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Chapter 15Chapter 15 Slide Slide 11
Sales Contracts
15-115-1 Sales
15-215-2 Ownership
15-315-3 Special Rules for Sales Contracts
CHAPTER 15
Lessons
LAW FOR BUSINESS AND PERSONAL USE LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING© SOUTH-WESTERN PUBLISHING
Chapter 15Chapter 15 Slide Slide 22
Sales
Define sale and explain how the UCC governs the sale of goods
Identify unconscionable contracts and contracts of adhesion
Distinguish between payment, delivery, and transfer of title of goods
LESSON 15-1
GOALS
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DEBATE
Amanda & Bob – started redecorating a home purchased in New Orleans
Contracted with several artisansAnton, owner of a custom cabinet shop was
hired to develop a pattern for the cabinets in the period of the house
Anton began making the cabinets to fit the unique dimensions and style of the home.
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As the work was nearing completion, Amanda and Bob decided to divorce.
They notified Anton to stop work and told him he would not be paid as he had not completed the job.
Anton sued
Should Anton be able to recover?Why or why not?
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Yes, the UCC allows recovery for unique goods in situations such as these
What would happen if the law did not allow Anton to recover?
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WHAT IS A SALE?A sale is a contract in which ownership of (title to)
goods transfers immediately from the seller to the buyer for a price.
Ownership entails a collection of rights that allow the use an enjoyment of property.
If the transfer of ownership is to take place in the future, the transaction is a contract to sell rather than a sale.
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Price is the consideration for a sale or contract to sell goods.
When parties exchange goods for goods, the sale is a barter.
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SALES OF GOODSUNDER THE UCC
The Uniform Commercial Code (UCC) governs sales of goods and contracts to sell goods in the future.
Goods are tangible movable personal property such as airplanes, books, clothing, and dogs.
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Under UCC
Goods do not include the following:
1) Money (except rare currency or rare coins which are collectible items with value that may exceed their face amounts.)
2) Intangible (not touchable) personal property such as legal rights to performance under a contract transferred by assignment rather than sale.
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Under UCC
3) Patents and Copyrights – exclusive rights given by the federal government to inventors or writers.
4) Land and other forms of real property, which are transferred by conveyance and are subject to special rules
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Contracts for Property
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CONTRACTS FOR PERSONAL SERVICES
In many situations, the contract is primarily for personal services.
Such contracts are not sales because any goods supplied are merely incidental.
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You sign a contract to buy a dishwasher – to be delivered in two weeks
Is this a sale?
No – a contract in which ownership of the dishwasher will transfer in a sale in the future
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You take your car to the dealer for an oil change and they recommend new tires – you agree.
Is this a sale?
No – a contract for services
Any goods supplied such as oil, filter were incidental
Tires -- Transfer of the title to the new tires is a sale of goods
Services contracts do not fall under the UCC rules and requirements.
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Sales of Goods & Contracts to Sell
Vendor – seller
Vendee – purchaser
Payment occurs when the buyer transfers the agreed-upon consideration and the seller accepts it.
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Sales of Goods & Contracts to Sell
Delivery is the act by which the subject matter of the contract is placed within the possession or control of the buyer
Receipt of goods means that the buyer takes physical possession or control of the goods usually involves actual delivery
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Sales of Goods & Contracts to Sell
Delivery may be constructive:No actual transfer of possession of the
goods, but recipient has the power to control themi.e. buyer gets the keys to a carreceives a warehouse receipt for stored goods
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MUST DELIVERY AND PAYMENT BE MADE AT THE SAME TIME?
In the basic sales transaction, payment, delivery, and transfer of title take place simultaneously at the seller’s place of business.
If payment, delivery, etc. take place later, title still passes when the buyer selects and agrees to buy existing goods in the seller’s store.
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Bill of Sale
A bill of sale is a receipt that serves as written evidence of the transfer of ownership of goods.
Sometimes required
by Statute Auto salesProvides evidence
of ownership
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Signed Writing
Statute of Frauds - signed writing is required for items over $500 in most states
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OTHER METHODS OF SALES CONTRACTING UNDER THE UCC
Sales contracts may be made through a traditional exchange of offer and acceptance.
UCC also recognizes alternative methods.Proposal for additionPurchase order formSales order form
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UNCONSCIONABLE SALES CONTRACTS
The UCC provides that a court may find that a contract or a clause of a contract is unconscionable, that is, grossly unfair and oppressive.
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Ivan, an immigrant, bought a refrigerator from a rent-to-own store
Advertised “no established credit necessary”Ivan spoke Russian, very little EnglishNegotiations tooks place in RussianContract written in EnglishStore paid manufacturer $348 for the
appliance
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Under the agreement, the total cost for three years amounted to $2,567.
When Ivan defaulted after one year, the store sued for the $1,805 left to be paid.
This is a contract of adhesion one party dictates all the important terms
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Ivan has paid double the cost to the store already. Courts would probably order the store to turn over the title to Ivan without further payments due.
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A court that decides that a contract or any clause of a contract is unconscionable may do any of the following:
(1) refuse to enforce the contract;
(2) enforce the contract without the unconscionable clause; or
(3) limit the clause’s application so that the contract is no longer unfair.
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Chapter 15Chapter 15 Slide Slide 2727
Ownership
Discuss the benefits and burdens of ownership of property
Compare the various methods of acquiring property
Explain the unique role of merchants and why and how they are treated specially by the law
LESSON 15-2
GOALS
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Sale v. Contract to Sell
Benefits and Burdens of Ownership
When goods are sold, the Seller transfers ownership—
(legal right to use, control and dispose of goods)
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BENEFITS OF OWNERSHIP
Any rise in value belongs to the owner- land value increases, securities increase, etc.
Goods may be enjoyed or used as the owner pleases
Goods may be squandered or destroyed
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What’s your verdict?
Leister won $2 M in a state lotteryReceived first 20 payments, he went on a
spending spree bought and wrecked car bought clothes and never wore bought a casual friend a mink coat hosted an extravagant New Years Eve party for 50
new friends – trashed everything
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What’s your verdict?
Leister’s family filed an action in court to try to stop him from using the money and goods so wastefully.
Will they succeed?
No – only if they can prove incompetence (which is difficult)
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BURDENS OF OWNERSHIP
Owners may be taxed (i.e. property tax)
Freedom to use one’s property may be limited by government regulation (i.e. speeding, zoning)
Owner suffers loss when goods deteriorate because of the passage of time (i.e. maintenance required)
If property is not properly maintained, injured parties can hold owner liable under Tort Law
Owner suffers loss when goods are lost, stolen, destroyed or damaged unless covered by insurance
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Sometimes the responsibility of the owner is extended by letting others use the owner’s property with permission
i.e. Owner of an auto may be held responsible for injuries caused by another person operating the car with the owner’s permission
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Ownership
Unless you insure goods, they can be:Lost
Stolen
Destroyed by fire
Obsolescence (out of date & little or no value)
Depreciation (wear & tear)
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The four situations in which the Statute of Frauds would not apply are:
(1) When goods are received and accepted by the buyer;
(2) When the buyer pays for the goods and the seller accepts the payment;
(3) When the goods are specially made and not suitable for resale to others, and; (4) When the party against whom enforcement is sought admits to the contract.
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UCC
Treats all sellers/buyers the sameCasual sellers – those who do not
qualify as merchants (i.e. selling your private vehicle)
Merchants are not treated the same as casual sellers
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UCC
Merchant – seller who deals regularly in a particular kind of goods or otherwise claims to have special knowledge or skill in a certain type of sales transaction
may be required to be licensed subject to special taxation subject to government regulation
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What’s your verdict?
Adonis would buy property at auctions during the week
Resell the property on weekends at his garage sale
33 consecutive garages salesCity claimed he was a merchant and
had to pay sales taxWhat do you think?
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Yes – must pay sales tax
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TRANSFERS OF OWNERSHIP AND POSSESSION
Gift – transfer of ownership without consideration
Conveyance – transfer of an estate from a grantor to a grantee by a deed
Lease – one party receives temporary possession of another’s real property
Sale – ownership of goods transfers from seller to buyer for a price
Contract to sell – transaction in which transfer of ownership is to take place in the future
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Barter – exchange of goods for goods
Negotiation – proper transfer of a negotiable instrument so that the person receiving the instrument has the power to collect on it by overcoming defenses of the person who must pay it off
Assignment – transaction by which a party transfers contractual rights to another
Bailment - transfer of possession of personal property without transfer of ownership
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Chapter 15Chapter 15 Slide Slide 4242
Special Rulesfor Sales Contracts
Explain the need for the statute of fraudsDiscuss the instances in which the statute of
frauds will be applied
LESSON 15-3
GOALS
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STATUTE OF FRAUDS
Sales contracts are generally valid and enforceable in court whether they are oral, written, or implied from the conduct of the parties.
Under the statute of frauds, sales of goods for $500 or more must be evidenced by a writing to be enforceable in court.
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WHEN IS A SIGNED WRITING NOT REQUIRED UNDER THE STATUTE?
Goods received and accepted by the buyer
Buyer pays for goods and seller accepts payment
Goods specially made not suitable for sales to others
Party against whom enforcement sought admits oral contract made