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chapter 19 formation of sales and lease contracts n.
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  1. Chapter 19 Formation of Sales and Lease Contracts

  2. §1: The UCC • Facilitates commercial transactions. • UCC Article 2: Sale of Goods. • Modifies common law of contracts of some areas. • UCC 2 preempts common law. • Where UCC2 is silent, common law governs.

  3. §2: The Scope of UCC 2 • Does not apply to real estate unless there is a “good” that can be severed by the Seller. If the good is severed by the Buyer, then UCC2 does not apply. • Generally contracts for services are not governed by UCC2. • What if Goods and Services combined? • Case 19.1:Micro Data Base v. Dharma Systems (1998).

  4. Scope of UCC2 [2] • UCC2 applies to the “sale of goods.” • A “sale” is the passing of title of “goods” to/from a “merchant” (seller or buyer) for a price (money, goods, services,etc). • “Goods” are tangible and movable. • A “merchant” has special business expertise and is not a casual buyer/seller. • Case 19.2:Ready Trucking Inc v. BP Exploration & Oil Co. (2001).

  5. §3: Scope of UCC 2A-Leases • Contract for lease of personal goods between a lessor and a lessee. • Consumer Leases (total payments less than $25,000). • Finance Leases (involves a 3rd party-supplier).

  6. §4: Formation of Sales and Lease Contracts • At common law once a valid offer is unequivocally accepted, a binding contract is formed. • UCC is more flexible, and allows for open pricing, payment, and delivery terms.

  7. Offer-Open Terms [1] • UCC 2-204: even if terms of are undetermined, a contract may still exist. • Open Terms: “Indefiniteness” is OK as long as the parties intended to make a contract and there is a reasonable basis for a court to grant a remedy.

  8. Offer-Open Terms [2] • Open Price Term: If parties have not agreed on pricing, court can determine “reasonable price at the time of delivery.” UCC2-305. • Open Payment Term: Unless otherwise agreed, payment is due on delivery (COD). UCC2-310(a). • Open Delivery Term: Unless otherwise agreed, buyer takes delivery at the Seller’s place of business. UCC2-308(a).

  9. Offer-Open Terms [3] • Open Quantity: generally courts will not impose a quantity. UCC2-306. Exceptions: • Requirements Contract: buyer agrees to purchase what the buyer needs or requires. • Output Contract: buyer agrees to buy all of seller’s production or output.

  10. Merchant’s Firm Offer • At common law, an offer could be revoked any time prior to acceptance, unless there was some consideration. • At UCC, offer made by merchant in a signed writing is irrevocable for reasonable period of time. No consideration necessary.

  11. Acceptance • Any reasonable means of acceptance under the circumstances is permissible. • Promise to ship or prompt shipment is acceptance. • Shipment of non-conforming goods is both an acceptance and a breach unless goods sent as an “accommodation” to buyer (UCC2-206).

  12. Acceptance: Additional Terms • If either party is a non-merchant, the contract is formed according to original terms of the offer. • If both parties are merchants, contract incorporates new terms unless: • (1) original offer expressly limits terms, or • (2) material change, or • (3) offeror objects within reasonable time.

  13. Consideration • UCC requires consideration and modifications must be made in good faith. • Modification must be in writing if required by Statute of Frauds.

  14. Statute of Frauds • Sale of goods over $500 must have a signed writing to be enforceable. • Exceptions to this rule: • Specially manufactured goods. • Admissions by breaching party. • Partial performance. • Merchant doesn’t object within 10 days. • Oral agreement enforceable after written confirmation between merchants.

  15. Parol Evidence • Terms of a written agreement intended to be the final expression of parties’ intentions, cannot be contradicted by prior or contemporaneous agreements. • Exceptions: consistent terms, course of dealing and trade. • Case 19:3:Puget Sound Financial LLC v. Unisearch Inc. (1976).

  16. Unconscionability • Contract is one that is so unfair and one-sided it is unreasonable to enforce it. • Court can: set it aside, refuse to enforce the unconscionable provision, limit the contract. • Case 19:4:Jones v. Star Credit Corp. (1969).

  17. §5: International Sales • Applicability of the CISG. • Comparison of CISG and UCC. • Mirror Image Rule. • Irrevocable Offers. • Statute of Frauds. • Necessity of a Price Term. • Time of Contract Formation.

  18. Special Provisions in International Contracts • Language and legal differences create special difficulties. Parties should agree to: • Choice of Language. • Choice of Forum (country). • Choice of Law. • Force Majeure Clause.

  19. Law on the Web • National Conference of Commissioners. • U. Penn Final Draft of Uniform Laws. • UCC at Cornell U. • Contracts for the Sale of International Goods at Pace University Law School. • Legal Research Exercises on the Web.