The Formation Of Sales And Lease Contracts

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BUSINESS LAW I

CHAPTER 15

The Formation of Sales and Lease Contracts

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LAW OF SALES

Does the UCC apply?– UCC

Modifies common law of contracts Where UCC speaks, it preempts the common law Where it is silent, the common law governs

– Scope of Article 2 Sale of Goods

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DEFINITION OF SALE

– Contract under which title to goods passes from a seller to a buyer for a price (consideration)

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DEFINITION OF GOODS

Goods are tangible and moveable

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BASIC PRINCIPLESOF THE UCC

Good Faith

Reasonableness

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MERCHANTS

Regularly deals in goods of the kind sold

Holds himself out as having special knowledge or skill as to the practices or goods involved

OR, Employs an agent who fits in these categories

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SIGNIFICANCE OF MERCHANT DISTINCTION

Fair dealing vs. honesty standard

Implied warranties

Oral contracts

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GAP FILLING PROVISIONS

PriceQuantityDeliveryTimePayment

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OFFERS

Open Terms

Irrevocable (FIRM) Offers

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ACCEPTANCE

Any reasonable means

Notice of acceptance

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ACCEPTANCE BY SHIPMENT

Common law

UCC

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EFFECT OF SHIPPING NON-CONFORMING GOODS

Mere shipment (without notice)

Shipment plus notice

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ACCEPTANCE BYBEGINNING PERFORMANCE

Common law

UCC

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Example

Buyer send the following order to seller - "Ship 750 Regal Typewriters by July 1". This offer is received by the Seller on June 20, and Seller ships the requested merchandise to Buyer on the same day. If the following day (before the Buyer receives the shipment), Buyer wires a cancellation of the order. Is there a contract?

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Example

Buyer offers to purchase from Seller 200 high-speed drill bits. Immediately upon receipt of Buyer's purchase order, but without notifying Buyer of acceptance, Seller starts to assemble material, and machine thirty of the drill bits. The Buyer then sends a notice of revocation. Is there a binding contract on the Buyer?

Common Law

UCC

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COUNTEROFFERS

Common law

UCC

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ADDITIONAL TERMS

Where both parties qualify as merchants, the additional terms do become part of the contract, unless one of the following happens:

– Prior objection– Subsequent objection– Material alteration

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ADDITIONAL TERMS

Seller or buyer is nonmerchant

Parties act as if they have a contract

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REVISION OF CONTRACT TERMS

Modifications– Contract law

– UCC

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STATUTE OF FRAUDS

Written memorandum required– Sale of goods are $500 or more

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SUFFICIENCY OF THE WRITTEN MEMORANDUM

Terms required:– Common law

– UCC

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MERCHANT EXCEPTION

The writing requirement is satisfied if one merchant sends a signed, written confirmation to the other merchant indicating the terms of the agreement, the merchant receiving it has reason to know of its content and does not object in writing within 10 days

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EXCEPTIONS TO THE STATUTE OF FRAUDS

Partial performance

Specially manufactured goods

Court admissions

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Example

Seller orally agreed to sell 10,000 bushels of soybeans to Buyer. Seller delivered 4,000 bushels, then the market value increased so much, Seller refused to deliver the rest. Seller sues to recover the price for the 4,000 and Buyer countersues for the remaining 6,000 bushels. Who wins?

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PAROLE EVIDENCE

A written agreement intended as a final expression of contract terms cannot be contradicted by oral evidence

Exceptions

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UNCONSCIONABLE CONTRACT

Contracts that are so one-sided and unfair that enforcing it would be unreasonable

Courts can:– Refuse to enforce the contract– Enforce the contract without the unconscionable

clause– Limit the clause to avoid an unconscionable result

RULES OF CONSTRUCTION

Express Terms Course of Performance Course of Dealings Usage of Trade