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>> Today, we're gonna look at Chapter 10--
Sales and Lease Contracts.
Article 2 of the Uniform Commercial Code, or UCC,
applies to the sale of goods over $500.
It doesn't apply to the sale of land or services.
It does modify the Common Law of Contracts in certain areas,
especially if one of the parties is a merchant.
Some definitions from the UCC--
a sale is the passing of title from a seller
to buyer for a price.
the price may be in cash or in other goods or services.
Goods are defined as tangible and movable,
but not land, services, or intangibles.
Goods associated with land, or goods and services combined,
then you take a look at the Predominant Factor test.
If it's primarily for goods, then the UCC would apply.
A merchant-- a merchant is somebody who deals in goods
of the kind sold and is presumed to possess
a high degree of expertise.
Merchant could also be somebody holds themself out
as a merchant who has special skill or knowledge,
or a person who employs a merchant.
Article 2A is for leases.
It applies to commercial and consumer leases.
The lessor is the one who's selling the right to possess
and use goods,
and the lessee is the one who acquires those rights.
The UCC modifies the common law of contracts.
When the UCC speaks, it preempts the common law,
and where it's silent, the common law would govern.
That's a little different than the common law concept
of offers, in that it allows open terms.
Under the UCC Article 2, an offer may include open terms
as long as the parties intend to form a contract,
and there's a reasonably certain basis
for the court to grant remedy.
The only thing that the court can't do is create quantity.
If quantity isn't specified,
a court will deem the contract unenforceable,
because it cannot objectively determine the quantity.
Now, there is some exceptions to that--
you could have an open-quantity term,
if it's a requirements or output contract.
In a requirements contract, the buyer agrees to purchase
what the buyer needs or requires.
An output contract-- the buyer agrees to purchase
whatever the seller can produce or output.
Acceptance.
Under the UCC, the seller can specify
the manner of acceptance.
If none is specified, any reasonable means will do.
A promise to ship or a prompt shipment of conforming goods
is considered acceptance, too.
Shipment of non-conforming goods--
this means the goods don't conform to the contract.
In that case, prompt shipment of non-conforming goods
is both an acceptance and a breach.
In other words, it's the shipper's indication
that they accept,
but if it's non-conforming, it's a breach--
unless the seller notifies the goods are only an accommodation.
This notice of accommodation must indicate
that it isn't to form a contract,
but instead is an accommodation.
A notice of acceptance is required.
If a unilateral contract is not accepted
within a reasonable time with performance,
then the offeror can treat the offer lapse
before acceptance.
Under Common Law, there was the "Mirror Image" Rule--
any additional terms in acceptance would be a rejection.
Under Article 2, it dispenses with the "Mirror Image" Rule.
And it depends on whether there's a merchant involved.
If they're-- one of the parties is not a merchant,
then only the additional--
I mean, only the original terms are accepted.
Additional terms are not part of the agreement.
If both parties are merchant,
then additional terms do form a contract,
unless they're prohibited,
or the new terms or terms materially alter the contract,
or the parties object to the additional terms.
An acceptance could be conditioned on an officer's--
an offeror's assent.
When an offeror contains additional or different terms
expressly conditioned on the offeror's assent,
no contract is formed without that assent.
Additional terms could be strickened.
Conduct of both parties may be sufficient to create
an enforceable contract,
and a court will simply strike the terms
of the contract on which the parties do not agree.
Looking at the Common Law idea of consideration--
under the UCC, modifications are treated a little differently.
Under the Common Law, if there was any modification,
it needed to be supported by consideration under the UCC.
As long as the modification is made in good faith,
it can be made without consideration.
If it is a modification without consideration,
it must be written, unless the contract prohibits that.
If a consumer is dealing with a merchant,
then the consumer must sign a separate acknowledgement
and any modification that brings the contract
under the UCC to Statute of Frauds.
Statute of Frauds does apply under the UCC.
A contract for sale of goods over $500 must be in writing,
but the writing is sufficient if it's just signed by one party
and indicates the party intended to form a contract.
Basically, needs to be signed by the party
against whom it's going to be enforced against.
Special rules between merchants--
if there's a written confirmation
after oral agreement, that would be sufficient.
That confirmation must indicate the terms.
Merchant receiving it must acknowledge
or have knowledge of the content of that confirmation,
and the receiver has ten days to object.
There are some exceptions to this writing requirement--
if it's specially manufactured or custom goods,
if the party admits on the record
that there was a contract,
or this partial performance--
for example, an exchange of money or delivery.
Parol evidence rule basically requires the court
to look at the written agreement
and to not allow additional oral testimony
that contradicts that written agreement.
May be some cases where evidence-- oral evidence--
is needed to explain something
in the contract that's ambiguous.
And there also may be an induction of course
of dealing in usage or course of performance in the past
to show what the parties intended.
There's also unconscionability.
This means the contract's so unfair and one-sided
that it would be unreasonable to enforce it.
Take a look at Case 10.2, Jones v. Star Credit Corp.
In that case, an elderly woman purchased a refrigerator
for much more than the value,
and the court determined that, at some point,
it was unconscionable and that she had already paid for it.
So, there are some other alternatives--
the court could just refuse to enforce the contract,
but it could also enforce the contract
without the unconscionable clause,
or limit the impact of the contract
to avoid the unconscionable result.
Title Risk of Loss.
Sale of goods requires a different rules
than real property transactions.
Risks should not always pass with title.
In other words, sometimes property
may be in someone else's hand,
but the risk of loss may still be with the other party.
So title and risk of loss typically go together,
but the parties can agree when title and risk of loss passes.
The UCC replaces the Common Law notions of title
with identification, risk of loss,
and insurable interests, which we'll go in more detail into.
Before title can pass to goods from the seller to the buyer.
They need to exist and be identified.
Identification occurs when the specific goods are designated
as the subject matter of that particular contract.
It gives the buyer the right to obtain insurance on the goods
and to recover damages from a third party.
So, more than one party could insure goods.
If they're existing goods, then identification takes place
at the time the contract is made.
And there are different rules for future goods
or goods that are part of a larger mass.
Passage of title.
Title passes when the parties agree.
If they don't agree, under Article 2, Section 401,
title of identified goods passes to the buyer at the time
and place the seller physically delivers the goods.
And you can see an example of that in Case 10.3.
Shipment and destination contracts--
if there is an agreement about delivery,
then delivery arrangements are determined
when the title passes.
In a shipment contract,
title passes at the time and place of shipment.
In destination contract, title passes when the goods
are tendered at the place of their destination.
You also could have delivery without movement of the goods.
In other words, title passes from one party to the other.
With a document of title,
they pass when the document is delivered.
Without it-- when the sales contract is made,
if the goods have been identified,
or when identification occurs
and they haven't been identified.
There are some issues that come up with thieves
who steal property and then sell it or lease it.
And this is considered void title.
In other situations, somebody might be holding onto property
and pass it onto good-faith purchaser
who doesn't have the knowledge,
and they would then get title,
and it would be up to the other party
to seek action against the seller.
Now take a look at Exhibit 10-3 for a breakdown of void
and voidable title.
When the contract fails to agree on when risk of loss passes,
the courts determine whether it is a shipment contract.
If it is, risk of loss passes when the seller tenders goods
to the carrier.
And if it's a destination contract,
risk of loss passes when the goods are tendered
at the destination by the carrier.
In a situation involving delivery
without movement of goods,
if the goods are held by the seller,
then the document of title is generally not used.
If the seller is a merchant,
then the risk of loss passes when the buyer
takes actual possession of the goods.
If goods are held by a bailee--
for example, third party warehouse--
risk of loss passes when the buyers
received documents of title.
Bailee acknowledges the buyer's right to goods,
and buyer receives title and has reasonable time to pick it up.
In some cases, risk of loss passes
when there's a breach of contract.
If the seller breaches--
for example, shipping non-conforming goods--
then, in that case, the risk of loss doesn't pass to the buyer
until the seller cures the defect,
or the buyer accepts the non-conforming goods
and waives the right to reject.
A buyer could revoke acceptance
after they discover a latent defect.
And in that situation, the risk of loss would pass back
to the seller to the extent the buyer's insurance
doesn't cover it.
Risk of loss when the buyer breaches--
after the goods are identified,
the risk of loss passes to the buyer for a reasonable amount
of time after the seller learns of the breach,
to the extent that the seller's insurance
doesn't cover the loss.
Insurable interest is basically when the buyer or seller
has some interest in the goods that they can insure.
A buyer has an insurable interest in the goods
when they've been identified.
A seller has an insurable interest in the goods
as long as they retain title or security interest.
So even if they're not holding on to the property directly,
if they still have title, they have an insurable interest.
So as I said earlier, both the seller and the buyer
could have an insurable interest at the same time.
And finally, it's-- the CISG is the...
basically the UCC at the international level.
So we look at the CISG when we're looking
at international sale of goods,
as long as the country is participating in the CISG.
And you would need to look at the CISG
in these different areas to see how it differs from the UCC.