Week 5 Writing Assignment

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Business Law

Tenth Edition

Chapter 18

Formation of Sales and Lease Contracts

Learning Objectives (1 of 2)

18.1 Describe the Uniform Commercial Code (UCC).

18.2 Define sales contracts governed by Article 2 of the UCC.

18.3 Define lease contracts governed by Article 2A of the UCC.

18.4 Describe the formation of sales and lease contracts and define the firm offer rule.

18.5 Describe acceptance and define the UCC’s additional terms rule and written confirmation rule.

Learning Objectives (2 of 2)

18.6 Describe the UCC Statute of Frauds for sales and lease contracts.

18.7 Describe how Revised Article 2 (Sales) and Article 2A (Leases) permit electronic contracting.

Introduction

Article 2 (sales) and Article 2A (leases) of the UCC govern personal property sales and leases

Intended to provide clear, easy-to-apply rules that place the risk of loss of the goods on the party most able either to bear the risk or insure against it

Uniform Commercial Code (UCC)

Model act that includes comprehensive laws that cover most aspects of commercial transactions

All the states have enacted all or part of the UCC as statutes

Article 2 (Sales) (1 of 3)

Governs the sale of goods

Sale: Passing of title from a seller to a buyer for a price

Goods: Tangible things that are movable at the time of their identification to a contract

Money and intangible items are not tangible goods

Real estate is not a tangible good

Article 2 (Sales) (2 of 3)

Goods versus services

Contracts for the provision of services are not covered by Article 2

Mixed sale: Involves the provision of a service and a good in the same transaction

Article 2 applies to mixed sales only if the goods are predominantly part of the transaction

Exhibit 18.1: Sales Transaction

Case 18.1: Good or Service

Case

Brandt v. Boston Scientific Corporation and Sarah Bush Lincoln Health Center

204 Ill.2d 640, 792 N.E.2d 296, 2003 Ill. Lexis 785 (2003)

Supreme Court of Illinois

Issue

Is the transaction between Brandt and Health Center predominantly the provision of services or the sale of goods?

Article 2 (Sales) (3 of 3)

Merchant

One who deals in the goods of the kind involved in the transaction

By his or her occupation holds himself or herself out as having knowledge or skill peculiar to the goods involved in the transaction

Article 2A (Leases) (1 of 2)

Article 2A governs the lease of goods

Lease: Transfer of right to possession and use of named goods for a set term, in return for certain consideration

Lessor: Person who transfers right of possession and use of goods under a lease

Lessee: Person who acquires right to possession and use of goods under a lease

Exhibit 18.2: Lease

Article 2A (Leases) (2 of 2)

Finance lease: Three-party transaction consisting of a lessor, a lessee, and a supplier

Lessor acquires title to the goods or the right to their possession and use in connection with the terms of the lease

Exhibit 18.3: Finance Lease

Formation of Sales and Lease Contracts: Offer (1 of 4)

Gap-filling rule: Rule that says an open term can be read into a contract

Contract does not fail because of indefiniteness if:

Parties intended to make a contract

There is a reasonably certain basis for giving an appropriate remedy

Formation of Sales and Lease Contracts: Offer (2 of 4)

Open terms

Price

Payment

Delivery

Time

Assortment

Formation of Sales and Lease Contracts: Offer (3 of 4)

Firm offer rule: UCC rule that says that a merchant who:

Makes an offer to buy, sell, or lease goods

Assures the other party in a separate writing that the offer will be held open; they cannot revoke the offer for the time stated or, if no time is stated, for a reasonable time

Formation of Sales and Lease Contracts: Offer (4 of 4)

Consideration

Required for the formation of sales and lease contracts

Under the UCC, modifications to sales and lease contracts require no consideration

Different from common law rule

Modification must be made in good faith

Formation of Sales and Lease Contracts: Acceptance (1 of 2)

Contract created when an offeree sends acceptance to the offeror, not when the offeror receives it

The UCC permits acceptance by any reasonable manner or method of communication

Additional terms: In certain circumstances, the UCC permits an acceptance of a sales contract to contain additional terms and to act still as an acceptance rather than a counteroffer

Formation of Sales and Lease Contracts: Acceptance (2 of 2)

Accommodation shipment

Accommodation: Shipment that is offered to a buyer as a replacement for the original shipment when the original shipment cannot be filled

Battle of the forms: UCC rule stating that if both parties are merchants, then additional terms contained in the acceptance may become part of the sales contract if certain requirements are met

UCC Statute of Frauds (1 of 4)

Rule in the UCC that requires all contracts for the sale of goods costing $500 or more and lease contracts involving payments of $1,000 or more to be in writing

Exceptions:

Specially manufactured goods

Admissions in pleadings or court

Part acceptance

UCC Statute of Frauds (2 of 4)

Written confirmation rule: If both parties to an oral sales or lease contract are merchants, the Statute of Frauds writing requirement can be satisfied if:

One of the parties to an oral agreement sends a written confirmation of the sale or lease within a reasonable time after contracting

Other merchant does not give written notice of an objection to the contract within ten days after receiving the confirmation

UCC Statute of Frauds (3 of 4)

Parol evidence rule: When a sales or lease contract is evidenced by a writing that is intended to be a final expression of the parties’ agreement or confirmatory memorandum, the terms of the writing may not be contradicted by evidence of:

Prior oral or written agreement, or

Contemporaneous oral agreement

UCC Statute of Frauds (4 of 4)

If express terms are not clear on their face, reference can be made to outside sources:

Course of performance

Course of dealing

Usage of trade

Electronic Sales and Lease Contracts (1 of 2)

Electronic agent

Computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records without review or action by an individual

Electronic record

Created, generated, sent, communicated, received, or stored by electronic means

Electronic Sales and Lease Contracts (2 of 2)

Letter of credit

Document that is issued by a bank on behalf of a buyer who purchases goods on credit from a seller that guarantees that if the buyer does not pay for the goods, then the bank will pay the seller

Article 5 (letters of credit)

Article of the UC that governs letters of credit