Scope and Formation of Sales and Lease Contracts

sales contracts

A contract for the sale of goods under which the ownership of goods is transferred from a seller to a buyer for a price. In other words, the common law requirements for a valid contract—agreement, consideration, capacity, and legality—that were discussed in Chapter 12 are also applicable to sales contracts.

Merchant

A person who is engaged in the purchase and sale of goods. Under the UCC, (1)a person who deals in goods of the kind involved in the sales contract or (2)who holds herself or himself out as having skill or knowledge peculiar to the practices or (3)goods being purchased or sold.

Acceptance

Acceptance of an offer to buy, sell, or lease goods generally may be made in any reasonable manner and by any reasonable means. The UCC permits acceptance of an offer to buy goods "either by a prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods." Conforming goods accord with the contract's terms, whereas nonconforming goods do not.

Open Terms

According to general contract law, an offer must be definite enough for the parties (and the courts) to ascertain its essential terms when it is accepted. In contrast, 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.

firm offer

An offer (by a merchant) that is irrevocable without consideration for a period of time (not longer than three months). A firm offer by a merchant must be in writing and must be signed by the offeror.

Article 2

Article 2 of the UCC sets forth the requirements for sales contracts, as well as the duties and obligations of the parties involved in the sales contract.

Article 2A

Article 2A covers similar issues for lease contracts. Bear in mind, however, that the parties to sales or lease contracts are free to agree to terms different from those stated in the UCC.

Formation of Sales and Lease Contracts

Articles 2 and 2A of the UCC modify common law contract rules. Remember, though, that parties to sales and lease contracts are basically free to establish whatever terms they wish. The UCC comes into play when the parties either fail to provide certain terms in their contract or wish to change the effect of the UCC's terms in the contract's application. The UCC makes this very clear by its repeated use of such phrases as "unless the parties otherwise agree" and "absent a contrary agreement by the parties."

Rules When Both Parties Are 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 offeror objects to the new or changed terms within a reasonable period of time.

Offer

In general contract law, the moment a definite offer is met by an unqualified acceptance, a binding contract is formed. In commercial sales transactions, the verbal exchanges, correspondence, and actions of the parties may not reveal exactly when a binding contractual obligation arises. The UCC states that an agreement sufficient to constitute a contract can exist even if the moment of its making is undetermined.

lease agreement

In regard to the lease of goods, an agreement in which one person (the lessor) agrees to transfer the right to the possession and use of property to another person (the lessee) in exchange for rental payments.

Special Rules for Contracts between Merchants

Merchants can satisfy the Statute of Frauds if, after the parties have agreed orally, one of the merchants sends a signed written (or electronic) confirmation to the other merchant within a reasonable time.

lessee

One who acquires the right to the possession and use of another's goods in exchange for rental payments.

lessor

One who transfers the right to the possession and use of goods to another in exchange for rental payments.

Intangible property

Property that cannot be seen or touched but exists only conceptually, such as corporate stocks and bonds. Article 2 of the UCC does not govern intangible property.

Tangible property

Property that has physical existence and can be distinguished by the senses of touch and sight.

The Statute of Frauds

The UCC contains Statute of Frauds provisions covering sales and lease contracts. Under these provisions, sales contracts for goods priced at $500 or more and lease contracts requiring total payments of $1,000 or more must be in a writing or record to be enforceable.

three exceptions to the writing requirements of the Statute of Frauds

The UCC defines three exceptions to the writing requirements of the Statute of Frauds. 1.Specially manufactured goods. An oral contract will still be enforceable if it is for goods that are specially manufactured for a particular buyer and the seller has substantially started manufacturing the goods. 2.Admissions. When the party against whom enforcement is sought admits to making an oral contract, the contract is enforceable, but only as to the quantity of goods that the party admitted. 3.Partial performance. An oral contract that has been partially performed (such as when some of the contracted goods have been paid for and accepted) will be enforceable to the extent that it has been performed.

Consideration

The common law rule that a contract requires consideration also applies to sales and lease contracts. Unlike the common law, however, the UCC does not require a contract modification to be supported by new consideration. The UCC states that an agreement modifying a contract for the sale or lease of goods "needs no consideration to be binding." Of course, any contract modification must be made in good faith.

sale

The passing of title to property from the seller to the buyer for a price.

conflict arises between a common law contract rule and the state statutory law based on the UCC, the UCC controls

Thus, when a UCC provision addresses a certain issue, the UCC rule governs. When the UCC is silent, the common law governs. The relationship between general contract law and the law governing sales of goods

What Are Goods?

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

Merchant's Firm Offer

Under regular contract principles, an offer can be revoked at any time before acceptance. The major common law exception is an option contract (discussed in Chapter 12). The UCC creates a second exception for firm offers made by a merchant concerning the sale or lease of goods (regardless of whether or not the offeree is a merchant).

Communication of Acceptance

Under the common law, because a unilateral offer invites acceptance by performance, the offeree need not notify the offeror of performance unless the offeror would not otherwise know about it. In other words, a unilateral offer can be accepted by beginning performance.

Article 2

keep two points in mind. 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.