1. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning Chapter 23 Nature and Form of Sales Contracts Twomey Jennings Anderson’s Business Law and the Legal Environment, Comprehensive 20e Anderson’s Business Law and the Legal Environment, Standard 20e Business Law: Principles for Today’s Commercial Environment 2e

2. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 2 Introduction Contracts for the sale of services and real estate are governed by the common law. Contracts for the sale of goods (new or used tangible personal property) are governed by Article 2 of the Uniform Commercial Code (UCC). The UCC does not apply to securities or intellectual property.

3. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 3 Nature and Legality A sale of goods is a present transfer of title of tangible personal property for a price. The following are NOT Sales: –A bailment is a transfer of possession and not title and is therefore not a sale. –A gift is not a sale because there is no price paid. –A contract for services is an ordinary contract and is not governed by the UCC.

4. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 4 Nature and Legality A contract consisting of both services and goods is classified according to its dominant element. If a service, then common law governs. If a sale, then UCC 2 governs.

5. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 5 Formation of Sales Contracts Subject matter and quantity are required elements; other terms may be left open as long as the intent to contract is clear. Requirements for merchants vs. non- merchants. A merchant’s firm offer is irrevocable for a reasonable time period. Acceptance must be in a reasonable manner and time.

6. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 6 Additional Terms “Mirror Image” Rule. Additional terms: –Non-Merchant(s): additional terms constitute counter offer. –Merchants: “Battle of the Forms” additional terms become part of the contract, as long as they do not materially change the duties and the other party does not object in a timely manner.

7. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 7 Additional Terms MaterialOffer Is LimitedObjection Contract without Additional Terms Contract with Additional Terms Nonmerchants Nonmerchant/Merchant Merchants Additional Terms UCC Rules for Additional Terms in Acceptance

8. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 8 Defenses to Formation The same defenses available to formation under common law are incorporated in Article 2, including illegality. In addition, the UCC recognizes unconscionability as a defense to formation.

9. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 9 Terms in the Formed Contract The UCC does not require every term to be stated for a contract to be valid. Article 2 provides for missing terms. Price may be open, stating a formula for how the price would be figured later. Some open terms are interpreted by past patterns in their course of dealing. Modifications are binding if they are voluntary.

10. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 10 Output & Requirements Contracts In output or requirements contracts, the quantity is not specified, but are valid contracts if entered in good faith. Output Contracts. –A contract for the entire product produced by a seller in a given time period. Requirements Contracts. –A contract for the seller to sell whatever quantity the buyer needs.

11. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 11 Differing Terms Modification of Contract: Voluntary agreement to modify is binding, even without consideration. Contradicting Terms: if court decides a writing is the ‘entire contract’, extraneous evidence is not admissible to add to or contradict words in the written contract. Course of Dealing: prior performance.

12. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 12 Form of Sales Contract Statute of frauds provides that a sales contract for $500 or more must be evidenced by a writing. Confirmation memorandum allows two merchants to be bound after an oral agreement with a memo or letter signed by only one party without objection for ten days.

13. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 13 Exceptions To Writing Requirement Several exceptions to the UCC statute of frauds exist: –Specially Manufactured Goods for Buyer. –Receipt and Acceptance of Goods by Buyer. –Full or Partial Payment by Buyer. –Admission by Party against whom enforcement is sought.

14. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 14 Uniform Law for International Sales Uniform rules for international sales are applicable to contracts for sales between parties in countries that have ratified the United Nations Convention on Contracts for the International Sales of Goods (CISG). Under the CISG, a contract for the sale of goods need not be in any particular form and can be proven by any means.

15. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 15 Leases of Goods Article 2A of the UCC regulates consumer leases, commercial leases, finance leases, nonfinance leases, and subleases of tangible movable goods. A lease subject to Article 2A must be in writing if the lease payments will total $1,000 or more.

16. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 16 Leases of Goods A commercial finance lease is irrevocable. Warranties. Supplier makes express warranties to Lessor, who in turn passes them to the Lessee. –Financier-Lessor does not make implied warranties.

17. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 17 Leases of Goods Irrevocable Promises: Commercial Finance Leases. –Lessee must perform even if “hell or high water” occurs. Default.