Contract of formation of sales


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Contract of formation of sales

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Contract of formation of sales

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