Chapter 18 Formation of Sales and Lease Contracts

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Chapter 18 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.
• Goods and services combined?

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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.

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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 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,
  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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Offer-Open Terms 2

• UCC2-305 If parties have not agreed on pricing,
  court can determine reasonable price at the time
  of delivery.
• UCC2-308 Unless otherwise agreed, buyer takes
  delivery at the Sellers place of business.
• UCC2-310 Unless otherwise agreed, payment is due
  on delivery (COD).

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Offer-Open Terms 3

• UCC2-306 Open Quantity generally courts will
  not impose a quantity. Exceptions
• Requirements Contract buyer agrees to purchase
  what the buyer needs or requires.
• Output Contract buyer agrees to buy all of
  sellers production or output.

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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 is irrevocable for
  reasonable period of time if writing assurance is
  given. No consideration necessary.

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Acceptance

• Any reasonable means of 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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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 doesnt object within 10 days.

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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.

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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.

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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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Case 18.1 Micro Data v. Dharma Systems(Goods
and Services Combined)

• FACTS
• Micro (MDBS) contracted with Dharma to adapt
  Dharmas software program (known as SQL Access)
  for use in a system that MDBS was to provide to
  Unisys Government Systems, Inc.
• After delivery, some defects were reported.
  Dharma refused to fix them until MDBS signed an
  agreement to limit the distribution of the
  adapted software (known as the RDMS Emulation),
  but MDBS did not sign.
• MDBS sued Dharma for breach of contract. Dharma
  counterclaimed.
• ISSUE Was the contract for goods or services?

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Case 18.1 Micro Data v. Dharma Systems(Goods
and Services Combined)

• HELD FOR DHARMA.
• The court ruled that the contract was for a sale
  of goods, and that MDBS had violated it.
• A contract for a sale of customized software is
  subject to Article 2 of the UCC, because although
  both goods and services were involved, the goods
  component predominated.

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Case 18.2 Wilson Fertilizer v. ADM Milling
(Additional Terms)

• FACTS
•  Wilson agreed to sell grain to ADM Milling Co.
  ADM sent a confirmation stating that this
  contract is also subject to the Trade Rules of
  the National Grain and Feed Association NGFA.
  (The NGFA rules require the arbitration of
  disputes and limit the time for filing a
  complaint to one year). Wilson did not respond.
  
• Later, in a dispute, Wilson filed suit against
  ADM. ADM moved to dismiss, claiming that the NGFA
  rules required arbitration.

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Case 18.2 Wilson Fertilizer v. ADM Milling
(Additional Terms)

• HELD FOR ADM.
• Wilson had argued that the confirmation
  materially altered the contract, because it
  imposed a hardship of arbitration.
• The UCC specifically permits parties to a
  contract for sale to reduce the time for filing
  claims to one year. Also, and even more
  significantly, Wilson could have submitted a
  claim for arbitration within the one-year limit.
  The contract was formed in October 1992, and
  Wilson filed the complaint in September 1993.

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Case 18.3 Jones v. Star Credit(Unconscionability
)

• FACTS
• Jones, who had limited financial resources,
  agreed to purchase a freezer for 900, with
  financing for total price of 1,439.69. In fact,
  the freezer had a maximum retail value of about
  300.
• The Joneses sued Star on grounds of
  unconscionability.
• HELD FOR JONES.
• Contract was reformed and Jones made no further
  payments.
• Court considered the disparity between the
  purchase price and the retail value, the credit
  charges that alone exceeded the retail value, and
  the sellers knowledge of the buyers limited
  resources