BUSINESS LAW
Twomey • Jennings 1stEd.
Twomey & Jennings
BUSINESS LAW
Chapter 22
Nature and Form
Of Sales
© 2004 West Legal Studies in Business
A Division of Thomson Learning
BUSINESS LAW
Twomey • Jennings 1stEd.
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.
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BUSINESS LAW
Twomey • Jennings 1stEd.
Nature and Legality
• A sale of goods is a present transfer of title
of tangible personal property for a price.
• 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.
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BUSINESS LAW
Twomey • Jennings 1stEd.
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.
Cook v Downing (1995) Does the
UCC Apply to Dental Work: Are
Dentures a Good or Service?
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BUSINESS LAW
Twomey • Jennings 1stEd.
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 on merchants are stricter in some
cases. (See later chapters).
• 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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BUSINESS LAW
Twomey • Jennings 1stEd.
Additional Terms:
Battle of the Forms
• Between merchants, 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.
United States Surgical Corp. v Orris,
Inc. (1998) Did the additional terms
become a part of the contract?
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BUSINESS LAW
Twomey • Jennings 1stEd.
UCC Rules for Additional
Terms in Acceptance
Nonmerchants
Nonmerchant/Merchant
Merchants
Additional Terms
Additional Terms
Material
Contract
without
Additional
Terms
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Offer Is Limited
Objection
Contract
with
Additional
Terms
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BUSINESS LAW
Twomey • Jennings 1stEd.
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.
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BUSINESS LAW
Twomey • Jennings 1stEd.
Open Terms
• 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.
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BUSINESS LAW
Twomey • Jennings 1stEd.
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.
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BUSINESS LAW
Twomey • Jennings 1stEd.
Forms 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.
Rosenfeld v Basquiat (1998) Is a CrayonScrawled Contract a Sufficient Writing?
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BUSINESS LAW
Twomey • Jennings 1stEd.
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.
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BUSINESS LAW
Twomey • Jennings 1stEd.
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.
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BUSINESS LAW
Twomey • Jennings 1stEd.
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.
• A commercial finance lease is irrevocable.
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BUSINESS LAW
Twomey • Jennings 1stEd.
Leases of Goods
• Warranties. Supplier makes express
warranties to Lessor, who in turn passes
them to the Lessee.
– Financier-Lessor does not make implied
warranties.
Reeder v Bally’s Total Fitness Corp.
(1996) Is the Defendant Liable for
Breach of Warranties?
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