Quiz 15: The Formation of Sales and Lease Contracts

Business

How do Article 2 and Article 2A of the UCC differ? What types of transactions does each article cover?

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Essay

The Article of the UCC manages the contracts based on the sales or it manages those contracts that are concerned with the transaction of various goods. For the facilitation of the transactions, which are for profit making purposes, Article 2 makes amendments in some of the contract requirements based on common laws. The main point of focus over here is that the Article 2 is concerned directly with the sale of the goods and it is not concerned with the real property, it doesn't deal with services or even the stocks or the bonds that are known as the intangible property. The Article 2A of the UCC manages the leases. Nowadays the leases that are concerned with the goods have become very widespread. Lease can actually be explained as the transferring of the right for the utilisation of a good that a person possesses for payment for a particular period of time. The particular transactions that are concerned with the Article 2 are the ones that will create a lease for a particular good and along with that a sublease for the good will also be created. Article 2 is usually applied to the lease rather than to the sale of the particular good. Article 2 A is a replication of the article 2 and it is different only when it has to reveal the difference that exists between the lease and the sales transactions.

Q 2

Statute of Frauds. Fresher Foods, Inc., orally agreed to purchase one thousand bushels of corn for $1.25 per bushel from Dale Vernon, a farmer. Fresher Foods paid $125 down and agreed to pay the remainder of the purchase price on delivery, which was scheduled for one week later. When Fresher Foods tendered the balance of $1,125 on the scheduled day of delivery and requested the corn, Vernon refused to deliver it. Fresher Foods sued Vernon for damages, claiming that Vernon had breached their oral contract. Can Fresher Foods recover? If so, to what extent?

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Essay

In the present scenario, the FF vs. VE, the trial court should probably find whether VE had completed the part of transaction as it is already paid as a result of partial performance. The Statute of Frauds requires that any contract for the sale of goods priced at $500 or more must be in written form of enforceability. The fact of the case is, VE has accepted an oral partial payment for the goods promised by the company. Hence, the part of the agreement was enforceable where VE should deliver 100 bushels of corn to FF at 1.25 per bushel.

Q 3

GFI, Inc., a Hong Kong company, makes audio decoder chips, one of the essential components used in the manufacture of MP3 players. Egan Electronics contracts with GFI to buy 10,000 chips on an installment contract, with 2,500 chips to be shipped every three months, F.O.B. Hong Kong via Air Express. At the time for the first delivery, GFI delivers only 2,400 chips but explains to Egan that even though the shipment is less than 5 percent short, the chips are of a higher quality than those specified in the contract and are worth 5 percent more than the contract price. Egan accepts the shipment and pays GFI the contract price. At the time for the second shipment, GFI makes a shipment identical to the first. Egan again accepts and pays for the chips. At the time for the third shipment, GFI ships 2,400 of the same chips, but this time GFI sends them via Hong Kong Air instead of Air Express. While in transit, the chips are destroyed. When it is time for the fourth shipment, GFI again sends 2,400 chips, but this time Egan rejects the chips without explanation. Using the information presented in the chapter, answer the following questions. 1. Did GFI have a legitimate reason to expect that Egan would accept the fourth shipment? Why or why not? 2. Does the substitution of carriers for the third shipment constitute a breach of the contract by GFI? Explain. 3. Suppose that the silicon used for the chips becomes unavailable for a period of time and that GFI cannot manufacture enough chips to fulfill the contract but does ship as many as it can to Egan. Under what doctrine might a court release GFI from further performance of the contract? 4. Under the UCC, does Egan have a right to reject the fourth shipment? Why or why not? DEBATE THIS If a contract specifies a particular carrier, then the shipper must use that carrier or be in breach of the contract-no exceptions should ever be allowed.

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Essay

The Uniform Commercial Code aims to provide a consistent, integrated framework of rules to deal with commercial sales or lease transactions by making the laws governing sales and contracts of lease uniform, clear and simple. Sale and lease contracts are governed by statutory laws. When a contract of lease or sale is breached the risk is born by the defaulting party and shall be liable for the any loss that may be incurred. UCC is applicable on any transaction, regardless of form that creates the lease. Most of the rules of commercial lease contracts are in Article 2A. Article 2A deals with personal property leasing. The court would likely decide that the Uniform Commercial Code (UCC) covered the transaction. Further, it was based on the fact that the UCC assists and governs commercial transactions by imposing laws relating to sales and lease contracts in a more uniform way, in a much simpler and clearer way, and it should be more willingly applicable to the many problems that may crop up during such transactions. As per the UCC any individual who undertakes the sale or purchase of a good and makes use of expertise related to the good in question. Merchant means a person who deals in goods or of like nature by way of his occupation, having such knowledge or skill required for the good in question. Mr H could be considered a merchant as he was in the adult entertainment business, and attempted to create a ecosystem for improving the original business by offering customers 'adult theme videos and live chat sessions with the performers of the club'. Mr. H entered into a contract in which he wanted a working prototype of a customer chat system for his business. Later on Mr H got some firewalls installed on his system, which required Mr H to pay the instalments monthly, but the anticipated deadline could not be met due to the unforeseen incidents. As the work had not been completed and Mr H did not pay the instalments on time, this led to serious trouble, keeping everything in mind now Mr H wanted to end the project. When the parties involved in a contract fail completely to provide contingency in their respective contracts and later on end up in a big dispute, UCC comes into play. This transaction is thus not governed by the common law and comes under the statutory law (the UCC). A statutory law is the acceptance of a uniform act by the state legislature, then immediately the act is considered a statutory law in that state. UCC has relaxed the requirement of contracts to be in written form to satisfy the statute of frauds. As per UCC 2-201(3) agreement and 2A-201(4) lease contract , an oral contract for the sale of goods priced at $500 or more or the lease of goods having $1,000 or above payment shall be enforceable even if there is no written contract. The Uniform Commercial Code administers the oral contracts enforceability in dealings of sales concerning sellers. An oral contract is enforceable (unless it comes within the statute of frauds). An oral contract is just as valid as a written agreement. An oral contract can be proved by action taken by one or both parties, which is obviously in reliance on the existence of a contract. In the present case, the oral agreement will be enforceable.

Q 4

The following multiple-choice question is representative of the types of questions available in one of the four sections of ThomsonNOW for Business Law Today. ThomsonNOW also provides feedback for each response option, whether correct or incorrect, and refers to the location within the chapter where the cored answer can be founder Under UCC Article 2, contract that contains open (missing) terms will be A) void because of the open terms. B) valid if the contract involves the sale of land. C) valid if the parties intended to form a contract and there is a reasonably certain basis for a court to grant an appropriate remedy. D) valid as long as the parties expressed some interest in negotiating.

Multiple Choice

Q 5

What is a merchant's firm offer?

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Q 6

Merchant's Fpm Offer. On September 1, Jennings, a used-car dealer, wrote a letter to Wheeler, stating, "I have a 1955 Thunderbird convertible in mint condition that I will sell you for $13,500 at any time before October 9. [signed] Peter Jennings." By September 15, having heard nothing from Wheeler, Jennings sold the Thunderbird to another party. On September 29, Wheeler accepted Jennings's offer and tendered the $13,500. When Jennings told Wheeler he had sold the car to another party, Wheeler claimed Jennings had breached their contract. Is Jennings-in breach? Explain.

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Q 7

If an offeree includes additional or different terms in an acceptance, will a contract result? If so, what happens to these terms?

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Q 8

Hypothetical Question with Sample Answer. M. M. Salinger, Inc., a retailer of television sets, orders one hundred model Color-X sets from manufacturer Fulsom. The order specifies the price and that the television sets are to be shipped via Interamerican Freightways on or before October 30. Fulsom receives the order on October 5. On October 8, Fulsom writes Salinger a letter indicating that it has received the order and that it will ship the sets as directed, at the specified price. Salinger receives this letter on October 10. On October 28, Fulsom, in preparing the shipment, discovers it has only ninety Color-X sets in stock. Fulsom ships the ninety Color-X sets and ten television sets of a different model, stating clearly on the invoice that the ten sets are being shipped only as an accommodation. Salinger claims that Fulsom is in breach of contract. Fulsom claims that there was not an acceptance and, therefore, no- contract was formed. Explain who is correct, and why.

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Q 9

Article 2 and Article 2A of the UCC both define several exceptions to the writing requirements of the Statute of Frauds What are these exceptions?

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Q 10

Statute of Frauds. SNK, Inc., makes video arcade games and sells them to distributors, including Entertainment Sales, Inc. (ESI). Most sales between SNK and ESI were phone orders. Over one four-month period, ESI phoned in several orders for "Samurai Showdown" games. SNK did not fill the orders. ESI filed a suit against SNK and others, alleging, among other things, breach of contract. There was no written con-tract covering the orders. ESI claimed that it had faxed pur-chase orders for the games to SNK but did not offer proof that the faxes had been sent or received. SNK filed a motion for summary judgment. In whose favor will the court rule, and why? [Entertainment Sales Co. v. SNK, Inc., 232 Ga.App. 669, 502 S.E.2d 263 (1998)]

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Q 11

What law governs contracts for the international sale of goods?

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Q 12

Open Terms. In 1988, International Business Machines Corp. (IBM) and American Shizuki Corp. (ASC) signed an agreement for "future purchase by IBM" of plastic film capacitors made by ASC to he used in IBM computers. The agreement stated that IBM was not obligated to buy from ASC and that future purchase orders "shall be [ASC]'s only authorization to manufacture Items." In February 1989, IBM mote to MC about the possibility of IBM purchasing 15,000,000 Plastic Capacitors per two consecutive twelve (12) month periods.... This quantity is a forecast only, and represent no commitment by IBM to purchase these quantities during or after this time period." ASC said that it wanted greater assurances. In a second letter, IBM re-expressed its "intent to order" from ASC 30 million capacitors over a minimum period of two years, contingent on the condition "[t]hat IBM's requirements for these capacitors continue." ASC spent about $2.6 million on equipment to make the capacitors. By 1997, the need for plastic capacitors had dissipated with the advent of new technology, and IBM told ASC that it would no longer buy them. MC filed a suit in a federal district court against IBM, seeking $8.5 million in damages. On what basis might the court rule in favor of IBM? Explain fully. [American Shizuki Corp. v. International Business Machines Corp., 251 F.3d 1206 (8th Cir. 2001)]

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Q 13

Case Problem with Sample Answer. Propulsion Technologies, Inc., a Louisiana firm doing business as PowerTech Marine Propellers, markets small steel boat propellers that are made by a unique tooling technique. Attwood Corp., a Michigan firm, operated a foundry (a place where metal is cast) in Mexico. In 1996, Attwood offered to produce castings of the propellers. Attwood promised to maintain quality, warrant the castings against defects, and obtain insurance to cover liability. In January 1997, the parties signed a letter that expressed these and other terms-Attwood was to be paid per casting and twelve months' notice was required to terminate the deal-but the letter did not state a quantity. PowerTech provided the tooling. Atwood produced rough castings, which PowerTech refined by Checking each propeller's pitch, machining its interior, grinding, balancing, polishing, and adding serial numbers and a rubber clutch. In October, Attwood told PowerTech that the foundry was closing. PowerTech filed a suit in a federal district court against Attwood, alleging, in part, breach of contract. One of the issues was whether their deal was subject to Article 2 of the Uniform Commercial Code. What type of transactions does Article 2 cover? Does the arrangement between PowerTech and Attwood qualify? Explain. [Propulsion Technologies, Inc. v. Attwood Corp., 369 Rid 896 (5th Cir. 2004)]

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Q 14

Statute of Frauds. Quality Pork International is a Nebraska finn that makes and sells custom pork products. Rupari Food Services, Inc., buys food products and sells than to retail operations and food brokers. In November 1999, Midwest Brokerage arranged an oral contract between Quality and Rupari, under which Quality would ship three orders to Star Food Processing, Inc., and Rupari would pay for the prod-ucts. Quality shipped the goods to Star and sent invokes to Rupari. In turn, Rupari billed Star for all three orders but paid Quality only for the first two (for $43,736.84 and $47,467.80, respectively), not for the third. Quality filed a suit in a Nebraska state court against Rupari, alleging breach of contract, to recover $44,051.98, the cost of the third order. Rupari argued that there was nothing in writing, as required by Section 2-201of the Uniform Commercial Code (UCC), and thus there was no contract. What are the exceptions to the UCC's writing requirement? Do any of those exceptions apply here? Explain. [Quality Pork International v. Rupari Food Services, Inc., 267 Neb. 474, 675 N.W.2d 642 (2004)

Essay

Q 15

Offer. In 1998, Johnson Controls, Inc. (JCI), began buying auto parts from Q. C. Onics Ventures, LP. For each part, JCI would inform Onics of its need and ask the price. Onics would analyze the specifications, contact its suppliers, and respond with a formal quotation. A quote listed a part's number and description, the price per unit, and an estimate of units available for a given year. A quote did not state payment terms, an acceptance date, the time of performance, warranties, or quantities. JCI would select a supplier and issue a purchase order for a part. The purchase order required the seller to supply all of ICI's requirements for the part but gave the buyer the right to end the deal at any time. Using this procedure, JCI issued hundreds of purchase orders. In July 2001, JCI terminated its relationship with Onics and began buying parts through another supplier. Onics filed a suit in a federal district court against Johnson, alleging breach of con-tract. Which documents-the price quotations or the purchase orders-constituted offers? Which were acceptances? What effect would the answers to these questions have on the result in this case? Explain. [Q. C. Onics Ventures, LP. v. Johnson Controls, Inc., F.Supp.2d (N.D.Ind. 2006)]

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Q 16

A Question of Ethics: Contract Terms. Daniel Fox owned Fox Lamberth Enterprises, Inc., a kitchen and bath remodeling business, in Dayton, Ohio. Fox leased a building from Carl and Bellulah Hussong. Craftsmen Home Improvement, Inc., also remodeled baths and kitchens. When Fox planned to close his business, Craftsmen expressed an interest in buying his showroom assets. Fox set a price of $50,000. Craftsmen's owners agreed and gave Fox a list of the desired items and "A Bill of Sale" that set the terms for payment. The parties did not discuss Fox's arrangement with the Hussongs, but Craftsmen expected to negotiate a new lease and extensively modified the premises, including removing some of the displays to its own showroom. When the Hussongs and Craftsmen could not agree on new terms, Craftsmen told Fox that the deal was off. [Fox Lamberth Enterprises, Inc. v. Craftsmen Home Improvement, Inc., __ Ohio App.3d __, __ N.E.2d __ (2 Dist. 2006)] (See page 386.) (a) In Fox's suit in an Ohio state court for breach of contract, Craftsmen raised the Statute of Frauds as a defense. What are the requirements of the Statute of Frauds? Did the deal between Fox and Craftsmen meet these requirements? Did it fall under one of the exceptions? Explain. (b) Craftsmen also claimed that the predominant factor of its agreement with Fox was a lease for the Hussongs' building. What is the "predominant-factor" test? Does it apply here? In any event, is it fair to hold a party to a contract to buy a business's assets when the buyer cannot negotiate a favorable lease of the premises on which the assets are located? Discuss.

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Q 17

Critical Legal Thinking. Why is the designation merchant or non-merchant important?

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Q 18

Case Analysis Question. Go to Appendix G at the end of this text and examine Case No. 4 [Wilson Fertilizer Crain, Inc. v. ADM Milling Co., 654 N.E.2d 848 (Ind.App. 1995)]. This ease has been excerpted there in great detail. Review and then brief the case, making sure that your brief answers the following questions. 1. What was the issue that the Indiana state intermediate appellate court was asked to decide in this case? 2. Did the court rule in favor of the plaintiff or the defendant? Why? 3. What was the dissent's view on the central issue in this case? 4. Why does it matter whether the arbitration clause in ADM's confirmation "materially altered" the contract with Wilson? 5. How does a court determine when an additional term in acceptance "materially alters" the contract?

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Q 19

Video Question. Go to this text's Web site at www.thomsonedu.com/webuslaw/blt and select "Chapter 15." Click on 'Video Questions" and view the video titled Sales and Lease Contracts: Price as a Tern. Then answer the following questions. 1. Is Anna correct in assuming that a contract can exist even though the sales price for the computer equipment was not specified? Explain. 2. According to the Uniform Commercial Code (UCC), what conditions must be satisfied in order for a contract to be formed when certain terms are left open? What terms (in addition to price) can be left open? 3. Are the e-mail messages that Anna refers to sufficient proof of the contract? 4. Would parol evidence be admissible?

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