CHAPTER 11 SALES LEASES AND E CONTRACTS I THE SCOPE OF ARTICLE 2 THE SALE OF GOODS Article 2 Uniform Commercial Code that governs the sale of contracts Whenever a conflict arises between a common law contract rule and the state statutory law based on the UCC the UCC prevails Deals with the sale of goods NOT property services or intangible property such as stocks and bonds governed by general contract law Rules vary depending on whether buyer or seller is a merchant Passing of title evidence of ownership from the seller to the buyer at a price A What is a Sale B What are Goods Good must be tangible and movable a contract for the sale of minerals oil or gas is a contract for a sale of goods in severance so is the contract for crops Predominant factor test when contract involves goods and services to determine whether contract is primarily for goods or services C Who is a Merchant Special business standards ought to be imposed because of merchant s relatively high degree of commercial expertise Deals in goods of the kind involved in sales contracts i e a sporting goods retailer is a merchant when selling tennis racquets but not when selling a used computer By occupation holds himself or herself out as having knowledge and skill unique to the goods involved in the transaction banks and universities might be included Person who employs merchant as a broker agent or other intermediary is a merchant in the transaction II THE SCOPE OF ARTICLE 2A LEASES OF GOODS Lease agreement lessor and lessee s bargain with respect to the lease of goods as found in language and implied by other circumstances Special circumstances apply to financial leases and consumer leases III THE FORMATION OF SALES AND LEASE CONTRACTS Parties to a contract are basically free to define the terms A Offer 1 Open Terms An agreement sufficient to constitute a contract can exist even if the moment of its making is undermined Contract is indefinite if one or more terms are left open unless 1 Parties intended to make a contract 2 There is a reasonably certain basis for court to grant a remedy Open price term if one of the parties fails to determine the price then the other party can assume the contract is cancelled or set a reasonable price Open payment term if parties do not specify payment terms payment is due at the time and place at which the buyer is to receive the goods if seller demands cash buyer must be given a reasonable amount of time to get it Open delivery term buyer normally takes delivery at place of business or residence Open quantity term if parties do not specify this courts will have no basis for determining a remedy There are few exceptions Requirement contracts buyer agrees to purchase and seller to sell all or up to stated amount of what the buyer needs or requires This is unenforceable if parties do not agree to be exclusive buyer buys only from that seller Output contract agree to buy or sell all or up to what the seller produces implicit consideration that seller will only sell to the specified buyer Good faith limitation quantity purchased or produced cannot be disproportionate to prior requirements or output 2 Merchant s firm Offer Option contract offeree pays consideration for the offeror s irrevocable promise to keep the offer open for a certain period exception to the rule that a contract can be revoked before acceptance Second exception created by UCC firm offer arises when a merchant offeror gives assurance in a signed writing that the offer will remain open and it is irrevocable without consideration B Acceptance UCC permits offeree to accept offer to buy goods by a prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods 1 Shipment of Nonconforming Goods Suppose Barton orders 10 black fans from Seth Seth sends 10 white fans to Barton and notifies him that this is an accommodation because they were the only ones in stock The white fans sent are not an acceptance but a counteroffer and a contract is formed only if Barton accepts the white fans If Seth doesn t notify Barton that he is sending white fans then it is an acceptance and breach of contract 2 Communication of Acceptance Offeror must be notified for acceptance to be official 3 Additional Terms When both parties are merchants the additional terms automatically become part of the contract unless Original offer limited acceptance to its terms New or changed terms materially change contract Offeror objects to the new or changed terms within reasonable period of time Rule for striking additional terms Conduct by both parties that recognize the existence of a contract is sufficient to establish a contract for sale even though the writings do not establish a contract C Consideration An agreement to modify a contract for the sale or lease of goods does not require additional consideration but must be made in good faith D The Statute of Frauds Contracts for goods priced at more than 500 and lease contracts requiring payments over 1000 must be in writing to be enforceable Writing memo is sufficient as long as it indicates that the parties intended to form a contracts and as long as it is signed by party against whom enforcement is sought 1 Special Rules for Contracts between Merchants Merchants can satisfy statute of frauds if after the parties have agreed orally one of the merchants sends a signed written confirmation to the other merchant within a reasonable time Communication must indicate terms of agreement and unless merchant who receives it objects within 10 days of receipt it is enforceable 2 Exceptions When an oral contract will be enforceable Special manufactured goods 1 specifically for buyer or manufactured to obtain for a particular lessee 2 Not suitable for resale or lease to others in ordinary course of business 3 Seller has substantially started to manufacture the goods Admissions party against whom agreement is sought admits in pleadings testimony or other court proceedings that a sales or lease contract was made enforceability is limited to quantity of goods admitted Partial performance payment has been made and accepted or goods have been received and accepted A Identification IV TITLE RISK AND INSURABLE INTEREST UCC has replaced the concept of title to three other concepts identification risk of loss and insurable interest in lease contracts lessor owner retains title for the goods Goods must be 1 In existence 2 Identified as the specific goods designated in the contract
View Full Document
Unlocking...