Chapter 19 formation of sales and lease contracts
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Chapter 19 formation of sales and lease contracts l.jpg

Chapter 19

Formation of Sales and Lease Contracts

1 the ucc l.jpg
§1: The UCC

  • Facilitates commercial transactions.

  • UCC Article 2: Sale of Goods.

    • Modifies common law of contracts of some areas.

    • UCC 2 preempts common law.

    • Where UCC2 is silent, common law governs.

2 the scope of ucc 2 l.jpg
§2: The Scope of UCC 2

  • Does not apply to real estate unless there is a “good” that can be severed by the Seller. If the good is severed by the Buyer, then UCC2 does not apply.

  • Generally contracts for services are not governed by UCC2.

  • What if Goods and Services combined?

  • Case 19.1:Micro Data Base v. Dharma Systems (1998).

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Scope of UCC2 [2]

  • UCC2 applies to the “sale of goods.”

    • A “sale” is the passing of title of “goods” to/from a “merchant” (seller or buyer) for a price (money, goods, services,etc).

    • “Goods” are tangible and movable.

    • A “merchant” has special business expertise and is not a casual buyer/seller.

    • Case 19.2:Ready Trucking Inc v. BP Exploration & Oil Co. (2001).

3 scope of ucc 2a leases l.jpg
§3: Scope of UCC 2A-Leases

  • Contract for lease of personal goods between a lessor and a lessee.

  • Consumer Leases (total payments less than $25,000).

  • Finance Leases (involves a 3rd party-supplier).

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§4: Formation of Sales and Lease Contracts

  • At common law once a valid offer is unequivocally accepted, a binding contract is formed.

  • UCC is more flexible, and allows for open pricing, payment, and delivery terms.

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Offer-Open Terms [1]

  • UCC 2-204: even if terms of are undetermined, a contract may still exist.

    • Open Terms: “Indefiniteness” is OK as long as the parties intended to make a contract and there is a reasonable basis for a court to grant a remedy.

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Offer-Open Terms [2]

  • Open Price Term: If parties have not agreed on pricing, court can determine “reasonable price at the time of delivery.” UCC2-305.

  • Open Payment Term: Unless otherwise agreed, payment is due on delivery (COD). UCC2-310(a).

  • Open Delivery Term: Unless otherwise agreed, buyer takes delivery at the Seller’s place of business. UCC2-308(a).

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Offer-Open Terms [3]

  • Open Quantity: generally courts will not impose a quantity. UCC2-306. Exceptions:

    • Requirements Contract: buyer agrees to purchase what the buyer needs or requires.

    • Output Contract: buyer agrees to buy all of seller’s production or output.

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Merchant’s Firm Offer

  • At common law, an offer could be revoked any time prior to acceptance, unless there was some consideration.

  • At UCC, offer made by merchant in a signed writing is irrevocable for reasonable period of time. No consideration necessary.

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  • Any reasonable means of acceptance under the circumstances is permissible.

  • Promise to ship or prompt shipment is acceptance.

    • Shipment of non-conforming goods is both an acceptance and a breach unless goods sent as an “accommodation” to buyer (UCC2-206).

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Acceptance: Additional Terms

  • If either party is a non-merchant, the contract is formed according to original terms of the offer.

  • If both parties are merchants, contract incorporates new terms unless:

    • (1) original offer expressly limits terms, or

    • (2) material change, or

    • (3) offeror objects within reasonable time.

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  • UCC requires consideration and modifications must be made in good faith.

  • Modification must be in writing if required by Statute of Frauds.

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Statute of Frauds

  • Sale of goods over $500 must have a signed writing to be enforceable.

  • Exceptions to this rule:

    • Specially manufactured goods.

    • Admissions by breaching party.

    • Partial performance.

    • Merchant doesn’t object within 10 days.

  • Oral agreement enforceable after written confirmation between merchants.

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Parol Evidence

  • Terms of a written agreement intended to be the final expression of parties’ intentions, cannot be contradicted by prior or contemporaneous agreements.

  • Exceptions: consistent terms, course of dealing and trade.

  • Case 19:3:Puget Sound Financial LLC v. Unisearch Inc. (1976).

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  • Contract is one that is so unfair and one-sided it is unreasonable to enforce it.

  • Court can: set it aside, refuse to enforce the unconscionable provision, limit the contract.

  • Case 19:4:Jones v. Star Credit Corp. (1969).

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§5: International Sales

  • Applicability of the CISG.

  • Comparison of CISG and UCC.

    • Mirror Image Rule.

    • Irrevocable Offers.

    • Statute of Frauds.

    • Necessity of a Price Term.

    • Time of Contract Formation.

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Special Provisions in International Contracts

  • Language and legal differences create special difficulties. Parties should agree to:

    • Choice of Language.

    • Choice of Forum (country).

    • Choice of Law.

    • Force Majeure Clause.

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Law on the Web

  • National Conference of Commissioners.

  • U. Penn Final Draft of Uniform Laws.

  • UCC at Cornell U.

  • Contracts for the Sale of International Goods at Pace University Law School.

  • Legal Research Exercises on the Web.