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Dynamic business law 4e kubasek 4e CH21

Chapter 21
Introduction to Sales and Lease Contracts

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.


• LO21-1: What is the UCC?
• LO21-2: What is a sales contract?
• LO21-3: What kinds of contracts fall under the UCC interpretations?
• LO21-4: What is the difference between a UCC Article 2 contract and a

common law contract?
LO21-5: What is a merchant, and why is that designation significant?
LO21-6: What is a lease contract?
LO21-7: What is the CISG?


Chapter 21 Hypothetical Case 1

Walla Walla Window Washing Equipment Company, Inc. ("Walla Walla Window") has contracted with Seattle Slew of Window Washers, LLC ("Seattle Slew") to
sell $15,000 worth of window cleaning supplies. Walla Walla Window's business is located in Walla Walla, Washington, and Seattle Slew is headquartered in
Seattle. The date for performance indicated in the contract is June 30.

At 8:00 a.m. on June 30, James Walls, Walla Walla Window's owner, calls Seattle Slew's owner, Taylor Michaud, to inform him that the window cleaning
supplies he ordered are ready at Walla Walla's warehouse. Taken aback by Walls's "come and get 'em" approach to the supplies, Michaud responds, "James, if
you don't get those window cleaning supplies to me tonight, I will sue you for breach of contract." Walls responds by saying, "Taylor, if you will review our
contract, you'll see that we're not obligated to deliver the supplies to you. Plus, you have a whole fleet of trucks of your own to choose from. Send one to
Walla Walla to get these supplies." Michaud retorts, "James, any seller worth his salt knows that buyers expect seller delivery."

If Walla Walla Window Washing Equipment Company, Inc. does not deliver the window cleaning supplies to Seattle Slew of Window Washers, LLC by midnight
on June 30, is the company in breach of contract? (Assume the contract between the companies does not indicate a seller delivery obligation.)


Chapter 21 Hypothetical Case 2

As this chapter indicates, the Uniform Commercial Code (UCC) holds merchants to a higher standard of behavior than
non-merchants. UCC Section 2-104(1) defines a merchant as "a person who deals in goods of the kind, or otherwise
by his occupation, holds himself out as having knowledge or skill peculiar to the practices or goods involved in the
transaction, or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other
intermediary who, by his occupation, holds himself out as having such knowledge or skill."

From an ethical perspective, describe why merchants are held to a higher standard of behavior than non-merchants.
Do you support this "great expectation" of merchants, or do you believe that merchant status should be irrelevant in
terms of expected standards of behavior in a sale-of-goods transaction?


The Uniform
Commercial Code (UCC)

Definition: Statutory source of contract law in the U.S. that is applicable to transactions involving the sale of

Article 1: General Provisions
Article 2: Sales
Article 2(A): Leases
Article 3: Negotiable Instruments
Article 4: Bank Deposits and Collections
Article 4(A): Wire Transfers
Article 5: Letters of Credit
Article 6: Bulk Transfers
Article 7: Documents of Title
Article 8: Investment Securities
Article 9: Secured Transactions


UCC Article 2

Purpose: Applies to contracts for the sale of goods

Merchants: Buyers or sellers who

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

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


UCC Article 2(A)

• Purpose: Applies to contracts for the lease of goods
• Lease: Transfer of right to possession and use of goods for a term, in

return for consideration
Lessor: Person who transfers right to possession and use of goods under
Lessee: Person who acquires the right to possession and use of good
under lease
Special Leases: Consumer leases and finance leases


How Sales and Lease Contracts Are Formed Under The UCC

Formation in general: Contracts for sale or lease of goods may be made in any manner sufficient to show
Offer and acceptance

Offers valid even if terms left open
Mirror-image rule does not apply

Consideration: Mutual consideration required upon forming agreement. When sales/lease contracts
modified, modifications need not be supported by additional consideration


The UCC and Open Terms

Term left open, and interpretation under UCC
Price: Reasonable price supplied at time of delivery
Payment: Due when buyer receives goods
Delivery: Seller's place of business
Time for performance: Reasonable time
Duration of contract: Termination allowed in good faith upon reasonable notification
Quantity: Courts generally have no basis for determining


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

Specifically manufactured 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


UCC Contracts/Leases and the Admissibility of Parole

• Evidence outside a written contract is admissible if:
• Additional terms consistent with contract terms
• Evidence helps interpret agreement, including:

Course of performance
Course of dealings
Usage of trade


Sales and Lease Contracts:

• When courts interpret sales and lease contracts, they look at:
• Express contract terms
• Course of performance (regarding subject contract)
• Course of dealing (between subject parties)
• Usage of trade (industry standard)



• 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 it


Contracts for the International Sale of Goods (CISG)

• United Nations treaty governing international business-to-business sales contracts
• Many major trading nations have signed the CISG
• Significance of CISG: Important because CISG (rather than UCC) governs international
sales contracts

• Advantage of CISG: Provides clarity, predictability, and uniformity for global


Chapter 21 Hypothetical Case 3

While traveling on Interstate 10 in the vast, arid space between Phoenix and Los Angeles, Penn Lay's worst nightmare comes true.
Transmission failure forces him onto the emergency lane of the highway, and at that moment, Lay realizes the true value of his cell
phone. Lay calls a Phoenix towing company, and his car is transported to S. Li Ping Transmission Repair, Inc.

The repair bill at S. Li Ping amounts to $5,000. On the bill, transmission parts total $4,000, and labor hours total $1,000 (5 hours at
$200 per hour). Lay believes that the principles of capitalism do not extend to such an exorbitant sum, and he further believes that
S. Li Ping interpreted his out-of-state, North Carolina license plate as a "license to steal."

Who wins? In litigation between the parties, does the Uniform Commercial Code (UCC) apply, or ordinary contract law ("common"
law?) If ordinary contract law applies, should North Carolina or Arizona law apply? Does S. Li Ping have a legal and/or ethical
obligation to charge out-of-state residents the same repair price as in-state residents?


Chapter 21 Hypothetical Case 4

Philip Van Houten accepts a contract in the District of Columbia for the sale of a boat from Rita Evenwell via email, but the contract
was delivered by regular mail. In his email indicating acceptance, Van Houten changes the terms of the sale slightly from Evenwell's
contract, stating that he will complete the payments over 10 years instead of the contract's 8 years. Evenwell assents to the change
in an email reply.

Van Houten then has a change of heart about the boat—he doesn't want it, after all—and claims that the contract is invalid
because of the mirror-image rule. Evenwell sues, stating that the UCC applies in this case.

Who will win, Van Houten or Evenwell? Why?


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