Chapter 9 Sales and Leases: Formation, Title and Risk

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Chapter 9Sales and Leases Formation, Title and
Risk
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Learning Objectives

• How do Article 2 and 2A of the UCC differ?
• If an offeree includes different terms, will a
  contract result?
• If the parties do not agree on when title passes,
  what determines?
• If the parties do not agree, when does risk of
  loss pass?
• When does the buyer acquire an insurable interest?

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UCC Scope

• UCC
• Article 2/2Asale or lease of goods.
• Articles 3-5negotiable instruments and banking.
• Article 6bulk transfers
• Article 7warehousing and shipping
• Article 8securities
• Article 9secured transactions

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Scope of Article 2--Sales

• Article 2 governs sale of goods.
• Sale passing of title from seller to buyer for
  a price.
• Goods must be tangible and movable (not land,
  services or intangibles).
• Goods Associated With Land
• Goods and Services Combined.
• Merchant deals in goods of the kind sold.

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Scope of Article 2A--Leases

• Lease Agreement between Lessor and Lessee.
• Lessor sells the right to possession and use of
  goods.
• Lessee acquires right to possess and use goods
  under a lease.
• Article 2A applies to all commercial and
  consumer lease/financing of goods.

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Agreement Offer

• Where UCC speaks, it preempts the common law.
  Where it is silent, the common law governs.
• A valid offer under UCC 2 may include open
  price, payment and delivery terms.
• Exception QuantityNo contract, unless
• Requirements Buyer purchase all he needs.
• Output Buyer agrees to purchase all Seller
  manufactures.
• Only tangible and movable (not land, services or
  intangibles)
• Merchants Firm Offer

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Agreement Acceptance

• Acceptance
• Methods of Acceptance Seller can specify manner
  of acceptance. If not any reasonable means.
• Promise to Ship/Prompt Shipment of conforming
  goods.
• Non-Conforming goods may be accommodation.
• Notice of Acceptance

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Agreement

• Additional Terms
• Common Law terms must be the same for contract
  or battle of the forms.
• UCC additional/different terms permitted,
  depending on the status of the parties
• Either Non-Merchant only original terms
  accepted.
• Both Merchants additional terms form contract
  unless there is prohibition or new terms or terms
  materially alter contract, or the party objects.

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Statute Of Frauds

• Contracts for Sale of Goods over 500 or lease
  over 1,000 must be in writing.
• Sufficiency of the Writing
• Written Confirmation Between Merchants
• Written confirmation after oral agreement.
• Exceptions
• Specially Manufactured Goods
• Admissions
• Partial Performance

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Title, Risk Insurable Interest

• Title UCC replaced with concepts of
  identification, risk of loss and insurable
  interest.
• Identification when specific goods that exist
  are designated as the subject matter of a
  contract.
• Title and Risk of Loss cannot be passed until
  goods identified.

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Passage of Title

• Once goods exist and are identified, title can
  pass.
• Shipment Contract Title passes to Buyer (via
  shipper) at time and place of shipment.
• Destination Contract Title passes to Buyer when
  goods are tendered to Buyer.
• Delivery Without Movement.

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Risk of Loss

• ROL does not necessarily pass to Buyer with title
  (unless parties agree).
• Movement of Goods (Shipper)
• Shipment Contract ROL passes when goods tendered
  to shipper.
• Destination Contract ROL passes to Buyer when
  goods tendered at destination in contract.

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Risk of Loss

• Non-Movement of Goods (e.g., warehouse)
• Seller/Merchant Holds Goods ROL passes to Buyer
  when he physically takes possession.
• Seller/Non-Merchant Holds Goods ROL passes to
  Buyer on tender of delivery.
• Bailee ROL passes based on terms of Bill of
  Lading or Warehouse Receipt.
• Conditional Sales
• Sale or ReturnROL to Buyer upon possession.
• Consignment
• Sale on ApprovalROL upon possession.

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Risk of Loss

• In the event of Breach of Sales/Lease Contract
• Seller/Lessor Breach ROL does not pass until
  Seller cures or Buyer accepts.
• Buyer/Lessee Breach ROL passes immediately to
  Buyer subject to
• Seller identification of goods.
• Deficiencies in Sellers insurance coverage

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Insurable Interest

• Buyers Insurable Interest Once goods are
  identified, they can be insured by Buyer/Lessee.
• Sellers Insurable Interest Sellers can insure
  goods to which they own title.
• Bulk Transfers transfer not made in the ordinary
  course of business.