Prentice Hall © PowerPoint Slides to accompany THE LEGAL ENVIRONMENT OF BUSINESS AND ONLINE COMMERCE 5E, by Henry R. Cheeseman Chapter 13 Sales and Lease Contracts

Prentice Hall © Uniform Commercial Code (UCC) Applies to commercial transactions UCC has been adopted as state law by 49 states. UCC Article 2 governs the sale of goods.

Prentice Hall © Article 2 – Sales of Goods Sale Transfer of title for a price Goods Tangible personal property

Prentice Hall © Merchants Article 2 applies to all sales of goods, but there are special provisions that apply to merchants. Definition Person who deals in goods of the kind involved in the transaction, or Person who holds himself or herself out as having special knowledge or skills related to the kind of goods involved

Prentice Hall © Article 2A – Leases of Goods Applies to leases of personal property Lease Transfer of the right to possession for consideration

Prentice Hall © Sales and Lease Contracts The UCC establishes rules that differ from common law. Open terms The UCC is more tolerant of indefinite terms. Gap-filling rules apply to some open terms. Firm offer rule A merchant cannot revoke an offer if it has stated that the offer will be held open.

Prentice Hall © Acceptance Acceptance is effective when sent. Acceptance may be by any reasonable means. Accommodation shipment If seller notifies buyer that a shipment of nonconforming goods is an accommodation, it is interpreted as a counteroffer.

Prentice Hall © Additional Terms in Acceptance Article 2 modifies the “mirror image rule.” If one party is a nonmerchant, additional terms in acceptance are considered proposed additions.

Prentice Hall © Additional Terms in Acceptance If both parties are merchants, additional terms become part of the contract unless: The offer limits acceptance to its terms, or The additional terms are material alterations, or The offeror notifies the offeree of its objection within a reasonable time.

Prentice Hall © UCC Statute of Frauds Contracts for the sale of goods costing $500 or more or leases of $1000 or more must be written to be enforced. Exceptions for merchants Written confirmation rule

Prentice Hall © Identification of Goods Identification of goods occurs when goods named in the contract are distinguished from other goods. The seller retains the risk of loss until goods are identified to the contract.

Prentice Hall © Passage of Title and Risk of Loss If there is no agreement to the contrary, title passes when goods are delivered. Shipment contract – title and risk of loss pass to the buyer when goods are delivered to shipper. Destination contract – title and risk of loss pass to the buyer when goods are delivered at destination.

Prentice Hall © No Movement of Goods If the buyer is to pick up goods, the time of passage of risk of loss depends on the identity of the seller. Merchant-seller – risk of loss passes to the buyer when goods are received Nonmerchant-seller – risk passes to the buyer at “tender” of delivery

Prentice Hall © Insurable Interest in Goods Seller has an insurable interest as long as he or she has title or a security interest in the goods. Buyer has an insurable interest when goods are identified to the contract.

Prentice Hall © Performance and Remedies Seller’s tender of delivery Must put conforming goods at buyer’s disposition Must give buyer reasonable notice to enable delivery of goods If goods are nonconforming (perfect tender rule) Buyer may reject whole shipment, or Accept whole shipment, or Reject part and accept part of shipment Goods that are accepted must be paid for.

Prentice Hall © Remedies for Breach of Contract Seller or lessor Withhold delivery Demand payment in cash Resell or re-lease goods Sue for breach of contract and recover damages Cancel the contract

Prentice Hall © Remedies for Breach of Contract Buyer or lessee Reject nonconforming goods Revoke acceptance of nonconforming goods Cover loss Sue for breach of contract and recover damages Cancel the contract

Prentice Hall © Liquidated Damages Parties may agree on remedies in addition to those provided by UCC. Liquidated damages substitute for actual damages. Liquidated damages are valid if they are reasonable.

Prentice Hall © Warranties Seller’s or lessor’s assurance to buyer or lessee that the goods meet certain standards of quality Warranties may be expressed or implied.

Prentice Hall © Express Warranty Affirmation that the goods meet certain standards of quality, description, performance, or condition May be created by: Affirmation of fact or promise about goods Description of goods Providing a model or sample of goods

Prentice Hall © Implied Warranties of Merchantability Goods must be fit for the ordinary purposes for which they are used. Goods must be adequately contained, packaged, and labeled. Goods must be of an even kind, quality, and quantity within each unit.

Prentice Hall © Implied Warranties of Merchantability Goods must conform to any promise or affirmation of fact made on the container. Quality of the goods must pass without objection in the trade. Fungible goods must meet a fair average or middle range of quality.

Prentice Hall © Implied Warranty of Fitness for Human Consumption Applies to food or drink consumed on or off the premises of restaurants, grocery stores, fast-food outlets, and vending machines Foreign substance test Consumer expectation test

Prentice Hall © Implied Warranty of Fitness for a Particular Purpose Warranty that the goods are fit for the purpose for which the buyer or lessee acquired the goods The seller or lessor has any reason to know the particular purpose for which the seller is purchasing the goods. The seller or lessor makes a statement that the goods will serve that purpose. The buyer or lessee relies on the statement and buys or leases the goods.

Prentice Hall © Warranty Disclaimers Statements that negate express or implied warranties Written disclaimers must be conspicuously displayed to be valid. Unconscionable disclaimers will not be enforced by a court.

Prentice Hall © Magnuson-Moss Act Federal law which applies to warranties on consumer products If an express warranty is made, it must be labeled as “full” or “limited.” The Act limits disclaimers of warranties for consumer products.