Chapter 12: Sales and Lease Law

BLAW Exam #3

The Scope of Articles 2 and 2A

• Uniform Commercial Code (UCC) governs

• Article 2 – Sales contracts

• Article 2A – Lease contracts

Article 2 – Sales Contracts

• Common law requirements also apply to sales contracts

– Agreement

– Consideration

– Capacity

– Legality

Article 2 Specifically For:

1. Sale of goods only

2. Varying rules depending on buyer or seller being a merchant

   1. Sale – Passing of ownership rights from seller to buyer for a price

Goods

• To qualify as “goods,” the items must be tangible, meaning they have a physical existence.

• When contracts involve both goods and services, courts use the predominant-factor test.

− Disputes regarding primarily goods contracts are decided under UCC.

Who is a Merchant?

Section 2-104

1. Retailer, wholesaler, or manufacturer of those goods

2. Holds self as having special knowledge and skills related to goods

3. Employer as broker, agent, or other intermediary that has merchant status

Article 2A – Lease Contracts

• Transfer of right to possess and use goods for a time period with payment

• Subleases included

• Applies to leases of goods only, commercial and consumer

Lease Agreement

• Bargain of goods between lessor and lessee

Formation of Sales and Lease Contracts

Offer

• Open terms

− Offer is definite enough for parties to ascertain its essential terms.

− If too many open terms, court may decide parties did not intend a contract.

Merchant’s Firm Offer

– Option Contract: Offeree considers the offeror’s irrevocable promise to keep offer open for time period

– Firm Offer: Offer remains open with assurance and signature

Acceptance

UCC 2–206(1)(b):

• Acceptance of an offer to buy goods “either by a prompt promise to ship[,] or by the prompt or current shipment of conforming or nonconforming goods”

• Shipment of nonconforming goods – seasonably

• Communication of acceptance required

Mirror Image Rule

• Terms of acceptance matches terms of the offer

Statute of Frauds

Sufficiency of the Writing

1. Parties intended to form contract

2. Signed by party against whom enforcement is sought

– Typed name can qualify as a signature

Special Rules for Contracts Between Merchants

• Upon oral agreement, merchant sends signed written confirmation to the other merchant within a reasonable time.

Unconscionability

1. Refusal to enforce contract

2. Enforce conscionable part of contract only

Performance

• The Uniform Commercial Code (UCC)’s good faith provision, which can never be disclaimed:

− “Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement” [UCC 1–304].

− Merchants are held to a higher standard than nonmerchants.

Obligations of the Seller or Lessor

Conforming goods – Goods that conform to contract specifications

Tender of Delivery – Conforming goods made available at reasonable hour and reasonable manner

Place of Delivery

1. Seller’s place of business

2. Seller’s residence

3. Location of goods

The Perfect Tender Rule

UCC 2–601, 2A–509

• If goods or tender of delivery fail in any respect, buyer has rights to:

– To accept goods

– Reject entire shipment

– Accept part and reject part

Exceptions to the Perfect Tender Rule

The Right to Cure (Repair, Adjust, or Replace)

1. Delivery is rejected because of nonconforming goods

2. Performance time not expired

3. Timely notice of intent to cure provided

4. Cure made within contract performance time

– Reasonable grounds

– Limits the right to reject goods

Substitution of Carriers and Installment Contracts

• Seller or lessor required to arrange substitute

Commercial Impracticability

• Doctrine of commercial impracticability applies to foreseen problems

Destruction of Identified Goods

• If the goods were identified at the time the contract was formed, then the parties are excused from performance

Obligations of the Buyer or Lessee Brainstorm, Discuss, and Provide Examples

• Payment

• Right of inspection

• Acceptance

• Partial acceptance

Remedies of the Seller or Lessor

Seller or Lessor’s Rights

1. Cancel contract

2. Withhold delivery

3. Resell or dispose goods, and sue to recover damages

4. Sue to recover purchase price or due lease payments

5. Sue to recover damages for buyer’s nonacceptance

Remedies of the Buyer or Lessee

When the Seller or Lessor Refuses to Deliver the Goods

1. Cancel contract

2. Obtain paid goods if seller is insolvent

3. Sue for specific performance if goods are unique, or damages are an inadequate remedy

4. Obtain cover

5. Sue to obtain identified goods, wrongfully held by third party

6. Sue for damages

7. Reject the goods

Revocation of Acceptance

• Not effective until notice given to seller or lessor

• Must take place before goods have undergone substantial change

Right to Recover Damages for Accepted Goods

• Failure to give notice to seller bars buyer from pursuing remedy

Provisions that Affect Remedies

• Parties can expressly provide for remedies apart from those in the UCC.

• Remedies may be repair or replacement of the item or limits on the return of goods and refund.

• Sole remedy if parties state it’s exclusive.

Warranties of Title in Sales and Lease Contracts

Good Title

• Sellers warrant good and valid titles, and the rightful sale of transfer

No Liens

• If buyer unknowingly purchases goods with liens, then they can sue

• Cannot sue if buyer knew of liens

No Infringements

• A merchant promises that the delivered goods are free from any copyright, trademark, or patent claims

Express Warranties

1. Goods conform to any affirmation or promise of fact

2. Goods conform to any description of them

3. Goods conform to any sample or model of the goods shown

Basis of Bargain

• Words such as warrant or guarantee not required

Statements of Opinion

• Only statements of fact create express warranties

• Opinions by experts may be accepted

• Reasonable reliance may create and express warranty

Implied Warranties

Implied Warranty of Merchantability

• A ski merchant implies warranty for ski sales

• Ski sales at a garage sale does not

• Merchantable goods

Magnuson-Moss Warranty Act

Stipulates that:

• No seller of consumer goods is required to give a written warranty.

• Full warranty requires free repair or replacement of any defective part.

• Certain disclosures must be made fully and conspicuously and in readily understood language.

Warranty Disclaimers

UCC Permits Disclaimers

• Express warranties: prevent false allegations

• Implied warranties: “as is” or “with all faults” phrases used

Disclaimer of the Implied Warranty of Merchantability

• The word merchantability must be mentioned