Based on this week and last week’s learning segments, create a writing assignment answering the following questions.• Analyze the specific element differences between common law contracts and contracts under the UCC• What elements are similar?• What elements are different?• How do these differences affect the contracts and breaches?• Provide an example of a common law contact and a contract under the UCC including all elements?Support your answer with legal concepts from this week’s learning.Be sure to provide in text citation and source information in APA format including a working URL.
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Business Law
Tenth Edition
Chapter 19
Title to Goods and Risk of
Loss
Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved.
Learning Objectives (1 of 2)
19.1 Describe how title to good passes in sales contracts.
19.2 Describe what party bears the risk of loss of goods
where there is no breach of the sales contract.
19.3 Describe what party bears the risk of loss of goods
where there has been a breach of a sales contract.
19.4 Describe which party bears the risk of loss of goods in
conditional sales contracts.
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Learning Objectives (2 of 2)
19.5 Describe what party bears the risk of loss of goods in
lease contracts.
19.6 Identify who bears the risk of loss when goods are
stolen and resold.
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Introduction
• Common law placed the risk of loss to goods on the party
who held title to the goods
• Article 2 of the Uniform Commercial Code (UCC) rejects
this notion and adopts concise rules for risk of loss that are
not tied to title
• Article 2A (Leases) of the UCC establishes rules regarding
title and risk of loss for leased goods
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Identification of Goods (1 of 2)
• Distinguishing goods named in a contract from the seller’s
or lessor’s other goods
• In the absence of an agreement, the UCC mandates when
identification occurs
– Already existing goods are identified when a contract is
made and names the specific goods sold or leased
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Identification of Goods (2 of 2)
– Goods that are part of a larger mass of goods are
identified when the specific merchandise is designated
– Future goods: Goods not yet in existence
▪ Identified when the goods are shipped, marked, or
designated by the seller or lessor as the goods to
which the contract refers
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Passage of Title
• Title: Legal, tangible evidence of ownership of goods
• Passage of title to goods
– If the parties do not agree to a specific time, title
passes to the buyer when and where the seller’s
performance with reference to the physical delivery is
completed
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Shipment and Destination Contracts
• Shipment contract: Requires the seller to ship the goods
to the buyer via a common carrier
• Destination contract: Requires the seller to deliver the
goods either to the buyer’s place of business or to another
destination specified in the sales contract
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Delivery of Goods without Moving Them
• Buyer is required to pick up the goods from the seller
• If the document of title or bill of lading is required, the title
passes when the seller delivers the document
– Document of title: Actual piece of paper that is
required in some transactions of pickup and delivery
• If no document of title and goods are identified, the title
passes at the time of contracting
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Risk of Loss – No Breach of the Sales
Contract (1 of 3)
• Carrier cases: Movement of goods
– Shipment contracts
▪ Risk of loss in a shipment contract: Buyer bears
the risk of loss during transportation
– Destination contracts
▪ Risk of loss in a destination contract: Seller
bears the risk of loss during transportation
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Risk of Loss – No Breach of the Sales
Contract (2 of 3)
• Noncarrier cases: No movement of goods
– Merchant seller
▪ Bears the risk of loss between the time of
contracting and the time the buyer picks up the
goods
– Nonmerchant seller
▪ Risk of loss passes to buyer upon tender of delivery
of the goods
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Risk of Loss – No Breach of the Sales
Contract (3 of 3)
• Goods in possession of a bailee
– Bailee: Holder of goods who is not a seller or a buyer
• If goods are to be delivered to the buyer without the seller
moving them, the risk of loss passes to the buyer when:
– Buyer receives negotiable document of title
– Bailee acknowledges buyer’s right to possession
– Buyer receives a nonnegotiable document of title and
has reasonable time to demand goods
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Risk of Loss – Breach of the Sales Contract
(1 of 2)
• Seller in breach of a sales contract
– Seller tenders or delivers nonconforming goods to the
buyer
– Risk of loss remains on the seller until:
▪ Defect or nonconformity is cured
▪ Buyer accepts the nonconforming goods
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Risk of Loss – Breach of the Sales Contract
(2 of 2)
• Buyer breaches a sales contract if he or she:
– Refuses to take delivery of conforming goods
– Repudiates the contract
– Breaches the contract
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Risk of Loss in Conditional Sales (1 of 4)
• Conditional sales: Seller entrusts possession of goods to
a buyer on a trial basis
• Sale on approval: No actual sale occurs until the buyer
accepts the goods
– Risk of loss and title pass when the goods are
accepted by the buyer
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Risk of Loss in Conditional Sales (2 of 4)
• Sale on approval
– Acceptance of the goods occurs if the buyer:
▪ Expressly indicates acceptance
▪ Fails to notify the seller of rejection of the goods
within the agreed-on trial period
▪ Uses the goods inconsistently with the purpose of
the trial
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Risk of Loss in Conditional Sales (3 of 4)
• Sale or return
– Sale or return contract: Seller delivers goods to a
buyer with the understanding that the buyer may return
the goods if they are not used or resold within a stated
or reasonable period of time
▪ Risk of loss and title pass to buyer when buyer has
possession of goods
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Risk of Loss in Conditional Sales (4 of 4)
• Consignment: Arrangement in which a seller (the
consignor) delivers goods to a buyer (the consignee) to
sell on his or her behalf
– Treated as sale or return under the UCC
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Risk of Loss in Lease Contracts
• Passes to the lessee on the receipt of the goods in
ordinary lease, if the lessor is a merchant
• Passes to lessee in case of finance lease
• Remains with the lessor or the supplier until cure or
acceptance if tendered goods are nonconforming
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Sale of Goods by Nonowners (1 of 3)
• Void title: Situation in which a thief acquires no title to
goods he or she steals
– Purchaser does not acquire title to the goods
– Lessee has no leasehold interest in stolen goods
– Rightful owner can reclaim
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Sale of Goods by Nonowners (2 of 3)
• Fraudulently obtained goods
– Voidable title: Title that a purchaser has on goods
obtained by:
▪ Fraud
▪ Check that is later dishonored
▪ Impersonation of another person
– Good faith purchaser for value: Person to whom
good title can be transferred from a person with
voidable title
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Sale of Goods by Nonowners (3 of 3)
• Entrustment rule: Merchant has the power to transfer all
rights in the goods to a buyer in the ordinary course of
business
– If the owner entrusts the possession of his/her goods to
a merchant who deals in goods of that kind
▪ Real owner cannot reclaim the goods from the buyer
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Case 19.1: State Court Case Entrustment
Rule
• Case
– Lindholm v. Brant
– 925 A.2d 1048, Web 2007 Conn. Lexis 264 (2007)
– Supreme Court of Connecticut
• Issue
– Is Brant a buyer in the ordinary course of business who
has a claim of ownership to Red Elvis that is superior
to that of the owner Lindholm?
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Copyright
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Business Law
Tenth Edition
Chapter 18
Formation of Sales and
Lease Contracts
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Learning Objectives (1 of 2)
18.1 Describe the Uniform Commercial Code (UCC).
18.2 Define sales contracts governed by Article 2 of the
UCC.
18.3 Define lease contracts governed by Article 2A of the
UCC.
18.4 Describe the formation of sales and lease contracts
and define the firm offer rule.
18.5 Describe acceptance and define the UCC’s additional
terms rule and written confirmation rule.
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Learning Objectives (2 of 2)
18.6 Describe the UCC Statute of Frauds for sales and
lease contracts.
18.7 Describe how Revised Article 2 (Sales) and Article 2A
(Leases) permit electronic contracting.
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Introduction
• Article 2 (sales) and Article 2A (leases) of the UCC
govern personal property sales and leases
– Intended to provide clear, easy-to-apply rules that
place the risk of loss of the goods on the party most
able either to bear the risk or insure against it
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Uniform Commercial Code (UCC)
• Model act that includes comprehensive laws that cover
most aspects of commercial transactions
– All the states have enacted all or part of the UCC as
statutes
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Article 2 (Sales) (1 of 3)
• Governs the sale of goods
• Sale: Passing of title from a seller to a buyer for a price
• Goods: Tangible things that are movable at the time of
their identification to a contract
– Money and intangible items are not tangible goods
– Real estate is not a tangible good
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Article 2 (Sales) (2 of 3)
• Goods versus services
– Contracts for the provision of services are not covered
by Article 2
– Mixed sale: Involves the provision of a service and a
good in the same transaction
▪ Article 2 applies to mixed sales only if the goods are
predominantly part of the transaction
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Exhibit 18.1: Sales Transaction
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Case 18.1: Good or Service
• Case
– Brandt v. Boston Scientific Corporation and Sarah Bush
Lincoln Health Center
– 204 Ill.2d 640, 792 N.E.2d 296, 2003 Ill. Lexis 785
(2003)
– Supreme Court of Illinois
• Issue
– Is the transaction between Brandt and Health Center
predominantly the provision of services or the sale of
goods?
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Article 2 (Sales) (3 of 3)
• Merchant
– One who deals in the goods of the kind involved in the
transaction
– By his or her occupation holds himself or herself out as
having knowledge or skill peculiar to the goods
involved in the transaction
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Article 2A (Leases) (1 of 2)
• Article 2A governs the lease of goods
• Lease: Transfer of right to possession and use of named
goods for a set term, in return for certain consideration
• Lessor: Person who transfers right of possession and use
of goods under a lease
• Lessee: Person who acquires right to possession and use
of goods under a lease
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Exhibit 18.2: Lease
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Article 2A (Leases) (2 of 2)
• Finance lease: Three-party transaction consisting of a
lessor, a lessee, and a supplier
– Lessor acquires title to the goods or the right to their
possession and use in connection with the terms of the
lease
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Exhibit 18.3: Finance Lease
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Formation of Sales and Lease Contracts:
Offer (1 of 4)
• Gap-filling rule: Rule that says an open term can be read
into a contract
• Contract does not fail because of indefiniteness if:
– Parties intended to make a contract
– There is a reasonably certain basis for giving an
appropriate remedy
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Formation of Sales and Lease Contracts:
Offer (2 of 4)
• Open terms
– Price
– Payment
– Delivery
– Time
– Assortment
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Formation of Sales and Lease Contracts:
Offer (3 of 4)
• Firm offer rule: UCC rule that says that a merchant who:
– Makes an offer to buy, sell, or lease goods
– Assures the other party in a separate writing that the
offer will be held open; they cannot revoke the offer for
the time stated or, if no time is stated, for a reasonable
time
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Formation of Sales and Lease Contracts:
Offer (4 of 4)
• Consideration
– Required for the formation of sales and lease
contracts
– Under the UCC, modifications to sales and lease
contracts require no consideration
▪ Different from common law rule
▪ Modification must be made in good faith
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Formation of Sales and Lease Contracts:
Acceptance (1 of 2)
• Contract created when an offeree sends acceptance to the
offeror, not when the offeror receives it
• The UCC permits acceptance by any reasonable manner
or method of communication
• Additional terms: In certain circumstances, the UCC
permits an acceptance of a sales contract to contain
additional terms and to act still as an acceptance rather
than a counteroffer
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Formation of Sales and Lease Contracts:
Acceptance (2 of 2)
• Accommodation shipment
– Accommodation: Shipment that is offered to a buyer
as a replacement for the original shipment when the
original shipment cannot be filled
• Battle of the forms: UCC rule stating that if both parties
are merchants, then additional terms contained in the
acceptance may become part of the sales contract if
certain requirements are met
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UCC Statute of Frauds (1 of 4)
• Rule in the UCC that requires all contracts for the sale of
goods costing $500 or more and lease contracts involving
payments of $1,000 or more to be in writing
– Exceptions:
▪ Specially manufactured goods
▪ Admissions in pleadings or court
▪ Part acceptance
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UCC Statute of Frauds (2 of 4)
• Written confirmation rule: If both parties to an oral sales
or lease contract are merchants, the Statute of Frauds
writing requirement can be satisfied if:
– One of the parties to an oral agreement sends a written
confirmation of the sale or lease within a reasonable
time after contracting
– Other merchant does not give written notice of an
objection to the contract within ten days after receiving
the confirmation
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UCC Statute of Frauds (3 of 4)
• Parol evidence rule: When a sales or lease contract is
evidenced by a writing that is intended to be a final
expression of the parties’ agreement or confirmatory
memorandum, the terms of the writing may not be
contradicted by evidence of:
– Prior oral or written agreement, or
– Contemporaneous oral agreement
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UCC Statute of Frauds (4 of 4)
• If express terms are not clear on their face, reference can
be made to outside sources:
– Course of performance
– Course of dealing
– Usage of trade
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Electronic Sales and Lease Contracts (1 of 2)
Electronic agent
• Computer program or an electronic or other automated
means used independently to initiate an action or respond
to electronic records without review or action by an
individual
Electronic record
• Created, generated, sent, communicated, received, or
stored by electronic means
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Electronic Sales and Lease Contracts (2 of 2)
Letter of credit
• Document that is issued by a bank on behalf of a buyer
who purchases goods on credit from a seller that
guarantees that if the buyer does not pay for the goods,
then the bank will pay the seller
Article 5 (letters of credit)
• Article of the UC that governs letters of credit
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Copyright
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Business Law
Tenth Edition
Chapter 21
Warranties
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Learning Objectives (1 of 2)
21.1 Describe express warranties and distinguish them
from statements of opinion.
21.2 List and describe implied warranties.
21.3 Describe the implied warranty of merchantability.
21.4 Describe the implied warranty of fitness for human
consumption.
21.5 Describe the implied warranty of fitness for a particular
purpose.
21.6 Identify warranty disclaimers and determine when they
are lawful.
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Learning Objectives (2 of 2)
21.7 Describe the protections provided by Magnuson-Moss
Warranty Act.
21.8 List and describe warranties of title and possession.
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Introduction
• Caveat emptor: Let the buyer beware
– Governed law of sales and leases for centuries
• Warranties: Buyer’s or lessee’s assurance that the goods
meet certain standards
– Based on contract law may be either expressly stated
or implied by law
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Express Warranty (1 of 3)
• Created when seller/lessor affirms goods meet certain
standards of quality, description, performance, or condition
• Can be written, oral, or inferred from seller’s conduct
• Can be made by mistake because the seller or lessor does
not have to specifically intend to make the warranty
• Sellers and lessors are not required to make express
warranties
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Express Warranty (2 of 3)
• Created when seller/lessor indicates goods will conform to:
– All affirmations of fact or promise made about the
goods
– Any description of the goods
– Any model or sample of the goods
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Express Warranty (3 of 3)
• Recovery for breach of warranty
– Warranty must be a contributing factor that enticed
buyer/lessee to enter the contract
– Retailer is liable for the express warranties made by …
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