Chapter 23Chapter 23NATURE AND FORM OF SALESNATURE AND FORM OF SALES

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IntroductionIntroduction

Contracts for the sale of services and real estate Contracts for the sale of services and real estate are governed by the common law. are governed by the common law.

Contracts for the sale of goods (new or used Contracts for the sale of goods (new or used tangible personal property) are governed by tangible personal property) are governed by Article 2 of the Uniform Commercial Code Article 2 of the Uniform Commercial Code (UCC). (UCC).

The UCC does not apply to securities or The UCC does not apply to securities or intellectual property.intellectual property.

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Nature and LegalityNature and Legality

A sale of goods is a present transfer of title of A sale of goods is a present transfer of title of tangible personal property for a price. tangible personal property for a price.

The following are NOT Sales:The following are NOT Sales: A A bailmentbailment is a transfer of possession and not title is a transfer of possession and not title

and is therefore and is therefore notnot a sale. a sale. A A giftgift is is notnot a sale because there is no price paid. a sale because there is no price paid. A contract for A contract for servicesservices is an ordinary contract and is is an ordinary contract and is

notnot governed by the UCC. governed by the UCC.

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Nature and LegalityNature and Legality

A contract consisting of both services and A contract consisting of both services and goods is classified according to its dominant goods is classified according to its dominant element. If a service, then common law element. If a service, then common law governs. If a sale, then UCC 2 governs.governs. If a sale, then UCC 2 governs.

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Formation of Sales ContractsFormation of Sales Contracts

Subject matter and quantity are required Subject matter and quantity are required elements; other terms may be left open as long elements; other terms may be left open as long as the intent to contract is clear.as the intent to contract is clear.

Requirements for merchants vs. non-merchants. Requirements for merchants vs. non-merchants. A merchant’s A merchant’s firm offerfirm offer is irrevocable for a is irrevocable for a

reasonable time period.reasonable time period.Acceptance must be in a reasonable manner Acceptance must be in a reasonable manner

and time.and time.

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Additional TermsAdditional Terms

““Mirror Image” Rule. Additional terms:Mirror Image” Rule. Additional terms: Non-Merchant(s): additional terms constitute Non-Merchant(s): additional terms constitute

counter offer.counter offer. MerchantsMerchants: “Battle of the Forms” additional terms : “Battle of the Forms” additional terms

become part of the contract, as long as they do not become part of the contract, as long as they do not materially change the duties and the other party materially change the duties and the other party does not object in a timely manner. does not object in a timely manner.

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Additional Terms

Material Offer Is Limited Objection

Contractwithout

AdditionalTerms

Contractwith

AdditionalTerms

NonmerchantsNonmerchant/Merchant

Merchants

Additional Terms

UCC Rules for Additional UCC Rules for Additional Terms in AcceptanceTerms in Acceptance

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Defenses to FormationDefenses to Formation

The same defenses available to formation under The same defenses available to formation under common law are incorporated in Article 2, common law are incorporated in Article 2, including illegality.including illegality.

In addition, the UCC recognizes In addition, the UCC recognizes unconscionabilityunconscionability as a defense to formation. as a defense to formation.

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Open TermsOpen Terms

The UCC does not require every term to be The UCC does not require every term to be stated for a contract to be valid. stated for a contract to be valid.

Article 2 provides for missing terms.Article 2 provides for missing terms.Price may be open, stating a formula for how Price may be open, stating a formula for how

the price would be figured later. the price would be figured later. Some open terms are interpreted by past Some open terms are interpreted by past

patterns in their course of dealing.patterns in their course of dealing.Modifications are binding if they are voluntary.Modifications are binding if they are voluntary.

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Output & Requirements ContractsOutput & Requirements Contracts

In output or requirements contracts, the In output or requirements contracts, the quantity is not specified, but are valid contracts quantity is not specified, but are valid contracts if entered in good faith. if entered in good faith.

Output Contracts.Output Contracts. A contract for the entire product produced by a A contract for the entire product produced by a

seller in a given time period.seller in a given time period.Requirements Contracts.Requirements Contracts.

A contract for the seller to sell whatever quantity A contract for the seller to sell whatever quantity the buyer needs.the buyer needs.

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Form of Sales ContractForm of Sales Contract

Statute of fraudsStatute of frauds provides that a sales contract for provides that a sales contract for $500 or more must be evidenced by a writing. $500 or more must be evidenced by a writing.

Confirmation memorandum allows two Confirmation memorandum allows two merchants to be bound after an oral agreement merchants to be bound after an oral agreement with a memo or letter signed by only one party with a memo or letter signed by only one party without objection for ten days.without objection for ten days.

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Exceptions To Writing RequirementExceptions To Writing Requirement

Several exceptions to the UCC statute of frauds Several exceptions to the UCC statute of frauds exist: exist: Specially Manufactured Goods for Buyer.Specially Manufactured Goods for Buyer. Receipt and Acceptance of Goods by Buyer.Receipt and Acceptance of Goods by Buyer. Full or Partial Payment by Buyer. Full or Partial Payment by Buyer. Admission by Party against whom enforcement is Admission by Party against whom enforcement is

sought. sought.

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Uniform Law for International SalesUniform Law for International Sales

Uniform rules for international sales are Uniform rules for international sales are applicable to contracts for sales between parties applicable to contracts for sales between parties in countries that have ratified the United in countries that have ratified the United Nations Convention on Contracts for the Nations Convention on Contracts for the International Sales of Goods (CISG).International Sales of Goods (CISG).

Under the CISG, a contract for the sale of Under the CISG, a contract for the sale of goods need not be in any particular form and goods need not be in any particular form and can be proven by any means.can be proven by any means.

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Leases of GoodsLeases of Goods

Article 2A of the UCC regulates consumer Article 2A of the UCC regulates consumer leases, commercial leases, finance leases, leases, commercial leases, finance leases, nonfinance leases, and subleases of tangible nonfinance leases, and subleases of tangible movable goods. movable goods.

A lease subject to Article 2A must be in writing A lease subject to Article 2A must be in writing if the lease payments will total $1,000 or more.if the lease payments will total $1,000 or more.

A commercial finance lease is irrevocable.A commercial finance lease is irrevocable.

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Leases of GoodsLeases of Goods

Warranties. Supplier makes express warranties Warranties. Supplier makes express warranties to Lessor, who in turn passes them to the to Lessor, who in turn passes them to the Lessee.Lessee. Financier-Lessor does not make implied warranties.Financier-Lessor does not make implied warranties.

Irrevocable Promises: Commercial Finance Irrevocable Promises: Commercial Finance Leases.Leases. Lessee must perform even if “hell or high water” Lessee must perform even if “hell or high water”

occurs.occurs.Default.Default.