Formation of the Contract
----How the UCC changes the
common law
The UCC recognizes the existence of a
contract whenever the parties act as if they
have an agreement. In comparison to common
law, the UCC requirements are rather
flexible and open. It gives the parties great
flexibility in deciding between themselves
how a contract will be formed and performed.
In this section we’ll check how the UCC
provisions change the effect of the
general common law principles of
contracts.
I. OFFER
1. Open terms
• With the existence of some open terms,
will a sales contract fail for indefiniteness
---- No.
(1) The UCC has lessened the common law
requirements for definiteness of essential
terms in contracts of sale.
(2) The Code provides numerous openterm provisions to cope with the
indefiniteness.
•
Under what conditions may the UCC
recognize a failure of a sales contract for
indefiniteness?
(1) The parties have no intent to make a
contract.
(2) There is not a reasonably certain basis for
the court to grant an appropriate remedy.
(As a general rule, if the quantity term i
left open, the courts will have no basis for
determining a remedy.)
• Open Terms
Open Price Term
Open Payment Term
Open Delivery Term
Duration of an Ongoing Contract
Options and Cooperation Regarding
Performance
…
Open price terms
1. How can the court determine the price if
there is no fixed price in the contract?
---- a reasonable price at the time for
delivery
2. If the price cannot be fixed due to the
fault of one of the parties, how should
another party do?
---- (1) fix a reasonable price himself
(2) treat the contract as conceled
Open payment terms
If there is open payment term (Parties
do not specify payment terms), how
should the payment be made under this
contract? ( when and where)
---- Payment is due at the time and
place at which the buyer is to receive
the goods.
Open delivery terms
If no delivery terms are specified, where and
when can the buyer take delivery?
(1) Normally speaking, the place of delivery is at
the seller’s place of business.
(2) If the seller has no place of business, the
place of delivery is the seller’s residence.
(3) When goods are located in some other
special place and both parties know it,
delivery is made there.
• Output and Requirements (needs) contract
In an output contract, one party is bound to sell its
entire output of particular goods and the other party
is bound to buy that output.
( the seller
the buyer )
output
In an requirements contract, the quantity of goods is
based on the needs (requirements) of the buyer.
( the seller
the buyer )
requirements (needs)
In determining the quantity of goods to be produced
or taken concerning an output or needs contract, the
rule of good faith applies.
2. Merchant’s firm offer
The Code makes a major change to the
common law rules governing the revocability
of offers by recognizing the concept of a
firm offer.
Under the regular contract principles of
common law, an offer can be revoked
any time before acceptance.
The major common law exception is an
option contract.
The UCC makes another exception---Merchant’s firm offer.
•
An option contract is a separate
contract in which an offeror agrees not
to revoke her offer for a stated time in
exchange for some valuable
consideration.
The offeree has no obligation to accept
the offeror’s offer; in effect, she has
merely purchased the right to consider
the offer for the stated time without fear
that the offeror will revoke it.
e.g., Martin offers Berry to sell his house for
$150,000. Martin gives Berry a 30-day
option to purchase his house in exchange
for $100. Are there any legal effects if
Berry pays the $100 or if Berry never, in
fact, pays the $100?
A. Berry has got the right to consider the
offer for the stated time (30 days).
B. Martin may revoke his offer at any
time.
• What is a firm offer under the UCC
Under the UCC, not all offers for the sale of
goods qualify as firm offers. To be a firm offer,
an offer must be made by a merchant in a
signed writing which contains assurances that
the offer will be held open and not revoked.
The main legal nature of a firm offer is
irrevocable for the time stated in the offer. If
no time is stated, it is irrevocable for a
reasonable time. Regardless of the terms of the
offer, the outer limit on a firm offer’s
irrevocability is three months.
.
An offer for the sale of goods that
fails to satisfy these three
requirements is governed by the
general common law rule and
revocable at any time prior to
acceptance.
II. ACCEPTANCE
Acceptance of an offer generally may
be made in any reasonable manner and
by any reasonable means.
1. Methods of Acceptance
(1) The common law rule---- the particular means
specified by the offeror
The UCC----any means of communication
reasonable under the circumstances, even if
the acceptance is not received within the
designated time.
(2) Under the UCC, an acceptance of an
offer to buy goods for current or prompt
shipment can be made:
A. By prompt shipment of the goods to the
buyer (The common law method of
acceptance.)
B. By a promise to ship the goods to the
buyer (The commercial practice of
seller to send promises to ship
conforming goods is taken as
C. By shipping nonconforming goods
(This shipment constitutes both an
acceptance (contract) and a breach if
the seller does not give the buyer a
notification of nonconformity of
goods.)
2. Additional
terms
(1) How does the common law deal with
additional terms?
The mirror-image rule of offer-to-acceptance
(2) How does the UCC deal with additional
terms?
A. If the offeree’s response indicates a definite
acceptance of the offer, a contract is formed
regardless of additional terms included in the
acceptanc, unless ______________________
(the modifications are subject to /conditional
upon the offeror’s assent.)
B. Whether additional terms can become part of
the contract:
a.When the seller or the buyer is a nonmerchant,
___________________________________
----the modified terms do not become part of the
contract, and the contract is formed on the
offeror’s terms.
b. When both the seller and the buyer are merchants,__
----between merchants, the additional terms
automatically become part of the contract
unless…
III. CONSIDERATION
1. The common law rule----contract
modification must be supported by new
consideration.
2. The UCC----any agreement modifying a
contract needs no consideration to be
binding.
(1)Modifications must be made in good
faith.
(2)When modification without
IV. Statute of Frauds
1. What is Statute of Frauds provision
about?
2. Written confirmation between merchants
3. Relaxed requirement (exceptions)