CHAPTER 16 FORMATION OF THE SALES CONTRACT

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CHAPTER 16FORMATION OF THE SALES CONTRACT
CONTRACTS FOR LEASING GOODS
DAVIDSON, KNOWLES FORSYTHE Business Law Cases
and Principles in the Legal Environment (8th Ed.)
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INTRODUCTION

• Statute of Frauds requires certain types of
  contracts to be in writing to be enforceable.
• Common Law.
• Law Merchant.
• Uniform Sales Act (USA)/Negotiable Instrument Law
  (NIL).

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INTRODUCTION

• Uniform Commercial Code (UCC) is a legislative
  intervention to help the law keep pace with needs
  of society.
• UCC designed to update and modernize the law of
  commerce and reflect commercial reality.
• Uniform Commercial Code
• UCC is organized into sections or articles.
• The UCC has been adopted in whole or in part by
  all 50 states.

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INTRODUCTION

• Article 2--Governs sale of goods.
• Article 2A--Deals with leasing of goods.
• Article 3--Deals with negotiable instruments.
• Article 4--Deals with banks and customers.
• Article 4A --Deals with fund transfers.

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INTRODUCTION

• Article 5--Deals with letters of credit.
• Article 7--Deals with documents of title.
• Article 9--Deals with secured transactions.

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THE SCOPE OF ARTICLE 2

• Covers the sale of goods.
• Sale defined as the passing of title from seller
  to buyer for a price.
• Contract for sale covers both a present sale and
  a contract to sell goods in the future.
• Present sale is a sale made at the time the
  contract is made.

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THE SCOPE OF ARTICLE 2

• Covers the sale of goods.
• Goods defined as all things that are movable at
  the time they are identified to the contract.
• Anything tangible that can be physically
  delivered from seller to buyer.
• Goods also extend to cover unborn young of
  animals, growing crops , anything attached to
  land which can be detached from and sold apart
  from land.
• Money and investment securities excluded.

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THE SCOPE OF ARTICLE 2

• A Merchant is someone who deals in the type of
  goods involved in the sale, claims to be an
  expert relative to the goods, or employs someone
  who is an expert.
• Merchants are required to act in good faith,
  cooperate in the performance of the contract and
  a commercially reasonable manner.
• Non-merchants are required to act in good faith
  and cooperate in the performance of the contract.

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FORMING THE SALES CONTRACT

• Offer and Acceptance UCC recognizes a contract
  exists whenever the parties act as if they have
  an agreement.
• Valid offer and acceptance.
• Contract stands even though some terms are
  omitted from the agreement.
• Offer can be accepted in any manner reasonable
  under the circumstances, unless otherwise
  indicated.

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FORMING THE CONTRACT

• Under UCC seller can accept by
• 1) Promptly ship conforming goods to the buyer.
• 2) Notify the buyer that the goods will be
  shipped promptly.
• 3) Promptly ship nonconforming goods to the
  buyer.

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FORMING THE CONTRACT

• Standard Form Contracts
• Preprinted contract form, often blanks left in
  certain key places for later completion.
• New terms are treated as proposed additions to
  the contract, if contract is between merchants
  unless
• Offer explicitly limits acceptance to the terms
  of the offer.
• New terms materially alter the contract.
• Offeror objects to new terms within reasonable
  time.

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FORMING THE CONTRACT

• Firm Offers.
• Common law allows revocation anytime prior to
  acceptance.
• Under UCC, offer cannot be revoked for a
  reasonable time.
• Statute of Frauds.
• Requires a contract for the sale of goods for
  500 or must be in writing to be enforceable.

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FORMING THE CONTRACT

• Statute of Frauds. Three definite and invariable
  requirements for the writing
• Must evidence a contract for the sale of goods.
• Must be signed, which includes any
  authentication.
• Must specify a quantity of goods covered by the
  contract.

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FORMING THE CONTRACT

• Statute of Frauds. Three exceptions to the
  general provisions
• No writing required if specially manufactured
  goods.
• If parties agree in court or in legal proceedings
  that contract existed.
• If goods covered are already delivered and
  accepted or already paid for.

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FORMING THE CONTRACT

• Statute of Frauds.
• Although the Code attempts to provide for
  flexibility and to facilitate commerce, where a
  written agreement does exist--the parol evidence
  rule applies.
• Oral evidence can not be introduced to contradict
  or overturn the terms of the written agreement.
• Oral evidence can only clarify, explain, fill in
  informational gaps.

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SPECIAL RULES UNDER ARTICLE 2

• Assumption that both parties will be acting in
  good faith.
• Unconscionability contract is so unfair or
  one-sided as to shock the conscience.
• Court may refuse to enforce contract, or refuse
  to enforce any unconscionable clause, or limit
  application of any unconscionable clause to avoid
  unfair result.

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SPECIAL RULES UNDER ARTICLE 2

• Open Terms.
• Code allows omitted terms to be filled in by the
  courts to give the parties the benefit of their
  bargain.
• Options.
• Code leaves some options, such as product mix and
  shipping arrangements to option of buyer or
  seller.

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SPECIAL RULES UNDER ARTICLE 2

• Cooperation
• Parties are required to cooperate with each other
  in the performance of their duties.
• Failure to cooperate or interference with
  performance can be treated as breach or delay
  performance.

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THE SCOPE OF ARTICLE 2A

• Applies to any transaction, regardless of form,
  that creates a lease, a finance lease, or
  installment lease contract.
• Lease transfer of the right to possession and
  use of goods for a term in return for
  consideration.

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CONTRACTS FOR LEASING GOODS

• Article 2A of the Code governs contracts for
  lease of goods.
• Article 2A reflect the differences between a sale
  and a lease.
• Article 2A is designed to help protect the basic
  tenets of freedom of contract.
• Permits parties to vary certain terms of their
  lease agreements.

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CONTRACTS FOR LEASING GOODS

• Article 2A recognizes two basic types of leases
• Consumer lease lease of goods for personal,
  family, or household use. Total payments not to
  exceed 25,000.
• Finance lease lessor does not select,
  manufacture, or supply the leased goods lessor
  acquires the goods in connection with the lease
  lessee receives or approves of lessor acquiring
  rights to the goods.

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CONTRACTS FOR LEASING GOODS

• Installment lease authorizes or requires the
  delivery of goods in separate lots to be
  separately accepted.
• Lease of goods in excess of 1000 must be
  evidenced in writing.

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CONTRACTS FOR SALE OF GOODS IN INTERNATIONAL
SETTING

• UN Convention on Contracts for the International
  Sale of Goods (CISG) approved by 62 nations.
• Scope of CISG
• Does not apply to goods for personal or household
  use unless Seller knew/should have known.
• Only applies to sale of goods between different
  nations.

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CONTRACTS FOR SALE OF GOODS IN INTERNATIONAL
SETTING

• CISG
• Acceptance is effective upon receipt by offeror.
• Offer is revocable prior to acceptance.
• Offer is irrevocable
• When offeror states acceptance must be made
  within a specified time.
• If Offeree relies on the offer remaining open.