Chapter 20 - The Formation of Sales Contracts

What is a sale

the UCC defines a sale as "the passing of title (evidence of ownership rights) from the seller to the buyer for a price"

Rules of construction

the UCC provides rules of construction for interpreting contracts. express terms (highest priority) this takes priority over course of performance, and down the line. course of performance course of dealing usage of trade are to be construed to be consistent with each other whenever reasonable.

open terms

the UCC states that a sales or lease contract will not fail for indefiniteness even if one or more terms are left open as long as both of the following are true: 1. The parties intended to make a contract. 2. There is a reasonably certain basis for the court to grant an appropriate remedy.- PN: the court will use "gap filler" fill in the gaps. Definiteness, agree to all essential terms (both parties) Sufficiently definite even if one or more terms remain open as long as the parties intended to be bound and there is a reasonable certain basis for a remedy, court will fill any open terms--Gap Filers

Judicial Admissions

An oral contract for the sale or lease of goods is enforceable if the party against whom enforcement is sought admits in pleadings, testimony, or other court proceedings that a sales or lease contract was made. in this situation, the contract will be enforceable even though it was oral but enforceability will be limited to the quantity of goods admitted. PN: Judicial Admission, an oral contract enforceable if the party admits in pleadings, testimony or other court proceedings, but only to the qty so admitted. Ex: did you agree to 10 cars in 10 days, no 8 cars in 10 days. You've agreed to the contract.

Unconscionability

An unconscionable contract is one that is so unfair and one-sided that it would be unreasonable to enforce it. A court can do any of the following: 1. Refuse to enforce the contract 2. Enforce the remainder of the contract without the unconscionable part 3. Limit the application of the unconscionable part term to avoid any unconscionable result PN: The one sided unfair contract. Your mobile phone contract. Contract that is one side and unfair that residing it, it is unreasonable, can sever the unconscionable clause and enforce the remaining of the contract, or enforce the unconscionable clause only if its affect is not unconscionable

usage of trade

Any practice or method of dealing that is so regularly observed in a place, vocation, or trade as to justify an expectation by the parties that it will be observed in their transaction is a usage of trade.

Special Provisions

Choice of language Choice of forum Choice of law--which law will be applied (state or country) Force Majeure--excuses a party from liability for nonperformance for circumstances beyond their normal

Mix Contracts (goods and services)

Court has to decide what law to be used, and will decide using the predominant factor test, what was the primary purpose to acquire?-- the goods--article 2 applies, non-goods--article 2 does not apply to any transaction Majority courts Minority courts use gravamen action test--what part of the transaction is giving rise to the dispute, if complaint about the goods00article 2, if about the services--article 2 does not apply

Seasonably

If the seller seasonably (within a reasonable amount of time) notifies the buyer that the nonconforming shipment is offered only as an accommodation, or as a favor. the notice of accommodation must clearly indicate to the buyer that the shipment does not constitute an acceptance and that, therefore, no contract has been formed.

Parole evidence

Parole evidence consists of evidence outside the contract such as evidence of the parties prior negotiations, prior agreements, or contemporaneous (simultaneous) oral agreements. PN: if the parties to a contract set forth a writing and it is intended to be the final expression of the agreement the terms can't be contradicted. However, the written terms may be explained or supplemented the terms through course of performance, course of dealing (prior agreements), and usage of trade (using a term, practice, or method of dealing in the trade... like chicken farmer). Order of priority: Express terms, course of performance, course or dealings, consistent additional terms, and Gap fillers

exceptions to the writing requirements of the statute of frauds

The ECC defines three exceptions to the writing requirements of the statute of frauds.an oral contract will be enforceable despite the absence of a writing in the circumstances: ANSWER YOUR MAIL RULE: if one party received a contract agreement and if it's not objected in 10 days in writing by that party, then it's a contract. Specialty manufactured goods- an oral contract for the sale or lease of custom-made goods will be enforceable if: 1. The goods are specifically manufactured for a particular buyer or specially manufactured or obtained for a particular leasee. oral contract will be enforaceable. Judicial Admission 2. The goods are not suitable for resale or lease to others in the ordinary course of the sellers or leaser's business. 3. The seller or leaser has substantially started to manufacture the goods or has made commitments for the manufacturer or procurement of the goods. In these situations, once the seller or leaser has taken action, the buyer or leasee cannot repudiate the agreement claiming the statute of frauds as a defense. UCC doesn't require the mirror images. for non-merchant, a contract is formed to the orignal contract, any additional terms drop out. Guy (car salesman) is offered a price on a car from buyer, but Guy adds to the offer. buyer is non-merchant and agrees, but the rest drops out. Doesn't apply. two merchants in the party: if both are merchant the addition terms become part of the contract. Unless, 1. the offer expressly limits the acceptance to the terms. ex: guys sell car and that's all that's on the table, you can only accept my offer no other terms. 2. the offeror timely objects to the new varied terms. 3. the acceptance of the varied terms materially alters the contract. ex: offer to sell x, I will buy x but it has to be on Saturday, for y dollars, and has to have full tank of gas, etc. I offer x but we're going to arbitrate if we have a disagreement. this materially alters the contract. proported acceptance (like a counter offer)- it's conditioned to different and additional terms. yeah I accept but you have to do all this offer stuff, this is a counter offer. where the offer is materially altered. Satute of Fraud under UCC: sale of goods more than $500 in writing, must indicate agreei, signed, state qty of goods to be sold.

Fully integrated contract

The terms of a fully integrated contract cannot be contradicted by evidence of any prior agreements or contemporaneous oral agreements. if the writing contains some of the terms the parties agreed on but not others, then the contract is not fully integrated.

Requirements for a firm offer

To qualify as a firm offer, the offer must be: 1. Written (or electronically recorded, such as in an email) 2. Signed by the offer.

course of dealing

a course of dealing is a sequence of actions and communications between the parties to a particular transaction that establishes a common basis for their understanding.

Merchant's firm offer (Option Contract)

a firm offer arises when a merchant offer gives assurances in a signed writing that the offer will remain open. the merchants firm offer is irrevocable without the necessity of consideration for the stated period or, if no definite period is stated, a reasonable period (Neither to exceed three months). PN: second exception. Written signed offer by a merchant is irrevocable without the separate consideration (paying/ putting a deposit). open for the stated period of time if there's no period stated- it's open for a reasonable amount of time it cannot be held open for more than three months regardless if it's stated or not. acceptance- is done by any method that is reasonable. what is a reasonable way to accept an offer to buy goods? promise to ship to the buyer (bilateral), or ship the conforming goods (unilateral). It has to be conforming (meet the description asked for) goods. If you choose to accept by just shipping, you have to notify the buyer. "I shipped the goods". that way her can't revoke. Non-conforming goods (making an accomodation): a prompt shipment of non-conforming goods constitutes both an acceptance and a breach by the seller, unless the seller notify's the buyer the that goods are in accommodation not an acceptance. ex: I want 10 computers, seller can promise to ship or just ship the computers. but seller sends better comps because he doesn't have the originally requested comps and notify's the buyer that he's shipping better comps. Now it's not a breach because it becomes a counter offer and once the buyer receives the comps, she can decide if she wants to keep them (which creates a new contract for the better comps) or she returns them. the offeree's failure to communicate in a reasonable time allows the offeror to consider the offer lapsed. Under the UCC, even if the acceptance differs from the offer, we will have a contract; it will depend if the parties are merchants or non-merchants If one of the parties is a non-merchant, there is a contract on the original offer and the additional terms drop out Don't have to have the mirror image Two parties are merchants, the additional or different terms become part of the contract unless (1) the offer expressly limits the acceptance of the terms, (2) the offeror timely objects to the new very terms, (3) acceptance of the very terms materially alters the contract Counteroffer- a rejection coupled with a new offer; purported acceptance that is conditioned to additional terms

choice of forum

a forum selection clause designates the forum (place, or court) in which any disputes that arise under the contract will be litigated. PN: which country has jurisdiction.

duration of an ongoing contract

a single contract might specify successive performances but not indicate how long the parties are required to deal with each other. in this situation, either party may terminate the ongoing contractual relationship. nevertheless, principles of good faith and sound commercial practice call for reasonable notification before termination so as to give the other party sufficient time to seek a substitute agreement. PN: if duration not stated, either party may terminate with reasonable notification.

sufficiency of the writing

a writing, email, or other electronic record will be sufficient to satisfy the UCC's statute of fraud as long as it: 1. Indicates that the parties intended to form a contract 2. Is signed by the party or agent of the party against whom enforcement is sought. (remember that a typed name can qualify as a signature on an electronic record). Ex: Alfonso is a merchant buyer in Cleveland. he contracts over tthe telephone to purchase $6000 worth of spare aircraft parts from Goldstein, a merchant seller in New York City. 2 days later, Goldstein emails a signed confirmation detailing the terms of the oral contract, and all funds of subsequently receives it. Alfonso does not notify Goldstein in writing (or email) that he objects to the contents of the confirmation within 10 days of receipt. therefore, Alfonso cannot raise the statute of frauds as a defense against the enforcement of the oral contract.

Partial performance

an oral contract for the sale or lease of goods is enforceable if payment has been made and accepted or goods have been received and accepted. this is the partial performance exception. the oral contract will be enforced at least to the extent that performance actually took place. PN: an oral contract is enforceable if seller has made and buyer has paid for the goods. or, the buyer has received and accepted the goods.

Article 2-the sale of goods

article 2 of the UCC (as adopted by state statutes) governs sales contracts, or contracts for the sale of goods. to facilitate commercial transactions, article 2 modifies some of the common law contract requirements that were discussed in previous chapters. The common law requirements for a valid contract-agreement, consideration, capacity, and legality-that were discussed in previous chapters are also applicable to sales contracts. if the UCC is silent, the common law governs. Two points in mind regarding article 2: 1. Article 2 deals with the sale of goods. it does not deal with real property (real estate), services, or intangible property such as stocks and bonds. thus, if the subject matter of a dispute is goods, the UCC governs. if it is real estate or services, the common law applies. 2. In some situations, the rules can vary depending on whether the buyer or the seller is a merchant. PN: this govern sales and the contract of sale of goods. when a seller transfers to a buyer title (ownership) to goods (includes: growing crops, timber to be harvested, fixtures like things of fixed to realty that can be removed without harm ex: chairs, oil, gas, and other minerals beneath, structures attached to realty) in exchange for money or other value. Article 2 governs the sale of stuff. it has to have inherent physical value and can be moved from place to place.; only tangible personal property does not govern contacts for svcs or real property, and intangible personal property (IP, stocks, bonds) Ex: UNLV blding is not. Land uses common law.

force majeure clause

every contract, and particularly those involving international transactions should have a force majeure clause. The meaning of the French term force majeure is "impossible or irresistible force"-sometimes a loosely defined as "an act of God". Force majeure clauses commonly stipulate that in addition to acts of God, a number of other eventualities (such as governmental orders or regulations, embargoes, or extreme shortages of materials) may excuse a party from liability for nonperformance. PN: Ma-juur. excuses a party from liability because of circumstances outside of their control like acts of war, god, etc.

goods associated with real estate

goods associated with real estate often do fall within the scope of article 2. a contract for the sale of minerals, oil, or gas is a contract for the sale of goods if severance, or separation, is to be made by the seller. similarly, a contract for the sale of growing crops or timber to be cut is a contract for the sale of goods regardless of who severs then in the land.

Shipping Arrangements

if seller ships to buyer but not stated how, the seller in good faith can make commercially reasonable shipping arrangements.

open price term

if the parties have not agreed on a price, the court will determine a "reasonable price at the time for delivery". PN: court will determine reasonable price at time of delivery. One party can but has to be done in good faith. Ex: can't charge $50,000 for a coconut. If parties have not agreed on price, one party is at fault, the other party can cancel contract or fix the price (reasonable price). If the parties don't agree on the price, the court will decide a reasonable price, if one party decides for the price on behalf of the other it has to be based on good faith, or if parties has not agreed on price and party no at fault can cancel the contract or fix the price (reasonable price)

contracts between merchants

in contracts between merchants, the additional terms automatically become part of the contract unless one of the following conditions arises: 1. The original offer expressly limited acceptance to its terms. 2. The new or changed terms materially alter the contract. 3. The offer objects to the new or changed terms within a reasonable period of time.

Statute of frauds

sales contracts for goods priced at $500 or more and lease contracts requiring total payment of $1000 or more must be in writing to be enforceable. P:Sale of goods $500 or more must be in writing and include the intent to agree, must be signed, and must state the quantity of goods to be sold

Who is a merchant

section 2-104 sets forth three ways in which merchant status can arise: 1. A merchant is a person who deals in goods of the kind involved in the sales contract. thus, a retailer, a wholesaler, or a manufacturer is a merchant of the goods sold in his or her business. a merchant for one type of good is not necessarily a merchant for another type. for instance, a sporting goods retailer is a merchant when selling tennis rackets but not when selling a used computer. 2. A merchant is a person who, by occupation, holds himself or herself out as having knowledge and skill unique to the practices or goods involved in the transaction. this broad definition may include banks or universities as merchants. 3. A person who employs a merchant as a broker, agent, or other intermediary has the status of merchant in that transaction. hence, if an art collector hires a broker to purchase or sell art for her, the collector is considered a merchant in the transaction. In summary, a person is a merchant when she or he, acting in a mercantile capacity, possesses or uses and expertise specifically related to the goods being sold. PN: merchant have special status. merchant will have higher requirements. a merchant is a person who regulatory deals with goods of the kind. or holds themselves in having unique knowledge and skill or a person employed as a broker, intermediary, etc. whether a merchant or not has not effect on the applicability of article 2. if it's about the sale of goods article 2 is applied. if the person is a merchant there may be stricter enforcement. they're held to a stricter standard of contact than non-merchants.

intangible property

such as corporate stocks and bonds, patents and copyrights, and ordinary conntract rights-has only conceptual existence and thus does not come under article 2. A tangible item has to be movable, carried from place to place, hence real estate is excluded from article 2.

Course of performance

the conduct that occurs under the terms of the particular agreement is called a course of performance. presumably, the parties themselves know best what they meant by their words. thus, the course of performance actually carried out under the parties agreement is the best indication of what they meant.

Output contract

the seller agrees to sell and the buyer agrees to buy all or up to a stated amount of what the seller produces. PN: good faith requirement- the qty purchase or sold can not be unreasonably disproportionate to the buyer (if qty is not stated).

Comprehensive coverage of the UCC

theUCC is the single most comprehensive codification of the broad spectrum of laws involved in a total "commercial transaction. the UCC views the entire commercial transaction for the sale of and payment for goods" as a single legal occurrence having numerous facets.

Choice of language clause

to make sure that no disputes arise out of this language problem, and international sales contract should include a choice of language clause, designating the official language by which the contract will be interpreted in the event of disagreement. PN: CYA cover your ass.

Predominant factor test

when contracts involve a combination of goods and services, courts generally use the predominant factor test to determine whether a contract is primarily for the sale of goods or the sale of services. if a court decides that a mixed contract is primarily a goods contract, any dispute, even a dispute over the services portion, will be decided under the you CC. PN: mixed contract- goods can also involve services. generally courts will decide based on the predominant factor test. if the purpose was to acquire the goods it's article 2, if for non-goods then article 2 doesn't apply to any of it. Minority of courts use Gravamen of the action test- what part of the transaction is giving rise to the dispute? if compliant about goods then article 2. if about service not article 2.

open delivery term

when no delivery terms are specified, the buyer normally takes delivery at the seller's place of business. if the seller has no place of business, the seller's residence is used. PN: if not specified, buyer takes delivery at sellers place of business. time of delivery has to be done during a reasonable amount of time.

Options and cooperation with regard to performance

when the contract contemplates shipment of the goods but does not specify the shipping arrangements, the seller has the right to make these arrangements in good faith, using commercial reasonableness in the situation.

open payment term

when the parties do not specify payment terms, payment is due at the time and place at which the buyer is to receive the goods. PN: if you don't specify otherwise, the payment is due at time and place where buyer receives goods. Any commercially acceptable means like cash, credit, etc. if seller demands cash, the buyer must be given reasonable time to get it.

Merchant's Written Confirmation

"Answer your mail rule"-if you get a confirmation and don't know what it is about you have to notify the party within 10 days if not it is a contract Confirmatory memo--unless within 10 days you object in writing,

Choice of law clause

a contractual provision designating the applicable law, called a choice of law clause, is typically included in every international contract. at common law (and in European civil law systems), parties are allowed to choose a law that will govern their contractual relationship. PN: which country's law will have jurisdiction.

Unique Goods

Oral contract enforceable when goods are special

tangible property

has physical existence-it can be touched or seen.

Open Quantity

if not specified, it is fatal unless output or requirements contract (cannot gap fill the quantity), however, we requirements contract and output contract. the buyer agrees to purchase and seller agrees to sell. All or up to a stated amount.

Offer

in general contract law, the moment a definite offer is met by an unqualified acceptance, a binding contract is formed. PN: Not applicable under UCC (you have to have definitive terms. We need to know about we're talking about.) the offer is sufficient even if one or more terms remain open as long as: Look at open terms. the court will fill in the terms for the rest.

Assorted Goods

make contract for a mixture of widgets, what the mixture? buyer may specify the assortment.

Requirements contract

requirements contracts are common in the business world and normally are enforceable. in a requirements contract, the buyer agrees to purchase and the seller agrees to sell all or up to a stated amount of what the buyer requires. P: Buyer agrees to purchase, and seller produces

what are goods

to be characterized as a good, and item of property must be tangible, and it must be movable.