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Chapter 11

Chapter 11



Sales and Leases: Formation, Title and Risk

Sales and Leases: Formation, Title and Risk



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    Chapter 11 Chapter 11 Presentation Transcript

    • CHAPTER 11 Sales and Leases: Formation, Title and Risk
      • How do Article 2 and 2A of the UCC differ?
      • What is a merchant’s firm offer?
      • If an offeree includes additional/different terms in acceptance, what happens?
      • What are the 3 exceptions to the Statute of Frauds in Article 2 and 2A?
      • What law governs the international sale of goods?
      Learning Objectives
    • UCC Scope
      • UCC:
        • Article 2/2A—sale or lease of goods.
        • Articles 3-5—negotiable instruments and banking.
        • Article 6—bulk transfers.
        • Article 7—warehousing and shipping.
        • Article 8—securities.
        • Article 9—secured transactions.
    • Scope of Article 2--Sales
      • Article 2 governs “sale of goods.”
      • “Sale”: passing of title from seller to buyer for a price.
      • “Goods”: must be tangible and movable (not land, services or intangibles).
        • Goods Associated With Land.
        • Goods and Services Combined.
          • Mecanique C.N.C., Inc. v. Durr Environmental, Inc. (2004).
      • “Merchant”: deals in goods of the kind sold.
    • Scope of Article 2A--Leases
      • Lease Agreement between Lessor and Lessee.
        • Lessor: sells the right to possession and use of goods.
        • Lessee: acquires right to possess and use goods under a lease.
      • Article 2A: applies to all commercial and consumer lease/financing of goods.
    • Formation: Offer
      • UCC modifies the common law of contracts. Where UCC speaks, it preempts the common law. Where it is silent, the common law governs.
      • A valid offer under UCC 2 may include “open” price, payment and delivery terms.
        • Exception: Quantity—No contract, unless :
          • Requirements: Buyer purchase all he needs.
          • Output: Buyer agrees to purchase all Seller manufactures.
        • Only tangible and movable (not land, services or intangibles)
      • Merchant’s Firm Offer.
    • Formation: Acceptance
      • Acceptance
        • Methods of Acceptance: Seller can specify manner of acceptance. If not any reasonable means.
        • Promise to Ship/Prompt Shipment of conforming goods.
          • Non-Conforming goods may be “accommodation.”
        • Notice.
    • Agreement
      • Additional Terms
        • Common Law: terms must be the same for contract or battle of the forms.
        • UCC: additional/different terms permitted, depending on the status of the parties:
          • Either Non-merchant : only original terms accepted.
          • Both Merchants : additional terms form contract unless there is prohibition or new terms or terms materially alter contract, or the party objects.
    • Statute Of Frauds
      • Contracts for Sale of Goods over $500 or lease over $1,000 must be in writing.
        • Sufficiency of the Writing.
        • Written Confirmation Between Merchants.
          • Written confirmation after oral agreement.
      • Exceptions:
        • Specially Manufactured Goods.
        • Admissions.
        • Partial Performance.
    • Parol Evidence
      • Generally, terms of a written agreement or memo cannot be contradicted by prior, extrinsic evidence, unless the evidence is:
        • Consistent, Additional Terms.
        • A Course of Dealing and Usage.
        • A course of Performance, or
        • Rules of Construction or Interpretation.
      • Unconscionability.
        • Jones v. Star Credit Corp. (1969).
    • Title, Risk and Insurable Interest
      • Sale of goods requires different rules than real property transactions: risk should not always pass with title.
      • UCC replaces title with identification, risk, and insurable interest.
    • Identification
      • For any interest to pass to buyer, goods must be:
        • In existence.
        • Identified as specific goods in the sales contract (by serial numbers and/or physically separated from others. Except for fungible goods which do not need separation).
    • Identification
      • Gives the buyer the right:
        • To obtain insurance on the goods.
        • To recover from third parties who damage the good.
      • Identification occurs:
        • If goods are designated when contract is made. If goods are not designated when contract is made, then identified at time of designation.
    • Passage of Title: Shipment and Destination Contracts
      • Unless there is an agreement to the contrary, title passes to the Buyer at the time and place the Seller physically delivers the goods.
      • Title passes when agreed to by the parties.
      • If no agreement, depends on whether the contract is a shipment or destination contract:
        • Shipment : title passes at time and place of shipment.
        • Destination : title passes when goods are tendered at the destination.
      • Title passes when agreed by the parties.
      • If no agreement, title passes:
        • With document of title: when and where document delivered.
        • Without document: when sales contract is made, if goods have been identified or when identification occurs if they have not been identified.
      Passage of Title: Delivery Without Movement of Goods
      • In a shipment contract, ROL passes when seller tenders goods to carrier.
      • In a destination contract, ROL passes when goods tendered at destination.
      Risk of Loss
    • Risk of Loss: Delivery Without Movement of Goods
      • Goods Held by Seller:
        • Document of Title is generally not used.
        • If Seller is a merchant, ROL passes when buyer takes physical possession of goods.
        • Ganno v. Lanoga Corp. (2003).
      • Goods Held by Bailee (Warehouse). ROL passes when:
        • Buyer receives document of title; bailee acknowledges Buyer’s right to goods and buyer receives title and has reasonable time to pick up.
    • Conditional Sales
      • Sale on Approval.
        • ROL passes when buyer approves expressly or implicitly.
      • Sale or Return. (Consignment is sale or return unless it complies with Article 9.)
        • ROL passes to buyer with possession.
    • ROL: Seller Breaches Contract
      • Generally breaching party bears ROL.
      • Seller’s Breach.
        • Rejection - risk stays with seller.
        • Revocation of acceptance - risk passes back to seller to the extent that buyer’s insurance does not cover the loss.
      • Buyer’s Breach. Goods are identified, risk passes to buyer for a reasonable amount of time after seller learns of the breach, to the extent that seller’s insurance does not cover loss.
      ROL: Buyer Breaches Contract
    • Insurable Interest
      • Buyer has an insurable interest in goods that have been identified.
      • Seller has an insurable interest in goods as long as they retain title or a security interest.
      • Both buyers and sellers can have an insurable interest at the same time.