Business Law and the Regulation of Business Chapter 19: Introduction to Sales and Leases By Richard A. Mann & Barry S. Roberts

Topics Covered in this Chapter I. Nature of Sales and Leases A. Definitions B. Fundamental Principles of Article 2 and 2A II.Formation of a Sales and Lease Contracts A. Manifestation of Mutual Assent B. Consideration C. Form of the Contract

Nature of Sales and Leases n Goods – movable personal property n Sale – transfer of title to goods from seller to buyer for a price n Lease – a transfer of right to possession and use of goods in return for consideration –Consumer Leases – leases by a merchant to an individual who leases for personal, family, or household purposes for no more than $25,000 –Finance Leases – special type of lease transaction generally involving three parties: the lessor, the supplier, and the lessee

Transactions in Goods Transfer of Title Transfer of Possession Governing law YesUsually, but not necessarily Article 2 Yes Common Law NoYesCommon Law and Article 7 NoYesCommon Law or Article 2A No Article 9 Sale Gift Bailment Lease Security Interest

Governing Law n Sales Transactions – governed by Article 2 of the Code, but where general contract law has not been specifically modified by the Code, general contract law continues to apply. n Lease Transactions – governed by Article 2A of the Code, but where general contract law has not been specifically modified by the Code, general contract law continues to apply. n Transactions outside the Code – service contracts, employment contracts, insurance contracts, contracts involving real property, and contracts for the sale of intangibles.

Law of Sales Slide #142 LAW OF CONTRACTS LAW OF PROPERTY LAW OF SALES Real Property Personal Property

Fundamental Principles of Article 2 and Article 2A n Purpose – to modernize, clarify, simplify, and make uniform the law of sales and leases. n Good Faith – the Code requires all sales and lease contracts to be performed in good faith, which means honesty in fact in the conduct or transaction concerned; in the case of a merchant, it also includes the observance of reasonable commercial standards.

Unconscionability n Unconscionability – a court may refuse to enforce an unconscionable contract or any part of a contract found to be unconscionable. –Procedural Unconscionability – unfairness of the bargaining process. –Substantive Unconscionability – oppressive or grossly unfair contractual provisions.

Expansion of Commercial Practices n Course of Dealing – a sequence of previous conduct between the parties establishing a common basis for interpreting their agreement. n Usage of Trade – a practice or method of dealing regularly observed and followed in a place, vocation, or trade.

Sales by and between Merchants n The Code establishes separate rules that apply to transactions between merchants or involving a merchant (a dealer in goods or a person who by his occupation holds himself out as having knowledge or skill peculiar to the goods or practice involved, or who employs an agent or broker whom he holds out as having such knowledge or skill).

Selected UCC Rules Applicable to Merchants

Battle of the Forms Is acceptance expressly conditional upon assent to additional or different terms? Is acceptance identical to offer? Does acceptance include different terms? Does acceptance include additional terms? Contact formed based on offeror’s terms No contract formed Contract formed (1) different terms cancel each other out, or (2) offeror’s terms control, or (3) additional term test applied Contract formed based on offeror’s terms without additional terms Yes No Yes No Yes Then,

Battle of the Forms (cont.) Does offer limit acceptance to its terms? Are both parties merchants? Do additional terms materially alter the offer? Has the offeror objected to the additional terms? Has offeror assented to the additional terms? Contract formed with additional terms Yes No Yes No Contract formed based on offeror’s terms without additional terms

Liberal Administration of Remedies n Freedom of Contract – most provisions of the Code may be varied by agreement. n Validation and Preservation of Sales Contract – the Code reduces formal requisites to the bare minimum and attempts to preserve agreements whenever the parties manifest an intention to enter into a contract.

Formation n Manifestation of Mutual Assent Definiteness of an Offer – the Code provides that a sales or lease contract does not fail for indefiniteness even though one or more terms may have been omitted; the Code provides standards by which missing essential terms may be supplied for sales of goods.

Irrevocable Offers n Option – a contract to hold open an offer. n Firm Offer – a signed writing by a merchant to hold open an offer for the purchase or sale of goods for a maximum of three months. n Variant Acceptances – the inclusion of different or additional terms in an acceptance is addressed by focusing on the intent of the parties. n Manner of Acceptance – an acceptance can be made in any reasonable manner and is effective upon dispatch.

Consideration n Contractual Modifications – the Code provides that a contract for the sale or lease of goods may be modified without new consideration if the modification is made in good faith. n Firm Offers – are not revocable for lack of consideration.

Form of the Contract n Statute of Frauds – sale of goods costing $500 or more (or lease of goods for $1,000 or more) must be evidenced by a signed writing to be enforceable. –Written Compliance – the Code requires writing to indicate that a contract has been made between the parties, signed by the party against whom enforcement is sought or by her authorized agent, including a term specifying the quantity of goods. –Alternative Methods of Compliance – written confirmation between merchants, admission, specially manufactured goods, and delivery or payment and acceptance.

Parol Evidence n Contractual terms that are set forth in a writing intended by the parties as a final expression of their agreement may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement, but such terms may be explained or supplemented by course of dealing, usage of trade, course of performance, or consistent additional evidence.

Contract Law Compared with Law of Sales