BUSINESS LAW Alternate Edition 11 th Ed Jentz

BUSINESS LAW Alternate Edition 11 th. Ed. Jentz Miller Cross Chapter 20 Formation of Sales and Lease Contracts Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

§ 1: The Uniform Commercial Code § Facilitates commercial transactions. § UCC Article 2: Sale of Goods. – Modifies common law of contracts of some areas. – UCC 2 preempts common law. – Where UCC 2 is silent, common law governs. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 2

§ 2: The Scope of Article 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 UCC 2 does not apply. § Generally contracts for services are not governed by UCC 2. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 3

Scope of UCC Article 2 Copyright © 2009 South-Western Legal Studies in Business, a

Scope of UCC Article 2 § Article 2 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 (not real estate). Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 5

Scope of UCC Article 2 § What if Goods and Services combined? – “Pre-dominant factor” test used by courts on a case-by-case basis. – CASE 20. 1 Jannusch v. Naffziger (2008). – Appellate Court of Illinois, Fourth § A “merchant” has special business expertise and is not a casual buyer/seller. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 6

§ 3: Scope of Article 2 A—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 3 rd partysupplier). Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 7

§ 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. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 8

Offer: Open Terms § 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. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 9

Offer: Open Terms § Open Price Term: If parties have not agreed on pricing, court can determine “reasonable price at the time of delivery. ” UCC 2 -305. § Open Payment Term: Unless otherwise agreed, payment is due on delivery (COD). UCC 2 -310(a). Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 10

Offer: Open Terms § Open Delivery Term: Unless otherwise agreed, buyer takes delivery at the Seller’s place of business. UCC 2 -308(a). § Open Quantity: generally courts will not impose a quantity. UCC 2 -306. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 11

Open Terms: Exceptions § 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. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 12

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. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 13

Acceptance § 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 (UCC 2 -206). Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 14

Acceptance: Additional Terms § If either party is a non-merchant, the contract is formed according to original terms of the offer. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 15

Additional Terms § 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. § CASE 20. 2 Sun Coast Merchandise Corp. v. Myron Corp. (2007). Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 16

Consideration § UCC requires consideration and modifications must be made in good faith. § Modification must be in writing if required by Statute of Frauds. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 17

Statute of Frauds § Sale of goods over $500 must have a signed writing to be enforceable. Exceptions: – Specially manufactured goods. – Admissions by breaching party. – Partial performance. – Merchant doesn’t object within 10 days. § Oral agreement enforceable after written confirmation between merchants. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 18

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. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 19

Unconscionability § Contract is one that is so unfair and onesided it is unreasonable to enforce it. § Court can: set it aside, refuse to enforce the unconscionable provision, limit the contract. § CASE 20. 3 Jones v. Star Credit Corp. (1969). Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 20

§ 5: Contracts for the International Sale of Goods § 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. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 21

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. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 22