25-1 Chapter 18 Formation of Sales and Lease Contracts

Uniform Commercial Code (UCC)  Uniform Commercial Code: A model act that includes comprehensive laws that cover most aspects of commercial transactions Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 18-2

Article 2 (Sales)  Governs the sale of goods  Sale: The 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 considered tangible goods  Real estate and services are not goods Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 18-3

Article 2 (Sales)  Services  Contracts for the provision of services are not covered by Article 2  Mixed sale: A sale that involves the provision of a service and a good in the same transaction  Article 2 applies to mixed sales only if the goods are predominant part of the transaction Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 18-4

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, Web 2003 Ill. Lexis 785  Supreme Court of Illinois  Issue  Is the transaction between Brandt and Health Center predominantly the provision of services or the sale of goods? Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 18-5

Article 2 (Sales)  Merchant  One who deals in the goods of the kind involved in the transaction, or  By his or her occupation holds himself or herself out as having knowledge or skill peculiar to the goods involved in the transaction Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 18-6

Article 2A (Leases)  Governs leases 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  Lessee: Person who acquires right to possession and use of goods Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 18-7

Exhibit 18.3: Finance Lease Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 18-8

Article 2A (Leases)  Finance Lease  Revised Article 2 (Sales): A revision of UCC Article 2 (Sales) that includes provisions that recognize changes in the commercial environment and the importance of electronic sales contracts  Revised Article 2A (Leases): A revision of UCC Article 2A (Leases) that includes provisions that recognize changes in the commercial environment and the importance of electronic lease contracts Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 18-9

Formation of Sales and Lease Contracts: Offer  Gap-filling rule: A rule that says an open term can be “read into” a contract  A contract does not fail because of indefiniteness if:  the parties intended to make a contract  there is a reasonably certain basis for giving an appropriate remedy Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Formation of Sales and Lease Contracts: Offer  Open terms  Price  Payment  Delivery  Time  Assortment Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Formation of Sales and Lease Contracts: Offer  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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Formation of Sales and Lease Contracts: Acceptance  Contract created when offeree sends acceptance to the offeror, not when offeror receives it  The UCC permits acceptance by any reasonable manner or method of communication  In certain circumstances, the UCC permits an acceptance of a sales contract to contain additional terms and still to act as an acceptance  Does not act as a counteroffer Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Formation of Sales and Lease Contracts: Acceptance  Accommodation Shipment  Shipment that is offered to the buyer as substitution for the originally ordered goods when they are not available  The accommodation is a counteroffer from the seller to the buyer  The buyer is free either to accept or to reject the counteroffer Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

UCC Statute of Frauds  The following contracts must be in writing:  All contracts for the sale of goods costing $500 or more  All lease contracts involving payments of $1,000 or more  Exceptions:  Specially manufactured goods  Admissions in pleadings or court  Part acceptance Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

UCC Statute of Frauds  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 sends a written confirmation of the sale or lease within a reasonable time after contracting, and  the other merchant does not give written notice of an objection to the contract within ten days after receiving the confirmation Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

UCC Statute of Frauds  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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

UCC Statute of Frauds  If express terms are not clear on their face, reference may be made to certain outside sources:  Course of performance  Course of dealing  Usage of trade Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Electronic Sales and Lease Contracts  Revised Article 2 (Sales) and Revised Article 2A (Leases) contain provisions that recognize the importance of electronic contracting  New e-commerce definitions  Electronic  Electronic Agent  Electronic Record  Record Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall