Billy ordered two rooms of furniture from Rooms-To-Go. Billy paid the full price of both rooms. When Rooms-To-Go delivered the furniture to Billy, he said that he could only take one room of the furniture and asked Rooms-To-Go to take the other room of furniture back to their warehouse until he could take that room of furniture. Rooms-To-Go agreed to do that and placed the other room of furniture that Billy ordered and paid for in its warehouse. While the furniture was in the Rooms-To-Go warehouse, it was destroyed by fire. Billy asked Rooms-To-Go to refund the money that he paid for the furniture that was destroyed by fire, but Rooms-To-Go refused, claiming that the risk of loss was on Billy since he was the owner of the furniture that was destroyed by fire.Does Rooms-To-Go owe Billy the money for the furniture destroyed by fire or is Billy out of luck?The response must be in your own words…NO REFERENCES….PER THE PROFESSOR….THE RESPONSE SHOULDN’T BE NO LONGER THAN 1 OR 2 PARAGRAPHS.Textbook:Kubasek, N., Browne, M. N., Herron, D. J., Dhooge, L. J., & Barkacs, L. (2016). Dynamic business law: The essentials (3rd ed.). New York, NY: McGraw-Hill Education.
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UNIT VI STUDY GUIDE
Sales and Lease Contracts and
the Uniform Commercial Code
Course Learning Outcomes for Unit VI
Upon completion of this unit, students should be able to:
1. Explain Article 2 of the Uniform Commercial Code pertaining to all types of transactions.
2. Interpret contract and lease assignments
2.1 Articulate the specific obligations of sellers/lessors and buyers/lessees.
Chapter 15: Formation and Performance of Sales and Lease Contracts, pp. 291–308
Chapter 16: Sales and Lease Contracts: Performance, Warranties, and Remedies, pp. 312–328
The Uniform Commercial Code (UCC)
The UCC was created for businesses and organizations that purchase products to provide clarity and
consistency to sales laws. The UCC can apply to many different organizations. For example, the University of
Minnesota is considered to be a merchant under the UCC. The UCC affects many businesses and
organizations, thus each needs to be aware of the applicable laws.
Article 2 (2002) of the UCC governs sales contracts for the sale of goods. Article 2(A) of the UCC governs
lease contracts. The Case Opener of Crown Castle Inc. et al. v. Fred A. Nudd Corporation et al. (2008) raised
the question of whether cell towers are tangible goods and, therefore, controlled by UCC Article 2 (Kubasek,
Browne, Herron, Dhooge, & Barkacs, 2016). The distinction matters because in that jurisdiction, the statute of
limitations for breach of contract is six years, whereas it is four years under the UCC. The court held as a
matter of law that the four-year statute of limitations under UCC Section 2-725 applied as the cell towers were
considered to be tangible goods, despite their very nature to be attached to real estate, which is not a tangible
good under the UCC.
The UCC applies to anyone who buys and sells goods; however, it makes an important distinction between a
merchant and a regular buyer or seller. The distinction is the assumption that a merchant has a stronger
ability to watch out for himself or herself than does an ordinary buyer or seller.
There are four ways that an entity qualifies as a merchant. If someone regularly sells goods as a business,
employs others to sell these goods, works for a person selling the goods, or self-identifies as a merchant,
then that entity is a “merchant” under the rules of Article 2. In this case, a private citizen is clearly not a
merchant. Consequently, the UCC does not apply the same standard of care to the citizen’s behavior; it
places greater duties on merchants. Therefore, a common issue often litigated is whether or not a party to a
contract is considered to be a merchant or a private citizen.
The UCC varies from common law contract rules. For example, it creates a new category of offers: the firm
offer. Under UCC Section 2-205, offers made by merchants are considered to be “firm” if the offer (1) is made
in writing and (2) gives assurances that it will be irrevocable for up to three months, despite a lack of
consideration for the irrevocability.
In addition to the firm offer rule, there are other variations from common law contract. For example, the mirrorimage rule does not apply under the UCC. Furthermore, there is no requirement for additional consideration
when a contract is modified under the UCC.
BBA 3210, Business Law
UNIT x STUDY GUIDE
Sales Contracts Under the UCC
There are four scenarios for sales contracts under the UCC. In each, the title, risk of loss, and insurable
interest pass at different times. The following sales scenarios are included:
simple delivery contract,
common-carrier delivery contract,
goods-in-bailment contract, and
conditional sales contract.
Business managers must understand the rights and obligations of businesses to engage in efficient business
transactions. The UCC requires good faith in the performance and enforcement of every contract.
Obligations for sellers and lessors are different from the obligations of buyers and lessees. The “perfect
tender rule” governs sellers and lessors, whereas the general obligation is stated for buyers and lessees. This
rule indicates that if goods or tender of delivery fail in any way to conform to the contract, the buyer/lessee
has the right to accept the goods with the defects, reject the entire shipment, or accept part and reject part.
This rule is subject to certain exceptions such as industry norms, exceptions outlined in the parties’
agreement, sellers/lessor’s right to cure, excuse from performance when goods are destroyed through no
fault of the parties, substantial impairment, and commercial impracticability.
Buyers/lessees also possess specific obligations. In addition to the obvious requirements of acceptance and
payment for conforming goods according to the contract, buyers/lessees are required to inspect the goods
within a reasonable timeframe to ensure that they conform to the specifications of the agreement.
Definition of a warranty: A warranty is an assurance, either express or implied, by one party that the other
party can rely on its representations. In sales, this is a binding promise regarding a product should the product
fail to meet the manufacturer’s or seller’s promises (Kubasek et al., 2016).
The UCC significantly diverges from common law with respect to warranties, particularly implied warranties.
With common law, the only implied warranty is the implied warranty of assignability; all other warranties must
be explicitly contracted. Warranties generally impose certain duties on the seller/lessor.
The UCC establishes three basic categories:
1. warranties of title;
2. express warranties; and,
3. implied warranties of merchantability, fitness for a particular purpose, and trade usage.
In the textbook, Webster v. Blue Ship Tea Room, Inc. (1964) focuses on the merchantability of food (Kubasek
et al., 2016). For additional information and a more recent case that used Webster v. Blue Ship Tea Room to
render a similar decision, read the case of Mexicali Rose v. Superior Court, 922 P.2d 1292 (1992).
Warranty rights of third-parties: The UCC allows for three possibilities: (1) seller’s warranties extend to the
buyer’s household members and guests; (2) seller’s warranties extend to any reasonable and foreseeable
user; or (3) seller’s warranties extend to anyone injured by the good. Every state in the United States has
accepted the UCC, and each state has decided which level of protection shall be extended to third parties.
Kubasek, N., Browne, M. N., Herron, D. J., Dhooge, L. J., & Barkacs, L. (2016). Dynamic business law: The
essentials (3rd ed.). New York, NY: McGraw-Hill Education.
U.C.C. § 2 (amended 2002).
BBA 3210, Business Law
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