Formation of Sales and Lease Contracts Chapter 19

UCC Uniform Commercial Code Adopted by all 50 states –Different versions may apply in different states If a conflict between common law and UCC arises – UCC wins!

Article 2 Sales Contracts Sale: “passing title from the seller to the buyer for a price.” Article 2 covers goods –Goods are tangible and moveable Real estate –If buyer severs then goods under article 2 –If seller severs then not goods under article 2 Crops –Are goods no matter who severs –Services Sometimes cannot distinguish between services and goods –Courts decide. Example: blood transfusion

UCC & Merchants UCC holds merchants to higher standard A merchant is someone who deals in goods of the kind subject to sales agreement, holds themselves out to be an expert in such goods, or hires another merchant to contract on their behalf –Example: walmart is a merchant of televisions What if Walmart sells me an old transport semi? –Is it merchant?

Leases Lease is a contract or bargain between a lessor and lessee. –Lessor is the own who has ownership and sales the right to use goods –Lessee is the one who purchases right Why do we even have lease contracts? Consumer lease: –Lessor who normally leases such property, leases to lessee for personal use and the lease requires less than $25,000 in payments Finance Lease: Lessor purchases or leases goods from supplier and subleases to lessee.

Formation of Sales and Lease Contracts Offer: –Under common law needed definite terms –UCC allows for indefiniteness in terms if 1) the parties intended to contract and 2) there is reasonable basis for the court to grant remedies –Price may be left open If to be fixed by the other party and not –then other party can terminate or set reasonable price

Other Open Terms Open payment term –If not specified payment is due at time and place of delivery of goods –If seller demands cash, seller must give buyer reasonable time to ascertain cash Open delivery term –Seller’s place of business or residence if no place of business Ongoing Contract –If no fixed period for contract, then must give reasonable notice of termination

Open Quantity Term Requirements Contract –Buyer contracts for all the buyer needs or requires –Buyer cannot offer to buy goods “as it wishes.” Output Contract –Buyer contracts to purchase all the goods the seller can produce Good faith limitation on both output and requirements contracts

Merchants Firm Offer Under common law, an offer can be revoked any time before acceptance unless an options contract Under UCC offer can be revoked before acceptance unless –1) consideration ie options contract –2) written offer by merchant stating it will remain open for a certain amount of time. If no time is stated, then reasonable amount of time not to exceed three months Must be in writing and signed by offeror –Offeror must intend to be a firm offer – no form contracts

Acceptance Under common law, had to accept in accordance with offeror’s specified method of acceptance. Example: fax within 3 days. Under UCC, any method of acceptance will suffice as long as offeror receives acceptance. This applies even if the offeror specified the means of acceptance. UCC requires reasonable method

More Acceptance Prompt Shipment –Generally prompt shipment or promise of shipment is method of acceptance –Shipment of nonconforming goods is acceptance and breach –May ship nonconforming goods as an accommodation but must signify it is an accommodation Counteroffer?

More Acceptance Communication of Acceptance of Unilateral contract –Under common law only had to notify offeror if offeror would not normally find out about it. Under UCC have to notify offeror in reasonable amount of time Additional terms –Mirror image rule does not apply –Nonmerchants under UCC – additional terms are disregarded if immaterial

Additional Terms - Merchants Under UCC –Additional terms automatically become part of agreement between merchants unless 1) originally offer limited acceptance and prohibited additional terms 2) the additional terms materially change or alter the agreement 3) offeror objects to new terms Additional terms can require original offeror’s assent, no contract unless offeror assents Sometimes contradictory terms will be stricken

Consideration Under common law, a modification of a contract required new consideration –Modification must be in good faith –Some must be in writing If contract so requires If modification brings contract within UCC

Statute of Frauds Relaxed rule for merchants –One merchant can send a written confirmation of oral agreement Recipient has 10 days to object to terms of confirmation Normally goods sold for the contract price of $500 or more requires written contract. 3 exceptions: –Specially manufactured goods, which cannot be resold and have been started into production –Admissions in court –Partial performance

Miscellaneous Topics Parole evidence –For ambiguous terms look at Course of dealing –How did they act in the past? Usage of trade –How does the industry act? Course performance –How did they act under this contract? Rules of Construction (in descending order) –Express Terms –Course of performance –Course of Dealing –Usage of Trade