Chapter 15: Formation of Sales and Lease Contracts 1

Chapter 15: Formation of Sales and Lease Contracts 1

CHAPTER 15

Formation of Sales and Lease Contracts

KEY POINTS IN THE CHAPTER

The UCC applies to an ordinary sale or lease of goods (Article 2 and 2A respectively). Article 2 (sales) and Article 2A (leases) are essentially the same. Some variations occur because a sale involves a transfer of title as opposed to a lease, which involves a transfer of possession.
Article 2 and Article 2A deal with the sale and lease of goods respectively for any dollar amount. Goods are defined as property that is tangible and moveable.
Article 2 applies to both merchants and non-merchants (casual sellers) and some special rules apply to sales contracts made between merchants.
The UCC has relaxed the rules related to sales transactions that originally were governed by the common law. Many of the technical requirements found under the common law have been removed. It is now easier to form a sales contract. Article 2, however, insists that the parties perform in good faith and avoid unfair dealings such as might exist between a merchant (a professional) and an inexperienced contractor.
The statute of frauds under the UCC is less restrictive and allows oral contracts for the sale of goods under certain circumstances (see Chapter 15 of the text). In addition, the statute of frauds requirement of the written memorandum as evidence of a sale has been greatly relaxed under the UCC. There is only a need of “some writing”—a check, a letter, an invoice, a fax, an e-mail, etc.—as evidence that a sale took place. The writing need name only the quantity and term, and be signed by the party to be charged.
More and more contracts are being formed online especially business-to-business sales contracts. Existing contract laws apply to online transactions but new laws have also been created to fit circumstances where existing laws will not fit online transactions.

TRUE-FALSE QUESTIONS

Indicate whether each statement below is true or false by circling T or F in the column on the left.

1.TFUnder the UCC, an agreement modifying a contract for the sale of goods needs no consideration to be binding.

2.TFA contract for the sale of goods costing under $500 can be oral or written.

3.TFArticle 2 of the UCC applies to all sellers and buyers of goods regardless of whether they are merchants or nonmerchants.

4.TFThe UCC requires all parties entering a sales contract to perform their obligations in good faith.

5.TFThe term goodsincludes intangible personal property such as shares of stock.

6.TFAn oral contract for the sale of goods costing $500 or more is enforceable if the buyer makes full payment.

7.TFUnder the UCC, it is important to determine whether buyers and sellers are merchants or nonmerchants.

8.TFAn action for breach of a sales contract must be started within four years of the breach.

9.TFMinot, a furniture dealer, sold her car to Martino. In this transaction, according to the UCC, Minot is considered a merchant.

10.TFGibbons bought a record from his friend Marks. Marks is considered a merchant.

MULTIPLE-CHOICE QUESTIONS

Circle the letter of the best answer.

1.Under Article 2 of the UCC, a firm offer will be created only if the

a.offeree is a merchant.

b.offeree gives consideration to the offerer.

c.offer is made by a merchant in a signed writing.

d.the offerer states the time period during which it will remain open.

2.Cuomo, owner of a large men’s retail store, signed a written contract to purchase 100 dozen ties at $60 a dozen from the Gem Wholesale Company. The ties were shipped, and Cuomo paid the $6,000 due. Gem then sued Cuomo for an additional $300 and, at the small claims court hearing, testified that Cuomo had agreed orally to pay an additional $3 a dozen. The judge held the evidence inadmissible because

a.all contracts must be in writing to be enforceable.

b.written contracts cannot be modified at the will of the parties.

c.a contract of guaranty must be in writing to be enforceable.

d.evidence of an oral agreement that contradicts a written contract is inadmissible.

3.Berry entered into an oral agreement over the phone with a book club to purchase a book a month for $19.95 per book. After he had received and accepted one book, he decided to cancel the contract. Under the contract, Berry is liable for

a.the full contract price for one year.

b.none of the contract price.

c.the cost of one book.

d.the cost of two books.

4.A contract for the sale of goods costing $500 or more can be made orally if

a.the agreement is executory.

b.the buyer deposits at least $100.

c.the buyer receives and accepts the goods.

d.the goods are intangible.

5.Lopez orally agreed to buy some computer equipment from the Soyota Computer Co. for $2,000. When the company shipped the equipment, which consisted of several items, Lopez decided to accept and pay for only two items. Lopez legally is obligated to pay for

a.only the equipment he accepted.

b.all of the equipment he agreed to buy.

c.the equipment he accepted plus half of the remainder of the order.

d.none of the equipment.

6.Under the UCC, the sale of goods involves

a.real property.

b.real and personal property.

c.personal property.

d.items attached to real property only.

7.Which of the following contracts is not covered by Article 2 of the UCC?

a.a contract for the sale of goods that have been specially manufactured

b.a contract for the sale of a computer

c.a contract for the sale of growing crops

d.a contract for services

8.O’Brien paid $600 cash for a color television at a local retail store. O’Brien did not sign a memorandum for the sale. In this case, he

a.can avoid the agreement because contracts for the sale of goods costing $500 or more must be in writing to be enforceable.

b.can avoid the agreement because a memorandum is required for all sales of merchandise.

c.cannot avoid the agreement because the contract need not be in writing when the buyer has paid in full for the goods.

d.cannot avoid the agreement because it involves specially manufactured goods.

9.Under Article 2 of the UCC, which of the following statements is correct?

a.Merchants and non-merchants are treated alike.

b.The contract must involve the sale of goods for a price of more than $500.

c.The obligations of the parties to the contract must be performed in good faith.

d.The mirror image rule applies when an acceptance to an offer is required.

10.The UCC requires that the parties to every contract

a.place their agreement in writing.

b.state a price in their agreement that is acceptable to both the buyer and the seller.

c.act in good faith.

d.be merchants.

SHORT-ANSWER QUESTIONS

Answer each of the following questions in the space provided.

1.A motorcycle dealer in your town sells you a new motorcycle. Under the UCC, would this be classified as a sale? Why or why not?

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2.A repair shop fixed the turntable on your stereo. Under the UCC, would this be classified as a sale? Why or why not?

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3.Lemond orally agreed to purchase three pairs of prescription eyeglasses for a total cost of $550. Can Lemond later claim that because the oral agreement involved goods costing more than $500, she is not bound by it?

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4.Distinguish between the common law’s “mirror image” rule and the UCC’s provisions for dealing with the acceptance of an offer.

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5.Describe a firm offer allowed under Article 2 of the UCC. Is it (the firm offer) treated differently than a common law offer?

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6.Should the terms of an online offer be just as inclusive as the terms of an offer made in written form or can an online offer be streamlined because it is offered on the Internet?

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