Chapter 19 Law

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CHAPTER 19
FORMATION AND TERMS OF SALES CONTRACTS

Outline

I.Introduction
The Uniform Commercial Code was prepared to simplify and modernize the rules of law governing commercial transactions. A. Sale of Goods
Article 2 applies to all contracts for the sale of goods. Some contracts are "mixed" (include both sale of goods and provision of services). In this case, the test is "which predominates." Example: Heart of Texas Dodge, Inc. v. Star Coach L.L.C.: The customization of a truck was found to be a sale of services rather than a sale of goods because the predominant feature was the furnishing of services and labor. B. Leases

A lease of goods does not constitute ownership, but in most states, Article 2 and Article 9 of the UCC were applied by analogy. C. Higher Standards for Merchants
UCC Article 2 differs from traditional contract law because it is more flexible and based on concepts of reasonableness and good faith. Some UCC sections apply a different standard to contracts between merchants. II. Terms of Sales Contracts

A. Gap Fillers
The UCC contains "gap filler" provisions to fill in terms of contracts where the parties omitted such terms or stated them indefinitely. (quantity terms, delivery terms and time terms) B.Price Terms

If the parties omitted a price term or left the price to be determined at a future date, the Code supplies a price term. C.Quantity Terms
1.Output/Requirement Contracts
Contracts that obligate a buyer to purchase a seller’s output or all the buyer’s requirements are governed by the UCC. Example: Noble Roman’s, Inc. v. Pizza Boxes, Inc.: The court found that the letter from Rosenberg to Gilbert was a requirements contract. 2.Exclusive Dealing Contracts

The Code says that unless the parties agree to the contrary, sellers have a duty to use their best efforts to supply their buyers, who have a duty to use their best efforts to sell the goods.

D.Delivery Terms
Unless the parties agree to the contrary, the Code says that the goods ordered are to be delivered in a single-lot shipment to the seller’s place of business.
E.Time Terms
If the contract is silent as to the time of performance and the time for payment, the Code requires performance must be tendered in a reasonable time and payment is due at the time and place of delivery.

III. Title and the Code
A.Code Changes
The Code also contains some specific rules governing title (ownership) of goods. B. General Title Rules
1.Physical Delivery
Title passes when the seller has completed physical delivery. Example: Butler v. Beer Across America: Under the UCC, a sale consists in the passing of title from seller to buyer. Title to goods passes at the time and place of shipment when the contract does not require the seller to make delivery at the destination.

2.Delivery without Moving the Goods
If the seller is not required to move the goods, title passes at the time and place of forming the contract.
3.Negotiable Document of Title
A negotiable document of title is used when a professional carrier is moving the goods.
C.Buyer’s Rejection
Title automatically returns to the seller if the buyer rejects the goods due to a noncomformity. IV.Title and Third Parties
A person can only transfer the rights (title) in property that he himself possesses.
A.Transfers of Voidable Title
A seller who has voidable title can pass good title to a good faith purchaser for value. Example: Alsafi Oriental Rugs v. American Loan Co.: Where person obtained goods through a consignment, that person had voidable title and was empowered to pass title to oriental rugs to third party.

B.Buyers in the Ordinary Course of Business
A buyer in the ordinary course of business takes goods free of any...
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