Copyright © 2009 by Pearson Prentice Hall. All rights reserved. PowerPoint Slides to Accompany CONTEMPORARY BUSINESS AND ONLINE COMMERCE LAW 6 th Edition.

Copyright © 2009 by Pearson Prentice Hall. All rights reserved.

PowerPoint Slides to AccompanyCONTEMPORARY BUSINESS

ANDONLINE COMMERCE LAW

6th Editionby Henry R. Cheeseman

Chapter 16Formation of Sales, Lease, and E-Contracts

Copyright © 2009 by Pearson Prentice Hall. All rights reserved. 16 - 2

Uniform Commercial Code (UCC) Comprehensive statutory scheme Serves as a model act The UCC includes laws that cover most

aspects of commercial transactions Every state (except Louisiana) has

enacted the UCC as their commercial law statute


Overview of the Uniform Commercial Code (UCC) (1 of 2)

Article 1 General provisions Article 2 (revised) Sales Article 2A Leases Article 3 Negotiable instruments Article 4 Bank deposits & collections Article 4A Wire transfers Article 5 Letter of Credit

Article 1 General provisions Article 2 (revised) Sales Article 2A Leases Article 3 Negotiable instruments Article 4 Bank deposits & collections Article 4A Wire transfers Article 5 Letter of Credit


Overview of the Uniform Commercial Code (UCC) (2 of 2)

Article 6 Bulk transfers Article 7 Documents of title Article 8 Investment securities Article 9 (revised) Secured transactions

Article 6 Bulk transfers Article 7 Documents of title Article 8 Investment securities Article 9 (revised) Secured transactions


Scope of 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 establishes rules that govern the sale of goods

Article 2 has recently been revised Has been adopted by some states


What is a Sale?

A salesale is the passing of title from a seller to a buyer for a price [UCC 2-106(1)]

A salesale is the passing of title from a seller to a buyer for a price [UCC 2-106(1)]

Dell Computer Corporation

(seller)

Big Cheese Corporation

(purchaser)

Sale of computer

Payment


What Are Goods?

GoodsGoods are defined as tangible thingstangible things that are movable at the time of their identification to the contract [UCC 2-105(1)]

Money and intangible items such as stocks, bonds, and patents are not tangible goods

Real estate is not a tangible good because it is not movable

Contracts for provision of services are not covered by Article 2


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.

[UCC 2-104(1)]


Scope of Article 2A (Leases) Article 2AArticle 2A applies only to leasesleases involving

goods

Article 2A does not apply to real estate or other leases

Many states have adopted Article 2A


Definition of a Lease

LeaseLease – a transfer of the right to the possession and use of the named goods for a set term in return for certain consideration [UCC 2A-103(1)(i)(x)]

LessorLessor – the person who transfers the right of possession and use of goods under the lease.

LesseeLessee – the person who acquires the right to possession and use of goods under a lease.

LeaseLease – a transfer of the right to the possession and use of the named goods for a set term in return for certain consideration [UCC 2A-103(1)(i)(x)]

LessorLessor – the person who transfers the right of possession and use of goods under the lease.

LesseeLessee – the person who acquires the right to possession and use of goods under a lease.

Lease

Equipment

Dow Chemical Company

(lessee)

Ingersoll-Rand Corporation

(lessor)


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

Instead, the lessor acquires title to the goods or the right to their possession and use in connection with the terms of the lease [UCC 2A-103(1)(g)]


Example of a Finance Lease Transaction

Boeing Aircraft Company

(seller)

City Bank (purchaser)

(lessor)

Jet Blue Airline Co.

(lessee)

Delivery of airplane

Sale of airplane

Payment

Lease payments

Lease


Formation of Sales and Lease Contracts (1 of 6)

Any rules established by Articles 2 and 2A take precedence over the common law of contracts

OfferOffer 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 [UCC 2-204(1), 2A-204(1)]



Open TermsOpen Terms Sometimes the parties to a

sales or lease contract leave open a major term in the contract Open Price Term Open Payment Term Open Delivery Term Open Time Term Open Assortment Term

Open TermsOpen Terms Sometimes the parties to a

sales or lease contract leave open a major term in the contract Open Price Term Open Payment Term Open Delivery Term Open Time Term Open Assortment Term

These open terms are permitted to be read intoread into a sales or lease contract

This rule is commonly referred to as the gap-gap-filling rulefilling rule [UCC 2-204(3), 2A-204(3)]

These open terms are permitted to be read intoread into a sales or lease contract

This rule is commonly referred to as the gap-gap-filling rulefilling rule [UCC 2-204(3), 2A-204(3)]



Firm Offer RuleFirm Offer Rule [UCC 2-205, 2A-205] 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



AcceptanceAcceptance The UCC provides that a contract is created

when the offeree (i.e., the buyer or lessee) 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 [UCC 2-206(1)(a), 2A-206(1)]



Accommodation ShipmentAccommodation 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 [UCC 2-206(1)(b)]



ConsiderationConsideration The formation of sales and lease contracts

requires consideration Under the UCC, an agreement modifying a

sales or lease contract needs no consideration to be binding [UCC 2-209(1), 2A-208(1)]

Modification of a sales or lease contract must be made in good faith [UCC 1-203]


UCC Statute of Frauds

A rule that requires all contracts for the sale of goods costing $500 or more, and lease contracts involving payments of $1,000 or more be in writing [UCC 2-201(1), 2A-201(1)]

The writing must be sufficient to indicate that a contract has been made between the parties


Exceptions to the Statute of Frauds The following are exceptions to the

Writing Requirement of the UCC Statute of Frauds: Specially manufactured goods Admissions in pleadings or court Part acceptance

[UCC 2-201(3), UCC 2A-201(4)]


UCC Written Confirmation Rule If both parties to an oral sales or lease contract

are merchants, the Statute of Frauds requirements are satisfied if:

1. One of the parties sends a written confirmationwritten confirmation of the sale to the other within a reasonable time after contracting, and

2. The other merchant does not give written notice of an objection to the contract within ten days after receiving the confirmation [UCC 2-201(2)]


When Written Modification is Required Oral modification is not enforceable if the

parties agree that any modification of the sales or lease contract must be in a signed writing. [UCC 2-209(2), 2A-208(2)]

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.


Parol Evidence

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, or2. A contemporaneous oral agreement (i.e., parol

evidence) [UCC 2-202, 2A-202]


Comparison of Contract Law and the Law of Sales (1 of 3)

Topic Common Law of Contracts

UCC Law of Sales

Definiteness Contract 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. [UCC 2-204]

Irrevocable Offers

Option contracts. Option contracts. Firm offers by merchants to keep an offer open are binding up to three months without any consideration. [UCC 2-205]




UCC Law of Sales

Counteroffers Acceptance 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. [UCC 2-207]

Modification Consideration is required.

Consideration is not required. [UCC 2-209]




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 if (1) both parties are merchants, (2) one party sends a written confirmation of their oral agreement within a reasonable time after contracting, and (3) the other party does not give written notice of objection within ten days after receiving the confirmation. [UCC 2-201]


Use of Letters of Credit in International Trade The irrevocable letter of creditletter of credit has been

developed to manage the risks in international sales.

The function of a letter of credit is to substitute the credit of a recognized international bank for that of the buyer.

Copyright © 2009 by Pearson Prentice Hall. All rights reserved. PowerPoint Slides to Accompany CONTEMPORARY BUSINESS AND ONLINE COMMERCE LAW 6 th Edition.

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