Copyright © 2004 by Prentice-Hall. All rights reserved. PowerPoint Slides to Accompany BUSINESS LAW E-Commerce and Digital Law International Law and Ethics 5 th Edition by Henry R. Cheeseman Slides developed by Les Wiletzky Wiletzky and Associates, Puyallup, WA Chapter 19 Formation of Sales and Lease Contracts Chapter 19 Formation of Sales and Lease Contracts

19 - 2Copyright © 2004 by Prentice-Hall. All rights reserved. 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.

19 - 3Copyright © 2004 by Prentice-Hall. All rights reserved. Overview of the Uniform Commercial Code  Article 1General provisions  Article 2Sales  Article 2ALeases  Article 3Commercial paper  Rev. Article 3Negotiable instruments  Article 4Bank deposits & collections  Article 4AWire transfers

19 - 4Copyright © 2004 by Prentice-Hall. All rights reserved. Overview of the Uniform Commercial Code (continued)  Article 5Letters of credit  Article 6Bulk transfers  Article 7Documents of title  Article 8Investment securities  Article 9Secured transactions

19 - 5Copyright © 2004 by Prentice-Hall. All rights reserved. Article 2 (Sales) of the UCC  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 applies only to transactions in goods – i.e., tangible items.

19 - 6Copyright © 2004 by Prentice-Hall. All rights reserved. Article 2 (Sales) of the UCC (continued)  Article 2 does not apply to transactions in intangible items, real estate, or service.  What is a sale? The passing of title from a seller to a buyer for a price. The passing of title from a seller to a buyer for a price.

19 - 7Copyright © 2004 by Prentice-Hall. All rights reserved. Article 2 (Sales) of the UCC (continued)  What are goods? Tangible things that are movable at the time of their identification to the contract. Tangible things that are movable at the time of their identification to the contract. Money and intangible items such as stocks, bonds, and patents are not tangible goods. Money and intangible items such as stocks, bonds, and patents are not tangible goods. Real estate and services are not tangible. Real estate and services are not tangible.

19 - 8Copyright © 2004 by Prentice-Hall. All rights reserved. Article 2 (Sales) of the UCC (continued)  Who is a merchant? A person who: 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.

19 - 9Copyright © 2004 by Prentice-Hall. All rights reserved. Article 2A (Leases) of the UCC  Article 2A applies only to leases involving goods.  Article 2A does not apply to real estate or other leases.  Many states have adopted Article 2A.

Copyright © 2004 by Prentice-Hall. All rights reserved. Article 2A (Leases) of the UCC (continued)  What is a lease? A transfer of the right to the possession and use of the named goods for a set term in return for certain consideration. A transfer of the right to the possession and use of the named goods for a set term in return for certain consideration. Lessor – the person who transfers the right of possession and use of goods under the lease. Lessor – the person who transfers the right of possession and use of goods under the lease. Lessee – the person who acquires the right to possession and use of goods under a lease. Lessee – the person who acquires the right to possession and use of goods under a lease.

Copyright © 2004 by Prentice-Hall. All rights reserved. Article 2A (Leases) of the UCC (continued)  Finance Lease A three-party transaction consisting of the lessor, the lessee, and the supplier. A three-party transaction consisting of the lessor, the lessee, and the supplier. The lessor does not select, manufacture, or supply the goods. 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. Instead, the lessor acquires title to the goods or the right to their possession and use in connection with the terms of the lease.

Copyright © 2004 by Prentice-Hall. All rights reserved. Formation of Sales and Lease Contracts  Any rules established by Articles 2 and 2A take precedence over the common law of contracts.  Offer A contract for the sale or lease of goods may be made in any manner sufficient to show agreement. 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. This includes conduct by both parties that recognizes the existence of a contract.

Copyright © 2004 by Prentice-Hall. All rights reserved. Formation of Sales and Lease Contracts (continued)  Open Terms Sometimes the parties to a sales or lease contract leave open a major term in the contract. 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

Copyright © 2004 by Prentice-Hall. All rights reserved. Formation of Sales and Lease Contracts (continued)  Open Terms (continued) These open terms are permitted to be read into a sales or lease contract. These open terms are permitted to be read into a sales or lease contract. This rule is commonly referred to as the gap- filling rule. This rule is commonly referred to as the gap- filling rule.

Copyright © 2004 by Prentice-Hall. All rights reserved. Formation of Sales and Lease Contracts (continued)  Firm Offer Rule 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, 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, cannot revoke the offer for the time stated or, if no time is stated, for a reasonable time. if no time is stated, for a reasonable time. Three months is the maximum amount of time permitted under this rule. Three months is the maximum amount of time permitted under this rule.

Copyright © 2004 by Prentice-Hall. All rights reserved. Formation of Sales and Lease Contracts (continued)  Acceptance 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 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. The UCC permits acceptance by any reasonable manner or method of communication.

Copyright © 2004 by Prentice-Hall. All rights reserved. Formation of Sales and Lease Contracts (continued)  Accommodation Shipment A shipment that is offered to the buyer as a replacement for the original shipment when the original shipment cannot be filled. 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 accommodation is a counteroffer from the seller to the buyer. The buyer is free either to accept or to reject the counteroffer. The buyer is free either to accept or to reject the counteroffer.

Copyright © 2004 by Prentice-Hall. All rights reserved. Formation of Sales and Lease Contracts (continued)  Consideration The formation of sales and lease contracts requires consideration. 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. Under the UCC, an agreement modifying a sales or lease contract needs no consideration to be binding. Modification of a sales or lease contract must be made in good faith. Modification of a sales or lease contract must be made in good faith.

Copyright © 2004 by Prentice-Hall. All rights reserved. Formation of Sales and Lease Contracts (continued)  UCC Statute of Frauds A rule that requires all contracts for the sales of goods costing $500 or more, and lease contracts involving payments of $1,000 or more be in writing. A rule that requires all contracts for the sales of goods costing $500 or more, and lease contracts involving payments of $1,000 or more be in writing. The writing must be sufficient to indicate that a contract has been made between the parties. The writing must be sufficient to indicate that a contract has been made between the parties.

Copyright © 2004 by Prentice-Hall. All rights reserved. Formation of Sales and Lease Contracts (continued)  Exceptions to the Writing Requirement of the UCC Statute of Frauds Specially Manufactured Goods Specially Manufactured Goods Admissions in Pleadings or Court Admissions in Pleadings or Court Part Acceptance Part Acceptance

Copyright © 2004 by Prentice-Hall. All rights reserved. Formation of Sales and Lease Contracts (continued)  Written Modification Oral modification is not enforceable if the parties agree that any modification of the sales or lease contract must be in a signed writing. Oral modification is not enforceable if the parties agree that any modification of the sales or lease contract must be in a signed writing. 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. 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.

Copyright © 2004 by Prentice-Hall. All rights reserved. Formation of Sales and Lease Contracts (continued)  Parol Evidence Rule 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: 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, or 2. A contemporaneous oral agreement.

Copyright © 2004 by Prentice-Hall. All rights reserved. Comparison of Contract Law and the Law of Sales (1 of 2) Topic Common Law 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. Irrevocable Offers Option contracts. Option contracts. Firm offers by merchants to keep an offer open are binding up to three months without any consideration.

Copyright © 2004 by Prentice-Hall. All rights reserved. Comparison of Contract Law and the Law of Sales (2 of 2) Topic Common Law Contracts 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. 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. Modification Consideration is required Consideration is not required