Sales Contracts Chapter 12

What is a Sale? Sale—a contract in which ownership of goods transfers immediately from the seller to the buyer for a price Ownership—entails a collection of rights that allow the use and enjoyment of property Contract to sell—transfer of ownership that takes place in the future Price—consideration for a sale or contract to sell May be expressed in money, services, or other goods

What is a Sale? Barter—when parties exchange goods for goods The UCC (Uniform Commercial Code) governs the sale of goods It also governs contracts to sell goods in the future Goods—tangible, movable personal property Things that are NOT considered goods by the UCC: Money Intangibles Patents and copyrights Land and other forms of real property

What is a Sale? Under the UCC a sales contract may be made in any manner sufficient to show agreement The resulting contract suffices if the parties, by their actions, recognize actions, recognize the existence of a contract This is true even though a court might not be able to determine precisely when the contract was made, and even though one or more terms are left open in accordance with customs of the trade Vendor—seller Vendee--buyer

What is a Sale? In general, as applied to the sale of goods, the law of contracts has been simplified and made less strict Example: Price for goods is usually fixed in the contract. However, the parties may indicate that the price is to be set in a certain way at a later date. This method is used in long-term contracts due to the fluctuation of price over time. Ordinarily if nothing is said about price, a contract results if all other essentials are present, and provided that the parties do not express a contrary intent

What is a Sale? Contracts that are NOT sales In some contractual situations, goods may be included but the primary purpose of the contract is to provide a service Such contracts are not sales because any goods supplied are merely incidentals Even if a specific charge were made for them, the contract would remain one for the services that were the dominant part of that agreement Such a contract would not fall under the UCC rules and requirements as a consequence

What is a Sale? Payment and Delivery Payment occurs when the buyer transfers the agreed-upon consideration and the seller accepts it Delivery is the act by which the subject matter of the contract is placed within the possession or control of the buyer Receipt of Goods means that the buyer takes physical possession or control of the goods Receipt usually involves actual delivery May be constructive—no actual transfer of possession, but recipient has the power to control them Keys to a car, warehouse receipt for stored goods

What is a Sale? Payment and Delivery In the basic sales transaction, payment, delivery, and the transfer of title take place simultaneously at the seller’s place of business Even if payment or delivery, or both, take place later, title still passes when the buyer selects and agrees to buy existing goods in the seller’s store At the appropriate fixed time, the buyer has the duty to pay and the seller has the duty to transfer possession Generally neither is obligated to perform until the other does Unless it is otherwise agreed, the seller may retain the goods until the buyer makes payment in full The buyer may refuse to pay until the seller delivers the goods

What is a Sale? Bill of Sale Receipt that serves as written evidence of the transfer of ownership of goods Such a document is required by statute, as in the case of automobile sales If a bill of sale is signed by the seller, buyer, or both, it can satisfy the requirements of the Statute of Frauds for a signed writing Neither a sales contract nor a bill of sale necessarily identifies the parties nor explains the terms of the transaction Makes resale of property easier because it provides the owner with written evidence of ownership

What is a Sale? Use of Credit To encourage business, most sellers extend credit to qualified buyers, including other business firms Some retailers do most of their business selling to customers who use credit cards or charge accounts The buyer may get both title and possession before payment

What is a Sale? Acceptance of Goods The buyer has agreed, by words or by conduct, that the goods received are satisfactory Acceptance is shown when the goods are used, resold, or otherwise treated as if they were owned by the buyer Acceptance may also be indicated when a buyer fails to reject the goods within a reasonable time, if the buyer had adequate time to inspect them

What is a Sale? Other ways to Contract Sales contracts may be made through traditional exchange of offer and acceptance The UCC also recognizes alternative methods Instead of telephoning, sending a fax, or mailing an acceptance, the seller may simply ship the goods and thereafter notify the buyer of the transaction

Unconscionable Sales Contracts The UCC provides that a court may find a contract or clause of a contract unconscionable An unconscionable contract or clause offends an honest person’s conscience and sense of justice The terms need not be criminal nor violate a statute, but they are unethical Contracts of Adhesion—one party dictates all the important terms, the weaker party must generally accept the terms as offered or not contract at all

Unconscionable Sales Contracts A court that decides whether a clause of a contract is unconscionable may do any of the following: Refuse to enforce the contract Enforce the contract without the unconscionable clause Limit the clause’s application so that the contract is no longer unfair

Special Rules of Merchants In most cases, the UCC treats all buyers and sellers alike Specialized rules may apply to individuals who are merchants Merchant—someone who deals regularly in the type of goods being exchanged or claims special knowledge or skill in the type of sales transaction being conducted Casual Seller—individuals who do not qualify as merchants in a transaction Selling your own automobile

Special Rules of Merchants The UCC holds merchants to a higher standard of conduct than is does casual sellers Merchants may be required to have licenses to sell They are also subjected to special taxation and closer regulation by the government

Special Rules of Merchants Merchant Status in Sales Contracts Under the UCC, an offeror may state that the offer to buy or to sell goods must be accepted exactly as made or not at all Considered a counteroffer Under the law of sales of goods, the new term is treated as a proposal for addition If both parties are merchants, a new term inserted by the offeree automatically becomes part of the contract if the offeror fails to object within a reasonable time The new term must not materially alter the offer The original offer must not expressly bar such changes If the new term is material, it is included in the contract only if the original offeror expressly shows an intention to be bound by it

How does the Statute of Frauds Apply to Sales? Sales contracts are generally valid and enforceable in court whether they are oral, written, or implied from the conduct of the parties Statute of Frauds Sales for goods valued at $500 or more must be evidenced by writing to be enforceable in court Good business practice—both parties sign a written sales contract and each party gets a copy Provides both parties with a useful legal record, reinforces good faith

How does the Statute of Frauds Apply to Sales? Not all of the terms of a sales contract have to be in writing to satisfy the Statute of Frauds All that is required is a writing, signed by the party being sued, which satisfies the court that a contract to sell, or a sale has been made The number or quantity of goods involved in the transaction must be contained in the writing The time and manner of performance, credit and warranty terms, and shipping instructions need not be included for the writing to satisfy the statute

How does the Statute of Frauds Apply to Sales? A variation of the Statute of Frauds applies ONLY to contracts between merchants Law generally requires a signature of the person being sued Between merchants, the signature of the party who is suing may be enough to prove an otherwise unenforceable sales contract If a merchant sends a written confirmation of an oral contract to another merchant within a reasonable time after this oral agreement was made, the confirmation binds both parties If the second merchant sends a written objection to the confirmation within 10 days, the confirmation is not binding

How does the Statute of Frauds Apply to Sales? Exceptions to the Statute of Frauds for Sales Contracts Goods Received and Accepted by the Buyer Under the UCC a buyer can accept goods in three ways After a reasonable opportunity to inspect the goods, the buyer signifies tot eh seller that the goods conform to the contract or will be retained in spite of their nonconformity The buyer acts inconsistently with the seller’s ownership (uses, consumes, or resells the goods) The buyer fails to make an effective rejection after having a reasonable opportunity to inspect the goods

How does the Statute of Frauds Apply to Sales? Exceptions to the Statute of Frauds for Sales Contracts Buyer pays for goods and seller accepts payments When payment in full has been accepted by the seller, the oral contract is enforceable in full When partial payment has been accepted by the seller, the oral contract is enforceable for the goods paid for if the goods can be divided and the price can be apportioned fairly

How does the Statute of Frauds Apply to Sales? Exceptions to the Statute of Frauds for Sales Contracts Goods Specifically Made not Suitable for Sale to Others A seller can enforce an oral contract for non-salable goods if The seller has substantially begun to manufacture them The seller has made contracts to obtain the goods from a third party Party Against Whom Enforcement Sough Admits Oral Contract Was Made A party against whom enforcement of an oral contract is sought may admit in legal pleadings or testimony that he/she agreed to part or all of the contract A signed writing is not necessary for the enforcement of the party of the contract that was admitted