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Sales And Leases Outline

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Sales and Leases - Spring '11

INTRODUCTION GENERAL INFORMATION Sec. 2102. Scope

* Unless the context otherwise requires, this Article applies to transactions in goods. 1-103(c) - unless displaced by UCC, may look to other law for guidance. 1-302 - cannot contract around obligations of good faith, diligence, reasonableness, and care. These obligations will be part of every contract.

* For any other obligations imposed by the UCC, can contract around them

* Parties can define good faith, so long as their definition is manifestly reasonable 1-303 - Course of Performance, Couse of Dealing, and Usage of Trade

* Course of performance - sequence of ongoing conduct between the parties

* Couse of dealing - past conduct establishes understanding for future conduct

* Usage of trade - practices or methods of a particular trade or industry 1-304 - Good Faith

* Good faith is required in every contract

* However, UCC only talks about good faith in performance and enforcement, no Code requirement of good faith in formation

* Good Faith in and of itself is not a cause of action, it must be attached to some other cause of action o Look for clause that requires interpretation. The duty of good faith will kick in when interpreting the clause Sec. 2105. Definitions. "Goods" means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action. HYBRID TRANSACTIONS

* Contract which involves both goods and services. MAJORITY VIEW PREDOMINANT FACTOR TEST.

* If the Predominant purpose of the transaction was the provision of the goods, Article 2 Applies

* If the predominant purpose was the provision of services, Article 2 does NOT apply MINORITY VIEW SEPARATION. Separate parts of contract into goods and services. If it involves just goods, use UCC. If involves service, don't use UCC.

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Sales and Leases - Spring '11 Formation and Interpretation Under 1-103(b), we can bring in general contract law ideas of offer and acceptance to supplement UCC BASIC CONCEPTS Sec. 1201(3). "Agreement" means the bargain of the parties IN FACT as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance as provided for in U.C.C. Whether agreement has legal consequences is determined by provisions of U.C.C if applicable; otherwise, by law of contracts. 1201(11). "Contract" means the total legal obligation which results from the parties' agreement as affected by the provisions of the U.C.C. and any other applicable rules of law. RULES FOR CONTRACT FORMATION Sec. 2204(1). A contract for sale of goods may be made IN ANY MANNER SUFFICIENT TO SHOW AGREEMENT, including conduct by both parties which recognizes the existence of such a contract. 2204(2). don't have to pinpoint a single moment when the parties became bound 2204(3). (OPEN AND IMPLIED TERMS) Even though one or more terms are left open contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a REASONABLY CERTAIN BASIS for giving an appropriate remedy. 2-205 - An offer by a merchant to buy or sell goods in a signed writing which gives assurances that the offer will be held open is not revocable, for lack of consideration, during the time stated or, if no time stated, a reasonable time.

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Offer to hold open must be signed separately by the offeror. 2-206 - An offer to make a contract invites acceptance in any manner and any medium reasonable under the circumstances.

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Sales and Leases - Spring '11 "BATTLE OF THE FORMS" Under common law, there was no agreement if the forms were not mirror images. 2207 eliminates that rule Sec. 2207(1). A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

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Written confirmation is a written form of a previous agreement (i.e. purchase on telephone)

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Thus, a discrepancy does not prevent a purported acceptance from creating a contract unless the offeree takes pains to expressly to say that it does. CONSEQUENCES: CONTRACT EXISTS, OFFEROR'S TERMS CONTROL

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Unless clause will kill the contract if the other party does not agree to the additional or different terms.

2207(2). The additional terms are to be construed as proposals for addition to the the contract. Between merchants such terms become part of the contract unless: (a) the OFFER EXPRESSLY LIMITS ACCEPTANCE TO THE TERMS OF THE OFFER; (b) they MATERIALLY ALTER IT; OR (c) NOTIFICATION OF OBJECTION TO THEM HAS ALREADY BEEN GIVEN OR IS GIVEN WITHIN A REASONABLE TIME AFTER NOTICE of them is received.

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When not between merchants, additional terms become proposals for addition and die.

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EXAMPLES OF TERMS MATERIALLY ALTERING AGREEMENT o

Mandatory arbitration clauses

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Clauses negating standard warranties (i.e. merchantability, fitness for particular purpose)

2207(3). Conduct by both parties which recognize existence of contract is sufficient to establish a contract for sale although writings of parties do not otherwise establish contract. In such case, terms of particular contract consist of those terms on which writings agree, together with any supplementary terms incorporated under any other provisions of this act.

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Creates contract by performance Page 3

Sales and Leases - Spring '11

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Comment 6 (Knock-out rule) - when clauses on confirming forms conflict, each party must be assumed to object to the conflicting terms. Therefore, the conflicting terms do not become part of the contract

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Even if one party make acceptance of the offer conditional on acceptance of additional terms under 207(1), continuing with performance creates a contract under 207(3) and under (3)'s terms.

STATUTE OF FRAUDS Scope of Statute. SoF Applies to all contracts for the sale of goods (basically anything moveable at time of contract) for the price of $500 or more. 2-201 - Statute of Frauds

* 3 requirements o A writing sufficient to indicate a contract has been made between the parties o Quantity term (only enforceable to the amount specified in the writing) o Signed by the party against whom enforcement is sought
? Can be by an authorized agent or broker
? Courts have vied this liberally, with some saying that letterhead is authentication Exceptions to Statute of Frauds
? Specially Manufactured Goods U.C.C. Sec. 2201(3)(a). If the goods are specially manufactured and not suitable for sale to others, the SoF will not be a defense.
? Admissions U.C.C. Sec. 2201(3)(b). If a party admits the contract, the statute of frauds will not be a defense. However, the contract is not enforceable under this provision beyond the quantity of goods admitted.
? Goods Received & Accepted U.C.C. 2201(3)(c). The writing requirement is dispensed with as to those items which have been received and accepted.
? Payment Received & Accepted U.C.C. 2201(3)(c). The writing requirement is dispensed with respect to goods for which payment has been made and accepted.
? Between Merchants Failure to Answer Written Confirmation. Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the writing requirement against such party unless written notice of objection to its contents is given within ten (10) days after it is received.
? Promissory Estoppel / Reliance Elements of reliance: promisor should reasonably expect his promise to induce action or forbearance; promise does induce action or forbearance; injustice can only be avoided by enforcement of Page 4

Sales and Leases - Spring '11 the promise. Factors to be considered when determining whether or not to allow promissory estoppel adequacy of other remedies, extent of the reliance, whether reliance was reasonable and foreseeable, and the extent to which the evidence corroborates such reliance. UNCONSCIONABILITY UCC 2-302
(1) To avoid any unconscionable result, the court may refuse enforce the contract OR the unconscionable terms OR the limit the application of unconscionable clause IF, the court as a matter of law finds that:

1. The contract or clause therein

2. Was unconscionable at the time it was made (2) when it appears that there is unconscionable contract or terms, the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect, to aid the court in making the determination Two Types of Unconscionability o Procedural
? "Oppression" - an inequality of bargaining power resulting in no meaningful choice for the weaker party, OR (doesn't have to be both)
? "Surprise" - when the supposedly agreed-upon terms are hidden in a prolix document o SUBSTANTIVE
? Overly harsh allocation of risks or costs
? Which is not justified by the circumstances under which K was made
****There is a sliding scale relationship between these two (the greater the degree of one the less required of the other to make the contract unconscionable (one compensates for the other))****

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MODIFICATION 2-209 - Modification, Rescission and Waiver

* Modification needs no consideration to be binding

* If contract says it can only be modified with signature it means it

* If a contract originally satisfied Statute of Frauds, modification must also satisfy statute of frauds

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Modification is only controlled by a duty of good faith (not consideration) (cmt.2) Need an Objectively demonstrable Reason (in comment) o Settling legitimate claims re alleged non-conformity o Increased material / production costs Page 5

Sales and Leases - Spring '11

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o Increasing warranty after the sale o A's tolerance of B's performance difficulties o The difficulty Used to be common to put in No Oral Modification Clauses UCC formalizes this No oral modification clause 2-209SS5 reliance can support a waiver to overcome a no oral modification clause

Warranties

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There are 4 types of warranties included in the code

* 312 - Warranty of title and against infringement

* 313 - Express Warranties

* 314 - Implied Warranty of Merchantability

* 315 - Implied Warranty of Fitness for a Particular Purpose

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Standard warranties in a sale of goods apply only at the time of delivery (2-725(2))

EXPRESS WARRANTIES

* Express warranties rest on "dickered" aspects of the individual bargain. 2313. Express Warranties (1) Express warranties by the seller are created as follows: (a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise. (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. (c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model. (2). Don't have to specifically say "warrant" or "guarantee" to make a warranty, but a statement that is merely the seller's opinion of the goods does not create a warranty.

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Puffing. Law recognizes some statements only puffing, not express warranties. FACTORS to use in determining whether puffery, include reasonableness of reliance on stmt, seriousness of injury, specificity and or certainty in stmt, whether stmt oral or in writing, context in which stmt made, nature of defect, buyer's & seller's relative knowledge. (?)Basis of the Bargain. In order to become part of the basis of the bargain, must be something that influenced the buyer in his purchase Reliance. Most courts do not require a showing reliance by the buyer on the warranty. Page 6

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