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Business Law and the Regulation of Business Chapter 19: Introduction to Sales and Leases

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

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Business Law and the Regulation of Business Chapter 19: Introduction to Sales and Leases

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

  2. 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

  3. Nature of Sales and Leases • Goods– movable personal property • Sale– transfer of title to goods from seller to buyer for a price • 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

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

  5. Governing Law • 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. • 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. • Transactions outside the Code– service contracts, employment contracts, insurance contracts, contracts involving real property, and contracts for the sale of intangibles.

  6. Law of Sales LAW OF PROPERTY LAW OF CONTRACTS Real Property LAW OF SALES PersonalProperty Slide #142

  7. Fundamental Principles of Article 2 and Article 2A • Purpose– to modernize, clarify, simplify, and make uniform the law of sales and leases. • 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.

  8. Unconscionability • 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.

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

  10. Sales by and between Merchants • 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).

  11. Selected UCC Rules Applicable to Merchants

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

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

  14. Liberal Administration of Remedies • Freedom of Contract– most provisions of the Code may be varied by agreement. • 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.

  15. Formation • 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.

  16. Irrevocable Offers • Option– a contract to hold open an offer. • 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. • Variant Acceptances– the inclusion of different or additional terms in an acceptance is addressed by focusing on the intent of the parties. • Manner of Acceptance– an acceptance can be made in any reasonable manner and is effective upon dispatch.

  17. Consideration • 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. • Firm Offers– are not revocable for lack of consideration.

  18. Form of the Contract • 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.

  19. Parol Evidence • 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.

  20. Contract Law of Sales Definiteness Contract must include all material Open terms permitted if terms. parties intend to make a contract Counteroffers Acceptance must be a mirror image of Battle of Forms. offer. Counteroffer and conditional acceptance are rejections. Modification of Consideration is required. Consideration is not Contract required. Irrevocable Options. Options. Offers Firm offers up to three months’ duration binding without consideration. Statute of Writing must include all material Writing must include Frauds terms. quantity term. Specially manufactured goods. Confirmation by merchants. Delivery or payment and acceptance. Admissions. Contract Law Compared with Law of Sales

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