UCC Sales and Lease Contracts and Warranties Chapter 12 UCC Sales and Lease Contracts and Warranties

Uniform Commercial Code (UCC) A model act that includes comprehensive laws that cover most aspects of commercial transactions All the states have enacted all or part of the UCC as statutes Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Article 2 (Sales) An article of the UCC that governs sales of goods Sale: The passing of title of goods from a seller to a buyer for a price Goods: Tangible things that are movable at the time of their identification to a contract Mixed sale: A sale that involves the provision of a service and a good in the same transaction Article 2 applies to mixed sales only if the goods are the predominant part of the transaction Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Exhibit 12.1 - Sales Transaction Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Article 2A (Leases) An article of the UCC that governs leases of goods Lease: A transfer of the right to the possession and use of named goods for a set term in return for certain consideration Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Exhibit 12.2 - Lease Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Open Terms A major term of a sales or lease contract is left open The UCC is tolerant of open terms Examples of terms that are commonly left open Open price term Open payment term Open delivery term Open time term Open assortment term Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Firm Offer Rule A UCC rule which says: A merchant who makes an offer to buy, sell, or lease goods and assures the other party in a separate writing 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 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Acceptance Common law and the UCC provide Additional terms: A UCC rule A contract is created when the offeree (i.e., the buyer or lessee) sends an acceptance to the offeror (i.e., the seller or lessor) Not when the offeror receives the acceptance Additional terms: A UCC rule Permits an acceptance of a sales contract to contain additional terms and still act as an acceptance rather than a counteroffer in certain circumstances Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

UCC Statute of Frauds A rule in the UCC Requires all contracts for the sale of goods costing $500 or more and lease contracts involving payments of $1,000 or more to be in writing Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Battle of the Forms If both parties are merchants, additional terms contained in the acceptance become part of the sales contract unless The offer expressly limits the acceptance to the terms of the offer The additional terms materially alter the original contract The offeror notifies the offeree that he or she objects to the additional terms within a reasonable time There is no contract if the additional terms so materially alter the terms of the original offer that the parties cannot agree on the contract Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Written Confirmation Rule If both parties to an oral sales or lease contract are merchants, the Statute of Frauds writing requirement can be satisfied if One of the parties to the oral agreement sends a written confirmation of the sale or lease within a reasonable time after contracting And the other merchant does not give written notice of an objection to the contract within ten days after receiving the confirmation Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Identification of Goods Distinguishing of the goods named in a contract from the seller’s or lessor’s other goods Passage of title After identification, title to the goods may be transferred from the seller to the buyer Title: Legal, tangible evidence of ownership of goods Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

E-Sales and E-Lease Contracts Revised Article 2 (Sales) and Revised Article 2A (Leases) Contain provisions that recognize the importance of electronic contracting in sales and lease transactions Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Risk of Loss Article 2 of the UCC: Allows the parties to a sales contract to agree among them who will bear the risk of loss if the goods subject to the contract are lost or destroyed If the parties do not have a specific agreement The UCC mandates who will bear the risk of loss Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Passage of Title by Nonowner Third Parties Type of Transaction Title Possessed by Seller Innocent Purchaser Purchaser Acquires Title to Goods Goods acquired by theft are resold. Void title Good faith purchaser for value No. Original owner may reclaim the goods. Goods acquired by fraud or dishonored check are resold. Voidable title Yes. Purchaser takes goods, free of claim of original owner. Goods entrusted by owner to merchant who deals in that type of goods are resold. No title Buyer in the ordinary course of business Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

E-Communications and E-Signatures Revised Article 2 (Sales) and Revised Article 2A (Leases) provisions Electronic contracts and electronic signatures are given legal effect A person is permitted to conduct business himself or through electronic agents The legal effect of electronic communications that are received by electronic agents are acknowledged Electronic acknowledgement of the receipt of an electronic communication is proof that the electronic communication was received Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Remedies for Breach of Sales and Lease Contracts The credit period begins to run from the time the goods are shipped Unless the parties agree to other terms A lessee must pay lease payments in accordance with the lease contract Seller’s and lessor’s remedies Buyer’s and lessee’s remedies Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Agreements Affecting Remedies The UCC permits parties to a sales or lease contract to establish in advance in their contract the damages that will be paid upon a breach of the contract Liquidated damages: Damages that will be paid upon a breach of contract that are established in advance Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Warranty A seller’s or lessor’s express or implied assurance to a buyer or lessee that the goods sold or leased meet certain quality standards Express warranty: A warranty that is created when seller or lessor makes an affirmation that: The goods he or she is selling or leasing meet certain standards of quality, description, performance, or condition A seller’s or lessor’s statement of opinion or commendation of goods does not create an express warranty Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Implied Warranty of Merchantability A warranty that is implied that sold or leased goods are fit for the ordinary purpose for which they are sold or leased, as well as other assurances Unless the implied warranty is properly disclosed The implied warranty of merchantability does not apply to sales or leases by nonmerchants or casual sales Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Implied Warranty of Fitness for Human Consumption A warranty that applies to food or drink consumed on or off the premises of restaurants, grocery stores, fast-food outlets, and vending machines Implied warranty of fitness for a particular purpose A warranty that arises where a seller or lessor warrants that the goods will meet the buyer’s or lessee’s expressed needs Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Warranty Disclaimer A statement that negates express and implied warranties Rules for disclaiming implied warranties “As is” disclaimer Makes it clear to the buyer that there are no implied warranties disclaims all implied warranties Disclaimer of the implied warranty of merchantability Disclaimers may be oral or written Disclaimer of the implied warranty of fitness for a particular purpose The disclaimer has to be in writing Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Conspicuous Disclaimer Written disclaimers must be conspicuously displayed to be valid The courts construe conspicuous to mean noticeable to a reasonable person Magnuson-Moss Warranty Act: A federal statute that regulates written warranties on consumer products Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.