After reading this chapter, you will be able to answer the following questions: What is the UCC? What is a sales contract? What kinds of contracts fall under the UCC interpretations? What is a merchant, and why is that designation significant? What is a lease contract? What is the CISG?
Chapter 21 Introduction to Sales and Lease Contracts Copyright © 2015 McGrawHill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGrawHill Education The Uniform Commercial Code (UCC): A uniform/model law that governs commercial transactions, including contracts for the sale of goods, leases, and secured transactions 212 UCC Outline (Articles and Topics) Article 1: General Provisions Article 5: Letters of Credit Article 2: Sales Article 6: Bulk Transfers Article 2(A): Leases Article 7: Documents of Title Article 3: Negotiable Instruments Article 8: Investment Securities Article 4: Bank Deposits and Collections Article 9: Secured Transactions Article 4(A): Wire Transfers 213 UCC Article 2 Applies to contracts for the sale of goods 214 UCC Article 2 Terminology Sale: The passing of title from seller to buyer for a price Goods: 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 transaction Merchants: Buyers or sellers who Deal in goods of the kind involved in contract By occupation, represent themselves as having knowledge and skill unique to goods involved in transaction, or Employ a merchant as a broker, agent, or other intermediary 215 UCC Article 2(A) Applies to contracts for the lease of goods 216 UCC Article 2(A) Terminology Leases: Transfers of right to possession and use of goods for a term, in return for consideration Special Leases: Consumer leases and finance leases 217 How Sales and Lease Contracts Are Formed Under The UCC Formation in General: UCC more lenient than common law regarding contract formation; courts evaluate intent of parties to sales or lease contract Offer and Acceptance Offers valid even if terms left open “Mirrorimage” rule does not apply Courts evaluate each case individually to determine whether additional terms allowed Consideration: Mutual consideration required upon forming agreement. When sales/lease contracts modified, modifications need not be supported by additional consideration 218 Exhibit 214: The UCC and Open Terms Term Left Open, and Interpretation Under UCC Price: “Reasonable price” at time of delivery Payment: When buyer receives goods Delivery: Seller’s place of business Time for Performance: “Reasonable” time Duration of Contract: “Reasonable” period of time, with termination allowed in good faith, and upon notice Quantity: Contract fails for lack of definiteness 219 UCC Statute of Frauds General 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 writing 2110 UCC Statute of Frauds Exceptions Specificallymanufactured goods Buyer/lessee ordered goods made to meet his/her specific needs Goods not suitable for sale/lease to others in “ordinary course of business; and Seller/lessor has substantially begun manufacture of goods, or made commitments for their procurement Admission (In legal pleadings, testimony, or court) Partial Performance: Enforceable to extent payment made and accepted, or to extent goods received and accepted 2111 UCC Contracts/Leases and the Admissibility of Parole Evidence—Evidence Outside Written Contract Admissible If: Additional terms consistent with contract terms Information helps interpret agreement, including: Course of performance Course of dealing Usage of trade 2112 Interpretation of Sales and Lease Contracts: Priority of Evidence Express contract terms Course of performance (regarding subject contract) Course of dealing (between subject parties) Usage of trade (industry standard) 2113 Unconscionability (Definition): In context of UCC contract for sale of goods or lease, an agreement that is so unfair or “onesided” that court refuses to enforce it 2114 Contracts for the International Sale of Goods (CISG) Definition: Treaty governing international “businessto business” sales contracts Many major trading nations have signed the CIS Significance of CISG: Important because CISG (rather than UCC) governs international sales contracts Advantage of CISG: Provides clarity, predictability, and uniformity for global businesses 2115 ... UCC Article 2(A) Terminology Leases: Transfers of right to possession and use of goods for a term, in return for consideration Special Leases: Consumer leases and finance leases 217 How Sales and Lease Contracts Are Formed Under ... Admission (In legal pleadings, testimony, or court) Partial Performance: Enforceable to extent payment made and accepted, or to extent goods received and accepted 2111 UCC Contracts/ Leases and the Admissibility of Parole Evidence—Evidence Outside Written ... Definition: Treaty governing international business to business sales contracts Many major trading nations have signed the CIS Significance of CISG: Important because CISG (rather than UCC) governs international sales contracts