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Essentials of Business Law, 9th edition
INSTRUCTOR’S MANUAL
Chapter 17 Sales
LESSON OVERVIEW
The previous chapter dealt with the transfer of title. Chapter 17 examines the concept of title in relation
to the law of sales, and the distinction between a contract for sale and a contract to sell. Students will
learn to identify the classifications of sales contracts—including oral, written, express, and implied.
This chapter explains the difference between entire and divisible contracts, special requirements of
contracts for labor and materials, trial periods and returns, auction sales and conditional sales, how the
delivery of shipments affects the passage of title, and how f.o.b. shipping point and f.o.b. destination
differ. Additionally, the students shall become acquainted with the sellers’ and buyers’ remedies for
breach of sales contracts. Finally, students’ understanding of the topics is evaluated through
objective-type questions, discussion questions, and case scenarios. Students are encouraged to conduct
their own research through the use of the Internet and other sources.
CHAPTER OUTLINE
A. THE LAW OF SALES (p. 268)
B. CONTRACTS FOR SALE VERSUS CONTRACTS TO SELL (pp. 268-269)
C. ORAL, WRITTEN, EXPRESS, AND IMPLIED CONTRACTS (p. 269)
D. ENTIRE AND DIVISIBLE SALES CONTRACTS (p. 269)
E. CONTRACTS FOR LABOR AND MATERIALS (p. 270)
F. TRIAL PERIODS AND RETURNS (pp. 270-272)
1. Contract for Sale with Right of Return (pp. 270-271)
2. Sale on Approval (p. 271)
3. Sale or Return (pp. 271-272)
G. OTHER KINDS OF SALES (pp. 272-273)
1. Auction Sales (p. 272)
2. Conditional Sales (pp. 272-273)
3. Consignment Sale (p. 273)
H. DELIVERY (p. 273)
1. Sales f.o.b. Shipping Point (p. 273)
2. Sales f.o.b. Destination (p. 273)
I. REMEDIES FOR BREACH OF SALES CONTRACTS (pp. 274-277)
1. Sellers’ Remedies (pp. 274-275)
2. Buyers’ Remedies (pp. 275-277)
J. CHAPTER SUMMARY (p. 278)
K. CHAPTER ASSESSMENT (pp. 278-285)
1. Matching Key Terms (pp. 278-279)
2. True/False Quiz (pp. 279-280)
3. Discussion Questions (p. 280-281)
4. Thinking Critically About the Law (p. 281-282)
5. Case Questions (pp. 282-283)
6. Case Analysis (pp. 283-285)
7. Legal Research (p. 285)
KEY TERMS
Key terms are listed at the beginning of the chapter, posted in the student textbook margins, and placed
in bold in the copy. They are listed here for your quick reference.
§ contract for sale (p. 268)
§ existing goods (p. 268)
§ future goods (p. 268)
§ contract to sell (p. 269)
§ contract for labor and materials (p. 270)
§ contract for sale with the right of return (p. 271)
§ sale on approval (p. 271)
§ sale or return (p. 271)
§ auction without reserve (p. 272)
§ auction with reserve (p. 272)
§ conditional sales contract (p. 272)
§ f.o.b. shipping point (p. 273)
§ f.o.b. destination (p. 273)
§ stoppage in transit (p. 275)
§ specific performance (p. 276)
§ replevin (p. 276)
§ cover (p. 277)
LEARNING OUTCOMES
The chapter Learning Outcomes will help you and the students discover the concepts and information
that should be understood upon completion of the chapter. You may want to access the PowerPoint
(PPT) slides for Chapter 17 when you begin the study of the chapter and discuss each Learning
Outcomes. Each Learning Outcome will be covered separately in the Instructor Notes, but they are
shown here in total as an overview of the sections being presented in Chapter 17. The corresponding
text page numbers and PPT slides are listed next to each outcome. These slides should be used to
reinforce the main points of the lecture.
After completing this chapter, the students will be able to:
1. Discuss the concept of title in relation to the law of sales. (p. 268, PPT slide 2)
2. Distinguish between a contract for sale and a contract to sell. (pp. 268-269, PPT slides 3-4)
3. Identify the classifications of sales contracts, including oral, written, express, and implied. (p.
269, PPT slide 5)
4. Discuss the difference between entire and divisible contracts. (p. 269-170, PPT slide 6)
5. Describe the special requirements of contracts for labor and materials. (pp.270, PPT slide 7)
6. Discuss trial periods and returns. (pp. 270-272, PPT slides 8-10)
7. Discuss auction sales and conditional sales. (pp. 272-273, PPT slides 11-13)
8. Discuss how the delivery of shipments affects the passage of title, and how f.o.b. shipping point
and f.o.b. destination differ. (p. 273, PPT slides 14-17)
9. Explain both sellers’ and buyers’ remedies for breach of sales contracts. (pp. 274-277, PPT slide
18-24)
LECTURE OUTLINE
A. THE LAW OF SALES
Because the law of sales affects so many individuals and businesses, Article 2 of the Uniform
Commercial Code (UCC) does not include investment securities, real estate, or services. The term title
refers to ownership. Consequently, having title to something usually means having the right to possess
it.
B. CONTRACTS FOR SALE VERSUS CONTRACTS TO SELL
A contract for sale is a legally enforceable agreement that has the immediate transfer of title to
personal property in return for consideration. A sale, according to the UCC, is the passing of title from
the seller to the buyer for a price. Goods that physically exist and are owned by the seller at the time of
sale are considered existing goods. Goods that do not exist at the time of the sales transaction but are
expected to come into the possession of the seller are considered future goods. An agreement to sell
future goods is considered a contract to sell, in contrast to a contract for sale. The distinction between
existing and future goods is important because a person cannot sell goods to which he or she does not
hold title.
C. ORAL, WRITTEN, EXPRESS, AND IMPLIED CONTRACTS
As is true for all contracts, sales contracts may be oral or written, and express or implied. Contracts for
$500 or more must be in writing to be enforceable. The complete agreement need not be in writing, but
there must be some evidence of the intention of the parties. The contract also must be signed by the
affected parties.
D. ENTIRE AND DIVISIBLE SALES CONTRACTS
If all the components are interdependent and are included in the same order, payment for the contract
would not be required until the whole order was filled. The significance of the distinction between
entire and divisible sales contracts can be seen in numerous business transactions.
E. CONTRACTS FOR LABOR AND MATERIALS
A sales contract for goods of special design, construction, or manufacture is neither a contract for sale
nor a contract to sell. Such a contract is considered a contract for labor and materials. A contract for
labor and materials, even though it involves $500 or more, need not always be in writing to be
enforceable.
F. TRIAL PERIODS AND RETURNS
While a merchant might prefer to sell for cash with no return privilege, if the seller’s competitors are
willing to allow prospective customers a trial period or the right of return, the seller also must do so in
order to remain competitive.
1. Contract for Sale with Right of Return
A contract for sale with the right of return gives the buyer both title to the goods and
the opportunity to return them to the seller at a later time.
2. Sale on Approval
When a contract provides for the sale of goods subject to the buyer’s approval, the
transaction is a sale on approval. The goods remain the property of the seller until the
buyer has expressed approval of the goods.
3. Sale or Return
The sale of goods can be made with the understanding that the purchaser takes title to
the goods but has the right to return them within a specified or reasonable time.
G. OTHER KINDS OF SALES
Two additional kinds of sales are auction sales and conditional sales.
1. Auction Sales
At an auction sale, the buyer is the party making the offer, or bid. The seller is the owner
of the goods, who has engaged an auctioneer to gather bids from interested parties with
the intent of selling to the highest bidder. The bidder’s offer is accepted when the
auctioneer lets the hammer fall.
2. Conditional Sales
A conditional sales contract is one way of selling merchandise with the condition that
title will remain with the seller until the purchase price has been paid. The buyer cannot
legally resell goods purchased this way because title has not passed. The seller can
repossess the goods (take back property through judicial action) if the buyer does not
pay in the time agreed.
3. Consignment Sales
A consignment sale occurs when a seller (a consignor) entrusts goods to a merchant (a
consignee) who acts under contract as the seller’s agent to sell the goods in exchange for
a small fee.
H. DELIVERY
Many transactions require shipment of the goods purchased. The manner in which the goods are
shipped affects the passing of title.
1. Sales f.o.b. Shipping Point
The abbreviation f.o.b. means “free on board.” When goods are sold f.o.b. shipping
point, title to the goods passes from the seller to the buyer when the carrier receives the
shipment, and it is understood that the buyer will pay the transportation charges.
2. Sales f.o.b. Destination
Title to goods shipped f.o.b. destination passes when the goods are delivered to the
buyer. In the event of their loss or damage en route, the seller must attempt to recover
any loss from the carrier.
I. REMEDIES FOR BREACH OF SALES CONTRACTS
The law provides a number of remedies to protect the buyer and the seller in disputes involving sales
contracts. The UCC provides a statute of limitations, that is, a time limit after which the usual legal
remedies are no longer available.
1. Sellers’ Remedies
A seller has a number of remedies at law depending on the circumstances of the case.
a) When the Buyer Refuses to Accept Delivery of the Goods
The seller may do one of the following:
i. Store the goods for the buyer and sue to recover the sales price if
the goods are not readily resalable to another customer.
ii. Resell the goods immediately if they are perishable or if their
market value might depreciate rapidly. Also, the seller can sue the buyer
for the difference between the price the goods brought in the resale and
the price the buyer had agreed to pay for them plus incidental damages.
iii. Retain the goods and sue the buyer for the difference between the
contract price and the market price at the time the buyer refused to honor
the contract.
b) When the Buyer Refuses to Pay the Purchase Price
When the buyer refuses to pay the purchase price, the seller may do one of the
following:
i. If the seller still has possession of the goods, he or she can resell
them after a reasonable period of time and sue for any damages incurred.
ii. If the merchandise has already been delivered to the buyer, he or
she can sue for the purchase price.
c) When the Buyer Is Insolvent
When the buyer is insolvent, the UCC provides the seller with the right of
stoppage in transit. Stoppage in transit is the right of an unpaid seller to stop
goods in transit and order the carrier to hold them for the seller. To exercise this
right of stoppage in transit, the seller must satisfy the common carrier that the
buyer is insolvent.
2. Buyers’ Remedies
The UCC provides a buyer with certain remedies depending on the specific
circumstances.
a) When the Wrong Quantity Is Delivered
If a smaller quantity of merchandise is delivered than was ordered, the buyer
may either reject delivery and sue for damages or accept the quantity delivered
and sue for damages.
If a larger quantity of goods is delivered than was ordered, the buyer may reject
the entire shipment; accept only what was ordered and reject the rest; or accept
the entire shipment and pay for the additional items at the contract price.
b) When the Goods Are Not as Ordered
In the event that the seller delivers goods that are not as specified in the contract,
the buyer may revoke the contract and return the goods that are substantially
different from those that were ordered. If the goods have already been paid for,
the buyer may demand a refund of the purchase price and, in most states, sue for
damages for breach of warranty, a legally binding guarantee. The buyer may
keep the goods and sue for damages for any loss resulting from the seller’s
breach of contract.
c) When the Seller Fails to Deliver the Goods
When title has passed to the buyer for goods the seller has failed to deliver, the
buyer has the following remedies:
i. The buyer can sue for damages by bringing a tort action charging
conversion.
ii. If the goods are unique, the buyer can seek a court order of
specific performance.
iii. A buyer who wishes to obtain goods that are rightfully his or
hers, rather than money damages, is to sue to obtain them by bringing an
action of replevin.
iv. The UCC also permits a buyer to cover similar goods elsewhere
to substitute for those not delivered by the seller. The amount of damages
would be the difference between the contract price and the market price
at the time delivery was refused.
INSTRUCTOR NOTES
A resulting answer or explanation is provided below for each Learning Outcome in Chapter 17. Every
outcome is also mapped to corresponding text page numbers, PPT slides, and relevant chapter
assessment exercises and activities for ease of reference and use.
LO1. Discuss the concept of title in relation to the law of sales.
The term title, as it is used in contracts for sale, refers to ownership. Having title to something usually
means having the right to possess it.
Text Pages: 268
PowerPoint: Slide 2
Case Analysis: 43
LO2. Distinguish between a contract for sale and a contract to sell.
A contract for sale is a legally enforceable agreement that has as its purpose the immediate
transfer of title to personal property in return for consideration. A contract to sell is an agreement to sell
future goods.
Text Pages: 268-269
PowerPoint: Slides 3-4
Discussion Questions: 26
LO3. Identify the classifications of sales contracts, including oral, written, express, and implied.
Sales contracts may be oral or written, and express or implied.
Text Pages: 269
PowerPoint: Slide 5
Case Questions: 40
LO4. Discuss the difference between entire and divisible contracts.
An entire contract is one in which all of the components of the agreement are included in the same
order; a divisible contract is one in which components of an agreement are in separate orders.
Text Pages: 269-270
PowerPoint: Slide 6
Case Questions: 38
LO5. Describe the special requirements of contracts for labor and materials.
A contract for labor and materials is a sales contract for goods of special design, construction, or
manufacture. These contracts need not always be in writing, and they can be canceled before a
substantial beginning or commitment to procurement has been made.
Text Pages: 270
PowerPoint: Slide 7
Thinking Critically About the Law: 32
Case Questions: 37, 39
LO6. Discuss trial periods and returns.
If a seller’s competitors are willing to allow prospective customers a trial period or the right of return,
the seller also must do so in order to remain competitive. A contract for sale with the right of return is
an agreement that gives the buyer both title to the goods and an opportunity to return them to the seller
at a later time. A contract for sale on approval is one in which the goods remain the property of the
seller until the buyer has expressed approval of the goods.
Text Pages: 270-272
PowerPoint: Slides 8-10
Discussion Questions: 28-29
LO7. Discuss auction sales and conditional sales.
An auction sale is one in which the buyer is the party making the offer, or bid. A conditional sale is one
in which certain conditions must be met before or after the sale is completed.
Text Pages: 272-273
PowerPoint: Slides 11-12
Thinking Critically About the Law: 33
Case Analysis: 42
LO8. Discuss how the delivery of shipments affects the passage of title, and how f.o.b. shipping
point and f.o.b. destination differ.
In sales f.o.b. shipping point, title to the goods passes from the seller to the buyer when the carrier
receives shipment and it is understood that the buyer will pay the transportation charges. In sales f.o.b.
destination, title to goods passes when the goods are delivered to the buyer.
Text Pages: 273
PowerPoint: Slides 13-14
Discussion Questions: 27, 30
LO9. Explain both sellers’ and buyers’ remedies for breach of sales contracts.
A seller may seek damages when the buyer refuses to accept delivery of the goods, when the buyer
refuses to pay the purchase price, or when the buyer is insolvent. A buyer may seek damages when the
wrong quantity is delivered, when the goods are not as ordered, or when the seller fails to deliver the
goods.
Text Pages: 274-277
PowerPoint: Slides 15-21
Discussion Questions: 31
