1. Chapter 16 Sale and Lease of Goods McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Learning Objectives
Determine when to apply the law of sales under the UCC.
Describe the special rules for sales contracts.
Explain the four exceptions to the rule requiring that contracts for the sale of goods costing $500 or more must be in writing.
Judge, in a given situation, whether a writing satisfies the requirements of the UCC.
Contrast an auction with reserve with an auction without reserve.

3. Question?
_________ are all things (other than money, stocks, and bonds) that are movable.
Needs
Wants
Goods
Mercantiles
The correct answer is “C” – goods. See next slide.

4. The Sale and Lease of Goods
all things (other than money, stocks, and bonds) that are movable.
Future goods
Goods that are not yet in existence or under the control of people
Teaching Tip Ask students to name some goods they see around the classroom.
Stress that a contract for any of these items would be governed by the UCC. Be alert for items
that might be classified as fixtures rather than goods and explain the difference
to the class. Fixtures are discussed in Chapter 23.

5. Question?
What is a contract that transfers ownership of goods by the seller to the buyer for a price?
Purchase
Merchandise contract
Sale
Auction
The correct answer is “C” – sale. See next slide.

6. The Sale and Lease of Goods
a contract that transfers ownership of goods by the seller to the buyer for a price
Contract for sale
includes both a present sale of goods and a contract to sell goods at a future time
Teaching Tip Because many students own their own cars, point out that a car is a good and that a
contract for the purchase or sale of a car would be governed by the UCC, whether the seller is a merchant
or a private party.

7. Different Laws Apply to Different Transactions

8. Contracts for Both Goods and Services
When a contract includes both goods and services, the dominant element of the contract determines whether it is a contract for goods or a contract for services.
Getting Students Involved
Let students discover the intricacies of leasing firsthand by contacting a local automobile dealer and comparing the legalities
and costs of leasing with buying. Students should find out who holds title to the car, who is liable for both
unavoidable damages and those caused by the lessee, and who holds the warranty on the car. They should factor
in taxes, additional dealer costs, and maintenance estimates.
This activity will be more interesting if you assign specific autos in a wide price range so that there will
be a variety of results to share in class.

9. Special Rules for Sales Contracts
Good Faith
Course of Dealings and Usage of Trade
Formation of a Sales Contract
Offer and Acceptance
Firm Offer
Open-Price Terms
Output and Requirements Terms
Additional Terms in Acceptance
Modification
The fundamental rules of contract law, discussed in the previous nine chapters, serve as a
base in the UCC, but the UCC is often more flexible. Some special rules for sales contracts
follow.
Good Faith
Under the UCC, every contract or duty imposes an obligation of good faith. In other words,
the parties to a sales contract must act and deal fairly with each other.

10. Course of Dealings and Usage of Trade
When the parties have dealt with each other before, their prior dealings give special meaning to sales contracts.
Usage of trade
When the parties have dealt with each other before, their prior dealings give special
meaning to sales contracts. Similarly, usage of trade, that is, any method of dealing
that is commonly used in the particular field, is given special meaning. Unless the
parties express otherwise, a course of dealings or usage of trade may be used to supplement
or qualify the terms of a sales contract.

11. Formation of a Sales Contract
An enforceable sales contract may come about even if the exact moment of its making cannot be determined and even though some terms are not completely agreed upon
Teaching Tips Ask students to bring to class copies of sales contracts either they or their family or
friends have. Reproduce the small print on some of the contracts and distribute these to the students.
Discuss clauses that should be crossed out by the buyer before signing the contract.

12. Question?
_________ goods are those that are in accordance with the obligations under the contract.
Conventional
Matched
Non-conforming
Conforming
The correct answer is “D” –Conforming . See next slide.

13. Offer and Acceptance Conforming goods Nonconforming goods
those that are in accordance with the obligations under the contract
Nonconforming goods
those that are not the same as those called for under the contract or that are in some way defective
To establish a contract for the sale of goods, unless otherwise indicated by the offeror or
the circumstances, the offeree may accept the offer in any manner and by any medium that
is reasonable. A contract for the sale of goods comes into existence when the acceptance is
sent, as long as the method used to send it is reasonable.

14. Question?
What is a person who deals in goods of the kind sold in the ordinary course of business?
Proprietor
Administrator
Owner
Merchant
The correct answer is “D” – merchant. See next slide.

15. Firm Offer
The UCC holds merchants to a higher standard than non-merchants.
Merchant
a person who deals in goods of the kind sold in the ordinary course of business or who otherwise claims to have knowledge or skills peculiar to those goods
The UCC holds merchants to a higher standard than non-merchants. A merchant is a person
who deals in goods of the kind sold in the ordinary course of business or who otherwise
claims to have knowledge or skills peculiar to those goods. Although most rules under
the UCC apply to both merchants and non-merchants alike, some rules apply only to merchants.
One such rule involves a firm offer.

16. Question?
With a _______offer the writing must be signed by the merchant, and the time period for holding the offer open may not exceed three months.
Firm
Strong
Solid
Concrete
The correct answer is “A” – firm. See next slide.

17. Firm Offer
Firm offer
writing must be signed by the merchant, and the time period for holding the offer open may not exceed three months
No consideration is necessary when a merchant promises in writing to hold an offer
open for the sale or lease of goods. Known as a firm offer, the writing must be signed by
the merchant, and the time period for holding the offer open may not exceed three months.
This rule differs from the general rule of contract law (discussed in Chapter 7), which requires
consideration in an option contract.

18. Open-Price Terms Open-price terms
occur when the parties intend to be bound by a contract but fail to mention the price or decide to set the price later.
Another change that the UCC has made is that a contract for the sale of goods may be established
even though the price is not settled. Such open-price terms may occur when the
parties intend to be bound by a contract but fail to mention the price or decide to set the
price later. Under non-UCC law, no contract would come about because the terms are not
definite. The UCC allows such a contract to come into existence. If the parties cannot agree
on the price at the later date, the UCC requires that the price will be reasonable at the time
the goods are delivered.

19. Output and Requirements Terms
Output contract
Requirements contract
Sometimes, a seller will agree to sell “all the goods we manufacture” or “all the crops we produce”
to a particular buyer. This agreement is known as an output contract. At other times, a
buyer will agree to buy “all the oil we need to heat our building” (or some similar requirement)
from a particular seller. This agreement is called a requirements contract. Such contracts
often were not allowed under common law because the quantity of the goods to be bought or
sold was not definite. The UCC allows output and requirements contracts for the sale of goods,
as long as the parties deal in good faith and according to reasonable expectations.

20. Additional Terms in Acceptance
A contract for the sale of goods occurs even though the acceptance states terms that are additional to or different from those offered or agreed upon (unless acceptance is made conditional on assent to the additional terms).
The additional terms are treated as proposals for additions to the contract if the parties are not both merchants.
This rule is intended to deal with two typical situations. The first is when an agreement
has been reached either orally or by informal correspondence between the parties and is
followed by one or both of the parties sending formal acknowledgments or memos that
contain additional terms not discussed earlier.

21. Form of Sales Contracts
As long as the price is under $500, an oral contract for the sale of goods is enforceable
If the price is $500 or more, a sales contract must be in writing to be enforceable.
State Variations Louisiana law is an exception to the rule that sales contracts over $500 need to
be in writing. In general, Louisiana does not require such written contracts except in the case of certain
transactions, such as securities.

22. Exceptions to the General Rule
Oral contracts between merchants
Specially manufactured goods
Admissions in court
Executed contracts
Oral Contracts Between Merchants An exception to the general rule occurs
when there is an oral contract between two merchants. If either merchant receives a written
confirmation of the oral contract from the other merchant within a reasonable time and
does not object to it in writing within 10 days, the oral contract is enforceable.
Specially Manufactured Goods Another exception occurs when goods are to be
specially manufactured for the buyer and are not suitable for sale to others in the ordinary
course of the seller’s business. If the seller has made either a substantial beginning in manufacturing
the goods or commitments to buy them, the oral agreement will be enforceable.
Admissions in Court If the party against whom enforcement is sought admits in
court that an oral contract for the sale of goods was made, the contract will be enforceable.
The contract is not enforceable under this exception, however, beyond the quantity of
goods admitted.
Executed Contracts When the parties carry out their agreement in a satisfactory
manner, the law will not render the transaction unenforceable for want of an agreement in
writing. Executed contracts (those that have been carried out) need not be in writing; the
writing requirements apply only to contracts that are executory, that is, not yet performed.

23. Requirements of Writing
The writing that is required to satisfy the UCC must indicate that a contract for sale has been made between the parties and mention the quantity of goods being sold.
It must also be signed by the party against whom enforcement is sought (the defendant).
A writing is acceptable even though it omits or incorrectly states an agreed-upon term. However, a contract
will not be enforceable beyond the quantity of goods shown in such writing. For that
reason, it is necessary to put the quantity of goods to be bought and sold in the written
agreement.

24. Signature Requirements
Under the UCC, a signature includes any symbol made with the intent to authenticate a writing.
Thus, in addition to a handwritten signature, the courts have held various kinds of marks, including an X and a
typewritten name, qualify as a signature as long as they were written with the intent to be signatures.

25. International Law
United Nations Convention on Contracts for the International Sale of Goods (CISG)
applies only to sales bet0ween businesses whose places of business are in different countries that have adopted the law.
Interestingly, the trend in other countries is to eliminate the requirement that a sales contract
be in writing. Great Britain, for example, after having such a requirement for 277
years, did away with it in International sales law also has no writing requirements for
a sales contract; instead, a sales contract may be proved by any means.

26. Question?
With an _________ the auctioneer may withdraw the goods at any time before announcing completion of the sale if the highest bid is not high enough.
Auction with reserve
Auction without reserve
Contract with reserve
Contract without reserve
The correct answer is “A” – Auction with reserve. See next slide.

27. Auction Sales Auction with reserve Auction without reserve,
the auctioneer may withdraw the goods at any time before announcing completion of the sale if the highest bid is not high enough
Auction without reserve,
After the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time
Background Information
Auctions have been a part of human culture for as long as there has been recorded history. Modern
auctions closely resemble those of Roman times. In fact, some practices, such as holding up fingers for a
bid, come from the Roman model. The story of Apponius, who acquired the emperor Caligula’s goods
by nodding off during an auction, started the myth that a simple nod or other inadvertent gesture might
commit the auction goer to a purchase.