Bus-115 (Business Law): Chapter 13 Guide

Assignments, discharge, remedies and sales contract formation

Learning Objectives

After reading this chapter, students should be able to accomplish the following objectives:

1. Define the term goods and explain the nature of a sale.
2. Explain how Article 2 of the UCC applies to contractual relationships.
3. Explain the UCC rules that relate to written contracts.
4. Explain the two laws related to cyber-sales contracts.
5. Contrast an auction with reserve with an auction without reserve.
6. Explain title, void title, and voidable title.
7. Determine when title of goods passes from seller to buyer.
8. Decide when the buyer or seller must bear the risk of loss.
9. Compare a sale on approval with a sale or return.
10. Define an insurable interest.

Major Concepts

13-1. The Sale and Lease of Goods

The Uniform Commercial Code (UCC), which contains the law of sales, has been adopted, either in whole or in part, by every state in the United States. Article 2 of the UCC applies whenever people buy or sell goods. It applies to transactions between private parties as well as transactions by businesspeople or merchants. Article 2A applies to leases of goods.

13-2. Rules for Sales Contracts

The following rules that are different from general contract law apply to sales contracts:

• A sales contract may be made in any manner that shows that the parties reached an agreement.

• Unless otherwise specified, an offeree may accept an offer in any way that is reasonable, including a prompt shipment of the goods.

• A written promise by a merchant to hold an offer open needs no consideration to be binding.

• A sales contract may be made even though the price is not settled.

• Output and requirements contracts are allowed in sales contracts as long as the parties deal in good faith and according to reasonable expectations.

• A sales contract may result even when an offeree adds different or additional terms from those offered or agreed upon.

• No consideration is necessary to modify a contract for the sale of goods.

13-3. The Form of a Sales Contract

With four exceptions, a contract for the sale of goods for $500 or more and the lease of goods for $1,000 or more must be in writing. The exceptions are oral contracts between merchants in which a confirmation has been received by one party and not objected to by the other party, specially manufactured goods, admissions in court, and executed contracts. The United Nations Convention on Contracts for the International Sale of Goods (CISG) applies to sales between U.S. businesses and foreign businesses.

In an auction sale, offers are made by the people in the audience. The acceptance takes place when the auctioneer bangs the gavel.

13-4. Title, Passage of Title, and Risk of Loss

Title to goods can be valid, void, or voidable. When a merchant sells goods without authority, the purchaser obtains good title. With few exceptions, such as when goods are to be picked up by the buyer, whoever has title to the goods bears the risk of loss. Once goods are identified, title passes to the buyer when the seller does whatever is required under the contract to deliver the goods. Title to fungible goods may pass without the need to separate goods sold from bulk. With a document of title, title and risk of loss pass to the buyer when the document is delivered. Title returns to the seller when the buyer refuses the goods. The risk of loss remains with the seller when the goods do not meet the requirements.

13-5. Sales, Returns, and Insurable Interest

Goods sold on approval remain the property of the seller until the buyer approves. The seller retains the risk of loss. In a sale or return, the buyer takes title to the goods but is given the right to return the goods to the seller. The buyer must care for the goods in a reasonable manner and suffer the risk. Buyers have an insurable interest in goods the moment a contract is made and the goods are identified to the contract.