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Copyright © 2009 by Pearson Prentice Hall. All rights reserved.
PowerPoint Slides to AccompanyCONTEMPORARY BUSINESS
ANDONLINE COMMERCE LAW
6th Editionby Henry R. Cheeseman
Chapter 16Formation of Sales, Lease, and E-Contracts
Copyright © 2009 by Pearson Prentice Hall. All rights reserved. 16 - 2
Uniform Commercial Code (UCC) Comprehensive statutory scheme Serves as a model act The UCC includes laws that cover most
aspects of commercial transactions Every state (except Louisiana) has
enacted the UCC as their commercial law statute
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Overview of the Uniform Commercial Code (UCC) (1 of 2)
Article 1 General provisions Article 2 (revised) Sales Article 2A Leases Article 3 Negotiable instruments Article 4 Bank deposits & collections Article 4A Wire transfers Article 5 Letter of Credit
Article 1 General provisions Article 2 (revised) Sales Article 2A Leases Article 3 Negotiable instruments Article 4 Bank deposits & collections Article 4A Wire transfers Article 5 Letter of Credit
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Overview of the Uniform Commercial Code (UCC) (2 of 2)
Article 6 Bulk transfers Article 7 Documents of title Article 8 Investment securities Article 9 (revised) Secured transactions
Article 6 Bulk transfers Article 7 Documents of title Article 8 Investment securities Article 9 (revised) Secured transactions
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Scope of Article 2 (Sales)
All states except Louisiana have adopted some version of Article 2 (Sales) of the UCC
Article 2 is also applied by federal courts to sales contracts governed by federal law
Article 2 establishes rules that govern the sale of goods
Article 2 has recently been revised Has been adopted by some states
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What is a Sale?
A salesale is the passing of title from a seller to a buyer for a price [UCC 2-106(1)]
A salesale is the passing of title from a seller to a buyer for a price [UCC 2-106(1)]
Dell Computer Corporation
(seller)
Big Cheese Corporation
(purchaser)
Sale of computer
Payment
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What Are Goods?
GoodsGoods are defined as tangible thingstangible things that are movable at the time of their identification to the contract [UCC 2-105(1)]
Money and intangible items such as stocks, bonds, and patents are not tangible goods
Real estate is not a tangible good because it is not movable
Contracts for provision of services are not covered by Article 2
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Who is a Merchant?
A person who:1. Deals in the goods of the kind involved in
the transaction, or
2. By his or her occupation holds himself or herself out as having knowledge or skill peculiar to the goods involved in the transaction.
[UCC 2-104(1)]
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Scope of Article 2A (Leases) Article 2AArticle 2A applies only to leasesleases involving
goods
Article 2A does not apply to real estate or other leases
Many states have adopted Article 2A
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Definition of a Lease
LeaseLease – a transfer of the right to the possession and use of the named goods for a set term in return for certain consideration [UCC 2A-103(1)(i)(x)]
LessorLessor – the person who transfers the right of possession and use of goods under the lease.
LesseeLessee – the person who acquires the right to possession and use of goods under a lease.
LeaseLease – a transfer of the right to the possession and use of the named goods for a set term in return for certain consideration [UCC 2A-103(1)(i)(x)]
LessorLessor – the person who transfers the right of possession and use of goods under the lease.
LesseeLessee – the person who acquires the right to possession and use of goods under a lease.
Lease
Equipment
Dow Chemical Company
(lessee)
Ingersoll-Rand Corporation
(lessor)
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Finance Lease
A three-party transaction consisting of the lessor, the lessee, and the supplier
The lessor does not select, manufacture, or supply the goods
Instead, the lessor acquires title to the goods or the right to their possession and use in connection with the terms of the lease [UCC 2A-103(1)(g)]
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Example of a Finance Lease Transaction
Boeing Aircraft Company
(seller)
City Bank (purchaser)
(lessor)
Jet Blue Airline Co.
(lessee)
Delivery of airplane
Sale of airplane
Payment
Lease payments
Lease
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Formation of Sales and Lease Contracts (1 of 6)
Any rules established by Articles 2 and 2A take precedence over the common law of contracts
OfferOffer A contract for the sale or lease of goods may
be made in any manner sufficient to show agreement
This includes conduct by both parties that recognizes the existence of a contract [UCC 2-204(1), 2A-204(1)]
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Formation of Sales and Lease Contracts (2 of 6)
Open TermsOpen Terms Sometimes the parties to a
sales or lease contract leave open a major term in the contract Open Price Term Open Payment Term Open Delivery Term Open Time Term Open Assortment Term
Open TermsOpen Terms Sometimes the parties to a
sales or lease contract leave open a major term in the contract Open Price Term Open Payment Term Open Delivery Term Open Time Term Open Assortment Term
These open terms are permitted to be read intoread into a sales or lease contract
This rule is commonly referred to as the gap-gap-filling rulefilling rule [UCC 2-204(3), 2A-204(3)]
These open terms are permitted to be read intoread into a sales or lease contract
This rule is commonly referred to as the gap-gap-filling rulefilling rule [UCC 2-204(3), 2A-204(3)]
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Formation of Sales and Lease Contracts (3 of 6)
Firm Offer RuleFirm Offer Rule [UCC 2-205, 2A-205] A merchant who (1) offers to buy, sell, or
lease goods, and (2) gives a written and signed assurance on a separate form 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 Three months is the maximum amount of
time permitted under this rule
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Formation of Sales and Lease Contracts (4 of 6)
AcceptanceAcceptance The UCC provides that a contract is created
when the offeree (i.e., the buyer or lessee) sends an acceptance to the offeror, not when the offeror receives the acceptance
The UCC permits acceptance by any reasonable manner or method of communication [UCC 2-206(1)(a), 2A-206(1)]
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Formation of Sales and Lease Contracts (5 of 6)
Accommodation ShipmentAccommodation Shipment A shipment that is offered to the buyer as a
replacement for the original shipment when the original shipment cannot be filled
The accommodation is a counteroffer from the seller to the buyer
The buyer is free either to accept or to reject the counteroffer [UCC 2-206(1)(b)]
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Formation of Sales and Lease Contracts (6 of 6)
ConsiderationConsideration The formation of sales and lease contracts
requires consideration Under the UCC, an agreement modifying a
sales or lease contract needs no consideration to be binding [UCC 2-209(1), 2A-208(1)]
Modification of a sales or lease contract must be made in good faith [UCC 1-203]
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UCC Statute of Frauds
A rule that requires all contracts for the sale of goods costing $500 or more, and lease contracts involving payments of $1,000 or more be in writing [UCC 2-201(1), 2A-201(1)]
The writing must be sufficient to indicate that a contract has been made between the parties
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Exceptions to the Statute of Frauds The following are exceptions to the
Writing Requirement of the UCC Statute of Frauds: Specially manufactured goods Admissions in pleadings or court Part acceptance
[UCC 2-201(3), UCC 2A-201(4)]
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UCC Written Confirmation Rule If both parties to an oral sales or lease contract
are merchants, the Statute of Frauds requirements are satisfied if:
1. One of the parties sends a written confirmationwritten confirmation of the sale to the other within a reasonable time after contracting, and
2. The other merchant does not give written notice of an objection to the contract within ten days after receiving the confirmation [UCC 2-201(2)]
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When Written Modification is Required Oral modification is not enforceable if the
parties agree that any modification of the sales or lease contract must be in a signed writing. [UCC 2-209(2), 2A-208(2)]
In the absence of such an agreement, oral modifications to sales and lease contracts are binding if they do not violate the Statute of Frauds.
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Parol Evidence
A rule that states that when a sales or lease contract is evidenced by a writing that is intended to be a final expression of the parties’ agreement or confirmatory memorandum, the terms of the writing may not be contradicted by evidence of:
1. A prior oral or written agreement, or2. A contemporaneous oral agreement (i.e., parol
evidence) [UCC 2-202, 2A-202]
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Comparison of Contract Law and the Law of Sales (1 of 3)
Topic Common Law of Contracts
UCC Law of Sales
Definiteness Contract must contain all of the material terms of the parties’ agreement.
UCC gap-filling rules permit terms to be implied if the parties intended to make a contract. [UCC 2-204]
Irrevocable Offers
Option contracts. Option contracts. Firm offers by merchants to keep an offer open are binding up to three months without any consideration. [UCC 2-205]
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Comparison of Contract Law and the Law of Sales (2 of 3)
Topic Common Law of Contracts
UCC Law of Sales
Counteroffers Acceptance must be a mirror image of the offer. A counteroffer rejects and terminates the offer.
Additional terms of an acceptance become part of the contract if (1) they do not materially alter the terms of the offer and (2) the offeror does not object within a reasonable time after reviewing the acceptance. [UCC 2-207]
Modification Consideration is required.
Consideration is not required. [UCC 2-209]
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Comparison of Contract Law and the Law of Sales (3 of 3)
Topic Common Law of Contracts
UCC Law of Sales
Statute of Frauds
Writing must be signed by the party against whom enforcement is sought.
Writing may be enforced against a party who has not signed it if (1) both parties are merchants, (2) one party sends a written confirmation of their oral agreement within a reasonable time after contracting, and (3) the other party does not give written notice of objection within ten days after receiving the confirmation. [UCC 2-201]
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Use of Letters of Credit in International Trade The irrevocable letter of creditletter of credit has been
developed to manage the risks in international sales.
The function of a letter of credit is to substitute the credit of a recognized international bank for that of the buyer.