Introduction to Sales and Lease Contracts

Chapter 21Introduction to Sales and Lease ContractsCopyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.The Uniform Commercial Code (UCC):A uniform/model law that governs commercial transactions, including contracts for the sale of goods, leases, and secured transactions21-221-3UCC Outline (Articles and Topics)Article 1: General ProvisionsArticle 2: SalesArticle 2(A): LeasesArticle 3: Negotiable InstrumentsArticle 4: Bank Deposits and CollectionsArticle 4(A): Wire TransfersArticle 5: Letters of CreditArticle 6: Bulk TransfersArticle 7: Documents of TitleArticle 8: Investment SecuritiesArticle 9: Secured TransactionsUCC Article 2Applies to contracts for the sale of goods21-421-5UCC Article 2 TerminologySale: The passing of title from seller to buyer for a priceGoods: Tangible things that can be moved (Examples: Automobiles, furniture, electronics)Mixed goods and services contracts: Contracts that include both goods and services. UCC Article 2 applies to contract if goods are “predominant part” of transactionMerchants: Buyers or sellers whoDeal in goods of the kind involved in contractBy occupation, represent themselves as having knowledge and skill unique to goods involved in transaction, orEmploy a merchant as a broker, agent, or other intermediaryUCC Article 2(A)Applies to contracts for the lease of goods21-621-7UCC Article 2(A) TerminologyLeases: Transfers of right to possession and use of goods for a term, in return for considerationSpecial Leases: Consumer leases and finance leases21-8How Sales and Lease Contracts Are Formed Under The UCCFormation in General: UCC more lenient than common law regarding contract formation; courts evaluate intent of parties to sales or lease contractOffer and AcceptanceOffers valid even if terms left open“Mirror-image” rule does not applyCourts evaluate each case individually to determine whether additional terms allowedConsideration: Mutual consideration required upon forming agreement. When sales/lease contracts modified, modifications need not be supported by additional consideration21-9Exhibit 21-4: The UCC and Open Terms Term Left Open, and Interpretation Under UCCPrice: “Reasonable price” at time of deliveryPayment: When buyer receives goodsDelivery: Seller’s place of businessTime for Performance: “Reasonable” timeDuration of Contract: “Reasonable” period of time, with termination allowed in good faith, and upon noticeQuantity: Contract fails for lack of definitenessUCC Statute of FraudsGeneral Rule: Contracts for sale of goods must be in writing if goods valued at $500 or more; lease contracts that require payments of $1,000 or more must also be in writing21-1021-11UCC Statute of Frauds ExceptionsSpecifically-manufactured goodsBuyer/lessee ordered goods made to meet his/her specific needsGoods not suitable for sale/lease to others in “ordinary course of business; andSeller/lessor has substantially begun manufacture of goods, or made commitments for their procurementAdmission (In legal pleadings, testimony, or court)Partial Performance: Enforceable to extent payment made and accepted, or to extent goods received and accepted21-12UCC Contracts/Leases and the Admissibility of Parole Evidence—Evidence Outside Written Contract Admissible If:Additional terms consistent with contract termsInformation helps interpret agreement, including:Course of performanceCourse of dealingUsage of trade21-13Interpretation of Sales and Lease Contracts: Priority of EvidenceExpress contract termsCourse of performance (regarding subject contract)Course of dealing (between subject parties)Usage of trade (industry standard)Unconscionability (Definition):In context of UCC contract for sale of goods or lease, an agreement that is so unfair or “one-sided” that court refuses to enforce it21-1421-15Contracts for the International Sale of Goods (CISG)Definition: Treaty governing international “business-to-business” sales contractsMany major trading nations have signed the CISSignificance of CISG: Important because CISG (rather than UCC) governs international sales contractsAdvantage of CISG: Provides clarity, predictability, and uniformity for global businesses