10 (CNTRCT): Formation of Sales and Lease Contracts

What entity enforced laws merchant?

"fair courts" established by the merchants enforced these.

Electronic Agent

1. A computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part, without review or action by an individual. 2. This definition allows for the contracting for the sale and lease of goods over the Internet, using websites to order or lease goods.

Uniform Sales Act

1. A law governing sales of goods that was adopted by most states. It was later subsumed within Article 2 of the Uniform Commercial Code. 2. Passed in 1906. 3. Became outdated as mass production and distribution of goods developed in the 20th century.

Revised Article 2 (Sales)

1. A recent revision of Article 2 to the Uniform Commercial Code that deals with the sale of goods. 2. Has been adopted by some states.

Mixed Sale

1. A sale that involves the provision of a service and a good in the same transaction. 2. Article 2 applies to mixed sales only if the goods are the predominant part of the transaction (Most of the cost). 3. The UCC provides no guidance for deciding cases based on mixed sales. 4. Courts decide these issues on a case-by-case basis, using the common law of contracts.

Open Terms

1. A section of a sales or lease contract on which the parties are allowed to "read into" the meaning of that section (Gap-filling rule). 2. the UCC is tolerant of open terms. 3. According to UCC 2-204(3) and 2A-204(3), the contract does not fail because of indefiniteness if (1) the parties intended to make a contract. and (2) there is a reasonably certain basis for giving an appropriate remedy.

Accommodation

1. A shipment that is offered to the buyer as a replacement for the original shipment when the original shipment cannot be filled. 2. A shipment of nonconforming goods does not constitute an acceptance if the seller reasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer [UCC 2-206(1)(b)]. 3. Accommodation is a counteroffer from the seller to the buyer. the buyer is free either to accept or to reject the counteroffer.

Finance lease

1. A three-party transaction consisting of the lessor, the lessee, and the supplier. 2. The lessor does not select, manufacture, or supply the goods. 3. The lessor acquires title to the goods or the right to their possession and use in connection with the terms of the lease.

Lease

1. A transfer of the right to the possession and use of the named goods for a set term in return for certain consideration 2. There are two definitions of this. 3. Involves a Lessor and a Lessee.

Irrevocable Letters of Credit in International Trade

1. A written instrument addressed by one person to another requesting the latter to give credit to the person in whose favor it is drawn. 2. Developed to manage the risks associated with international sales. 3. The function of a letter of credit is to substitute the credit of a recognized international bank for that of the buyer.

Letter of Credit parties

1. Account Party 2. Issuing Bank 3. Beneficiary

UCC Statute of Frauds in sales and lease contracts

1. All contracts for the sale of goods costing $500 or more and lease contracts involving payments of $1,000 or more must be in writing. 2. The writing must be sufficient to indicate that a contract has been made between the parties. 3. The writing must be signed by the party against whom enforcement is sought or by his or her authorized agent or broker. 4. If a contract falling within these parameters is not written, it is unenforceable.

Article 2 (Sales)

1. Applied by federal courts to sales contracts governed by federal law. 2. Applies to transactions in goods. 3. All states have held that Article 2 applies to the sale of goods

Articles recently amended or added to the UCC

1. Article 2 (amended) 2. Article 2A 3. Article 4A 4. Article 4 (amended) 5. Article 3 (amended) 6. Article 9 (amended)

Article 2A UCC

1. Article of the UCC that governs lease of goods ("personal property leases").

Tangible items that are considered goods.

1. Books 2. Clothing 3. Tools

Acceptance in Sales and lease contracts

1. Both common law and the UCC provide that a contract is created when the offeree (i.e., the buyer or lessee) sends an acceptance to the offeror, not when the offeror receives the acceptance. the contract remains valid even if the notification acceptance is lost. 2. Unless otherwise unambiguously indicated by language or circumstance, an offer to make a sales or lease contract may be accepted in any manner and by any reasonable medium of acceptance [UCC 2-206(1)(a), 2A-206(1)].

Uniform Commercial Code (UCC)

1. Comprehensive statutory scheme that includes laws that cover aspects of commercial transactions. 2. Promulgated by the National Conference of Commissioners on Uniform State laws in 1949. 3. This model act contains uniform rules that govern most commercial transactions. 4. In relation to contracts, Art. 2 is the most important section. 5. Is a Model act drafted by the American Law Institute and the National Conference of Commissioners on Uniform State Law.. 6. For the UCC, or any part of the UCC, to become law in a state, that state needs to enact the UCC as its commercial law statute.

Article 2A (Leases)/ Uniform Commercial Code—Leases.

1. Concerns leases of automobiles or equipment and commercial leases of aircraft and industrial machinery. 2. in the past, these transactions were governed by a combination of common law principles, real estate law, and reference to Article 2. Some of these legal rules and concepts do not quite fit a lease transaction. 3. Promulgated in 1987. cited as the Uniform Commercial Code—Leases. 4. Directly addresses personal property leases [UCC 2A-101]. 5. Establishes a comprehensive, uniform law covering the formation, performance, and default of leases in goods [UCC 2A-102, 2A-103(h)]. 6. Many Article 2 provisions were changed to reflect leasing terminology and practices that carried over to Article 2A (similar).

Letter of credit process

1. Contract for sale of goods entered by parties in different countries. 2. Buyer goes to their bank and pays the bank a fee to issue a letter of credit in which the bank agrees to pay the amount of the letter (which is the amount of the purchase price of the goods) to the seller's bank if certain conditions are met. 3. These conditions are usually the delivery of documents indicating that the seller has placed the goods in the hands of a shipper. 4. Issuing bank forwards the letter of credit to a bank the seller has designated in their country (Correspondent). 5. The correspondent transfers the letter of credit to the seller. 6. The seller makes arrangements to ship the goods and receives a bill of lading from the carrier proving so. 7. The seller then delivers these documents to the confirming bank. the confirming bank examines the documents and, if it finds them in order, pays the seller and forwards the documents to the issuing bank. 8. The buyer has usually paid the amount of the purchase price to the issuing bank (unless an extension of credit has been arranged), and the issuing bank then charges the buyer's account. 9. The issuing bank forwards the bill of lading and other necessary documents to the buyer, who then picks up the goods from the shipper when they arrive. If the documents (e.g., bill of lading, proof of insurance) conform to the conditions specified in the letter of credit, the issuing bank must pay the letter of credit. If the account party does not pay the issuing bank, the issuing bank's only recourse is to sue the account party to recover damages.

Structure of the UCC

1. Divided into articles, with each article establishing uniform rules for a particular facet of U.S. commerce. 2. divided into articles, with each article establishing uniform rules for a particular facet of U.S. commerce.

definitions for electronic commerce and their implications

1. Electronic 2. Electronic Agent These definitions expand the coverage of the provisions of UCC Article 2 and Article 2A to electronic contracting of sales and lease contracts.

Federal Trade Commission

1. Federal government agency empowered to enforce federal franchising rules. Federal administrative agency empowered to enforce the Federal Trade Commission Act and other federal consumer protection statutes.

Open Payment Term

1. If the parties to a sales contract do not agree on payment terms, payment is due at the time and place at which the buyer is to receive the goods. 2. If delivery is authorized and made by way of document of title, payment is due at the time and place at which the buyer is to receive the document of title, regardless of where the goods are to be received

Open Delivery Term

1. If the parties to a sales contract do not agree to the time, place, and manner of delivery of the goods, the place for delivery is the seller's place of business. 2. If the seller does not have a place of business, delivery is to be made at the seller's residence. 3. If identified goods are located at some other place, and both parties know of this fact at the time of contracting, that place is the place of delivery [UCC 2-308].

Open Time Term

1. If the parties to a sales contract do not set a specific time of performance for any obligation under the contract, the contract must be performed within a reasonable time. 2. If the sales contract provides for successive performance over an unspecified period of time, the contract is valid for a reasonable time [UCC 2-309].

The Ethical Paralegal Avoid the Appearance of Impropriety

1. Legal professionals must avoid even the appearance of having done something unethical and improper. This is called the avoidance of the appearance of impropriety. 2. The appearance of impropriety is often raised in situations where attorneys move between law firms (ABA Model Rule 1.10) and where there are issues of improper influence on a tribunal (ABA Model Rule 3.5).

Things not considered goods

1. Money and intangible items, such as stocks, bonds, and patents. 2. Real estate is not a tangible good because it is not movable [UCC 2-105(1)].

Contracts for the Provision of Services

1. Not covered by Article 2 UCC. 2. Includes legal services, medical services, and dental services.

Terms that are commonly left open

1. Open Price term 2. Open Payment term 3. Open Delivery Term 4. Open Time Term 5. Open Assortment Term open terms are TAPPED

When Written Modification is Required

1. Oral modification of a contract is not enforceable if the parties agree that any modification of the sales or lease contract must be signed in writing [UCC 2-209(2), 2A-208(2)]. 2. 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. 3. If the oral modification brings the contract within the Statute of Frauds, it must be in writing to be enforceable.

Electronic

1. Relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities. 2. This term extends many of the provisions and rules of the UCC to cover electronic contracting of sales and lease contracts.

Formation of sales and lease contracts

1. Requires an offer and acceptance. 2. UCC-established rules for each of these elements often differ considerably from common law. 3. A contract for the sale or lease of goods may be made in any manner sufficient to show agreement, including conduct by both parties that recognizes the existence of a contract. 4. Under the UCC, an agreement sufficient to constitute a contract for the sale or lease of goods may be found even though the moment of its making is undetermined.

Uniform Customs and Practices for Documentary Credits (UCP)

1. Rules created by the International Chamber of Commerce that govern the formation and performance of letters of credit. 2. Although neither a treaty nor a legislative enactment, most banks incorporate the terms of the UCP in letters of credit they issue.

Unfair and Deceptive Acts over the Internet

1. Section 5 of the Federal Trade Commission Act is used to prosecute fraud over the internet. 2. Section 5 prohibits "unfair and deceptive" acts affecting commerce.

Exceptions to UCC Statute of Frauds in sales and lease contracts

1. Specially manufactured goods. 2. Admissions in pleadings or court. 3. Part acceptance

Examples of goods

1. Specially manufactured goods. 2. The unborn young of animals. 3. Minerals, structures, growing crops, and other things that are severable from real estate may be classified as goods subject to Article 2 as long as they cause no material harm.

Sale of Goods Act

1. Statute enacted in England in 1800. 2. Codified the common law rules of commercial transactions.

Goods

1. Tangible things that are movable at the time of their identification to a contract [UCC 2-105(1)]. 2. Certain items are not considered goods and not subject to Article 2.

Acceptance of a Sales or lease contract

1. The UCC permits acceptance by any reasonable manner or method of communication. 2. If an order or other offer to buy goods requires prompt or current shipment, the offer is accepted if the seller (1) promptly promises to ship the goods or (2) promptly ships either conforming or nonconforming goods [UCC 2-206(1)(b)]. the shipment of conforming goods signals acceptance of the buyer's offer. 3. Acceptance of goods occurs after the buyer or lessee has a reasonable opportunity to inspect them and signifies that (1) the goods are conforming, (2) he or she will take or retain the goods in spite of their nonconformity, or (3) he or she fails to reject the goods within a reasonable time after tender or delivery [UCC 2-513(1), 2A-515(1)]. 4. Accommodation is not acceptance.

Consideration in Sales and lease contracts

1. The formation of sales and lease contracts requires consideration. 2. An agreement modifying a sales or lease contract needs no consideration to be binding [UCC 2-209(1), 2A-208(1)]. 3. Modification of a sales or lease contract must be made in good faith [UCC 1-203]. 4. Modifications are not binding if they are obtained through fraud, duress, extortion, and such.

Sale/Conveyance

1. The passing of title from a seller to a buyer for a price, regardless of form of payment. Also called a conveyance. 2. Consists of the passing of title from a seller to a buyer for a price [UCC 2-106(1)]

Article 2 UCC

1. The second article of the Uniform Commercial Code, which prescribes the rules for the creation and enforcement of contracts for the sale of goods. 2. Does not cover Real property, Services, or intangible property.

major risks in any business transaction involving the sale of goods

1. The seller will not be paid after delivering the goods. 2. The buyer will not receivterm-72e the goods after paying for them. These risks are even more acute in international transactions, where the buyer and seller may not know each other, the parties are dealing at long distance, and the judicial systems of the parties' countries may not have jurisdiction to decide a dispute if one should arise.

Electronic signature (e-signature)

1. The signature of a person that appears on an electronic record and is recognized as a lawful signature. 2. An electronic signature may also be that of a person's electronic agent.

Purpose of the articles regarding sales and leases.

1. These articles are intended to provide clear, easy-to-apply rules that place the risk of loss of the goods on the party most able to either bear the risk or insure against it. 2. the rules of the UCC may vary depending on whether the buyer or the seller is a merchant. 3. does not replace the common law of contracts. common law of contracts continues to govern if the UCC is silent on an issue.

Parol Evidence in sales and lease contracts.

1. When a sales or lease contract is evidenced by a writing that is intended to be a final expression of the parties' agreement or a confirmatory memorandum, the terms of the writing may not be contradicted by evidence of (1) a prior oral or written agreement or (2) a contemporaneous oral agreement (i.e., parol evidence) [UCC 2-202, 2A-202]. 2. This rule is intended to ensure certainty in written sales and lease contracts. 3. Occasionally, the express terms of a written contract are not clear on their face and must be interpreted. in such cases, reference may be made to certain sources outside the contract. These sources are construed together when they are consistent with each other. If that is unreasonable, they are considered in descending order of priority [UCC 2-208(2), 2A-207(2)]: A. Course of Performance. B. Course of Dealing. C. Usage of trade.

Open Price Term

1. Where a sales contract does not contain a specific price: a "reasonable price" is implied at the time of delivery. 2. The contract may provide that a price is to be fixed by a market rate (e.g., commodities market), as set or recorded by a third person or agency (e.g., a government agency), or by another standard, either upon delivery or on a set date. 3. If the agreed-upon standard is unavailable when the price is to be set, a reasonable price is implied at the time of delivery of the goods [UCC 2-305(1)]. 4. A seller or buyer who reserves the right to fix a price must do so in good faith [UCC 2-305(2)]. When one of the parties fails to fix an open price term, the other party may opt either (1) to treat the contract as canceled or (2) to fix a reasonable price for the goods [UCC 2-305(3)].

Battle of the Forms

1. Where the parties to a contract go back and forth with each other trying to get the other to agree to their standard contract form. 2. When merchants negotiate sales contracts, they often exchange preprinted forms. These boilerplate forms usually contain terms that favor the drafter. An offeror who sends a standard form contract as an offer to the offeree may receive an acceptance drafted on the offeree's own form contract. 3. There is no contract if the additional terms so materially alter the terms of the original offer that the parties cannot agree on the contract. This fact-specific determination is made by the courts on a case-by-case basis.

Article 2 UCC and Merchants

1. applies to all sales contracts, whether they involve merchants or not. 2. Contains several provisions that either apply only to merchants or impose a greater duty on merchants.

Common Law Definition of a lease

A contract for the exclusive possession of lands or tenements for a determinate period: a contract by which the lessor grants the lessee the exclusive right to possess and use personal property of the lessor for a specified period of time.

Bill of lading

A document of title that is issued by a carrier when goods are received for transportation.

UCC "Firm Offer" Rule

A merchant who offers to buy, sell, or lease goods and who 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 a reasonable time. the maximum amount of time permitted under this rule is three months [UCC 2-205, 2A-205].

UCC 2-104(1) definition of a merchant

A person who: (1) Deals in the goods of the kind involved in the transaction or (2) by his or her occupation holds himself or herself out as having knowledge or skill peculiar to the goods involved in the transaction. ex: a sporting goods dealer is a merchant with respect to sporting goods but is not if he sells his lawn mower to a neighbor. - the courts disagree as to whether farmers are merchants within this definition.

Electronic Record (E-record)

A record created, generated, sent, communicated, received, or stored by electronic means.

Gap-filling rule

A rule that says an open term can be "read into" a contract.

Article 5 UCC (Letters of Credit)

A section of the UCC that governs letters of credit unless otherwise agreed to by the parties.

Correspondent/Confirming bank

A securities firm, bank, or other financial organization that regularly performs services for another in a place or market to which the other does not have direct access (a correspondent on an exchange; correspondent bank).

UCC Article 2a Definition of a lease

A transfer of the right to possession and use of goods for a term in return for consideration, but a sale, including a sale on approval or a sale or return, or retention or creation of a security interest is not a lease. Unless the context clearly indicates otherwise, the term includes a sublease.

Part acceptance

An oral sales or lease contract that should otherwise be in writing is enforceable to the extent to which the goods have been received and accepted by the buyer or lessee.

Usage of trade

Any practice or method of dealing that is regularly observed or adhered to in a place, a vocation, a trade, or an industry.

Articles of the UCC

Article 2 Sales Article 2A Leases Article 3 Negotiable Instruments Article 4 Bank Deposits and Collections Article 4A Funds Transfers Article 5 Letters of Credit Article 6 Bulk Transfers Article 7 Warehouse Receipts, Bills of Lading, and Other Documents of Title Article 8 Investment Securities Article 9 Secured Transactions Revised Article 9 Secured Transactions

Additional terms in sales and lease contracts

Common law: The inclusion of additional terms in the acceptance is considered a counteroffer rather than an acceptance, and the offeror's original offer is extinguished because of the mirror image rule. UCC 2-207(1): Permits definite and timely expression of acceptance or written confirmation to operate as an acceptance even though they contain terms that are additional to or different from the offered terms, unless the acceptance is expressly conditional on assent to such terms. This rule differs for merchants and nonmerchants. If one or both parties to a sales contract are nonmerchants, any additional terms are considered proposed additions to the contract.

Which States have enacted the UCC?

Every state except Louisiana.

Specially manufactured goods

If a contract to purchase or lease such goods is oral, the buyer or lessee may not assert the Statute of Frauds against the enforcement of the contract if (1) the goods are not suitable for sale or lease to others in the ordinary course of the seller's or the lessor's business and (2) the seller or lessor has made either a substantial beginning of the manufacture of the goods or commitments for their procurement.

Acceptance of sales and lease contracts by merchants (Battle of the Forms)

If both parties are merchants, any additional terms contained in an acceptance become part of the sales contract unless: 1. The offer expressly limits acceptance to the terms of the offer, 2. The additional terms materially alter the terms of the original contract, or 3. The offeror notifies the offeree that he or she objects to the additional terms within a reasonable time after receiving the offeree's modified acceptance.

Written Confirmation Rule

If both parties to an oral sales or lease contract are merchants, the Statute of Frauds requirement can be satisfied if (1) one of the parties to an oral agreement sends a written confirmation of the sale or lease within a reasonable time after contracting and (2) the other merchant does not give written notice of an objection to the contract within 10 days after receiving the confirmation. This situation is true even though the party receiving the written confirmation has not signed it. the only stipulations are that the confirmation be sufficient and that the party to whom it was sent has reason to know its contents [UCC 2-201(2)].

Proposed additions

If one or both parties to the contract are nonmerchants, any additional terms do not constitute a counteroffer or extinguish the original offer. If the offeree's proposed conditions are accepted by the original offeror, they become part of the contract. If they are not accepted, the sales contract is formed on the basis of the terms of the original offer. [UCC 2-207(2)].

Open Assortment Term

If the assortment of goods to a sales contract is left open, the buyer is given the option of choosing those goods.

Admissions in pleadings or court

If the party against whom enforcement of an oral sales or lease contract is sought admits in pleadings, testimony, or otherwise in court that a contract for the sale or lease of goods was made, the oral contract is enforceable against that party. However, the contract is only enforceable as to the quantity of goods admitted.

Law Merchant

Medieval customs and rules for enforcing contracts and resolving disputes.

Electronic Sales and Lease Contracts

Most state laws recognize electronic sales contracts (e-sales contracts) and electronic lease contracts (e-lease contracts).

Supplier/vendor

One engaged in the business of making products available to consumers; all persons in the chain of production and distribution of a consumer product.

Intangible property

Property that is a "right" rather than a physical object even though the right may be evidenced by a physical piece of paper (e.g., patent, stock, trademark, copyright, or goodwill).

Mirror Image Rule

States that for an acceptance to exist, the offeree must accept the terms as stated in the offer.

Account Party

The buyer in regard to a letter of credit.

Course of dealing

The conduct of the parties in prior transactions and contracts.

Issuing Bank

The institution that issues the letter of credit.

Lessee

The person who acquires the right to possession and use of goods under a lease.

Lessor

The person who transfers the right of possession and use of goods under the lease.

Course of performance

The previous conduct of the parties regarding the contract in question.

Beneficiary

The seller in an international sale of goods.

What happened to the laws merchant?

These laws eventually became included as a part of common law.