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Chapter 20 Formation of Sales and Lease Contracts
Jentz Miller Cross BUSINESS LAW Alternate Edition 11thEd. Chapter 20 Formation of Sales and Lease Contracts Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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§1: The Uniform Commercial Code
Facilitates commercial transactions. UCC Article 2: Sale of Goods. Modifies common law of contracts of some areas. UCC 2 preempts common law. Where UCC2 is silent, common law governs. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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§2: The Scope of Article 2 Does not apply to real estate unless there is a “good” that can be severed by the Seller. If the good is severed by the Buyer, then UCC2 does not apply. Generally contracts for services are not governed by UCC2. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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Scope of UCC Article 2 Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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Scope of UCC Article 2 Article 2 applies to the “sale of goods.”
A “sale” is the passing of title of “goods” to/from a “merchant” (seller or buyer) for a price (money, goods, services,etc). “Goods” are tangible and movable (not real estate). Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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Scope of UCC Article 2 What if Goods and Services combined?
“Pre-dominant factor” test used by courts on a case-by-case basis. CASE Jannusch v. Naffziger (2008). Appellate Court of Illinois, Fourth A “merchant” has special business expertise and is not a casual buyer/seller. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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§3: Scope of Article 2A—Leases
Contract for lease of personal goods between a lessor and a lessee. Consumer Leases (total payments less than $25,000). Finance Leases (involves a 3rd party-supplier). Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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§4: Formation of Sales and Lease Contracts
At common law once a valid offer is unequivocally accepted, a binding contract is formed. UCC is more flexible, and allows for open pricing, payment, and delivery terms. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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Offer: Open Terms UCC 2-204: even if terms of are undetermined, a contract may still exist. Open Terms: “Indefiniteness” is OK as long as the parties intended to make a contract and there is a reasonable basis for a court to grant a remedy. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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Offer: Open Terms Open Price Term: If parties have not agreed on pricing, court can determine “reasonable price at the time of delivery.” UCC2-305. Open Payment Term: Unless otherwise agreed, payment is due on delivery (COD). UCC2-310(a). Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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Offer: Open Terms Open Delivery Term: Unless otherwise agreed, buyer takes delivery at the Seller’s place of business. UCC2-308(a). Open Quantity: generally courts will not impose a quantity. UCC2-306. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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Open Terms: Exceptions
Requirements Contract: buyer agrees to purchase what the buyer needs or requires. Output Contract: buyer agrees to buy all of seller’s production or output. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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Merchant’s Firm Offer At common law, an offer could be revoked any time prior to acceptance, unless there was some consideration. At UCC, offer made by merchant in a signed writing is irrevocable for reasonable period of time. No consideration necessary. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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Acceptance Any reasonable means of acceptance under the circumstances is permissible. Promise to ship or prompt shipment is acceptance. Shipment of non-conforming goods is both an acceptance and a breach unless goods sent as an “accommodation” to buyer (UCC2-206). Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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Acceptance: Additional Terms
If either party is a non-merchant, the contract is formed according to original terms of the offer. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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Additional Terms If both parties are merchants, contract incorporates new terms unless: (1) original offer expressly limits terms, or (2) material change, or (3) offeror objects within reasonable time. CASE Sun Coast Merchandise Corp. v. Myron Corp. (2007). Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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Consideration UCC requires consideration and modifications must be made in good faith. Modification must be in writing if required by Statute of Frauds. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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Statute of Frauds Sale of goods over $500 must have a signed writing to be enforceable. Exceptions: Specially manufactured goods. Admissions by breaching party. Partial performance. Merchant doesn’t object within 10 days. Oral agreement enforceable after written confirmation between merchants. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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Parol Evidence Terms of a written agreement intended to be the final expression of parties’ intentions, cannot be contradicted by prior or contemporaneous agreements. Exceptions: consistent terms, course of dealing and trade. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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Unconscionability Contract is one that is so unfair and one-sided it is unreasonable to enforce it. Court can: set it aside, refuse to enforce the unconscionable provision, limit the contract. CASE Jones v. Star Credit Corp. (1969). Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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§5: Contracts for the International Sale of Goods
Applicability of the CISG. Comparison of CISG and UCC. Mirror Image Rule. Irrevocable Offers. Statute of Frauds. Necessity of a Price Term. Time of Contract Formation. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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Special Provisions in International Contracts
Language and legal differences create special difficulties. Parties should agree to: Choice of Language. Choice of Forum (country). Choice of Law. Force Majeure Clause. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.
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