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Formation of Sales and Lease Contracts

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§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.

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§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).

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§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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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).

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).

Offer-Open Terms [2]

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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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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 (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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Consideration

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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Unconscionability

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.