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KU BLAW 301 - Chapter 11

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Slide 1Slide 2Scope of Article 2DefinitionsGoods and Services CombinedMerchantsSec. 2: Formation of Sales and Lease ContractsOpen TermsOpen TermsAcceptance (Ch. 9 Review)Sales and Lease Contracts Chapter 11 (pp.248-252)Sec. 1: The Scope of Articles 2 (Sales) and 2A (Leases)The UCC (uniform Commercial Code) is a statutory law designed to streamline commercial transactions, which has been adopted in its entirety by all states except LA. It contains several “articles” that address different commercial matters.Article 2 of the UCC governs contracts for sale of “goods” (i.e., tangible, personal property) (§2-102)Art. 2 preempts the common law of contracts by modifying some of the requirements for the formation and performance of contracts for the sale of goods (“sales contracts”).Where the UCC is silent, common law still governs.See Exhibit 11-1on p. 249.2Scope of Article 2Common law governs sales of real estate (including fixtures), services, and intangible property—NOT UCC Article 2, which only governs contracts for the sale of goods.“Freedom of contract." Most UCC provisions can be varied or dismissed by agreement between the parties—but parties cannot disclaim obligations of good faith, diligence, reasonableness and care.3DefinitionsSale: passing of title (ownership) from the seller to the buyer for a price. (§2-106) Payment may be made in cash or other goods or servicesGoods: all things that are tangible (have physical existence) and moveable (can be carried).Includes crops, specially manufactured goods and unborn animals.4Goods and Services CombinedWhen goods and services are provided together, the predominant-factor test is used to determine whether the contract is primarily for the “sale of goods” (in which case UCC will apply to all disputes) or for the “sale of services. “Case in Point 11.1 Jannusch v. Naffziger. Applying the “predominate factor test,” the court determined that a contract for the sale of all of the assets of a mobile food concession business was primarily for the sale of goods rather than for the sale of a business. UCC Article 2 was used to determine whether the buyer’s attempt to get out of the deal after several weeks was a breach of the contract. Since the buyers had no right to return the goods under the UCC, they were held liable for payment of the purchase price.5MerchantsUCC Article 2 applies to sales between all buyers and all sellers. However, in some matters, special standards of conduct are applied to merchants that are not applied to casual buyers and sellers because they expertise related to the goods being sold.Merchant (§2-104): A merchant is a person:Who deals in goods of the kind involved in the transaction (e.g., retailer, wholesaler, manufacturer); orWho, by occupation, holds himself out as having special knowledge or skill particular to the practices or goods involved in a transaction; orWho employs a merchant as broker, agent or intermediary in connection a particular transaction.Skip “Article 2A-Leases.”6Sec. 2: Formation of Sales and Lease ContractsAt common law, a valid offer must be definite and complete (containing all essential elements). Once the offer is unequivocally accepted, a binding contract is formed (assuming that other requirements of consideration, capacity, and legality are satisfied). UCC is more flexible : “A contract for the sale of goods may be made in any manner sufficient to show agreement . . .” (§2-204)(1).UCC allows an agreement to be formed even if there are open terms, such pricing, payment ,and delivery terms: “[A] contract does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.” (§2-204)(3).7Open TermsThe UCC provides the following rules when these terms are not addressed in a sales contract.Open price term (§2-305): reasonable price at the time of delivery.Open payment term (§2-310(a)): due at time and place delivery is made;.Can be tendered by cash, check or credit card; if cash is demanded, additional time must be permitted to procure it. (§2-511)Open delivery term (§2-308(a)): Buyer normally takes delivery at the seller’s place of business (if none, then seller’s residence)8Open Terms9Open quantity terms are generally not permitted, unless the contract is a: “Requirements contract” (buyer agrees to purchase, and seller agrees to sell, whatever buyer needs); or an“Output contract” (buyer agrees to buy all of seller’s production or output up to a limit) (§2-306)Such contracts are subject to good faith limitations.Skip the remainder of the chapter, but look at p. 254 and the next slide for a review of how the UCC modifies the common law “mirror image” rule for acceptances.Acceptance (Ch. 9 Review)Recall from Chapter 9 that the UCC dispenses with the common law “mirror image” rule. Article 2 provides that a sales contract is formed if the offeree’s response indicates a definite acceptance of the offer—even if it includes additional or different terms. Unless both parties are merchants, the contract is formed on the terms of the original offer and does not include any of the additional terms in the acceptance (See p. 254-- Case in Point 11.8 for an illustration of this rule)You do not need to know the rules applicable when both parties are


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