INTRODUCTION TO SALES LAW

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INTRODUCTION TO SALES LAW
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LAW OF CONTRACTS

• COMMON LAW OF CONTRACTS
• UCC - UNIFORM COMMERCIAL CODE
• CISG INTERNATIONAL B2B SALE OF GOODS

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COMMON LAW OF CONTRACTS

• Foundation of US contract law
• State court decisions
• Governs a wide array of contracts services,
  land, business agreements, employment
  consulting

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UNIFORM COMMERCIAL CODE

• ARTICLE 2
• Governs the sale and purchase of goods
• GOODS - tangible personal property
• Includes business and consumer goods

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MIXED TRANSACTIONS

• Predominant Factor Test
• Whether the primary purpose of the contract is
  services (with goods incidental) or goods (with
  services incidental)
• To determine predominant factor, courts examine
• Language of contract, the nature of the
  suppliers business, the reason for the contract,
  and relative amounts charged for goods services
  

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MIXED TRANSACTIONS

• Krietzer v. Land OLakes
• Contract for chicken feed and consulting services
  was a sale of goods
• AAF McQuay v. MJC, Inc.
• Contract for application of anti-corrosive
  coating to air conditioner coils was deemed a
  sale of goods

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UCITA UNIFORM CONSUMER INFORMATION TRANSACTIONS
ACT

• Governs computer information transaction
• Defined as an agreement to create, modify,
  transfer, or license computer information or
  rights in computer information
• Adopted only in Virginia and Maryland

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SOFTWARE AS A SALE OF GOODS?

• Ilan v. Netscout
• Packaged software license considered a sale of
  goods
• Multi-Tech v. Floreat
• Computer software design and development contract
  not a sale of goods

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ELEMENTS OF A SALES CONTRACT

• MUTUAL ASSENT
• FREE AND VOLUNTARY AGREEMENT
• CONSIDERATION
• PRICE BARGAINED FOR AND PAID FOR A PROMISE
• CAPACITY
• COMPETENT PARTIES
• LAWFUL PURPOSE
• CONTRACT OBJECTIVE CANNOT VIOLATE THE LAW OR
  PUBLIC POLICY
• FORM OF CONTRACT
• STATUTE OF FRAUDS WRITING IS REQUIRED FOR SOME
  CONTRACTS

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PARTIES TO A SALES CONTRACT

• MERCHANTS
• Person who regularly deals in goods of the kind
  in the transaction
• Person who holds himself out as having knowledge
  or skill relating to goods
• NONMERCHANTS

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MUTUAL ASSENT

• THE MEETING OF THE MINDS
• THE OFFER AND ACCEPTANCE

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FIRM OFFER

• WRITTEN OFFER FOR SALE OF GOODS
• SIGNED BY A MERCHANT
• THAT STATES IT WILL BE HELD OPEN
• IRREVOCABLE FOR TIME STATED OR REASONABLE TIME
  (MAX. 3 MONTHS)

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THE ACCEPTANCE

• MANNER OF ACCEPTANCE
• Orders to ship goods
• TERMS OF THE ACCEPTANCE
• Battle of the Forms

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BATTLE OF THE FORMS

• Whose Terms Govern The Sales Contract
• Affects warranties, remedies and other rights of
  the parties under a sales contract
• Buyers purchase order form often has different
  terms than sellers invoice
• UCC has complicated rule (2-207) to resolve the
  differences

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COMMON LAW APPROACH TO BATTLE OF THE FORMS

• MIRROR IMAGE RULE ACCEPTANCE WITH CHANGED
  TERMS IS COUNTEROFFER
• LAST SHOT RULE LAST FORM EXCHANGED BY
  PARTIES USUALLY GOVERNED CONTRACT

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UCC APPROACH 2-207

• ACCEPTANCE WITH ADDITIONAL OR DIFFERENT TERMS
  CONSTITUTES AN ACCEPTANCE UNLESS
• ACCEPTANCE IS MADE EXPRESSLY CONDITIONAL UPON
  AGREEMENT TO THE TERMS (COUNTEROFFER)

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ADDITIONAL TERMS BECOME PART OF THE CONTRACT
BETWEEN MERCHANTS UNLESS

• THE OFFER LIMITS ACCEPTANCE TO ITS TERMS OR
• ADDITIONAL TERMS MATERIALLY ALTER THE CONTRACT OR
• OFFEROR OBJECTS TO THE TERMS

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WHAT IS A MATERIAL ALTERATION?

• Term in contract that would be surprise
  (unexpected) or hardship to other party
• Terms changing standard warranty protections or
  requiring arbitration of disputes have generally
  been held to be material

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Knock Out Rule For Different Terms In
Acceptance

• Knock Out Rule conflicting terms cancel each
  other out different terms do not become part of
  the contract
• E.g., Flender v. Tippins, purchase order had
  binding arbitration clause, invoice required
  lawsuit in Chicago, neither term was binding

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Fall Back Rule

• Conduct may indicate a contract even if the
  writings do not, e.g., seller ships buyer
  accepts the goods
• If so the contract consists of those terms on
  which the writings agree plus UCC gap fillers

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DEFENSES TO SALES CONTRACT

• FRAUD, DURESS, UNDUE INFLUENCE, INCAPACITY ETC.
• UNCONSCIONABILITY
• GROSSLY UNFAIR CONTRACT

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CONSIDERATION

• MODIFICATION OF SALES CONTRACT
• NEW CONSIDERATION IS NOT REQUIRED FOR BINDING
  MODIFICATION OF SALE OF GOODS CONTRACT
• GOOD FAITH IS REQUIRED

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UCC STATUTE OF FRAUDS THE WRITING REQUIREMENT

• A CONTRACT FOR THE SALE OF GOODS WHERE THE PRICE
  IS 500 OR GREATER
• 1,000 RULE FOR PERSONAL PROPERTY LEASES

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UCC REQUIREMENTS FOR THE WRITING

• CONTENT REQUIREMENT
• MUST INDICATE THERE IS A CONTRACT BETWEEN THE
  PARTIES AND
• CONTAIN QUANTITY OF GOODS (NEED NOT CONTAIN
  PRICE)
• SIGNATURE REQUIREMENT
• MUST BE SIGNED BY THE PARTY TO BE CHARGED UNLESS
  THERE IS A BINDING CONFIRMATORY LETTER

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CONFIRMATORY LETTER RULE

• PARTIES MUST BE MERCHANTS
• MUST BE CONFIRMATORY LETTER SENT BY ONE PARTY AND
  RECEIVED BY ANOTHER
• THE LETTER IS NOT REPUDIATED IN WRITING IN TEN
  DAYS

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STATUTE OF FRAUDS EXCEPTIONS

• Full payment or acceptance of goods
• Part payment/partial acceptance
• Divisible/indivisible goods
• Specially manufactured goods
• Judicial admissions

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INTERPRETATION OF CONTRACT

• COURSE OF PERFORMANCE
• Manner in which the parties have performed the
  existing contract
• COURSE OF DEALING
• Manner in which the parties have performed
  several contracts
• USAGE OF TRADE
• Custom within industry, trade or profession

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GOOD FAITH

• PARTIES OBLIGATED TO PERFORM IN GOOD FAITH
• Merchants honesty plus reasonable commercial
  standards of fair dealing in the trade
• Nonmerchants honesty in fact

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Format Briefing Cases

• Facts
• Relevant Factual Circumstances Procedural
  History
• Issue - Legal Question in Case
• Decision
• Decision of Appellate Court (not lower
  court/jury)
• Reasons
• Rationale for Courts Decision
• Managerial Implications
• Significance of Law/Case to Business

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Format Case Problems

• Facts
• Issue
• What is the issue of law presented by case?
• Law
• What legal rules apply to the issue?
• Application
• How should the rules apply to facts of case?
• Conclusion
• What is the outcome of your analysis? Who wins?
  Who loses? Why?