Chapter 9 Sales and Leases: Formation, Title and Risk

Learning Objectives How do Article 2 and 2A of the UCC differ? If an offeree includes different terms, will a contract result? If the parties do not agree on when title passes, what determines? If the parties do not agree, when does risk of loss pass? When does the buyer acquire an insurable interest?

UCC Scope UCC Article 2/2A—sale or lease of goods. Articles 3-5—negotiable instruments and banking. Article 6—bulk transfers Article 7—warehousing and shipping Article 8—securities Article 9—secured transactions

Scope of Article 2--Sales Article 2 governs “sale of goods.” “Sale”: passing of title from seller to buyer for a price. “Goods”: must be tangible and movable (not land, services or intangibles). Goods Associated With Land Goods and Services Combined. “Merchant”: deals in goods of the kind sold.

Scope of Article 2A--Leases Lease Agreement between Lessor and Lessee. Lessor: sells the right to possession and use of goods. Lessee: acquires right to possess and use goods under a lease. Article 2A: applies to all commercial and consumer lease/financing of goods.

Agreement: Offer Where UCC speaks, it preempts the common law. Where it is silent, the common law governs. A valid offer under UCC 2 may include “open” price, payment and delivery terms. Exception: Quantity—No contract, unless: Requirements: Buyer purchase all he needs. Output: Buyer agrees to purchase all Seller manufactures. Only tangible and movable (not land, services or intangibles) Merchant’s Firm Offer

Agreement: Acceptance Methods of Acceptance: Seller can specify manner of acceptance. If not any reasonable means. Promise to Ship/Prompt Shipment of conforming goods. Non-Conforming goods may be “accommodation.” Notice of Acceptance

Agreement Additional Terms Common Law: terms must be the same for contract or battle of the forms. UCC: additional/different terms permitted, depending on the status of the parties: Either Non-Merchant: only original terms accepted. Both Merchants: additional terms form contract unless there is prohibition or new terms or terms materially alter contract, or the party objects.

Statute Of Frauds Contracts for Sale of Goods over $500 or lease over $1,000 must be in writing. Sufficiency of the Writing Written Confirmation Between Merchants Written confirmation after oral agreement. Exceptions: Specially Manufactured Goods Admissions Partial Performance

Title, Risk & Insurable Interest Title: UCC replaced with concepts of identification, risk of loss and insurable interest. Identification: when specific goods that exist are designated as the subject matter of a contract. Title and Risk of Loss cannot be passed until goods identified.

Passage of Title Once goods exist and are identified, title can pass. Shipment Contract: Title passes to Buyer (via shipper) at time and place of shipment. Destination Contract: Title passes to Buyer when goods are tendered to Buyer. Delivery Without Movement.

Risk of Loss ROL does not necessarily pass to Buyer with title (unless parties agree). Movement of Goods (Shipper) Shipment Contract: ROL passes when goods tendered to shipper. Destination Contract: ROL passes to Buyer when goods tendered at destination in contract.

Risk of Loss Non-Movement of Goods (e.g., warehouse) Conditional Sales Seller/Merchant Holds Goods: ROL passes to Buyer when he physically takes possession. Seller/Non-Merchant Holds Goods: ROL passes to Buyer on tender of delivery. Bailee: ROL passes based on terms of Bill of Lading or Warehouse Receipt. Conditional Sales Sale or Return—ROL to Buyer upon possession. Consignment Sale on Approval—ROL upon possession.

Risk of Loss In the event of Breach of Sales/Lease Contract: Seller/Lessor Breach: ROL does not pass until Seller “cures” or Buyer accepts. Buyer/Lessee Breach: ROL passes immediately to Buyer subject to: Seller identification of goods. Deficiencies in Seller’s insurance coverage

Insurable Interest Buyer’s Insurable Interest: Once goods are identified, they can be insured by Buyer/Lessee. Seller’s Insurable Interest: Seller’s can insure goods to which they own title. Bulk Transfers: transfer not made in the ordinary course of business.