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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
Chapter 23
Nature and Form of
Sales Contracts
Copyright © 2008 by West Legal Studies in Business
A Division of Thomson Learning
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.
Copyright © 2008 by West Legal Studies in Business
A Division of Thomson Learning
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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.
Copyright © 2008 by West Legal Studies in Business
A Division of Thomson Learning
3
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.
Copyright © 2008 by West Legal Studies in Business
A Division of Thomson Learning
4
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. nonmerchants.
• A merchant’s firm offer is irrevocable for a
reasonable time period.
• Acceptance must be in a reasonable manner
and time.
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Copyright © 2008 by West Legal Studies in Business
A Division of Thomson Learning
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.
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UCC Rules for Additional
Terms in Acceptance
Nonmerchants
Nonmerchant/Merchant
Merchants
Additional Terms
Additional Terms
Material
Contract
without
Additional
Terms
Copyright © 2008 by West Legal Studies in Business
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Offer Is Limited
Objection
Contract
with
Additional
Terms
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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.
Copyright © 2008 by West Legal Studies in Business
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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.
Copyright © 2008 by West Legal Studies in Business
A Division of Thomson Learning
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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.
Copyright © 2008 by West Legal Studies in Business
A Division of Thomson Learning
10
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.
Copyright © 2008 by West Legal Studies in Business
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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.
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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.
Copyright © 2008 by West Legal Studies in Business
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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.
Copyright © 2008 by West Legal Studies in Business
A Division of Thomson Learning
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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.
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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.
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Leases of Goods
• Irrevocable Promises: Commercial
Finance Leases.
– Lessee must perform even if “hell or
high water” occurs.
• Default.
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A Division of Thomson Learning
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