BUS 115 Chap013 sales contracts - formation, title, risk of loss

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  • Getting Students InvolvedLet students discover the intricacies of leasing firsthand by contacting a local automobile dealer and comparing the legalities and costs of leasing with buying. Students should find out who holds title to the car, who is liable for both unavoidable damages and those caused by the lessee, and who holds the warranty on the car. They should factor in taxes, additional dealer costs, and maintenance estimates.This activity will be more interesting if you assign specific autos in a wide price range so that there will be a variety of results to share in class.
  • BUS 115 Chap013 sales contracts - formation, title, risk of loss

    1. 1. Chapter 13 Sales Contracts: Formation, Title, and Risk of Loss 16-1
    2. 2. The Sale and Lease of Goods • Goods – All things that are movable. (other than money, stocks, and bonds) • Future goods – Goods that are not yet in existence or under the control of people • Crops not yet planted, minerals not yet mined, a calf not yet conceived • Futures contracts 16-3
    3. 3. The Sale and Lease of Goods • Sale – A contract that transfers ownership of goods by the seller to the buyer for a price • Contract for sale – Includes both a present sale of goods and a contract to sell goods at a future time * Gifts and bailments do not qualify as sales 16-4
    4. 4. Leases of Goods • Governed by Article 2A of UCC • Many of the same rules apply to leasing and sales of goods 16-5
    5. 5. Contracts for Both Goods and Services • When a contract includes both goods and services, the dominant element of the contract determines whether it is a contract for goods or a contract for services. – Majority goods – UCC governs – Majority services – general contract law governs “True Object Test” – Which element of the contract is the true object, and which is incidental 16-6
    6. 6. Different Laws Apply to Different Transactions 16-7 13-7
    7. 7. Special Rules for Sales Contracts • Good Faith • Course of Dealings and Usage of Trade • Formation of a Sales Contract – Offer and Acceptance – Firm Offer – Open-Price Terms – Output and Requirements Terms – Additional Terms in Acceptance – Modification 16-8
    8. 8. Good Faith • Honesty in fact and the observance of reasonable commercial standards of fair dealing. • An obligation imposed upon parties under the UCC 16-9
    9. 9. Course of Dealings and Usage of Trade • Course of Dealings – The way in which the parties have done business in the past. • Usage of trade – Any method of dealing commonly used in a particular trade. • Both can be used to interpret a contract. In NC 16-10
    10. 10. Formation of a Sales Contract • Contract can be formed in any manner that shows the parties reached an agreement. – Oral (Some exceptions) – Written – Implied • Sometimes even if: – the exact moment of its making cannot be determined – some terms are not completely agreed upon 16-11
    11. 11. Offer and Acceptance • Offer – Inviting acceptance in any manner and by any medium reasonable in the circumstances • Acceptance – Contract created when sent, as long as method is reasonable. – can be a notice of acceptance, prompt shipment, prompt promise to ship In NC 16-12
    12. 12. Conforming/Noncomforming • Conforming goods – Those in accordance with the obligations under the contract • Nonconforming goods – Not the same as those called for under the contract or that are in some way defective 16-13
    13. 13. Nonconforming Goods • Shipment of nonconforming goods can serve as acceptance of an offer – unless the seller reasonably notices the buyer that the shipment is offered only as an accommodation to the buyer 16-14
    14. 14. Merchants • The UCC holds merchants to a higher standard than non-merchants. • Merchant – a person who deals in goods of the kind sold in the ordinary course of business or who otherwise claims to have knowledge or skills peculiar to those goods In NC 16-15
    15. 15. Firm Offer • A promise, in writing, to hold an offer for sale/lease of goods open – Writing must be signed by the merchant – Time period for holding the offer open may not exceed three months – Consideration not necessary • In NC 16-16
    16. 16. Open-Price Terms • Occur when the parties intend to be bound by a contract but fail to mention the price or decide to set the price later. • Price must be reasonable at the time goods are delivered. • In NC 16-17
    17. 17. Output and Requirements Terms • Output contract – “Everything made” • Requirements contract – “Everything needed” • UCC allows these for sales of goods as long as parties deal in good faith and according to reasonable expectations In NC 16-18
    18. 18. Additional Terms in Acceptance • A contract occurs even though the acceptance states terms that are additional to or different from those offered or agreed upon • unless acceptance is made conditional on assent to the additional terms 16-19
    19. 19. Additional Terms in Acceptance • If both parties are merchants: – Additional terms become part of the contract unless • They materially alter it • The other party objects within a reasonable time • The offer limits acceptance of its terms • If the parties are not both merchants: – The additional terms are treated as proposals for additions to the contract In NC 16-20
    20. 20. Modification • Under UCC, modifications to a contract do not need new consideration to be binding • May be oral, unless original written agreement provides that it may not be modified except by a signed writing • Such a clause in a form supplied by a merchant to a nonmerchant must be separately signed (by the nonmerchant) to be effective 16-21
    21. 21. Form of Sales Contracts • As long as the price is under $500*, an oral contract for the sale of goods is enforceable • If the price is $500 or more, a sales contract must be in writing to be enforceable. – Four exceptions • A lease of goods must be in writing if total payments under the lease are more than $1,000 *an amendment is being proposed to change it to $5,000 16-22
    22. 22. Exceptions to the General Rule 1. Oral contracts between merchants – If written confirmation sent and not objected to in writing within 10 days 2. Specially manufactured goods – – Not suitable for sale to others in the ordinary course of the seller’s business The seller has made either a substantial beginning in manufacturing or commitments to buy them 16-23
    23. 23. Exceptions to the General Rule 3. Admissions in court – – If the party sought to be bound admits to an oral contract in court Not enforceable beyond the quantity of goods admitted 4. Executed contracts – – – If already performed satisfactorily, can’t back out Can’t refuse to pay for goods received and accepted If only partially performed, court will enforce only the part performed 16-24
    24. 24. Requirements of Writing • To satisfy the UCC, must indicate: – a contract for sale has been made between the parties – mention the quantity of goods being sold – be signed by the party against whom enforcement is sought (the defendant) • Formal paper, memo, fax, email, sales slip, etc. 16-25
    25. 25. Signature Requirements • Under the UCC, a signature includes any symbol made with the intent to authenticate a writing. 16-26
    26. 26. International Law • United Nations Convention on Contracts for the International Sale of Goods (CISG) – Applies only to sales between businesses whose places of business are in different countries that have adopted the law. • CISG nations • UCC v CISG 16-27
    27. 27. Auction Sales • Auction with reserve – the auctioneer may withdraw the goods at any time before announcing completion of the sale if the highest bid is not high enough • Auction without reserve, – After the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time • An auction is “with reserve” unless stated to be “without reserve” 16-28
    28. 28. Void and Voidable Title • Title – the right of ownership to goods • Bill of sale – a written statement evidencing the transfer of personal property from one person to another • A bill of sale does not necessarily prove that the seller had perfect title to the goods. – Theft, fraud, minors, etc. – Was seller’s title void or voidable? 16-29
    29. 29. Void Title • Void title – having no title at all – Buyers of goods acquire whatever title the seller had to the goods. – Therefore, if the seller had no title, neither does the buyer. – Innocent buyers of stolen goods may bring suit against the seller for breach of warranty of title. 16-30
    30. 30. Voidable Title • Voidable title – Title that may be voided if the injured party elects to do so – Result of fraud, misrepresentation, mutual mistake, undue influence, duress, when goods are bought from a minor or a person who is mentally impaired – Holder of a good with a voidable title can transfer good title to someone else by selling the property to them • As long as it’s a good faith purchaser 16-31
    31. 31. Entrusting Goods to a Merchant • People often entrust goods that belong to them to merchants • If the merchant sells the goods – in the ordinary course of business – to a third party who has no knowledge of the real owner’s rights (good faith purchaser) – the third party receives good title to them • Except stolen property – NC statute § 25-2-403 16-32
    32. 32. The Passage of Title and Risk of Loss • What if goods damaged/lost/destroyed in transit (or while awaiting shipment/pickup)? • Someone must take the loss, so how do we decide whom? 16-33
    33. 33. The Passage of Title and Risk of Loss • In general, whoever has title at the time of loss bears the risk. • Once goods identified, title passes to the buyer when the seller fulfills their obligations under the contract to deliver the goods. – Identified goods • specific goods that have been selected as the subject matter of the contract. 16-34
    34. 34. Shipment Contracts • Shipment contract – Seller turns goods over to a carrier for delivery to the buyer – Title and risk pass to buyer when goods given to carrier • f.o.b. – “free on board” 16-35
    35. 35. Shipment Contracts • When goods sent f.o.b. (the place of shipment), they will be delivered free to the place of shipment. • Delivery to and acceptance by carrier fulfills seller’s obligations • The buyer must pay all shipping charges from there to the place of destination. • Ex: f.o.b. Gastonia 16-36
    36. 36. Destination Contracts • Destination Contracts – requires the seller to deliver goods to a destination • Title and risk of loss remain with seller until tendered at destination • Tender – offer to turn the goods over to the buyer – requires arrival to destination, notice given to buyer, reasonable time allowed for pickup 16-37
    37. 37. Destination Contracts • When terms do not specify shipping point or destination, assumed to be a shipment contract • f.o.b. (the place of destination) – goods belong to the seller until they have been delivered to the destination shown on the contract 16-38
    38. 38. Destination Contracts • c.o.d. (collect on delivery) UPS C.O.D. – instructs the carrier to retain possession until the carrier has collected the cost of the goods • c.i.f. (cost, insurance, and freight) – instructs the carrier to collect all charges and fees in one lump sum • f.a.s. vessel (free alongside vessel) – requires sellers to deliver the goods, at their own risk, alongside the vessel or at a dock designated by the buyer 16-39
    39. 39. No Delivery Required • Contract calls for buyer to pick up the goods from seller • Title passes to buyer when contract is made • Seller is merchant – Risk of loss passes when buyer receives goods • Seller is not a merchant – Risk of loss passes when seller tenders goods to buyer 16-40
    40. 40. Passage of Title and Risk of Loss 16-41 13-41
    41. 41. Fungible Goods • Fungible Goods – “goods of which any unit is, by nature or usage of trade, the equivalent of any like unit.” – Fuel, grain, sugar, etc. • “An undivided share of an identified bulk of fungible goods is sufficiently identified to be sold although the quantity of the bulk is not determined.” 16-42
    42. 42. Documents of Title • Document of title – A paper giving the person who possesses it the right to receive the goods named in the document – Bills of lading, warehouse receipts • When documents of title are used, title and risk of loss pass when the document is delivered to the buyer (where delivery is made without moving the goods) 16-43
    43. 43. Agreement of the Parties • Parties may specify the time that title and risk of loss pass from the seller to the buyer • Title and risk of loss pass at the time and place agreed upon – One exception 16-44
    44. 44. Agreement of the Parties • Exception: – If the agreement allows the seller to retain title after it has been delivered to the buyer – Title passes to buyer at time of shipment, and the seller is left with a security interest in the goods rather than title Security interest: allows the seller to have property sold in case the buyer doesn’t pay money owed to the seller 16-45
    45. 45. Revesting of Title in Seller • Buyers sometimes refuse to accept the goods that are delivered or are otherwise made available to them • In all such cases, title to the goods returns to the seller, even if rejection is not justified 16-46
    46. 46. Revesting of Title in Seller • If buyer accepts goods but then revokes acceptance for a justifiable reason, title returns to seller. • Justifiable reason: discovery of a defect upon inspection 16-47
    47. 47. Revesting of Title in Seller • If seller sends goods that do not meet the contract requirements, risk of loss remains with the seller • If buyer accepts goods but later revokes acceptance justifiably, risk depends on whether buyer is insured – If buyer insured, insurance covers loss – If not insured, risk remains with seller from the beginning 16-48
    48. 48. Revesting of Title in Seller • If buyer breaches the contract regarding goods identified to the contract – Insurance would pay, if covered – If no insurance, risk of loss rests with buyer 16-49
    49. 49. International Sales • United Nations Convention on Contracts for the International Sales of Goods (CISG) • Doesn’t address passage of title • Treats passage of risk of loss similarly to UCC 16-50
    50. 50. Sales with Right of Return • Sale on approval – Sale that allows goods that are primarily for the buyer’s use to be returned even though they conform to the contract – Goods remain property of seller until buyer expresses approval • Expressed by oral or written consent, or • By keeping the goods for more than a reasonable time 16-51
    51. 51. Sale or Return • Sale or return – Allows goods that are delivered primarily for resale to be returned even though they conform to the contract – Buyer takes title to the goods, with the right to revest title in the seller after a specified or reasonable time – Buyer must show reasonable care for goods in their possession, and return of goods comes at buyer’s risk and expense 16-52
    52. 52. Insurable Interest • Insurable interest – the financial interest that an insured party has in the insured property • Buyers have insurable interest once contract is made and goods are identified • Sellers have insurable interest as long as they retain title 16-53
    53. 53. Question? _________ are all things (other than money, stocks, and bonds) that are movable. A. Needs B. Wants C. Goods D. Mercantiles 16-54
    54. 54. Question? What is the right of ownership to goods? A. Bill of sale B. Title C. Designation D. Lien 16-55
    55. 55. Question? ___________ means an offer to turn the goods over to the buyer. A. Tender B. Salesmanship C. Vending D. Barter 16-56
    56. 56. Question? What are “goods of which any unit is, by nature or usage of trade, the equivalent of any like unit”? A. Tangible goods B. Intangible goods C. Dynamic goods D. Fungible goods 16-57
    57. 57. Question? What is a contract that transfers ownership of goods by the seller to the buyer for a price? A. Purchase B. Merchandise contract C. Sale D. Auction 16-58
    58. 58. Question? _________ goods are those that are in accordance with the obligations under the contract. A. Conventional B. Matched C. Non-conforming D. Conforming 16-59
    59. 59. Question? What type of sale allows goods to be returned even though they conform to the contract when the goods are primarily for the buyer’s use? A. Sale on return B. Sale on arrival C. Sale on disproval D. Sale on approval 16-60
    60. 60. Question? What is a person who deals in goods of the kind sold in the ordinary course of business? A. Proprietor B. Administrator C. Owner D. Merchant 16-61
    61. 61. Question? With a _______offer the writing must be signed by the merchant, and the time period for holding the offer open may not exceed three months. A. Firm B. Strong C. Solid D. Concrete 16-62
    62. 62. Question? What is the financial interest that an insured party has in the insured property? A. Insurable interest B. Lien interest C. Factored interest D. Quantum interest 16-63
    63. 63. Question? With an _________ the auctioneer may withdraw the goods at any time before announcing completion of the sale if the highest bid is not high enough. A. Auction with reserve B. Auction without reserve C. Contract with reserve D. Contract without reserve 16-64

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