counteroffer. UCC art. 2 provides that such a reply operates as an acceptance, unless the acceptance is expressly conditioned on the adoption of those terms or limitations in the contract. CISG art. 11 does not require contracts for goods over $500 to be in writing. In American law, the Statute of Frauds and the UCC require such a contract to be in writing, electronically or otherwise.

There are no likely changes in the foreseeable future to either the UCC or CISG, so any practical differences between the two are likely to remain minimal. But there are situations when the two differ, as noted above, in which case legal consequences can vary quite widely.

Is it a sale or lease?

A common mistake that businesspersons who deal in goods may make is to characterize a transaction improperly. At first glance, it would seem that it is easy to delineate what constitutes a sale from what constitutes a lease. If it is a sale, Article 2 will apply. If it is a lease, Article 2A will apply. The line between sales and leases becomes fuzzy when security interests are involved. A sale intended for security occurs when goods are purchased on credit but the seller retains the right to foreclose on the goods if the buyer stops making payments. In such a case, Article 9 also applies.

The "Economic Realities" test offers salient guidance. It posits that a purported lease is actually a sale when the lessor/seller is scheduled to receive the goods back with little or no economically useful life remaining. The UCC goes beyond merely asking whether the putative lessor would receive the goods back with any economically useful life. The UCC does not follow the Economic Realities test, even though the test is subsumed in it.

Article 1 of the UCC distinguishes a lease from a security interest. It defers to the facts of each case. If the lessee/buyer cannot terminate the lease and is obligated to pay for the entire term of it, there is a security interest if: (a) there is no remaining economic life to the goods after the lease expires; (b) the lessee/buyer must renew the lease; or (c) the lessee/buyer has an option to renew the lease for little to no additional payment.

If you lease goods in your business, you should take care to ensure that your leases are not disguised sales. If they are disguised sales and a security interest is created, you would be remiss to not take advantage of Article 9 by perfecting your security interest. Generally, to perfect, it is necessary for the security interest to "attach" and to file a financing statement with the Secretary of State. Generally, a security interest attaches only when it becomes enforceable against the buyer. Perfecting your security interest helps establish priority over other creditors. A perfected security interest has priority over later-in-time perfected security interests. A perfected security interest has priority over unperfected security interests, even those that attached before perfection.