CHAPTER 16 FORMATION OF THE SALES CONTRACT & CONTRACTS FOR LEASING GOODS

1. CHAPTER 16FORMATION OF THE SALES CONTRACT & CONTRACTS FOR LEASING GOODS DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8th Ed.)

2. INTRODUCTION • Statute of Frauds requires certain types of contracts to be in writing to be enforceable. • Common Law. • Law Merchant. • Uniform Sales Act (USA)/Negotiable Instrument Law (NIL).

3. INTRODUCTION • Uniform Commercial Code (UCC) is a legislative intervention to help the law keep pace with needs of society. • UCC designed to update and modernize the law of commerce and reflect commercial reality. • Uniform Commercial Code • UCC is organized into sections or articles. • The UCC has been adopted in whole or in part by all 50 states.

4. INTRODUCTION • Article 2--Governs sale of goods. • Article 2A--Deals with leasing of goods. • Article 3--Deals with negotiable instruments. • Article 4--Deals with banks and customers. • Article 4A --Deals with fund transfers.

5. INTRODUCTION • Article 5--Deals with letters of credit. • Article 7--Deals with documents of title. • Article 9--Deals with secured transactions.

6. THE SCOPE OF ARTICLE 2 • Covers the sale of goods. • Sale defined as the passing of title from seller to buyer for a price. • Contract for sale covers both a present sale and a contract to sell goods in the future. • Present sale is a sale made at the time the contract is made.

7. THE SCOPE OF ARTICLE 2 • Covers the “sale of goods.” • Goods defined as “all things that are movable at the time they are identified to the contract.” • Anything tangible that can be physically delivered from seller to buyer. • Goods also extend to cover unborn young of animals, growing crops , anything attached to land which can be detached from and sold apart from land. • Money and investment securities excluded.

8. THE SCOPE OF ARTICLE 2 • A Merchant is someone who deals in the type of goods involved in the sale, claims to be an expert relative to the goods, or employs someone who is an expert. • Merchants are required to act in good faith, cooperate in the performance of the contract and a commercially reasonable manner. • Non-merchants are required to act in good faith and cooperate in the performance of the contract.

9. FORMING THE SALES CONTRACT • Offer and Acceptance: UCC recognizes a contract exists whenever the parties act as if they have an agreement. • Valid offer and acceptance. • Contract stands even though some terms are omitted from the agreement. • Offer can be accepted in any manner reasonable under the circumstances, unless otherwise indicated.

10. FORMING THE CONTRACT • Under UCC seller can accept by: • 1) Promptly ship conforming goods to the buyer. • 2) Notify the buyer that the goods will be shipped promptly. • 3) Promptly ship nonconforming goods to the buyer.

11. FORMING THE CONTRACT • Standard Form Contracts: • Preprinted contract form, often blanks left in certain key places for later completion. • New terms are treated as proposed additions to the contract, if contract is between merchants unless: • Offer explicitly limits acceptance to the terms of the offer. • New terms materially alter the contract. • Offeror objects to new terms within reasonable time.

12. FORMING THE CONTRACT • Firm Offers. • Common law allows revocation anytime prior to acceptance. • Under UCC, offer cannot be revoked for a “reasonable time.” • Statute of Frauds. • Requires a contract for the sale of goods for $500 or must be in writing to be enforceable.

13. FORMING THE CONTRACT • Statute of Frauds. Three definite and invariable requirements for the writing: • Must evidence a contract for the sale of goods. • Must be “signed,” which includes any authentication. • Must specify a quantity of goods covered by the contract.

14. FORMING THE CONTRACT • Statute of Frauds. Three exceptions to the general provisions: • No writing required if specially manufactured goods. • If parties agree in court or in legal proceedings that contract existed. • If goods covered are already delivered and accepted or already paid for.

15. FORMING THE CONTRACT • Statute of Frauds. • Although the Code attempts to provide for flexibility and to facilitate commerce, where a written agreement does exist--the parol evidence rule applies. • Oral evidence can not be introduced to contradict or overturn the terms of the written agreement. • Oral evidence can only clarify, explain, fill in informational gaps.

16. SPECIAL RULES UNDER ARTICLE 2 • Assumption that both parties will be acting in good faith. • Unconscionability: contract is so unfair or one-sided as to shock the conscience. • Court may refuse to enforce contract, or refuse to enforce any unconscionable clause, or limit application of any unconscionable clause to avoid unfair result.

17. SPECIAL RULES UNDER ARTICLE 2 • Open Terms. • Code allows omitted terms to be filled in by the courts to give the parties the “benefit of their bargain.” • Options. • Code leaves some options, such as product mix and shipping arrangements to option of buyer or seller.

18. SPECIAL RULES UNDER ARTICLE 2 • Cooperation • Parties are required to cooperate with each other in the performance of their duties. • Failure to cooperate or interference with performance can be treated as breach or delay performance.

19. THE SCOPE OF ARTICLE 2A • Applies to “any transaction, regardless of form, that creates a lease,” a “finance lease,” or “installment lease” contract. • Lease: “transfer of the right to possession and use of goods for a term in return for consideration.”

20. CONTRACTS FOR LEASING GOODS • Article 2A of the Code governs contracts for lease of goods. • Article 2A reflect the differences between a sale and a lease. • Article 2A is designed to help protect the basic tenets of freedom of contract. • Permits parties to vary certain terms of their lease agreements.

21. CONTRACTS FOR LEASING GOODS • Article 2A recognizes two basic types of leases: • Consumer lease: lease of goods for personal, family, or household use. Total payments not to exceed $25,000. • Finance lease: lessor does not select, manufacture, or supply the leased goods; lessor acquires the goods in connection with the lease; lessee receives or approves of lessor acquiring rights to the goods.

22. CONTRACTS FOR LEASING GOODS • Installment lease: authorizes or requires the delivery of goods in separate lots to be separately accepted. • Lease of goods in excess of $1000 must be evidenced in writing.

23. CONTRACTS FOR SALE OF GOODS IN INTERNATIONAL SETTING • UN Convention on Contracts for the International Sale of Goods (CISG) approved by 62 nations. • Scope of CISG: • Does not apply to goods for personal or household use unless Seller knew/should have known. • Only applies to sale of goods between different nations.

24. CONTRACTS FOR SALE OF GOODS IN INTERNATIONAL SETTING • CISG: • Acceptance is effective upon receipt by offeror. • Offer is revocable prior to acceptance. • Offer is irrevocable: • When offeror states acceptance must be made within a specified time. • If Offeree relies on the offer remaining open.