Chapter 8 Contracts for the Sale of Goods McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Overview Formation of agreements for the sale of goods recognized under the UCC and how it differs from the common law. Legal rules regarding passing of ownership and allocation of risk for goods in a commercial transaction. UCC provisions governing the obligations of the parties in a sales agreement as well as protections for innocent parties when the other party violates the agreement. The international commercial law principles governing sale of goods transnational contracts.

INTRODUCTION TO ARTICLE 2 The UCC is a model statute published by the National Conference of Commissioners of Uniform State Laws. Every state except Louisiana has adopted all (or substantially all) of Article 2.

UCC Coverage The UCC applies only to sales contracts that are agreements for the sale of goods. The UCC defines goods as: (1) tangible (i.e., has a physical existence such as a laptop computer) (2) moveable from place to place.

Function of the UCC KEY POINT Article 2 of the UCC acts to fill in only missing or open terms (where the parties have not expressly agreed otherwise) in a contract for the sale of goods.

AGREEMENT IN A SALES CONTRACT Article 2 lowers the bar for formation by allowing an enforceable contract to arise “in any manner sufficient to show agreement” between the parties.

Offers with Open Terms Quantity Delivery Price Payment

Firm Offers by Merchants A firm offer is created when a merchant offers to sell goods, in a writing that promises the offer will be held open for a certain time period.

Battle of the Preprinted Forms-ACCEPTANCE Nonmerchant Transactions: If one of the parties in a sales contract is not a merchant, the contract is formed as originally offered, the additional terms are not part of the contract. Merchant Transactions: If both parties are merchants, the additional terms can automatically become part of the enforceable contract unless objected to by offeror.

Consideration UCC allows contracts to be modified without any additional consideration. The UCC recognizes market conditions are not static and the parties may have good faith reasons for modifying a contract but want it to remain enforceable.

STATUTE OF FRAUDS Any sales contract for goods with a total value of $500 or more must be in writing. $500

Title A party holds title to a good when: (1) the goods are actually in existence in tangible form, and (2) when the goods are identified to the contract.

Risk of Loss - Shipment contract The risk of loss is on the seller only until the seller has delivered the goods to the carrier. If the goods are destroyed at any point after that, such as during shipping, the loss is borne by the buyer.

Risk of Loss - Destination contract Requires the seller to deliver the goods to a specified destination, typically the buyer’s place of business or home. Any loss will be borne by seller until the goods are delivered to buyer.

Merchants Acceptance, Inc. v. Jamison, 752 So. 2d 422 (1999) “…since the delivery term in the Contract was specified as Jamison’s street address . . . The risk of loss, therefore, remained with Merchants until the books were ‘duly so tendered as to enable [Jamison] to take delivery.’ ”

Goods Picked Up by the Buyer If the seller is a merchant, the risk of loss to goods held by the seller passes to the buyer only when the buyer takes physical possession of the goods. If the seller is not a merchant, the risk of loss to goods held by the seller passes to the buyer on tender of the goods.

Seller’s Obligations and Rights The seller’s primary obligation is to transfer or deliver conforming goods to the buyer. Perfect Tender rule

Commercial Impracticability The UCC adopts a commercial impracticability rule when a delay in delivery or non-delivery has been made impracticable by the occurrence of an unanticipated event that directly affected a basic assumption of the contract. Commercial impracticability is a narrow doctrine.

Buyer’s Rights and Obligations Buyer’s Right of Inspection: Acceptance or Rejection After seller tenders delivery and buyer has accepted the goods, buyer must pay for them in accordance with the contract.

Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396 (1997) Borden’s management expressed that they had no intention of honoring the contract. In bad faith, knowing that without Borden’s clam purchases the Sons of Thunder would suffer financially to the point of insolvency, Borden simply reduced their clam buying dramatically.

Special Rules for Installment Contracts In an installment contract, each lot must be accepted and paid for separately. This means that a buyer can accept one installment without giving up the right to reject any additional installments that are nonconforming.

Anticipatory Repudiation in the UCC The nonbreaching party may either: (1) suspend her own performance, treating the breach as final, and pursue any remedies; or (2) suspend her own performance, wait for a period of time for the breaching party to retract the repudiation, and perform.

Seller’s Remedies The choice of remedies depends on when the breach occurs relative to whether the goods have been delivered: Goods in Hands of Seller Goods in Hands of Buyer Usually involves lawsuit for monetary damages under either scenario.

Remedies Available to the Buyer Rejection of Goods Cover Lawsuit for Money Damages Specific Performance

Remedies Following Acceptance of Nonconforming Goods Revocation of Acceptance Lawsuit for Money Damages

INTERNATIONAL SALES OF GOODS The U.N. Convention on Contracts for the International Sale of Goods (UNCISG) governs sale of goods transactions between businesses in any of its 74 member countries.

Unique Provisions of UNCISG No Writing Required INCO: International Chamber of Commerce Terms

learning outcomes checklist 8 - 1 Articulate the fundamental purpose and role of the UCC in commercial transactions and why it is important to business owners and managers. 8- 2 Identify which contracts are governed by UCC Article 2. 8- 3 Discuss the requirements for agreement in a sale of goods contract and what terms the UCC provides in a sales agreement with open or missing terms.

learning outcomes checklist 8- 4 Classify which contracts must be in writing and understand what the writing must contain to be enforceable under the statute of frauds. 8- 5 Express how risk of loss is allocated among the parties in a sales contract and identify steps managers take to limit risks and assure performance.

learning outcomes checklist 8- 6 Convey UCC requirements on the obligations of both buyer and seller and the consequences of breaching a contract. 8- 7 Identify the appropriate remedy and damages available to buyers and sellers. 8- 8 Explain the risks of sales transactions with foreign companies and how to mitigate that risk by understanding international commercial laws.