Business Law 1

Chapter 15 Sections 1-3Mr. Whisel

Hot Debate

• A bride to be wants her wedding gown to be custom made form a unique new fabric. A bridal shop quotes a price of $ 1,750. when the bride-to-be orally agrees, the shop places a special order for the fabric and cuts it to fit. Then the wedding is canceled. The bride-to-be seeks to avoid the contract because it was not in writing. The bridal shop brings a lawsuit to recover the agreed price.

• 1. Discuss the legal and ethical reason for the plaintiffs suit.

• 2.Discuss the legal and ethical reason in the defendant's favor.

Section 15-1 Goals

• Define sale and explain how the UCC governs the sale of goods

• Identify unconscionable contracts and contracts of adhesion

• Distinguish between payment, deliver, and transfer of title of goods

What’s Your Verdict?• At the Dan-Dee Department Store, Jack and

Jean Medina signed a contract to buy a clothes washer and dryer set. The Dan-Dee salesperson explained that although the set on display was not in stock, “we will deliver and install it within two weeks.” while shopping at the store, the Medina’s left their car in the stores automobile service department to have the engines idling speed adjusted and to have squeaks in the door eliminated. The charge for labor was $45. There was no charge for parts or supplies. The service attendant recommended replacing the cars tires, and the Medina’s agreed. The cost of the tires was $300, plus $25 for balancing and installation. The Medina also bought a new battery for $59. It was installed free-of- charge.

• Were all of these agreements sales?

What is a Sale?

• Sale – A contract in which ownership of (title to)

goods transfers immediately from the seller to the buyer for a price

• Contract to Sell– An arrangement for a future transfer of

something for a price

• Price– Is the consideration for a sale or contract

to sell goods, – Money, Services, and other goods

• Barter– Exchanging of goods for goods.

Sale of Goods (UCC)• Goods

– Tangible (touchable), movable personal property, such as books, clothing, cars.

– Items not considered goods• Money

– Except collectable coins that exceed face value

• Intangible– Items such as legal rights to performance

• Patents and Copyrights– Exclusive right to inventors and writers

• Land/Property– Discussed more next unit

Sales Contract

• Happens in any manner– Just needs to show agreement

• By action a contract is made

• Payment– Once the buyer delivers the agreed

price and the seller accepts it.

• Receipt of Goods– Buyer takes ownership and control

of the good(s).

Sales Contract

• Acceptance of Goods– The buyer has agreed that the

goods received are satisfactory• What was agreed upon prior to transfer.

• Acceptance– Evident when goods are treated as

your own

• Fair Market Value– When something is agreed upon but

no price is determined at the time

Contracts for Personal Services

• No transfer of actual good but that of specialty service– Ex: Having a mechanic look at your

car.• He/she might replace a physical part

but the job is still for the knowledge and skill of the mechanic.

• Vendor– Seller

• Vendee– Buyer or purchaser

What’s Your Verdict?

• The Baumgartens bought Hanukah gifts for their three young children during the Sunrise Center’s October layaway sale. Delivery was scheduled for early December, and payment was due before January 15 of the following year.

• When did the Baumgartens become owners of the gifts they had purchased?

Delivery and Payment

• Generally, payment, delivery, and transfer take place at the same time

• Neither party must perform until the other

• Bill of Sale– A receipt that serves as written

evidence of the transfer of ownership of goods.

• Ex: Purchase of a vehicle– Signed by both parties as the receipt of

transaction.

Bill of Sale

• Makes it easier to transfer ownership

• Easy to prove value (in case of damage or lost)

• Monthly Payments and Credit Cards constitute ownership, therefore the buyer receives both title and possession before total payment.

What Your Verdict?

• The Tastie Treat Shop mailed an order for 500 one-pound boxes of fruit and nut candies to the Chocolate Castle Company. Chocolate Castle could have accepted the order by mail, telephone, wire or fax machine. Instead, it immediately shipped the candy and simply added the usual amount to the next invoice and mailed to the Tastie Treat Shop.

• Was the Chocolate Castle Company’s acceptance of the order valid?

Methods of Sales Contracts

• Traditionally, offer and acceptance

• After offering something for an item that company may send the offer to you, in order for an acceptance you must take possession of the item(s) and or renegotiate with the vendor.

What’s Your Verdict?

• FrostiFresh corporation sold a refrigerator to Nguyen. A recent immigrant, Nguyen spoke, read, and wrote Vietnamese and French, but he did not speak English. The refrigerator was sold on an installment payment contact. The negotiation and sale of the refrigerator were made in French. However, the written contract was entirely in English, although the seller knew that Nguyen could not read English. FrostiFresh paid the manufacturer $348 for the refrigerator. FrostiFresh then sold it to Nguyen on the installment plan for $3,146, plus a credit charge of $546.

• Was this agreement unconscionable?

Unconscionable Sales Contracts

• Unconscionable means grossly unfair and oppressive

• An unconscionable contract or clause offends an honest person’s conscience and sense of justice– In other words, unethical

• Contracts of Adhesion– Contracts in which the more

powerful party dictates all the important terms.

What Courts Will Do With Unconscionable Sales Contracts?• Refuse to enforce the contract

• Enforce the contract without the unconscionable clause

• Limit the clause’s application so that the contract is no longer unfair

• The law is designed to relieve a person of a bad bargain.

End of Section 15-1

• THINK ABOUT LEGAL CONCEPTS

• THINK CRITCALLY ABOUT EVIDENCE

Section 15-1 Goals

• Define sale and explain how the UCC governs the sale of goods

• Identify unconscionable contracts and contracts of adhesion

• Distinguish between payment, deliver, and transfer of title of goods

Sections 15-2 Goals

• Discuss the benefits of burdens of ownership of property

• Compare the various methods of acquiring property

• Explain the unique role of merchants and why and how they are treated specially by the law

What’s Your Verdict?• Leister won $2 million in a state lottery.

When he receive the first of 20 promised annual payments, he went on a spending spree. He bought a new car which he carelessly wrecked, clothes which he never even wore, and a mink coat for a casual friend he met in a bar. He staged a wild New Years Eve party for 50 new friends during which the relatives smashed their crystal champagne glasses in a fireplace. Through court action, relatives now seek to stop leister form using his money and goods so wastefully.

• Will they succeed?

Results of Ownership

• IMPORTANT– KNOW THE DIFFERENCE BETWEEN

SALE AND CONTRACT TO SELL• Know when ownership transfers

• Person selling says:– “I hereby transfer to you the legal right to

use, control, and dispose of these goods.”

• Ownership– Any rise in value after transfer is your

profit.

Results of Ownership

• Ownership involves duties and burdens

• Owners suffer loss from depreciation

What’s Your Verdict?• Both Brian and Claire became electronic data processing

specialist during their service in the U.S. army. When they retired from the army, they decided to open a retail electronics specialty store. Using savings, borrowed funds, and (A) money donated by their parents, they (B) purchased a parcel of land that was suitable for building. They (C) rented the empty lot next to the building to use as parking space, under a five year contract. They (D) bought a supply of personal computers and related equipment and (E) agreed to purchase an equal quantity of new PC models, scheduled for production within six months. They (F) traded their two sports cars for a company truck, and (G) raised additional money by transferring to a buyer , a note receivable for $27,000 that Brian had received in partial payment when he sold his house trailer. To get more cash for working capital, (H) Brian and Claire transferred to a bank all right to collect on a group of accounts receivable they had obtained form sales made on credit. They (I) obtained all their store display cases, renting them from the manufacturer. In every instance noted, Brian and Claire obtained possession of property needed for their business.

• What types of transaction did they utilize?

Sales , Transfers, Possession, Ownership• UCC

– Mostly treat ALL buyers and sellers alike– Treat merchants differently

• Merchant – A seller who deals regularly in a particular kind of

goods or claims to have special knowledge or skill in a certain type of sales transaction.

– Held to a higher standard of conduct– Required to have license to sell– Special Taxation and Closer Regulation

• Casual Sellers– Sell only occasionally or do not otherwise meet the

definition of merchant

• Read Chart on Page 220

End of Section 15-2

• THINK CRITICALLY ABOUT EVIDENCE

• THINK ABOUT LEGAL CONCEPTS.

Sections 15-2 Goals

• Discuss the benefits of burdens of ownership of property

• Compare the various methods of acquiring property

• Explain the unique role of merchants and why and how they are treated specially by the law

Section 15-3 Goals

• Explain the need for the statute of frauds

• Discuss the instances in which the statue of frauds will be applied.

What’s Your Verdict?

• Chilton orally agreed to buy an imported camera from the Open Shutter Shop for $748.98. the camera she wanted was not in stock, but a shipment was expected any day. Therefore the sales clerk prepared a memorandum of the sale, signed it, and gave Chilton a copy. A week later the clerk phoned and said, “Your camera is ready!” Chilton replied that she did not want it because she had learned that the identical model could be purchased for much less by mail from a New York City discount store.

• Is Chilton liable to Open Shutter for breach of contract?

Statute of Frauds

• Sales Contracts are valid and held in court if oral, written, or implied

• Sales for $500 or more must be evident in writing– Under Statute of Fraud

• If breach in sale contract, injured party may sue.

• Variation applies when merchants sell under the statute of frauds

What’s Your Verdict?

• La Fargo telephoned an order to Hoban’s Brick and Tile Works for ceramic tiles imported from Mexico priced at $663. In accordance with the oral contract order, the proper tiles were delivered. Later that day, La Fargo notified Hoban’s that she refused to accept the goods. Hoban’s insisted that the oral contract was binding and sued for damages.

• Who should win?

Signed Writing Under Statute

• Certain contracts over $500 or more may be valid and enforceable even if it was an oral contract. Includes the following:– Goods received and accepted by the

buyer– Buyer pays for goods and seller accepts

payment– Goods specially made not suitable for

seller to others– Party against whom enforcement sought

admits oral contract made

Goods Received and Accepted by the Buyer

• Both receipt and acceptance are necessary

• 3 Ways to Accept– After a reasonable opportunity to inspect

the goods the buyer signifies to the seller that the goods conform to the contract, or will be retained in spite of their nonconformity.

– The buyer acts inconsistently with the seller’s ownership (Use, Consume, Sell)

– The buyer fails to make an effective rejection after having a reasonable opportunity to inspect the goods

Buyer Pays for Goods and Seller Accepts Payment

• When payment in full has been accepted by the seller, the oral contract is enforceable in full.

• Partial Payment only enforceable for goods paid for.

Goods Specially Made Not Suitable for Sale to Others

• A seller can enforce an oral contract for non-salable goods if:– The seller has substantially begun

to manufacture them– The seller has made contracts to

obtain the goods from third parties

End of Section 15-3

• THINK CRITICALLY ABOUT EVIDENCE

• THINK ABOUT LEGAL CONCEPTS.

Section 15-3 Goals

• Explain the need for the statute of frauds

• Discuss the instances in which the statue of frauds will be applied.

END OF CHAPTER

• CHAPTER IN REVIEW