Chapter 25: Nature and Form of Sales

1. Chapter 25: Nature and Form of Sales

2. Laws Governing Sales • Contracts for the sale of services and real estate are governed by the common law. • Contracts for the sale of goods (new or used tangible personal property) are governed by Article 2 of the Uniform Commercial Code (UCC). • The UCC does not apply to securities or intellectual property.

3. What Is and Is Not a Sale? • A sale of goods is the transfer of title to tangible personal property for a price. • Is NOT a Sale: • A bailment is a transfer of possession and not title and is therefore not a sale. • A gift is not a sale because there is no price paid. • A contract for services is an ordinary contract and is not governed by the UCC. • A contract for both services and goods is classified according to its dominant element.

4. Sales Contracts Under the UCC • Subject matter and quantity are required elements; other terms may be left open as long as the intent to contract is clear. • Requirements on merchants are stricter in some cases. (See later chapters). • A merchant’s firm offer is irrevocable for a reasonable time period. • Acceptance must be in a reasonable manner and time; terms may be changed or added without voiding the offer.

5. Defenses to Formation • The same defenses available to formation under common law are incorporated in Article 2. • In addition, the UCC recognizes unconscionability as a defense to formation.

6. Open Terms • The UCC does not require every term to be stated for a contract to be valid. • Article 2 provides for missing terms. • Price may be open, stating a formula for how the price would be figured later. • Some open terms are interpreted by past patterns in their course of dealing. • Modifications are binding if they are voluntary.

7. Nonmerchants Nonmerchant/Merchant Merchants Additional Terms Additional Terms Material Offer Is Limited Objection Contract with Additional Terms Contract without Additional Terms UCC Rules for Additional Terms in Acceptance

8. Output & Requirements Contracts • In output or requirements contracts, the quantity is not specified, but are valid contracts if entered in good faith. • Output Contracts • A contract for the entire product produced by a seller in a given time period. • Requirements Contracts • A contract for the seller to sell whatever quantity the buyer needs.

9. Statute of Frauds • The UCC’s statute of frauds provides that a sales contract for $500 or more must be evidenced by a writing. • The UCC’s merchant’s confirmation memorandum allows two merchants to be bound to an otherwise oral agreement by a memo or letter signed by only one party that stands without objection for ten days.

10. Statute of Frauds: Exceptions • Several exceptions to the UCC statute of frauds exist: • when the goods are specially made or procured for the buyer and are nonresellable in the seller’s ordinary market, • when the buyer has received and accepted the goods, • when the buyer has made either full or partial payment, and • when the party against whom enforcement is sought admits in court pleadings or testimony that a contract for sale was made.

11. Uniform Law for International Sales • Uniform rules for international sales are applicable to contracts for sales between parties in countries that have ratified the United Nations Convention on Contracts for the International Sales of Goods (CISG). • Under the CISG, a contract for the sale of goods need not be in any particular form and can be proven by any means.

12. Leases • Article 2A of the UCC regulates consumer leases, commercial leases, finance leases, nonfinance leases, and subleases of tangible movable goods. • A lease subject to Article 2A must be in writing if the lease payments will total $1,000 or more. • A commercial finance lease is irrevocable.