CHAPTER 15 Chapter 15 Slide 1 Sales Contracts

CHAPTER 15 Chapter 15 Slide 1 Sales Contracts Lessons 15 -1 Sales 15 -2 Ownership 15 -3 Special Rules for Sales Contracts LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

LESSON 15 -1 Chapter 15 Slide 2 Sales GOALS l Define sale and explain how the UCC governs the sale of goods l Identify unconscionable contracts and contracts of adhesion l Distinguish between payment, delivery, and transfer of title of goods LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 3 DEBATE l Amanda & Bob – started redecorating a home purchased in New Orleans l Contracted with several artisans l Anton, owner of a custom cabinet shop was hired to develop a pattern for the cabinets in the period of the house l Anton began making the cabinets to fit the unique dimensions and style of the home. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 4 l As the work was nearing completion, Amanda and Bob decided to divorce. l They notified Anton to stop work and told him he would not be paid as he had not completed the job. l Anton sued l Should Anton be able to recover? l Why or why not? LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 5 l Yes, the UCC allows recovery for unique goods in situations such as these l What would happen if the law did not allow Anton to recover? LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 6 WHAT IS A SALE? l A sale is a contract in which ownership of (title to) goods transfers immediately from the seller to the buyer for a price. l Ownership entails a collection of rights that allow the use an enjoyment of property. l If the transfer of ownership is to take place in the future, the transaction is a contract to sell rather than a sale. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 7 l Price is the consideration for a sale or contract to sell goods. l When parties exchange goods for goods, the sale is a barter. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 8 SALES OF GOODS UNDER THE UCC l The Uniform Commercial Code (UCC) governs sales of goods and contracts to sell goods in the future. l Goods are tangible movable personal property such as airplanes, books, clothing, and dogs. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 9 Under UCC l Goods do not include the following: 1) Money (except rare currency or rare coins which are collectible items with value that may exceed their face amounts. ) 2) Intangible (not touchable) personal property such as legal rights to performance under a contract transferred by assignment rather than sale. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 10 Under UCC 3) Patents and Copyrights – exclusive rights given by the federal government to inventors or writers. 4) Land other forms of real property, which are transferred by conveyance and are subject to special rules LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 11 Contracts for Property LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 12 CONTRACTS FOR PERSONAL SERVICES l In many situations, the contract is primarily for personal services. l Such contracts are not sales because any goods supplied are merely incidental. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 13 l You sign a contract to buy a dishwasher – to be delivered in two weeks l Is this a sale? l No – a contract in which ownership of the dishwasher will transfer in a sale in the future LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 14 l You take your car to the dealer for an oil change and they recommend new tires – you agree. l Is this a sale? l No – a contract for services l Any goods supplied such as oil, filter were incidental Tires -- Transfer of the title to the new tires is a sale of goods Services contracts do not fall under the UCC rules and requirements. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 15 Sales of Goods & Contracts to Sell l Vendor – seller l Vendee – purchaser l Payment occurs when the buyer transfers the agreed-upon consideration and the seller accepts it. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 16 Sales of Goods & Contracts to Sell l Delivery is the act by which the subject matter of the contract is placed within the possession or control of the buyer l Receipt of goods means that the buyer takes physical possession or control of the goods l usually involves actual delivery LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 17 Sales of Goods & Contracts to Sell l Delivery may be constructive: l No actual transfer of possession of the goods, but recipient has the power to control them li. e. buyer gets the keys to a car lreceives a warehouse receipt for stored goods LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 18 MUST DELIVERY AND PAYMENT BE MADE AT THE SAME TIME? l In the basic sales transaction, payment, delivery, and transfer of title take place simultaneously at the seller’s place of business. l If payment, delivery, etc. take place later, title still passes when the buyer selects and agrees to buy existing goods in the seller’s store. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 19 Bill of Sale l A bill of sale is a receipt that serves as written evidence of the transfer of ownership of goods. l Sometimes required by Statute l. Auto sales l Provides evidence of ownership LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 20 Signed Writing l Statute of Frauds - signed writing is required for items over $500 in most states LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 21 OTHER METHODS OF SALES CONTRACTING UNDER THE UCC l Sales contracts may be made through a traditional exchange of offer and acceptance. l UCC also recognizes alternative methods. l Proposal for addition l Purchase order form l Sales order form LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 22 UNCONSCIONABLE SALES CONTRACTS The UCC provides that a court may find that a contract or a clause of a contract is unconscionable, that is, grossly unfair and oppressive. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 23 l Ivan, an immigrant, bought a refrigerator from a rent-to-own store l Advertised “no established credit necessary” l Ivan spoke Russian, very little English l Negotiations tooks place in Russian l Contract written in English l Store paid manufacturer $348 for the appliance LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 24 l Under the agreement, the total cost for three years amounted to $2, 567. l When Ivan defaulted after one year, the store sued for the $1, 805 left to be paid. l This is a contract of adhesion l one party dictates all the important terms LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 25 l Ivan has paid double the cost to the store already. Courts would probably order the store to turn over the title to Ivan without further payments due. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 26 l A court that decides that a contract or any clause of a contract is unconscionable may do any of the following: l (1) refuse to enforce the contract; (2) enforce the contract without the unconscionable clause; or (3) limit the clause’s application so that the contract is no longer unfair. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

LESSON 15 -2 Chapter 15 Slide 27 Ownership GOALS l Discuss the benefits and burdens of ownership of property l Compare the various methods of acquiring property l Explain the unique role of merchants and why and how they are treated specially by the law LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 28 Sale v. Contract to Sell l Benefits and Burdens of Ownership l When goods are sold, the Seller transfers ownership— (legal right to use, control and dispose of goods) LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 29 BENEFITS OF OWNERSHIP l Any rise in value belongs to the ownerland value increases, securities increase, etc. l Goods may be enjoyed or used as the owner pleases l Goods may be squandered or destroyed LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 30 What’s your verdict? l Leister won $2 M in a state lottery l Received first 20 payments, he went on a spending spree l bought and wrecked car l bought clothes and never wore l bought a casual friend a mink coat l hosted an extravagant New Years Eve party for 50 new friends – trashed everything LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 31 What’s your verdict? l Leister’s family filed an action in court to try to stop him from using the money and goods so wastefully. l Will they succeed? l No – only if they can prove incompetence (which is difficult) LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 32 BURDENS OF OWNERSHIP l Owners may be taxed (i. e. property tax) l Freedom to use one’s property may be limited by government regulation (i. e. speeding, zoning) l Owner suffers loss when goods deteriorate because of the passage of time (i. e. maintenance required) l If property is not properly maintained, injured parties can hold owner liable under Tort Law l Owner suffers loss when goods are lost, stolen, destroyed or damaged unless covered by insurance LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 33 l Sometimes the responsibility of the owner is extended by letting others use the owner’s property with permission l i. e. Owner of an auto may be held responsible for injuries caused by another person operating the car with the owner’s permission LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 34 Ownership l Unless you insure goods, they can be: l. Lost l. Stolen l. Destroyed by fire l. Obsolescence (out of date & little or no value) l. Depreciation (wear & tear) LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 35 The four situations in which the Statute of Frauds would not apply are: l (1) When goods are received and accepted by the buyer; l (2) When the buyer pays for the goods and the seller accepts the payment; l (3) When the goods are specially made and not suitable for resale to others, and; (4) When the party against whom enforcement is sought admits to the contract. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 36 UCC l Treats all sellers/buyers the same l Casual sellers – those who do not qualify as merchants (i. e. selling your private vehicle) l Merchants are not treated the same as casual sellers LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 37 UCC l Merchant – seller who deals regularly in a particular kind of goods or otherwise claims to have special knowledge or skill in a certain type of sales transaction l may be required to be licensed l subject to special taxation l subject to government regulation LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 38 What’s your verdict? l Adonis would buy property at auctions during the week l Resell the property on weekends at his garage sale l 33 consecutive garages sales l City claimed he was a merchant and had to pay sales tax l What do you think? LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 39 l Yes – must pay sales tax LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 40 TRANSFERS OF OWNERSHIP AND POSSESSION l Gift – transfer of ownership without consideration l Conveyance – transfer of an estate from a grantor to a grantee by a deed l Lease – one party receives temporary possession of another’s real property l Sale – ownership of goods transfers from seller to buyer for a price l Contract to sell – transaction in which transfer of ownership is to take place in the future LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 41 l Barter – exchange of goods for goods l Negotiation – proper transfer of a negotiable instrument so that the person receiving the instrument has the power to collect on it by overcoming defenses of the person who must pay it off l Assignment – transaction by which a party transfers contractual rights to another l Bailment - transfer of possession of personal property without transfer of ownership LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 Slide 42 LESSON 15 -3 Special Rules for Sales Contracts GOALS l Explain the need for the statute of frauds l Discuss the instances in which the statute of frauds will be applied LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 43 STATUTE OF FRAUDS l Sales contracts are generally valid and enforceable in court whether they are oral, written, or implied from the conduct of the parties. l Under the statute of frauds, sales of goods for $500 or more must be evidenced by a writing to be enforceable in court. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING

Chapter 15 44 WHEN IS A SIGNED WRITING NOT REQUIRED UNDER THE STATUTE? l Goods received and accepted by the buyer l Buyer pays for goods and seller accepts payment l Goods specially made not suitable for sales to others l Party against whom enforcement sought admits oral contract made LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING