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• Comprehensive statutory scheme.
• Serves as a model act.
• The UCC includes laws that cover most aspects of commercial transactions.
• The common law of contracts governs if the UCC is silent.
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Overview of the Uniform Commercial Code
• Article 1
• Article 2
• Article 2A
• Article 3
• Rev. Article 3
• Article 4
• Article 4A
General provisions
Sales
Leases
Commercial paper
Negotiable instruments
Bank deposits & collections
Wire transfers
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Overview of the Uniform Commercial Code
(continued)
• Article 5
• Article 6
• Article 7
• Article 8
• Article 9
Letters of credit
Bulk transfers
Documents of title
Investment securities
Secured transactions
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• 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 applies only to transactions in goods – i.e., tangible items.
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(continued)
• Article 2 does not apply to transactions in intangible items, real estate, or service.
• What is a sale?
– The passing of title from a seller to a buyer for a price.
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• Tangible things that are movable at the time of their identification to the contract.
• Money and intangible items such as stocks, bonds, and patents are not tangible goods.
• Real estate and services are not tangible.
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• Services are not covered by
Article 2.
• Mixed sales involve both goods and services.
• Article 2 applies to mixed sales only if the goods are the predominate part of the transaction.
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• A person who:
1.
2.
Deals in the goods of the kind involved in the transaction, or
By his or her occupation holds himself or herself out as having knowledge or skill peculiar to the goods involved in the transaction.
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• Article 2A applies only to leases involving goods .
• Article 2A does not apply to real estate or other leases.
• Many states have adopted
Article 2A.
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• A transfer of the right to the possession and use of the named goods for a set term in return for certain consideration.
– Lessor – the person who transfers the right of possession and use of goods under the lease.
– Lessee – the person who acquires the right to possession and use of goods under a lease.
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• A three-party transaction consisting of the lessor, the lessee, and the supplier.
• The lessor does not select, manufacture, or supply the goods.
• The lessor acquires title to the goods or the right to their possession and use in connection with the terms of the lease.
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Offer
• 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.
• A contract may be found even though the moment of its making is undetermined.
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Open Terms
• Sometimes the parties to a sales or lease contract leave open a major term in the contract.
• Gap-filling rule allows open terms to be read into contract.
– Open Price Term
– Open Payment Term
– Open Delivery Term
– Open Time Term
– Open Assortment Term
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Firm Offer Rule
• 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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• The formation of a sales and lease contract requires consideration.
• In common law, modifications to a contract need to be supported by new consideration.
• Under the UCC, modifications to sales and lease contracts require no consideration.
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Acceptance
• Both common law and the
UCC provide that a contract is created when the offeree 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.
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• Under common law, the mirror image rule applies, an additional terms are considered a counteroffer.
• Under the UCC, additional terms are allowed unless acceptance is expressly conditional on assent to the stated terms.
• If one party is a nonmerchant, the additional terms are treated as proposed additions.
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Accommodation 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.
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Statute of Frauds
• A rule that requires all contracts for the sales of goods costing $500 or more, and lease contracts involving payments of $1,000 or more be in writing.
• 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
• Specially Manufactured
Goods
• Admissions in Pleadings or
Court
• Part Acceptance
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Written Modification
• Oral modification is not enforceable if the parties agree that any modification of the sales or lease contract must be in a signed writing.
• 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 Rule
• 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.
2.
A prior oral or written agreement, or
A contemporaneous oral agreement.
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Parol Evidence Rule, continued
• If the express terms are not clear on their face, reference may be made to certain outside sources:
– Course of performance.
– Course of dealing.
– Usage of trade.
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Comparison of Contract Law and the
Law of Sales
(1 of 3)
Topic Common Law
Contracts
UCC Law of Sales
Definiteness Contract must contain all of the material terms of the parties’ agreement.
Irrevocable
Offers
Option contracts.
UCC gap-filling rules permit terms to be implied if the parties intended to make a contract.
Option contracts. Firm offers by merchants to keep an offer open are binding up to three months without any consideration.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Comparison of Contract Law and the
Law of Sales
(2 of 3)
Topic Common Law
Contracts
UCC Law of Sales
Counteroffer s
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Comparison of Contract Law and the
Law of Sales
(3 of 3)
Topic Common Law
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.
Modification Consideration is required
Consideration is not required
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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• Distinguishing goods named in contract from seller’s or lessor’s other goods
• Seller or lessor retains risk of loss until goods identified
• Title cannot pass until goods identified
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(continued)
• Parties can agree to time and manner of identification
• Existing goods are identified by naming specific goods
• Future goods are identified when born, planted, shipped.
Marked or designated
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• The passing of title from a seller to a buyer for a price.
• Title cannot be passed until goods exist and have been identified.
• Title passes upon terms agreed to in contract.
• If no terms are stated, title passes when delivery is completed.
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• Shipment Contract
– Seller should make proper shipping arrangements
– Deliver the goods into the carrier’s hands
• Destination Contract
– Seller delivers goods either to buyer’s place of business or another destination specified in sales contract
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(continued)
• Delivery of Goods without
Moving Them
– Buyer is required to pick up goods from seller
– May require document of title or bill of lading
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• Carrier Cases: Movement of
Goods
– Shipment Contracts
- Risk of loss passes to buyer when seller delivers the conforming goods to the carrier
– Destination Contracts
- Risk of loss passes to buyer when seller delivers the conforming goods to the specified destination
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• Noncarrier Cases: No Movement of Goods
– Merchant Seller
- Risk of loss passes to buyer when buyer receives the goods
– Nonmerchant Seller
- Risk of loss passes to buyer upon
‘tender of delivery’ of the goods:
When seller places or holds the goods available for the buyer to take delivery and notifies the buyer of this fact
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(continued)
• Goods in Possession of a Bailee
- Risk of loss passes to buyer when:
- buyer receives a negotiable document of title covering the goods
- The Bailee acknowledges the buyer’s right to possession of the goods or,
- The buyer receives a nonnegotiable document of title or other written direction to deliver and has a reasonable time to present the direction to the bailee and demand the goods
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• Sale on Approval
- There is no sale unless and until the buyer accepts the goods
• Sale on Return
Sale is considered final only if the buyer fails to return the goods within the specified time
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• Consignment
- Seller (consignor) delivers goods to buyer (consignee) to sell
- Consignor is paid a fee if he/she sells the goods on behalf of the consignor
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• Seller in Breach
- If seller delivers nonconforming goods to the buyer
• Buyer in Breach
- If buyer refuses to take delivery of conforming goods, repudiates the contract or otherwise breaches the contract
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• Risk of loss is retained by the lessor. In case of finance lease, risk of loss passes to the lessee
• If a tender of delivery of goods fails to conform to the lease contract, the risk of loss remains with the lessor or supplier until cure or acceptance
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• Void Title and Lease: Stolen
Goods
- Purchase of lease of stolen goods do not result in transfer of title of the goods and the lessee does not acquire any leasehold interest in the goods.
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(continued)
• Voidable Title
Purchaser has voidable title if goods were obtained by fraud, if a check is later dishonored, or if he/she impersonates another person
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(continued)
– If an owner entrusts the possession of his/her goods to a merchant who deals in goods of that kind, the merchant has the power to transfer all rights/title in the goods to a buyer in the ordinary course of business.
– The real owner cannot reclaim the goods from this buyer
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• Transfer or delivery of goods to the buyer or lessee in accordance with sales or lease contract
• Requires:
– Conforming goods to be put aside and held for buyer or lessee
– Notification be made to buyer or lessee
– Goods must be tendered in single delivery unless otherwise noted in contract
– Payment due upon delivery unless otherwise noted
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• Contract usually states place and time of delivery
• If contract silent, place is seller’s or buyer’s place of business
• If they have no place of business, it is their residence
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(continued)
• If goods at warehouse and are to be delivered without being moved, delivery occurs when seller:
– Tenders buyer negotiable document of title
– Produces acknowledgement from bailee of buyer’s right of possession
– Tenders nonnegotiable document of title or written direction to bailee to deliver goods to buyer
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• Shipment Contracts
– Do not name destination
• Seller must put goods in carrier’s possession and contract for delivery
• Obtain and deliver all documents necessary for buyer to obtain possession
• Notify buyer of shipment
• Destination Contracts
– Names destination
– Delivery must be made at reasonable time and in reasonable manner
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• If goods fail to conform, buyer/lessee may:
– Reject entire shipment
– Accept whole shipment, or
– Reject part and accept part
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• Agreement of Parties
– Parties may contract to limit perfect tender rule
• Defective or nonconforming goods may be rejected
• Seller/lessor may replace nonconforming goods
• Buyer/lessee accepts nonconforming goods with compensation
• Substitution of Carriers
– Commercially reasonable carrier may be substituted if agreed-upon delivery manner fails or becomes unavailable
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• UCC gives seller/lessor opportunity to cure
– time has not expired
– must notify buyer/lessee of intentions
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– Goods delivered and accepted at different times
– Requires specific knowledge
– Seller can only reject entire contract if default impairs value of entire contract
– Seller can reject non-conforming shipments
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• Contract void
– If goods are totally destroyed through no fault of either party before risk of loss passes
– Both parties excused from performance
• Contract voidable
– If goods are partially destroyed through no fault of either party before risk of loss passes
– Buyer may inspect goods and choose to void the contract
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Buyer’s and Lessee’s Performance
• Once seller/lessee has tendered delivery, buyer/lessee is obligated to accept and pay as per sales/lease contract.
• If contract silent, UCC controls.
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• Buyer has the right to inspect goods before paying for them
• Buyer may reject nonconforming goods
• Parties may agree as to time and place of inspection
• If contract silent, inspection must occur at reasonable time and place
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– Due from buyer when and where goods delivered
– Contract may set terms
– Can be paid in any manner acceptable in ordinary course of business
• If cash required, buyer must be given an extension to secure cash
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• Contract is created when the offeree 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.
• Acceptance occurs if buyer acts inconsistently with seller’s ownership rights.
• Buyers/lessees must accept
“commercial unit”.
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• Buyer can revoke acceptance if:
– Goods are non-conforming
– The nonconformity substantially impairs the value of the goods
– The seller’s promise to timely cure is not met
– Goods were accepted before nonconformity was discovered and the nonconformity was difficult to discover
– The goods were accepted before the nonconformity was discovered and the seller/lessor assured the buyer/lessee that the goods were conforming
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• Delivery of goods may be withheld if:
– Seller/lessor is in possession of goods when buyer/lessee breaches contract
– Buyer/lessee fails to make payment when due
– Buyer/lessee repudiates contract
• If part of the shipment has been delivered at time of breach, seller/lessor may withhold delivery of remainder.
• If seller/lessor discovers that buyer/lessee is insolvent, they may require cash payment.
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• Seller/lessor may stop shipment in transit if:
– He discovers buyer’s/lessee’s insolvency
– Buyer/lessee repudiates shipment
– Buyer/lessee fails to make payment when due
• Seller/lessor must give sufficient notice to allow bailee to prevent delivery
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• Seller/lessor may reclaim goods if:
– The buyer misrepresented their solvency in writing within 3 months before delivery
– Paid for goods with a check that bounced
– If the lessee is in default of the contract
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• Must be made in good faith
• Seller/lessor must give notice to buyer/lessee of intention
– Notice not required with perishable goods or goods that will quickly decline in value
• Seller/lessor may recover damages
• Profit does not revert to original buyer
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Right to Recover the Purchase
Price or Rent
• Seller/lessor may sue to recover if:
– Buyer/lessee fails to pay as due
– Buyer/lessee breaches contract after goods have been identified and seller/lessor cannot resell or dispose of them
– Goods are damaged or lost after risk passes to buyer/lessee
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• Seller/lessor may sue to recover damages caused by buyer’s or lessee’s breach.
• Seller/lessor may recover lost profits.
• Seller/lessor may cancel contract if buyer/lessee breaches.
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Buyer’s and Lessee’s Remedies
• Buyer may reject nonconforming goods or improperly tendered goods.
– May reject the whole, accept the whole, or accept any commercial unit and reject the rest
– Must reject within a reasonable time period.
– Must follow reasonable instructions for return of goods.
• If goods are perishable, must make reasonable effort to sell them on seller’s behalf.
– Buyer entitled to reimbursement for shipping, holding, storage expenses .
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Buyer’s and Lessee’s Remedies
(continued)
• If buyer makes full or partial payment before goods are received and seller/lessor becomes insolvent within ten days of receiving payment, they can recover goods .
• If goods are unique, buyer can obtain specific performance
• Buyer/lessor may cover.
• Buyer/lessee has right to replevy goods, if they are wrongfully withheld.
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Buyer’s and Lessee’s Remedies
(continued)
• Buyer/lessee may cancel contract if seller/lessor fails to deliver conforming goods or repudiates contract
– Buyer/lessee may recover damages
• Buyer/lessee may recover damages for accepted nonconforming goods
• Buyer/lessee may recover damages for loss from seller’s breach
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Additional Performance Issues
• Assurance of Performance
– An adequate assurance of due performance may be demanded in writing by either party.
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– Occurs when a party repudiates the contract before performance is required.
– Wavering is not sufficient.
– Aggrieved party may:
• Await performance for a commercially reasonable time.
• Treat contract as breached at time of anticipatory repudiation.
• Indicate repudiation is considered final.
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– The UCC provides that an action for breach of any written or oral sales or lease contract must commence within four years after the cause of the action accrues.
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Agreements Affecting Remedies
• Parties may agree to remedies in addition to those available under the UCC.
• UCC allows for liquidated damages as a substitute for actual damages.
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