Fundamentals of Business Law

Business

Quiz 13 :

The Formation of Sales and Lease Contracts

Quiz 13 :

The Formation of Sales and Lease Contracts

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Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text. What law governs contracts for the international sale of goods?
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Contracts that exist on the international sale of various goods that take place between an individual person and some particular firm is actually directed by the 1980 United Nations Convention on Contracts which have been formulated for the sale of the International Sale of various Goods (CSIG). All the laws pertaining to the international contract are managed by the CSIG based on the condition that the countries of those particularly concerned parties will have approved the CSIG and in cases when the agreement by the parties have not been given then there will be different laws which will manage the contract. By 2010 there were around 70 countries which had succeeded in accepting the CSIG for example:
• Canada
• Mexico
• The United States of America
• Some central and then South America
• Last many of the European countries

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Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text. What exceptions to the writing requirements of the Statute of Frauds are provided in Article 2 and Article 2A of the UCC?
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Apart from the exceptional rules that are already present for the merchants, there are three exceptions that have been defined by the UCC that exist to the writing requirements of the statute of frauds. Goods of less than $500 and lease contracts of more than $1000 are can be enforced in the absence of a written contract.
• Specially manufactured goods: An oral contract is applicable in the situation where the goods are specifically manufactured for the purchaser, are not suitable for selling again or the seller has commenced the manufacturing process or procured material.
• Admission: An oral contract is applicable in the situation where when the party which is being enforced to accept the liability admits in the court. The extent of the liability will be as per the admission.
• Partial performance: An oral contract is applicable in the situation where the payment has taken place and the goods delivered.

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ISSUE SPOTTERS Truck Parts, Inc. (TPI), often sells supplies to United Fix-It Company (UFC), which services trucks. Over the phone, they negotiate for the sale of eighty-four sets of tires. TPI sends a letter to UFC detailing the terms and two weeks later ships the tires. Is there an enforceable contract between them? Why or why not? (See pages 297-299.)
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Yes this case is enforceable. This can be attributed to the fact that there exists a written contract between the Truck Parts, Inc (TPI) and United Fix-It Company (UFC). The dealing between both the companies takes place appropriately. Initially the order is given by the United Fix-It Company and subsequently Truck Parts, Inc sends a letter and then the delivery of the goods takes place rendering the contract enforceable.

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Case Problem with Sample Answer Clear Lakes Trout Co. operates a fish hatchery in Idaho. Rodney and Carla Griffith are trout growers. Clear Lakes agreed to sell "small trout" to the Griffiths, who agreed to sell the trout back when they had grown to "market size." At the time, in the trade "market size" referred to fish approximating one-pound live weight. The parties did business without a written agreement until September 1998, when they executed a contract with a six-year duration. The contract did not define "market size." All went well until September 2001, after which there was a demand for larger fish. Clear Lakes began taking deliveries later and in smaller loads, leaving the Griffiths with overcrowded ponds and other problems. In 2003, the Griffiths refused to accept more fish and filed a suit in an Idaho state court against Clear Lakes, alleging breach of contract. Clear Lakes argued that there was no contract because the parties had different interpretations of "market size." Clear Lakes claimed that "market size" varied according to whatever its customers demanded. The Griffiths asserted that the term referred to fish of about one-pound live weight. Is outside evidence admissible to explain the terms of a contract? Are there any exceptions that could apply in this case? If so, what is the likely result? Explain. [ Griffith v. Clear Lakes Trout Co., 143 Idaho 733, 152 P3d 604 (2007)]
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The five Learning Objectives below are designed to help improve your understanding of the chapter. After reading this chapter, you should be able to answer the following questions: What law governs contracts for the international sale of goods?
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Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text. Risk of loss does not necessarily pass with title. If the parties to a contract do not expressly agree when risk passes and the goods are to be delivered without movement by the seller, when does risk pass?
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Acceptance. JMAM, LLC, is a wholesaler of costume jewelry doing business as "Joan Rivers Worldwide Enterprises." B.S. International, Ltd. (BSI), makes costume jewelry JMAM and BSI did business under an agreement written by JMAM that set forth certain terms. One of the terms specified that JMAM would receive credit from BSI for any items rejected by JMAM's customers. JMAM had presented the terms to BSI with a cover letter stating, "By signing below, you the vendor agree to [these] terms." Steven Baracsi, BSI's owner, had signed the letter and returned it. For the next six years, BSI made jewelry for JMAM, which sold the jewelry to QVC, Inc. Items rejected by QVC were sent back to JMAM, which applied the cost as a credit against BSI invoices. The items, however, were never returned to BSI. When a dispute arose over the orders, BSI filed a suit in a Rhode Island state court against JMAM, claiming that it was owed $41,294.21 for items delivered but not returned. BSI showed the court a copy of JMAM's terms. Across the bottom had been typed a "PS. [Post Script]" requiring the return of rejected merchandise. Baracsi testified that he had mailed this page to JMAM. James Halliday, JMAM's chief financial officer, testified that he had never seen it. When do additional terms become part of a contract between merchants? Was BSI's "PS." part of this contract? Discuss. [ B. S. International , Ltd. v. JMAM , LLC , 13 A.3d 1057 (R.I. 2011)]
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The five Learning Objectives below are designed to help improve your understanding of the chapter. After reading this chapter, you should be able to answer the following questions: How do Article 2 and Article 2A of the UCC differ? What types of transactions does each article cover?
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Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text. How do Article 2 and Article 2A of the UCC differ? What types of transactions does each article cover?
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The Thorny Issue of Taxing Internet Sales From the very beginning of e-commerce, cities and states have complained that they are losing millions, if not billions, of dollars of potential tax revenues because nearly all e-commerce companies do not collect state and local sales taxes. Although most states have laws requiring their residents to report purchases from other states and to pay taxes on those purchases (so-called use taxes), few (if any) U.S. consumers ever comply with these laws. Certainly, the possibility of avoiding sales taxes has likely contributed to the growth of e-commerce. Not surprisingly, retailers with investment in physical sales outlets have complained to local, state, and federal governments about this "sales tax inequity." Local Governments Are Suing Online Travel Companies One recent trend in the effort to collect taxes from e-commerce has focused on online travel companies, including Travelocity, Priceline.com, Hotels.com, and Orbitz.com. By 2011, at least a dozen cities, including Atlanta, Charleston, Philadelphia, and San Antonio, had filed suits claiming that the online travel companies owed taxes on hotel reservations that they had booked. All of the cities involved in the suits impose hotel occupancy taxes. In Atlanta, for example, the local statute authorizes the city to devise "a rate of taxation, the manner of imposition, payment, and collection of the tax, and all other procedures related to the tax." At issue in the lawsuits is not whether the online travel companies owe hotel occupancy tax, but rather the amount of tax that they owe and the procedure that should be used to collect it. Online travel companies, such as Hotels.com, typically purchase blocks of hotel rooms at a wholesale rate and subsequently resell the rooms to customers at a marked-up retail rate, keeping the difference as profit. The company forwards to the hotel an amount intended to cover the hotel occupancy tax on the wholesale price of the rooms sold. The hotel then remits to the city taxing authority the tax on the rooms sold by the online travel agency. Thus, the online travel companies do not remit taxes directly to any city authorities. In calculating the amount of tax owed, the online travel companies assess the occupancy tax rates on the wholesale prices of the rooms, rather than the retail prices that they charge. The cities claim that the online travel companies should be assessing the hotel occupancy tax on the retail prices of the rooms. The cities also want the online companies to register with the local jurisdictions and to collect and remit the required taxes directly. What the Courts Have Been Deciding More than a dozen cases have been brought against online travel agencies, but so far the courts have been divided. Many of these cases have been brought in federal district courts, and those courts have often ruled in favor of the cities. Some state courts have also upheld the cities' claims. In one case, for example, the Supreme Court of Georgia reversed the lower court's dismissal and remanded the case for trial on Atlanta's claim concerning the city's hotel tax ordinance. Given that most cities and counties have found themselves in dire financial straits since the latest recession, we can expect to see more such suits around the country. FOR CRITICAL ANALYSIS Why do you think that cities and states have not brought similar lawsuits against e-commerce retailers such as Amazon.com?
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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? (See pages 302-304.)
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ISSUE SPOTTERS E-Design, Inc., orders 150 computer desks. Fav-O-Rite Supplies, Inc., ships 150 printer stands. Is this an acceptance of the offer or a counteroffer? If it is an acceptance, is it a breach of the contract? What if Fav-O-Rite told E-Design it was sending the printer stands as "an accommodation"? (See pages 299-302.)
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Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text. In a sales contract, 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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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 JCI'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 JCI, alleging breach of contract. 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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Question with Sample Answer-Merchant's Firm 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. (See page 299.)
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Risk of loss does not necessarily pass with title. If the parties to a contract do not expressly agree when risk passes and the goods are to be delivered without movement by the seller, when does risk pass?
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Guy Holcomb owns and operates Oasis Goodtime Emporium, an adult entertainment establishment. Holcomb wanted to create an adult Internet system for Oasis that would offer customers adult theme videos and "live" chat room programs using performers at the club. On May 10, Holcomb signed a work order authorizing Crossroads Consulting Group (CCG) "to deliver a working prototype of a customer chat system, demonstrating the integration of live video and chatting in a Web browser." In exchange for creating the prototype, Holcomb agreed to pay CCG $64,697. On May 20, Holcomb signed an additional work order in the amount of $12,943 for CCG to install a customized firewall system. The work orders stated that Holcomb would make monthly installment payments to CCG, and both parties expected the work would be finished by September. Due to unforeseen problems largely attributable to system configuration and software incompatibility, the project required more time than anticipated. By the end of the summer, the Web site was still not ready, and Holcomb had fallen behind in the payments to CCG. CCG was threatening to cease work and file suit for breach of contract unless the bill was paid. Rather than make further payments, Holcomb wanted to abandon the Web site project. Using the information presented in the chapter, answer the following questions. 1. Would a court be likely to decide that the transaction between Holcomb and CCG was covered by the Uniform Commercial Code (UCC)? Why or why not? 2. Would a court be likely to consider Holcomb a merchant under the UCC? Why or why not? 3. Did the parties have a valid contract under the UCC? Explain. 4. Suppose that Holcomb and CCG meet in October in an attempt to resolve their problems. At that time, the parties reach an oral agreement that CCG will continue to work without demanding full payment of the past-due amounts and Holcomb will pay CCG $5,000 per week. Assuming that the contract falls under the UCC, is the oral agreement enforceable? Why or why not? DEBATE THIS The UCC should require the same degree of definiteness of terms, especially with respect to price and quantity, as general contract law does.
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What is a merchant's firm offer?
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Additional Terms. Continental Insurance Co. issued a policy to cover shipments by Oakley Fertilizer, Inc. Oakley agreed to ship three thousand tons of fertilizer by barge from New Orleans, Louisiana, to Ameropa North America in Caruthersville, Missouri. Oakley sent Ameropa a contract form that set out these terms and stated that title and risk would pass to the buyer after the seller was paid for the goods. Ameropa e-mailed a different form that set out the same essential terms but stated that title and risk of loss would pass to the buyer when the goods were loaded onto the barges in New Orleans. The cargo was loaded onto barges but had not yet been delivered when it was damaged in Hurricane Katrina. Oakley filed a claim for the loss with Continental but was denied coverage. Oakley filed a suit in a Missouri state court against the insurer. Continental argued that title and risk passed to Ameropa before the damage as specified in the buyer's form under Section 2-207(3) of the Uniform Commercial Code because the parties did not have a valid contract under UCC 2-207(1). Apply UCC 2-207 on additional terms in an acceptance to these facts. Is Continental correct? Explain. [ Oakley Fertilizer , Inc. v. Continental Insurance Co., 276 S.W3d 342 (Mo.App.E.D. 2009)]
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In a sales contract, 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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