Chapter 19 Formation of Sales and Lease Contracts

Chapter 19 Formation of Sales and Lease Contracts © 2004 West Legal Studies in Business A Division of Thomson Learning 1

§ 1: The UCC üFacilitates commercial transactions. üUCC 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. © 2004 West Legal Studies in Business A Division of Thomson Learning 2

§ 2: The Scope of UCC 2 üDoes 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. üGenerally contracts for services are not governed by UCC 2. üWhat if Goods and Services combined? üCase 19. 1: Micro Data Base v. Dharma Systems (1998). © 2004 West Legal Studies in Business A Division of Thomson Learning 3

Scope of UCC 2 [2] üUCC 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. § 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). © 2004 West Legal Studies in Business A Division of Thomson Learning 4

§ 3: Scope of UCC 2 A-Leases üContract for lease of personal goods between a lessor and a lessee. üConsumer Leases (total payments less than $25, 000). üFinance Leases (involves a 3 rd party-supplier). © 2004 West Legal Studies in Business A Division of Thomson Learning 5

§ 4: Formation of Sales and Lease Contracts üAt common law once a valid offer is unequivocally accepted, a binding contract is formed. üUCC is more flexible, and allows for open pricing, payment, and delivery terms. © 2004 West Legal Studies in Business A Division of Thomson Learning 6

Offer-Open Terms [1] üUCC 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. © 2004 West Legal Studies in Business A Division of Thomson Learning 7

Offer-Open Terms [2] üOpen Price Term: If parties have not agreed on pricing, court can determine “reasonable price at the time of delivery. ” UCC 2 -305. üOpen Payment Term: Unless otherwise agreed, payment is due on delivery (COD). UCC 2 -310(a). üOpen Delivery Term: Unless otherwise agreed, buyer takes delivery at the Seller’s place of business. UCC 2 -308(a). © 2004 West Legal Studies in Business A Division of Thomson Learning 8

Offer-Open Terms [3] üOpen Quantity: generally courts will not impose a quantity. UCC 2 -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. © 2004 West Legal Studies in Business A Division of Thomson Learning 9

Merchant’s Firm Offer üAt common law, an offer could be revoked any time prior to acceptance, unless there was some consideration. üAt UCC, offer made by merchant in a signed writing is irrevocable for reasonable period of time. No consideration necessary. © 2004 West Legal Studies in Business A Division of Thomson Learning 10

Acceptance üAny reasonable means of acceptance under the circumstances is permissible. üPromise 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). © 2004 West Legal Studies in Business A Division of Thomson Learning 11

Acceptance: Additional Terms üIf either party is a non-merchant, the contract is formed according to original terms of the offer. üIf 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. © 2004 West Legal Studies in Business A Division of Thomson Learning 12

Consideration üUCC requires consideration and modifications must be made in good faith. üModification must be in writing if required by Statute of Frauds. © 2004 West Legal Studies in Business A Division of Thomson Learning 13

Statute of Frauds üSale of goods over $500 must have a signed writing to be enforceable. üExceptions to this rule: § § Specially manufactured goods. Admissions by breaching party. Partial performance. Merchant doesn’t object within 10 days. üOral agreement enforceable after written confirmation between merchants. © 2004 West Legal Studies in Business A Division of Thomson Learning 14

Parol Evidence üTerms of a written agreement intended to be the final expression of parties’ intentions, cannot be contradicted by prior or contemporaneous agreements. üExceptions: consistent terms, course of dealing and trade. üCase 19: 3: Puget Sound Financial LLC v. Unisearch Inc. (1976). © 2004 West Legal Studies in Business A Division of Thomson Learning 15

Unconscionability üContract is one that is so unfair and one-sided it is unreasonable to enforce it. üCourt can: set it aside, refuse to enforce the unconscionable provision, limit the contract. üCase 19: 4: Jones v. Star Credit Corp. (1969). © 2004 West Legal Studies in Business A Division of Thomson Learning 16

§ 5: International Sales üApplicability of the CISG. üComparison of CISG and UCC. § § § Mirror Image Rule. Irrevocable Offers. Statute of Frauds. Necessity of a Price Term. Time of Contract Formation. © 2004 West Legal Studies in Business A Division of Thomson Learning 17

Special Provisions in International Contracts üLanguage and legal differences create special difficulties. Parties should agree to: § § Choice of Language. Choice of Forum (country). Choice of Law. Force Majeure Clause. © 2004 West Legal Studies in Business A Division of Thomson Learning 18

Law on the Web üNational Conference of Commissioners. üU. Penn Final Draft of Uniform Laws. üUCC at Cornell U. üContracts for the Sale of International Goods at Pace University Law School. üLegal Research Exercises on the Web. © 2004 West Legal Studies in Business A Division of Thomson Learning 19