Chapter 20: The formation of sales and lease contracts

Published by admin on

Contracts for the sale or lease of goods is governed by . . .
Statutory law and the UCC
article 2 of UCC
sets forth requirements for sales contracts or the sales of goods
Article 2A
covers issues for lease contracts
Sale and Goods
To constitute as a sale it is passing of title from seller to buyer for a price. To constitute a good it must be a tangible item that can be seen and moved (thus excluding real estate and bonds)
Goods associated with real estate
sale of mineral or oil on a property; sale of growing crops; Other things attached to property capable of separating without harm
Goods and services combined
when contracts involved goods and services combined you use Predominant Factor Test
Predominant Factor Test
Test used by the court to determine whether a contract is primarily for the sale of goods or the sale of services
Article 2 imposes standards on people who consider themselves experts in business and are to be governed by these standards
what defines a merchant
1. Deals in goods of the kind in the sale
2.Holds himself out as having special expertise, knowledge, or skill
3. A person who employs a merchant as a broker, agent or other intermediary (art collector hires broker to buy art for her, she is considered a merchant)
(States are split whether to consider farmers as merchants)
Lease agreement
contract for a lease of personal goods between a lessor and a lessee
The one who transfers the right of possession (car dealer)
The one who acquires the right to posses and use the goods (car buyer)
Consumer lease
Involves a lease where
1. A lessor is involved who regularly engages in the business of leasing or selling
2. the lessee uses the goods primarily for a personal, family, or household purpose
3. Total lease payments that are less than $25,000
Financial lease
Involves a lessee, a lessor and a supplier; lessor buys or leases the goods from the supplier and leases or subleases to the lessee
UCC and Common Law
in regard to the formation of sales and lease contracts, the UCC modifies the common law contract rules.
In terms of the offer
once an offer is accepted he binding contract is formed
Open terms
General contrat law states that an offer must be definite enough to determine the terms when it is accepted. However under the UCC indefinteness is ok as long as the parties
1. intend to make a contract
2. there is a reasonable basis for a court to grant a remedy
in the case of too many open terms left over
a court can presume the parties intended whatever is reasonable under the circumstances
open price term
if the parties cant agree on priing the court can determine “reasonable price at the time of delivery”
open payment term
unless otherwise agreed, payment is due on delivery
Open Delivery term
unless otherwise agreed, buyer takes delivery at the sellers place of business; court will impose a reasonable time if non is established
Open quantity
generally courts will not impose a quantity and there is no remedy, meaning unless there isn’t an agreed upon quantity then there is no contract
requirement contract
the buyer agrees to purchase and the seller agrees to sell all or up to a stated amount of what the buyer requires
(exception open quantity)
output contract
the seller agrees to sell and the buyer agrees to buy all or up to the stated amount of what the seller produces (exception to open quantity)
Firm Offer
the exception to the revocable contract rule; under other circumstances you can revoke an offer made if he/she doesn’t accept fast enough; when a merchant makes a firm offer he/she cannot revoke that offer and it must be made to you; must be in writing and signed by the offerer
UCC permits acceptance of an offer to buy goods “either by a prompt promise to ship or by the prompt of current shipment of conforming or nonconforming goods
If one party is a merchant (additional terms of acceptance)
Contract is formed according to original terms of the offer
when both parties are merchants (additional terms of acceptance
the contract incorporates new terms unless:
1. Original offer expressly limits terms,
2. material change
3. Offeror objects within a reasonable time
conditioned on offeror’s assent
If the Person receiving the offer (offeree) make additional terms and conditions the offer is not cinsdered to be accepted but is considered as a counteroffer which the offeror can accept or decline
additional terms may be stricken
if the conduct of both parties recognizes a contract exists between the two then a contract is established even though there may be nothing in writing. in the event of a dispute over terms those terms may be stricken from the contract
consideration (for review)
anything given or promised or forborne by one party in exchange for the promise or undertaking of another (if I offer you my watch for 100$ the watch is my consideration while the 100$ is yours)
UCC consideration
like common law, all contracts must offer some form of consideration; however unlike common law the UCC states that any modifications to the contract do not need consideration, but these modifications must be made in good faith
UCC consideration (cont.)
This type of modification would be required to be in writing
Statute of Frauds under UCC
Sale of goods over 500$ must have a signed writing to be enforceable
sufficiency of the writing requirement
must be signed by party whom enforcement is sought
normally not enforceable beyond the quantity of goods shown in the writing
special rules for merchants
after oral agreement, one of the merchants must send signed written memorandum containing essential terms to the other merchant within a reasonable time`
exceptions to statute of frauds
1. oral contracts for specially manufactured goods will be enforced without writing (not suitable for resale; the manufacturer has already began production)
2. If the breaching contract party admits in pleadings or testimony that the sale was made the oral contract is enforcable
3. Partial Performance: an oral contract is enforcable IF paymentsd has been made or goods have been accepted
Categories: Sales