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

2. §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 UCC2 is silent, common law governs.
Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

3. §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 UCC2 does not apply.
Generally contracts for services are not governed by UCC2.
Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

4. Scope of UCC Article 2
Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

5. 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.

6. 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 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.

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

8. §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.

9. 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.

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

11. Offer: Open Terms
Open Delivery Term: Unless otherwise agreed, buyer takes delivery at the Seller’s place of business. UCC2-308(a).
Open Quantity: generally courts will not impose a quantity. UCC2-306.
Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

12. Open Terms: 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.

13. 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.

14. 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).
Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

15. 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.

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

17. 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.

18. 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.

19. 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.

20. 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 Jones v. Star Credit Corp. (1969).
Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

21. §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.

22. 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.