Deck 11: Sales and Lease Contracts

Question 1

ADAPTING THE LAW TO THE ONLINE ENVIRONMENT
Taxing Web Purchases
In 1992, the United States Supreme Court ruled that an individual state cannot compel an out-of-state business that lacks a substantial physical presence within that state to collect and remit state taxes. Although Congress has the power to pass legislation requiring out-of-state corporations to collect and remit state sales taxes, it has not yet done so. Thus, only online retailers that also have a physical presence within a state must collect state taxes on any Web sales made to residents of that state. (State residents are supposed to self-report their purchases and pay use taxes to the state, which they rarely do.)
Redefining Physical Presence
Several states have found a way to collect taxes on Internet sales made to state residents by out-of-state corporations. These states have simply redefined physical presence. In 2008, New York changed its tax laws in this manner. Now, an online retailer that pays any party within New York to solicit business for its products is considered to have a physical presence in the state and must collect state taxes. Since then, at least seventeen other states have made similar changes in an effort to increase their revenues by collecting sales tax from online retailers.
These new laws are often called "Amazon tax" laws because they are aimed largely at Amazon.com. Nevertheless, they affect all online sellers, especially those that pay affiliates to direct traffic to their Web sites. The laws allow states to tax online commerce even though, to date, Congress has explicitly chosen not to tax Internet sales.
Local Governments Sue Online Travel Companies
Travelocity, Priceline.com, Hotels.com, and Orbitz.com are online travel companies (OTCs) that offer, among other things, hotel booking services. By 2016, more than twenty-five cities, including Atlanta, Charleston, Philadelphia, and San Antonio, had filed suits claiming that the OTCs owed taxes on hotel reservations that they had booked. All of the cities involved in the suits impose a hotel occupancy tax, which is essentially a sales tax.
Initially, some cities won their cases, but more recently, cities have been losing in court. As of 2016, the OTCs had prevailed in eighteen of twenty-five cases nationwide. An exception is a 2014 case in Wyoming in which the state supreme court held that Travelocity, Priceline, Hotwire, Expedia, and Trip Network had to collect and remit sales tax.
The Market Place Fairness Act
By the time you read this, online sales taxes may have become a reality for every online business that has annual revenues of more than $1 million. For several years now, legislation called the Market Place Fairness Act has been under consideration in the U.S. Senate. The act, if passed, would allow states to collect sales taxes from online retailers for in-state transactions.
A significant problem with such legislation is the complexity of collecting taxes for multiple jurisdictions. The current tax system involves 9,600 taxing jurisdictions. Even one zip code may cover multiple taxing entities, such as different cities and counties. Consider that the Dallas-Fort Worth airport includes six separate taxing jurisdictions. Current software enables retailers to collect and remit sales taxes for different jurisdictions, but the software is extremely costly to install and operate. Overstock.com, for example, spent $1.3 million to add just one state to its sales tax collection system.
Critical Thinking
Some argue that if online retailers are required to collect and pay sales taxes in jurisdictions in which they have no physical presence, they have no democratic way to fight high taxes in those places. Is this an instance of taxation without representation Discuss

Answer 1

Online retailing means selling of goods or services online. No. of online retailers have increased in last decades and it has become one of the most profitable channel to sell goods.
Facts: T.com, P.com, Hs.com O.com are online travel companies. These companies do business online do not have physical presence. Many states in US started collecting taxes from as they started redefining physical presence therefore the online travel companies filed a suit claiming that they are not liable to tax.
Outcome: Online retailers are taxed even though they don't have physical presence is correct. For example in case of T LLC vs. S.C Country department of revenue the court ruled in favor of tax department levied taxes even without representation.
In this case T. was an online portal providing hotel rooms. It had no office in C. country therefore argued that it has no physical presence was not liable to tax. The court affirmed that the travelscape will be taxed because the employees of T conducted hotel inspections of rooms. The T. has an agency relationship with the hotels. Without the hotels the T will not be able to conduct its business therefore there was physical presence hence it will be taxed. This is a clear case of taxation without representation.

Question 2

Additional Terms. Strike offers to sell Bailey one thousand shirts for a stated price. The offer declares that shipment will be made by Dependable Truck Line. Bailey replies, "I accept your offer for one thousand shirts at the price quoted. Delivery to be by Yellow Express Truck Line." Both Strike and Bailey are merchants. Three weeks later, Strike ships the shirts by Dependable Truck Line, and Bailey refuses to accept delivery. Strike sues for breach of contract. Bailey claims that there never was a contract because his reply, which included a modification of carriers, did not constitute an acceptance. Bailey further claims that even if there had been a contract, Strike would have been in breach because Strike shipped the shirts by Dependable, contrary to the contract terms. Discuss fully Bailey's claims. (See The Formation of Sales and Lease Contracts.)

Answer 2

As per uniform commercial code (UCC), the sales are associated with only movable personal property , thus real property and intangible property are not considered for the purpose of sale. Movable property includes vehicles, food, furniture and utensils.
Land is not considered as real property but interest on land is covered under a movable personal property.
In this case, the contract specifically says that the delivery must be made by yellow express truck line therefore when strike made delivery through dependable truck line which was a breach of contract therefore it was very correct to reject the goods delivered by strike therefore B can cancel the contract.

Question 3

Nautilus Insurance Co. v. Cheran Investments LLC
Court of Appeals of Nebraska, 2014 WL 292809 (2014).
FACTS Under a contract with Cheran Investments, LLC, Blasini, Inc., agreed to buy the business assets of the Attic Bar Grill in Omaha, Nebraska. The contract required Blasini to make a down payment and monthly payments until the price was fully paid. Blasini obtained insurance on the property from Nautilus Insurance Co. Less than three years later, a fire damaged the "personal property" (the business assets, such as furniture and equipment) in the Attic. Because the purchase price had not yet been fully paid, Nautilus filed an action in a Nebraska state court against several defendants, including Cheran, to determine who was entitled to the insurance proceeds for the damage. The court concluded that Blasini had "failed to consummate the purchase agreement" and declared Cheran the owner of the personal property. Blasini appealed, arguing that title to the Attic's assets had passed at the time of the sale.
ISSUE Did the sale of the Attic's assets pass title to those goods to Blasini
DECISION Yes. A state intermediate appellate court reversed the lower court's ruling. When the contract for the sale of the Attic's assets was formed, title to the assets passed to Blasini, which became the owner. The appellate court remanded the case to the lower court, however, to determine whether Blasini had breached the contract.
REASON The sale of the personal property in the Attic involved "goods," and thus the agreement for their sale was subject to the UCC.
All of the items designated in the agreement were movable, and no real estate, intellectual property, or goodwill was transferred under the agreement. Blasini entered into a contract to buy the assets of the bar and grill and agreed to assume its operation. Under UCC 2-401, title to the goods passed to Blasini at the time the agreement was made. No physical delivery was necessary because Blasini was to assume the operation of the Attic, which is where the goods were located. "Therefore, irrespective of whether Blasini paid the purchase price... , Blasini became the owner of the property in the purchase agreement."

WHAT IF THE FACTS WERE DIFFERENT Suppose that Blasini had made no payments under the contract for the sale of the Attic's assets. How should that circumstance affect the distribution of the insurance proceeds

Answer 3

Definition of Sale:
A Sale is the passing of title, absolute ownership rights from the seller to the buyer for a price or consideration. The price may be payable in cash or in kind such as goods or services.
Company B entered into a contract with Company C to purchase the business assets of particular business of C. Under the contract, B was required to make a down payment and monthly payments until the price was fully paid, it also obtained insurance on the property from insurance company NI. Three years later, a fire damaged the property of the business.
Since the purchase price had not yet been fully paid; NI filed an action in a state court against B and others, to determine the person entitled for insurance proceedings. The state court agreed that B was unable to complete the purchase agreement, and declared C the owner of the property.
B appealed and state court revised the ruling of lower court as declared that title of goods were passed to B at the time of sale.
It is evident that to consider a transaction as a sale contract there has to be a price or consideration in return. So suppose if ABC had made no payment under the contract, the contract would become void and the possession of the property would remain with the original owner, i.e. C and distribution of the insurance proceeds would go to original owner in such case.
Thus it can be concluded that to call a transaction a sale consideration is necessary.

Question 4

The UCC should require the same degree of definiteness of terms, especially with respect to price and quantity, as general contract law does.

Question 5

ISSUE SPOTTERS
E-Design, Inc., orders 150 computer desks. Fav-O-Rite Supplies, Inc., ships 150 printer stands. Is this an acceptance of the offer or a counteroffer If it is an acceptance, is it a breach of the contract What if Fav-O-Rite told E-Design it was sending the printer stands as "an accommodation" (See pages 299-302.)

Question 6

If a contract involves both goods and services, does the UCC apply

Question 7

Reviewing... The Formation of Sales and Lease Contracts
Guy Holcomb owns and operates Oasis Goodtime Emporium, an adult entertainment establishment. Holcomb wanted to create an adult Internet system for Oasis that would offer customers adult theme videos and live chat room programs using performers at the club. On May 10, Holcomb signed a work order authorizing Thomas Consulting Group (TCG) "to deliver a working prototype of a customer chat system, demonstrating the integration of live video and chatting in a Web browser." In exchange for creating the prototype, Holcomb agreed to pay TCG $64,697. On May 20, Holcomb signed an additional work order in the amount of $12,943 for TCG to install a customized firewall system. The work orders stated that Holcomb would make monthly installment payments to TCG, and both parties expected the work would be finished by September.
Due to unforeseen problems largely attributable to system configuration and software incompatibility, the project required more time than anticipated. By the end of the summer, the Web site was still not ready, and Holcomb had fallen behind in the payments to TCG. TCG was threatening to cease work and file suit for breach of contract unless the bill was paid. Rather than make further payments, Holcomb wanted to abandon the Web site project. Using the information presented in the chapter, answer the following questions.
Would a court be likely to decide that the transaction between Holcomb and TCG was covered by the Uniform Commercial Code (UCC) Why or why not

Question 8

Spotlight on Goods and Services-The Statute of Frauds. Fallsview Glatt Kosher Caterers ran a business that provided travel packages, including food, entertainment, and lectures on religious subjects, to customers during the Passover holiday at a New York resort. Willie Rosenfeld verbally agreed to pay Fallsview $24,050 for the Passover package for himself and his family. Rosenfeld did not appear at the resort and never paid the money owed. Fallsview sued Rosenfeld for breach of contract. Rosenfeld claimed that the contract was unenforceable because it was not in writing and violated the UCC's Statute of Frauds. Is the contract valid Explain. [ Fallsview Glatt Kosher Caterers, Inc. v. Rosenfeld, 794 N.Y.S.2d 790 (N.Y. Super. 2005)] (See The Formation of Sales and Lease Contracts.)

Question 9

Mahendra (N.Y.), LLC v.
National Gold Diamond Center, Inc.
New York Supreme Court, Appellate Division, First Department, 125 A.D.3d 454, 3 N.Y.S.3d 27 (2015).
FACTS C. Mahendra (N.Y.), LLC, is a New York wholesaler of loose diamonds. National Gold Diamond Center, Inc., is a California seller of jewelry. Over a ten-year period, National placed orders, totaling millions of dollars, with Mahendra by phoning and negotiating the terms. Mahendra shipped diamonds "on memorandum" for National to examine. Mahendra then sent invoices for the diamonds that National chose to keep. Both the memoranda and the invoices stated, "You consent to the exclusive jurisdiction of the... courts situated in New York County." When two orders totaling $64,000 went unpaid, Mahendra filed a suit in a New York state court against National, alleging breach of contract. National filed a motion to dismiss the complaint for lack of personal jurisdiction, contending that the forum-selection clause was not binding. The court granted the motion. Mahendra appealed.
ISSUE Did the forum-selection clause materially alter the parties' contracts
DECISION Yes. A state intermediate appellate court agreed that the forum-selection clause was an additional term that materially altered the parties' contracts and was therefore not binding.
REASON The court explained that UCC 2-207 deals with situations in which parties do business through an exchange of forms, such as purchase orders and invoices. In such forms, a merchant often includes terms that were not negotiated with, or even mentioned to, the other party. Under UCC 2-207(2) "the additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless... they materially alter it."
In this case, through phone calls, the parties negotiated the essential terms to form contracts for purchases of diamonds. The memoranda and invoices that Mahendra sent to National were "merely confirmatory." The forum-selection clause in those documents was not a subject of negotiation or discussion, and National did not sign the forms or otherwise consent to the clause. The court thus ruled that the forum-selection clause was not binding. The court reversed the dismissal of Mahendra's complaint on another ground, however. It found that National's phone calls with Mahendra were sufficient contacts to subject the defendant to personal jurisdiction in New York under the state's long-arm statute.

CRITICAL THINKING-Legal Consideration What is Mahendra's best argument that the forum-selection clause was, in fact, binding on National Discuss.

Question 10

ISSUE SPOTTERS
Truck Parts, Inc. (TPI), often sells supplies to United Fix-It Company (UFC), which services trucks. Over the phone, they negotiate for the sale of eighty-four sets of tires. TPI sends a letter to UFC detailing the terms and two weeks later ships the tires. Is there an enforceable contract between them Why or why not (See pages 297-299.)

Question 11

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
In a sales contract, if an offeree includes additional or different terms in an acceptance, will a contract result If so, what happens to these terms

Question 12

Business Case Problem with Sample Answer-Passage of Title. Kenzie Godfrey was a passenger in a taxi when it collided with a car driven by Dawn Altieri. Altieri had originally leased the car from G.E. Capital Auto Lease, Inc. By the time of the accident, she had bought it, but she had not fully paid for it or completed the transfer-of-title paperwork. Godfrey suffered a brain injury and sought to recover damages from the owner of the car that Altieri was driving. Who had title to the car at the time of the accident Explain. [ Godfrey v. G.E. Capital Auto Lease, Inc., 89 A.D.3d 471, 933 N.Y.S.2d 208 (1 Dept. 2011)] (See Title and Risk of Loss.)
-For a sample answer to Problem 17-3, go to Appendix F at the end of this text.

Question 13

Jones v. Star Credit Corp.
Supreme Court of New York, Nassau County, 59 Misc.2d 189, 298 N.Y.S.2d 264 (1969).
FACTS The Joneses, the plaintiffs, agreed to purchase a freezer for $900 as the result of a salesperson's visit to their home. Tax and financing charges raised the total price to $1,234.80. After making payments totaling $619.88, the plaintiffs brought a suit in a New York state court to have the purchase contract declared unconscionable under the UCC. At trial, the freezer was found to have a maximum retail value of approximately $300.
ISSUE Could this contract be denied enforcement on the ground of unconscionability
DECISION Yes. The court held that the contract was not enforceable as it stood, and the contract was reformed so that no further payments were required.
REASON The court relied on UCC 2-302(1), which states that if "the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made, the court may... so limit the application of any unconscionable clause as to avoid any unconscionable result." The court then considered the disparity between the $900 purchase price and the $300 retail value, as well as the fact that the credit charges alone exceeded the retail value. These excessive charges were exacted despite the seller's knowledge of the plaintiffs' limited resources. The court reformed the contract so that the plaintiffs' payments, amounting to more than $600, were regarded as payment in full.

CRITICAL THINKING-Legal Consideration Why would the seller's knowledge of the buyers' limited resources support a finding of unconscionability
IMPACT OF THIS CASE ON TODAY'S LAW This early case illustrates the approach that many courts today take when deciding whether a sales contract is unconscionable-an approach that focuses on excessive price and unequal bargaining power.

Question 14

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What exceptions to the writing requirements of the Statute of Frauds are provided in Article 2 and Article 2A of the UCC

Question 15

Additional Terms. B.S. International, Ltd. (BSI), makes costume jewelry. JMAM, LLC, is a wholesaler of costume jewelry. JMAM sent BSI a letter with the terms for orders, including the necessary procedure for obtaining credit for items that customers rejected. The letter stated, "By signing below, you agree to the terms." Steven Baracsi, BSI's owner, signed the letter and returned it. For six years, BSI made jewelry for JMAM, which resold it. Items rejected by customers were sent back to JMAM, but were never returned to BSI. BSI filed a suit against JMAM, claiming $41,294.21 for the unreturned items. BSI showed the court a copy of JMAM's terms. Across the bottom had been typed a "PS" requiring the return of rejected merchandise. Was this "PS" part of the contract Discuss. [ B.S. International, Ltd. v. JMAM, LLC, 13 A.3d 1057 (R.I. 2011)] (See Formation of Sales and Lease Contracts.)

Question 16

Risk of loss does not necessarily pass with title. If the parties to a contract do not expressly agree when risk passes and the goods are to be delivered without movement by the seller, when does risk pass

Question 17

Goods Held by the Seller or Lessor. Douglas Singletary bought a manufactured home from Andy's Mobile Home and Land Sales. The contract stated that the buyer accepted the home "as is where is." Singletary paid the full price, and his crew began to ready the home to relocate it to his property. The night before the home was to be moved, however, it was destroyed by fire. Who suffered the loss Explain. [ Singletary, III v. P A Investments, Inc., 712 S.E.2d 681 (N.C.App. 2011)] (See Title and Risk of Loss.)

Question 18

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What law governs contracts for the international sale of goods

Question 19

The Statute of Frauds. Kendall Gardner agreed to buy a specially built shaving mill from B C Shavings. He planned to use the mill to produce wood shavings for poultry processors. B C faxed an invoice to Gardner reflecting a purchase price of $86,200, with a 30 percent down payment and the "balance due before shipment." Gardner paid the down payment. B C finished the mill and wrote Gardner a letter telling him to "pay the balance due or you will lose the down payment." By then, Gardner had lost his customers for the wood shavings, could not pay the balance due, and asked for the return of his down payment. Did these parties have an enforceable contract under the Statute of Frauds Explain. [ Bowen v. Gardner, 2013 Ark.App. 52, 425 S.W.3d 875 (2013)] (See The Formation of Sales and Lease Contracts.)

Question 20

Risk of Loss. Ethicon, Inc., a pharmaceutical company, entered into an agreement with UPS Supply Chain Solutions, Inc., to transport pharmaceuticals. The drivers were provided by International Management Services Co. under a contract with a UPS subsidiary, Worldwide Dedicated Services, Inc. During the transport of a shipment from Ethicon's facility in Texas to buyers "F.O.B. Tennessee," one of the trucks collided with a concrete barrier near Little Rock, Arkansas, and caught fire, damaging the goods. Who was liable for the loss Why [ Royal Sun Alliance Insurance, PLC v. International Management Services Co., 703 F.3d 604 (2d Cir. 2013)] (See Title and Risk of Loss. )

Question 21

Goods and Services Combined. Allied Shelving and Equipment, Inc., sells and installs shelving systems. National Deli, LLC, contracted with Allied to provide and install a parallel rack system (a series of large shelves) in National's warehouse. Both parties were dissatisfied with the result. National filed a suit in a Florida state court against Allied, which filed a counterclaim. Each contended that the other had materially breached the contract. The court applied common law contract principles to rule in National's favor on both claims. Allied appealed, arguing that the court should have applied the UCC. When does a court apply common law principles to a contract that involves both goods and services In this case, why might an appellate court rule that the UCC should be applied instead Explain. [ Allied Shelving and Equipment, Inc. v. National Deli, LLC, 40 Fla. L. Weekly D145, 154 So.3d 482 (Dist.App. 2015)] (See The Scope of Articles 2 and 2A.)

Question 22

A Question of Ethics-Statute of Frauds. Daniel Fox owned Fox Lamberth Enterprises, Inc., a kitchen remodeling business. Fox leased a building from Carl Hussong. When Fox planned to close his business, Craftsmen Home Improvement, Inc., expressed an interest in buying his assets. Fox set a price of $50,000. Craftsmen's owners agreed and gave Fox a list of the desired items and a "Bill of Sale" that set the terms for payment. Craftsmen expected to negotiate a new lease with Hussong and modified the premises, including removal of some of the displays. When Hussong and Craftsmen could not agree on new terms, Craftsmen told Fox that the deal was off. [ Fox Lamberth Enterprises, Inc. v. Craftsmen Home Improvement, Inc., __ N.E.2d __ (2 Dist. 2006)]
1. In Fox's suit for breach of contract, Craftsmen raised the Statute of Frauds as a defense. What are the requirements of the Statute of Frauds Did the deal between Fox and Craftsmen meet these requirements Did it fall under one of the exceptions Explain. (See The Formation and of Sales and Lease Contracts.)
2. Craftsmen also claimed that the "predominant factor" of its agreement with Fox was a lease for Hussong's building. What is the predominant-factor test Does it apply here In any event, is it fair to hold a party to a contract to buy a business's assets when the buyer is unable to negotiate a favorable lease of the premises on which the assets are located Discuss. (See The Scope of Articles 2 and 2A.)

Question 23

Business Law Critical Thinking Group Assignment. Mountain Stream Trout Co. agreed to buy "market size" trout from trout grower Lake Farms, LLC. Their five-year contract did not define market size. At the time, in the trade, market size referred to fish of one-pound live weight. After three years, Mountain Stream began taking fewer, smaller deliveries of larger fish, claiming that market size varied according to whatever its customers demanded and that its customers now demanded larger fish. Lake Farms filed a suit for breach of contract. (See The Formation and of Sales and Lease Contracts.)
1. The first group will decide whether parol evidence is admissible to explain the terms of this contract. Are there any exceptions that could apply
2. A second group will determine the impact of course of dealing and usage of trade on the interpretation of contract terms.
3. A third group will discuss how parties to a commercial contract can avoid the possibility that a court will interpret the contract terms in accordance with trade usage.