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

2. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

3. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

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

5. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

6. Exhibit Lease
Copyright © Pearson Education, Inc. Publishing as Prentice Hall.

7. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

8. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

9. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

10. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

11. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

12. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

13. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

14. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

15. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

16. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

17. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

18. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

19. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

20. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

21. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

22. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

23. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

24. 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 © Pearson Education, Inc. Publishing as Prentice Hall.

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