CH 20: Sales and Lease Contracts

Why was the UCC made?

to facilitate business

How do you know that an enforceable contract falls under the UCC?

If the contract is for the sale or lease of goods

If a contract is an enforceable contract but is not for the sale or lease of goods then ___ applies

common law

was set up to make it easier for businesses in different states to do business with one another

UCC

What is a good example of the UCC-1 statement as part of a transaction

Purchase of a car with a loan from a bank or financing entity

single most codification of the broad spectrum of laws involved in a total commercial transaction

UCC

The UCC views the entire commercial transaction for the sale of land and payment for goods as a ___ having numerous facets; the articles and sections of the UCC are periodically revised or supplemented to clarify certain aspects or to establish new rules as needed when the business environment changes

single legal occurrence

The UCC consists of ___ articles

11

Article one, titled General Provisions, sets forth definitions and general principles applicable to commercial transactions. Article one thus provides the basic groundwork for:

remaining articles (each of which focuses on a particular aspect of commercial transactions)

Contracts for the sale of goods are the subject of ____

Article 2

Contracts for leases are covered in ___

Article 2A

Transactions may involve a payment including negotiable instruments and the banking system covered in :

Articles 3,4, and 5

If credit is being extended to buyers of goods, the transaction may be secured under:

Article 9

All contracts falling under the UCC are to be performed in ___

good faith

a contract for the sale of goods under which the ownership of goods is transferred from a seller to a buyer for a price

sales contract

To facilitate commercial transactions, article 2 ___ some of the common law transactions

modify

To facilitate commercial transactions, article 2 modify some of the common law transactions. To the extent that it has NOT been modified by the UCC:

the common law of contracts also applies to sales contrasts

In general, the rules for sales contracts states that whenever a conflict arises between a common law contract rule and the state statutory law based on the UCC:

the UCC controls

Parties to sales contracts are:

free to agree to terms different from those stated in the UCC

Article 2 deals with the sale of goods NOT: (3)

Real Property
Services
Intangible Property

The rules of article 2 can very depending on whether the buyer or the seller is a ___

merchant

the passing of title (evidence of ownership rights) from a seller to a buyer for a price

sale

To be characterized as a good, an item of property must be:

tangible
movable

property that has physical existence and can be distinguished by the senses of touch, sight, and so on

tangible property

Property that is incapable of being apprehended by the senses (such as sight or touch)

intangible property

Property that has only conceptual existence and thus does not come under article 2

intangible property

Goods associated with real estate typically fall under the scope of:

Article 2

A contract for the sale of minerals, oil, or gas is a contract for the sale of goods IF:

severance is to be made to the seller

Minerals below the surface are considered

intangible

Minerals when mined are considered ___ and therefore fall under article 2

tangible

a contract for the sale of growing crops or timbers to be cut is considered contract for sale of goods regardless of:

who severs them from the land

When contracts involve a combination of goods and services, courts generally use the ___ to determine whether a contract is primarily for the sale of goods or for the sale of services

Predominant factor test

a test courts use to determine whether a contract is primarily for the sale of goods or for the sale of services

Predominant factor test

If a court decides that a mixed contract is primarily for goods under the predominant factor test, then any dispute (even over the services portion) will be decided under the

UCC

A person who is engaged in the purchase and sale of goods

merchant

Article 2 of the UCC imposes ___ upon merchants, who have a relatively higher degree of commercial expertice than the casual or inexperienced buyer or sellers (consumers)

special business standards

What are the 3 situations in which merchant status can arise? (ORs)

Deal in goods of the kind
By occupation have knowledge/skill unique to goods involved in transaction
Employ merchant as a broker, agent, or other intermediary

a transfer of the right to possess and use goods for a period of time in exchange for payment

lease

___ is essentially a repetition of Article 2 , except that it applies to leases of goods rather than sales of goods and thus varies to reflect differences between sales and lease transactions

Article 2A

Article 2A is NOT concerned with leases of:

real property

an agreement in which one person (the lessor) agrees to transfer the right to the possession and use of property to another person (the lessee) in exchange for rental payments

lease agreement

a property owner who allows others to use their property in exchange for a payment

lessor

A person who pays for the use or possession of another’s property

lessee

What is the difference between a lease and a lease agreement

Lease is a set time without permanence

A consumer lease has three requirements

Lessor who regularly engages in the business of leasing or selling (merchant)
Lessee (except an org) who leases the goods primarily for a personal, family, or household purpose (intent of use)
Total lease payments that are less than $25,000

A finance lease involves: (3)

Lessor
Lessee
Supplier

The lessor buys or leases goods from supplier and leases or subleases them to the lessee

finance lease

Typically in a finance lease, the lessor is simply:

financing the transaction

In regard to the formation of sales and lease contracts, Articles 2 and 2A of the UCC modify common law contract rules in what two ways?

Parties fail to provide certain terms in contract
Parties wish to change the effect of the UCCs terms in the contracts application

In general contract law, the moment a definite offer is met by an unqualified acceptance, a :

binding contract is formed.

In commercial sales transactions (under UCC) the verbal exchanges, correspondence, and actions of the parties may not reveal exactly when a binding contractual obligation arises. The UCC states that an agreement is sufficient to constitute a contract can exist:

even in the moment of its making is

under general contract law, an offer must be definite enough for the parties and the courts to ascertain its essential terms when:

accepted

The UCC states that a sales or lease contract with open terms will not fail for indefiniteness if BOTH are true:

The parties intended to make a contract
There is a reasonably certain basis for the court to grant an appropriate remedy

The UCC provides numerous ___ provisions that can be used to fill the gaps in a contract

open term

___ of goods usually is NOT a permissible open term and must be expressly stated

quantity

If the parties have not agreed on a price, the court will determine a ___

reasonable price at the time of delivery

What are the types of open term provisions

Open Price Term
Payment
Delivery
Quantity

Under the UCC, means honesty in fact and the observance or reasonable commercial standards of fair dealing in the trade

good faith

If the price fails to be set through the fault of one of the parties, the other party can treat the contract as ___

cancelled or determine a reasonable price

When the parties do not specify payment terms, payment is due at the:

time and place at which the buyer is to receive the goods

If the seller demands payment in cash, the buyer must be given:

a reasonable time to obtain it

When no delivery terms are specified, the buyer normally takes delivery:

at the sellers place of business

If the seller has no place of business with an open delivery term, use:

residence

Normally, if the parties do not specify the quantity:

no contract is formed

What are the UCC exceptions to the rule of a void contract if no quantity stated?

Requirements contract
Output contract

agreements in which a buyer agrees to purchase and the seller agrees to sell all or up to a stated amount of what the buyer needs or requires

requirements contracts

agreements in which a seller agrees to sell and a buyer agrees to buy all or up ro a stated amount of what the seller produces

Output contract

Exception to no quantity stated: based on the stated amount that the BUYER requires

requirement contract

Exception to no quantity stated: the buyer gives up the right to buy the goods from any other seller

requirements contract

Exception to no quantity stated: if the buyer has discretion not to buy from seller and can buy elsewhere then the ___ is really an unenforceable illusory contract

requirements contract

Exception to no quantity stated: Based on what the seller can produce

options contract

Exception to no quantity stated: seller gives up the right to sell goods to any other buyer

options contract

What are the two exceptions that the UCC makes for revocation that can be accepted before acceptance

option contract
firm offer made by merchant

For firm offers made by a merchant concerning the sale or lease of goods, it does not mather

whether the offeree is a merchant

an offer (by a merchant) that is irrevocable without consideration for a stated period of time (no longer than 3 months)

firm offer

a firm offer ccan be no longer than

3 months

A firm offer must be:

in writing
signed by offeror

Unless the parties specify otherwise, under the UCC, an acceptance of a offer to buy, sell, or lease goods may be made in:

any reasonable manner and by any reasonable means

The UCC permits 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

The prompt shipment of nonconforming goods constitutes both:

acceptance and breach of contract

The acceptance though sending nonconforming goods is considered a COUNTEROFFER not a acceptance and breach when:

seller notifies the buyer that the nonconforming offer is offered as accommodation

Under the common law, because a unilateral offer invites acceptance by performance, the offeree need not notify the offeror of performance unless:

the offeror would not otherwise know about it

The UCC is usually more flexible than common law except in what area:

Offeror of ALL contracts (unilateral or bilateral) must be notified w/in a reasonable time that the offeree has accepted (otherwise offeror can treat offer as having lapsed before acceptance)

Unlike the common law, which follows the mirror image rule, a contract is formed if the offerees response indicates a definite acceptance of the offer even if

acceptance includes terms additional to or different from those contained in the offer

Under the UCC, if acceptance contains terms additional to or different from those in the offer, if the proposed modifications are conditional on the offerors assent:

it is not acceptance- it is a counteroffer

Under the UCC, whether any additional terms that were accepted on the offer become part of the contract is dependent in part on whether:

the parties are nonmerchants or merchants

When ___ : the contract is formed according to the terms of the original offer and does not include any of the additional terms in the acceptance

one party or both parties are nonmerchant

When both parties are merchants: the additional terms automatically become part of the contract UNLESS one of the following three conditions arises:

Original offer expressly limited acceptance to its terms
New or changed terms materially alter the contract
Offeror objects to the new or changed terms within a reasonable period of time

Generally, a court will hold that the modification did not materially alter the contract if it does not:

involve any unreasonable element of surprise or hardship for the offeror

In contracts between merchants, are prior dealings considered when determining if additional terms are part of a contract?

yes

The offeree’s response is not an acceptance if it contains additional or different terms and it expressly conditioned on the offerors assent to those terms (whether the parties are merchants or not)

Conditioned assent

Conditioned assent is typically considered

counteroffer

Unlike common law, the UCC does not require a contract modification to be supported by new consideration as long as it is made in

good faith

What are the UCC Statute of Fraud items that must be in writing to be enforceable

Sales contracts for goods of $500 or more
Lease contracts requiring total payments of $1000 or more

A writing, including an email or other electronic record, will be sufficient to satisfy the UCCs statute of frauds as long as: (2)

Indicates intent to form a contract AND
Is signed by the party against whom enforcement is sought

Special Rules for Contracts between Merchants: Merchants can satisfy the statute of frauds if, after the parties have agreed orally:

one of the merchants sends a signed written confirmation to the other merchant within a reasonable time.

Special Rules for Contracts between Merchants: Merchants can satisfy the statute of frauds if, after the parties have agreed orally, one of the merchants sends a signed written confirmation to the other merchant within a reasonable time. This must indicate the terms of the agreement. Unless the merchant who receives the confirmation gives ___ the writing is sufficient against the receiving merchant even though he or she has not signed it.

written notice of objection to its contents within 10 days (no objection means statute of frauds does apply)

What are the exceptions to the writing requirements under the UCC statute of frauds? (3) an oral contract for the sale or lease of goods will be enforceable if:

Goods are specially manufactured for a particular buyer or specially manufactured or obtained for a particular leasee
Goods not suitable for resale or lease to others in the ordinary course of the seller of lessor’s business
Seller or lessor has substantially started to manufacture the goods or has made commitments for the manufacture or procurement of the goods

An oral contract for sale or lease of goods is enforceable if the party against enforcement is sought ___ that a sales lease or contract was made

admits in pleadings, testimony, or other court proceedings

An oral contract for the sale or lease of goods is enforceable if ___ and accepted or goods have been received and accepted

payment has been made