1. Contract Law for Paralegals: Traditional and E-Contracts © 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Formation of Sales and Lease Contracts Chapter 10:

2. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Uniform Commercial Code (UCC) Comprehensive statutory scheme. Serves as a model act. The UCC includes laws that cover most aspects of commercial transactions. The common law of contracts governs if the UCC is silent.

3. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Overview of the Uniform Commercial Code Article 1General provisions Article 2Sales Article 2ALeases Article 3Commercial paper Rev. Article 3Negotiable instruments Article 4Bank deposits & collections Article 4AWire transfers

4. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Overview of the Uniform Commercial Code (continued) Article 5Letters of credit Article 6Bulk transfers Article 7Documents of title Article 8Investment securities Article 9Secured transactions

5. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Article 2 (Sales) All states except Louisiana have adopted some version of Article 2 (Sales) of the UCC. Article 2 is also applied by federal courts to sales contracts governed by federal law. Article 2 applies only to transactions in goods – i.e., tangible items.

6. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Article 2 (Sales) (continued) Article 2 does not apply to transactions in intangible items, real estate, or service. What is a sale? The passing of title from a seller to a buyer for a price.

7. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved What are Goods? Tangible things that are movable at the time of their identification to the contract. Money and intangible items such as stocks, bonds, and patents are not tangible goods. Real estate and services are not tangible.

8. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Services Services are not covered by Article 2. Mixed sales involve both goods and services. Article 2 applies to mixed sales only if the goods are the predominate part of the transaction.

9. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Who Is a Merchant? A person who: 1. Deals in the goods of the kind involved in the transaction, or 2. By his or her occupation holds himself or herself out as having knowledge or skill peculiar to the goods involved in the transaction.

10. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Article 2A (Leases) Article 2A applies only to leases involving goods. Article 2A does not apply to real estate or other leases. Many states have adopted Article 2A.

11. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved What Is a Lease? A transfer of the right to the possession and use of the named goods for a set term in return for certain consideration. Lessor – the person who transfers the right of possession and use of goods under the lease. Lessee – the person who acquires the right to possession and use of goods under a lease.

12. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Finance Lease A three-party transaction consisting of the lessor, the lessee, and the supplier. The lessor does not select, manufacture, or supply the goods. The lessor acquires title to the goods or the right to their possession and use in connection with the terms of the lease.

13. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Offer A contract for the sale or lease of goods may be made in any manner sufficient to show agreement. This includes conduct by both parties that recognizes the existence of a contract. A contract may be found even though the moment of its making is undetermined.

14. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Open Terms Sometimes the parties to a sales or lease contract leave open a major term in the contract. Gap-filling rule allows open terms to be read into contract. Open Price Term Open Payment Term Open Delivery Term Open Time Term Open Assortment Term

15. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Firm Offer Rule A merchant who (1) offers to buy, sell, or lease goods, and (2) gives a written and signed assurance on a separate form that the offer will be held open, cannot revoke the offer for the time stated or, if no time is stated, for a reasonable time. Three months is the maximum amount of time permitted under this rule.

16. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Consideration The formation of a sales and lease contract requires consideration. In common law, modifications to a contract need to be supported by new consideration. Under the UCC, modifications to sales and lease contracts require no consideration.

17. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Acceptance Both common law and the UCC provide that a contract is created when the offeree sends an acceptance to the offeror, not when the offeror receives the acceptance. The UCC permits acceptance by any reasonable manner or method of communication.

18. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Additional Terms Under common law, the mirror image rule applies, an additional terms are considered a counteroffer. Under the UCC, additional terms are allowed unless acceptance is expressly conditional on assent to the stated terms. If one party is a non-merchant, the additional terms are treated as proposed additions.

19. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Accommodation Shipment A shipment that is offered to the buyer as a replacement for the original shipment when the original shipment cannot be filled. The accommodation is a counteroffer from the seller to the buyer. The buyer is free either to accept or to reject the counteroffer.

20. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Statute of Frauds A rule that requires all contracts for the sales of goods costing $500 or more, and lease contracts involving payments of $1,000 or more be in writing. The writing must be sufficient to indicate that a contract has been made between the parties.

21. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Exceptions to the Statute of Frauds Specially Manufactured Goods Admissions in Pleadings or Court Part Acceptance

22. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Written Modification Oral modification is not enforceable if the parties agree that any modification of the sales or lease contract must be in a signed writing. In the absence of such an agreement, oral modifications to sales and lease contracts are binding if they do not violate the Statute of Frauds.

23. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Parol Evidence Rule A rule that states that 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: 1. A prior oral or written agreement, or 2. A contemporaneous oral agreement.

24. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Parol Evidence Rule, continued If the 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.

25. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Comparison of Contract Law and the Law of Sales (1 of 3) TopicCommon Law Contracts UCC Law of Sales DefinitenessContract must contain all of the material terms of the parties’ agreement. UCC gap-filling rules permit terms to be implied if the parties intended to make a contract. Irrevocable Offers Option contracts.Option contracts. Firm offers by merchants to keep an offer open are binding up to three months without any consideration.

26. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Comparison of Contract Law and the Law of Sales (2 of 3) TopicCommon Law Contracts UCC Law of Sales CounteroffersAcceptance must be a mirror image of the offer. A counteroffer rejects and terminates the offer. Additional terms of an acceptance become part of the contract if (1) they do not materially alter the terms of the offer and (2) the offeror does not object within a reasonable time after reviewing the acceptance.

27. Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ 07458. All rights reserved Comparison of Contract Law and the Law of Sales (3 of 3) TopicCommon Law Contracts UCC Law of Sales Statute of Frauds Writing must be signed by the party against whom enforcement is sought. Writing may be enforced against a party who has not signed it. ModificationConsideration is required Consideration is not required