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Business Law 4510Chapter 14 Notes: The Formation of Sales and Lease ContractsI. The Scope of the UCC (uniform commercial code)a. UCC makes laws governing all phases of sales and lease contracts uniform, clearer, and simpleri. Once acts are adopted, they become statutory law in that stateii. UCC has been adopted in whole or in part by all of the states (except Louisiana)II. The Scope of Article 2-Salesa. Article 2 deals with the sale of goods, not real estate, services, or intangible property (stocks)i. The rules may vary depending on if the buyer or seller is a merchantb. What is a Sale? i. Sale- the passing of title (evidence of ownership) from the seller to the buyer for a price1. Price can be payable in cash or other goods or servicesc. What are Goods? i. Good- tangible (touched or seen) and moveableii. Goods Associated with Real Estate1. A contract for the sale of minerals (oil, gas) or a structure (building) is a contract for the sale of goods if severance, or separation, is made by the sellera. If the buyer is to sever (separate) the minerals or structure from the land, the contract isconsidered to be a sale of real estate governed by the real property law (not UCC)2. A sale of growing crops or timber to be cut is considered to be a contract for the sale of goods regardless of who severs thema. Other things attached to realty (window air conditioner, etc) but capable of severance without material harm to the land are also considered to be a contract for the sale of goods regardless of who severs themiii. Goods and Services Combined1. Predominant-factor test- used to determine whether a contract is primarily for the sale of goods or for the sale of servicesa. UCC covers services provided under a mixed contract that is predominantly for goodsb. UCC won’t cover anything in a contract predominantly for services (including the goods)2. Jannusch v. Naffzigera. Issue: were the goods the predominant factor in the sale of this business?b. Yes. There was a contract formed under the UCC which the Naffziger’s breached. The oral agreement was sufficiently definite to form a sales contract. d. Who is a Merchant? i. Merchant- a person who possess or uses an expertise specifically related to the goods being sold, merchant status can arise in three ways:1. A person who deals in goods of the kind involved in the sales contract2. A person who, by occupation, holds himself out as having knowledge and skill unique to the practices or goods involved in the transaction3. A person who employs a merchant as a broker, agent, or other intermediary III. The Scope of Article 2A-Leasesa. Lease- a transfer of the right to possess and use goods for a period of time in exchange for paymentb. Definition of a Lease Agreement i. A lessor and lessee’s bargain with respect to the lease of goods, as found in their language and as implied by other circumstances, including course of dealing and usage of trade or performance1. Lessor- one who transfers the right to the possession and use of goods under a lease2. Lessee- one who acquires the right to the temporary possession and use of goods under a leasec. Consumer Leases i. Three elements:1. A lessor who regularly engages in the business of leasing or selling2. A lessee (except an organization) who leases the goods primarily for a personal purpose3. Total lease payments that are less than a dollar amount set by state statuted. Finance Leases i. The lessor buys or leases goods from the supplier and leases or subleases them to the lessee1. Lessor is simply financing the transaction2. Lessee must perform and continue to make payments even if the leased equipment is defectiveIV. The Formation of Sales and Lease Contractsa. Parties are free to establish any terms, UCC comes into play when the parties have failed to provide a contingency that gives rise to a disputeb. Offer i. Open Terms1. Common law of contracts: offer must be definite enough for parties to ascertain its essential terms when accepted2. UCC: Sales or lease contract will not fail for indefiniteness even if one or more terms are left openas long as:a. The parties intended to make a contracti. The more things left blank, the less likely courts will find that the parties intended to make a contractb. There is a reasonably certain basis for the court to grant an appropriate remedyii. Open Price Term1. If no price determined, the courts will determine the reasonable price at the time2. If either the buyer or seller determines the price, the price is fixed in good faitha. Good faith- honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade (commercial reasonableness)b. If price fails to be fixed through fault of one of the parties, the other can cancel the contract or fix a reasonable priceiii. Open Payment Term1. When left unspecified, payment is due at the time and place at which the buyer is to receive the goodsa. If payment is to happen in cash, the seller must give the buyer a reasonable amount of time to obtain itiv. Open Delivery Term1. When left unspecified, the buyer normally takes delivery at the seller’s place of business/residencea. If goods are located elsewhere, delivery is made there (if both parties know)b. If delivery/shipment time is unclear, courts will infer a reasonable timev. Duration of an Ongoing Contract1. In this situation, either party may terminate the ongoing contractual relationship with reasonablenotification before terminationvi. Options and Cooperation Regarding Performance1. When no shipping arrangements are specified, but the contract contemplates shipment of the goods, the seller has the right to make these arrangements in good faith2. When the contract omits terms relating to the assortment of goods, the buyer can specify the assortment in good faithvii. Open Quantity Term1. Hard for courts to determine reasonable quantities in the absence of a specific quantity2. Two exceptions:a. Requirements contracti. When the buyer agrees to purchase and the seller agrees to sell all or up to a stated amount of what the buyer needs or requiresii. Involves implicit consideration since the buyer gives up the right to buy from any other seller 1. If the buyer promises to purchase only if the buyer wishes to do so or if the buyer reserves the right to buy the goods from someone else, the promise is illusory (without consideration) and unenforceableb. Output contracti. When a seller agrees to sell and buyer agrees to buy


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