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Contract of formation of sales

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Contract of formation of sales

Contract of formation of sales

Published in: Economy & Finance, Business

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  • 1. Formation of Sales and Lease Contracts
  • 2. §1: The UCC
    • Facilitates commercial transactions.
    • UCC Article 2: Sale of Goods.
      • Modifies common law of contracts of some areas.
      • UCC 2 preempts common law.
      • Where UCC2 is silent, common law governs.
  • 3. §2: The Scope of UCC 2
    • Does not apply to real estate unless there is a “good” that can be severed by the Seller. If the good is severed by the Buyer, then UCC2 does not apply.
    • Generally contracts for services are not governed by UCC2.
    • What if Goods and Services combined?
    • Case 19.1: Micro Data Base v. Dharma Systems (1998).
  • 4. Scope of UCC2 [2]
    • UCC2 applies to the “sale of goods.”
      • A “sale” is the passing of title of “goods” to/from a “merchant” (seller or buyer) for a price (money, goods, services,etc).
      • “ Goods” are tangible and movable.
      • A “merchant” has special business expertise and is not a casual buyer/seller.
      • Case 19.2: Ready Trucking Inc v. BP Exploration & Oil Co. (2001).
  • 5. §3: Scope of UCC 2A-Leases
    • Contract for lease of personal goods between a lessor and a lessee.
    • Consumer Leases (total payments less than $25,000).
    • Finance Leases (involves a 3rd party-supplier).
  • 6. §4: Formation of Sales and Lease Contracts
    • At common law once a valid offer is unequivocally accepted, a binding contract is formed.
    • UCC is more flexible, and allows for open pricing, payment, and delivery terms.
  • 7. Offer-Open Terms [1]
    • UCC 2-204: even if terms of are undetermined, a contract may still exist.
      • Open Terms : “Indefiniteness” is OK as long as the parties intended to make a contract and there is a reasonable basis for a court to grant a remedy.
  • 8. Offer-Open Terms [2]
    • Open Price Term: If parties have not agreed on pricing, court can determine “reasonable price at the time of delivery.” UCC2-305.
    • Open Payment Term: Unless otherwise agreed, payment is due on delivery (COD). UCC2-310(a).
    • Open Delivery Term: Unless otherwise agreed, buyer takes delivery at the Seller’s place of business. UCC2-308(a).
  • 9. Offer-Open Terms [3]
    • Open Quantity : generally courts will not impose a quantity. UCC2-306. Exceptions:
      • Requirements Contract: buyer agrees to purchase what the buyer needs or requires.
      • Output Contract: buyer agrees to buy all of seller’s production or output.
  • 10. Merchant’s Firm Offer
    • At common law, an offer could be revoked any time prior to acceptance, unless there was some consideration.
    • At UCC, offer made by merchant in a signed writing is irrevocable for reasonable period of time. No consideration necessary.
  • 11. Acceptance
    • Any reasonable means of acceptance under the circumstances is permissible.
    • Promise to ship or prompt shipment is acceptance.
      • Shipment of non-conforming goods is both an acceptance and a breach unless goods sent as an “accommodation” to buyer (UCC2-206).
  • 12. Acceptance: Additional Terms
    • If either party is a non-merchant, the contract is formed according to original terms of the offer.
    • If both parties are merchants, contract incorporates new terms unless:
      • (1) original offer expressly limits terms, or
      • (2) material change, or
      • (3) offeror objects within reasonable time.
  • 13. Consideration
    • UCC requires consideration and modifications must be made in good faith.
    • Modification must be in writing if required by Statute of Frauds.
  • 14. Statute of Frauds
    • Sale of goods over $500 must have a signed writing to be enforceable.
    • Exceptions to this rule:
      • Specially manufactured goods.
      • Admissions by breaching party.
      • Partial performance.
      • Merchant doesn’t object within 10 days.
    • Oral agreement enforceable after written confirmation between merchants.
  • 15. Parol Evidence
    • Terms of a written agreement intended to be the final expression of parties’ intentions, cannot be contradicted by prior or contemporaneous agreements.
    • Exceptions: consistent terms, course of dealing and trade.
    • Case 19:3: Puget Sound Financial LLC v. Unisearch Inc. (1976).
  • 16. Unconscionability
    • Contract is one that is so unfair and one-sided it is unreasonable to enforce it.
    • Court can: set it aside, refuse to enforce the unconscionable provision, limit the contract.
    • Case 19:4: Jones v. Star Credit Corp. (1969).
  • 17. §5: International Sales
    • Applicability of the CISG.
    • Comparison of CISG and UCC.
      • Mirror Image Rule.
      • Irrevocable Offers.
      • Statute of Frauds.
      • Necessity of a Price Term.
      • Time of Contract Formation.
  • 18. Special Provisions in International Contracts
    • Language and legal differences create special difficulties. Parties should agree to:
      • Choice of Language.
      • Choice of Forum (country).
      • Choice of Law.
      • Force Majeure Clause.