Formation of Sales and Lease
Contracts
Chapter 19
UCC
• Uniform Commercial Code
• Adopted by all 50 states
– Different versions may apply in different states
• If a conflict between common law and
UCC arises – UCC wins!
Article 2 Sales Contracts
• Sale: “passing title from the seller to the buyer
for a price.”
• Article 2 covers goods
– Goods are tangible and moveable
• Real estate
– If buyer severs then goods under article 2
– If seller severs then not goods under article 2
• Crops
– Are goods no matter who severs
– Services
• Sometimes cannot distinguish between services and goods
– Courts decide. Example: blood transfusion
UCC & Merchants
• UCC holds merchants to higher standard
• A merchant is someone who deals in
goods of the kind subject to sales
agreement, holds themselves out to be an
expert in such goods, or hires another
merchant to contract on their behalf
– Example: walmart is a merchant of
televisions
• What if Walmart sells me an old transport semi?
– Is it merchant?
Leases
• Lease is a contract or bargain between a lessor
and lessee.
– Lessor is the own who has ownership and sales the
right to use goods
– Lessee is the one who purchases right
• Why do we even have lease contracts?
• Consumer lease:
– Lessor who normally leases such property, leases to
lessee for personal use and the lease requires less
than $25,000 in payments
• Finance Lease: Lessor purchases or leases
goods from supplier and subleases to lessee.
Formation of Sales and Lease
Contracts
• Offer:
– Under common law needed definite terms
– UCC allows for indefiniteness in terms if 1)
the parties intended to contract and 2) there
is reasonable basis for the court to grant
remedies
– Price may be left open
• If to be fixed by the other party and not
– then other party can terminate or set reasonable price
Other Open Terms
• Open payment term
– If not specified payment is due at time and place of
delivery of goods
– If seller demands cash, seller must give buyer
reasonable time to ascertain cash
• Open delivery term
– Seller’s place of business or residence if no place of
business
• Ongoing Contract
– If no fixed period for contract, then must give
reasonable notice of termination
Open Quantity Term
• Requirements Contract
– Buyer contracts for all the buyer needs or requires
– Buyer cannot offer to buy goods “as it wishes.”
• Output Contract
– Buyer contracts to purchase all the goods the seller
can produce
• Good faith limitation on both output and
requirements contracts
Merchants Firm Offer
• Under common law, an offer can be revoked any time
before acceptance unless an options contract
• Under UCC offer can be revoked before acceptance
unless
– 1) consideration ie options contract
– 2) written offer by merchant stating it will remain open for a
certain amount of time. If no time is stated, then reasonable
amount of time not to exceed three months
• Must be in writing and signed by offeror
– Offeror must intend to be a firm offer – no form contracts
Acceptance
• Under common law, had to accept in
accordance with offeror’s specified method
of acceptance. Example: fax within 3
days.
• Under UCC, any method of acceptance
will suffice as long as offeror receives
acceptance. This applies even if the
offeror specified the means of acceptance.
• UCC requires reasonable method
More Acceptance
• Prompt Shipment
– Generally prompt shipment or promise of
shipment is method of acceptance
– Shipment of nonconforming goods is
acceptance and breach
– May ship nonconforming goods as an
accommodation but must signify it is an
accommodation
• Counteroffer?
More Acceptance
• Communication of Acceptance of
Unilateral contract
– Under common law only had to notify offeror if
offeror would not normally find out about it.
• Under UCC have to notify offeror in reasonable
amount of time
• Additional terms
– Mirror image rule does not apply
– Nonmerchants under UCC – additional terms
are disregarded if immaterial
Additional Terms - Merchants
• Under UCC
– Additional terms automatically become part of
agreement between merchants unless
• 1) originally offer limited acceptance and prohibited additional
terms
• 2) the additional terms materially change or alter the
agreement
• 3) offeror objects to new terms
• Additional terms can require original offeror’s
assent, no contract unless offeror assents
• Sometimes contradictory terms will be stricken
Consideration
• Under common law, a modification of a
contract required new consideration
– Modification must be in good faith
– Some must be in writing
• If contract so requires
• If modification brings contract within UCC
Statute of Frauds
• Relaxed rule for merchants
– One merchant can send a written confirmation of oral
agreement
• Recipient has 10 days to object to terms of confirmation
• Normally goods sold for the contract price of
$500 or more requires written contract. 3
exceptions:
– Specially manufactured goods, which cannot be
resold and have been started into production
– Admissions in court
– Partial performance
Miscellaneous Topics
• Parole evidence
– For ambiguous terms look at
• Course of dealing
– How did they act in the past?
• Usage of trade
– How does the industry act?
• Course performance
– How did they act under this contract?
• Rules of Construction (in descending order)
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Express Terms
Course of performance
Course of Dealing
Usage of Trade