Law and Ethics 8- contracts for the sale of goods

  1. sales of goods are governed by the statutory law in the form of the Uniform Commercial Code
  2. goods
    • 1. tangible (has a physical existance, such as a laptop computer)
    • 2. movable from place to place

    *real estate and employment contracts are NOT covered by the UCC
  3. merchant
    regularly engages in the sale of a particular good
  4. Function of the UCC
    the underlying policy is to promote commercial efficiency by providing standardized procedures that merchants and consumers may rely upon

    goal to promote the completion of a business transaction

    *Article 2 is intended to modify some of the stricter common law requirements and facilitate business transactions by providing merchants and consumers with a standard set of rules for the sale of goods

    UCC = gap filler in cases where the parties have not agreed otherwise
  5. article 2
    lowers the bar for formation by allowing an enforceable contract to arise "in any manner sufficient to show agreement" between the parties

    • UCC allows a contract to be enforced based on a larger picture that consists of:
    • 1. past commercial conduct
    • 2. correspondence or verbal exchanges between the parties
    • 3. industry standards and norms

    parties need not have a definite time of formation, so long as the conduct indicates some basis for a reasonable person to believe a sales contract exists
  6. open terms
    • missing provisions such as:
    • quantity- discussed below
    • delivery- buyer takes delivery at the sellers place of business (i.e. seller not responsible for delivery)
    • payment terms- payment is due at the time and place where the seller is to make delivery and be made in any commercially reasonable form (i.e. business check)
    • price of the goods- the UCC requires the court to determine a reasonable price at the time of delivery. Based on industry customs and market value

    Acceptable under the UCC so long as there is evidence that the parties intended to and the other terms are sufficiently articulated to provide a basis for some appropriate remedy in case of breach
  7. Quantity
    • 2 exceptions
    • 1. if the buyer agrees to purchase ALL of the goods that the seller produces (aka output contract)
    • - seller has agreed to give up the right to sell the goods elsewhere
    • 2. when the buyer agrees to purchase all or up to an agreed amount of that the buyer needs for a given period (requirements contract)
  8. option contract
    an exception to the formation of a contract where the offeror has the right to revoke the offer at any time prior to the acceptance by the offeree
  9. the UCC creates it own brand of irrevocable offer known as a
    merchants firm offer

    *applies to ONLY transactions where the offeror is a merchant

    • firm offer is created when a merchant offers to buy/sell goods with explicit promise, in writing, that the offer will be held open for a certain period of time.
    • *the offer can be irrevocable for a maximum period of three months, this is binding on the offeror even though there is no consideration paid (if they have paid consideration, it is an option contract, not a firm offer)
  10. if one of the parties in the contract is not a merchant
    the contract is formed as originally offered
  11. if both parties are merchants, additional terms may become part of the enforceable contract unless
    • 1. the offeror has expressly and clearly limited acceptance to the original terms
    • 2. the additional term was a material change that diverges significantly from those contained in the offer
    • 3. the offeror raises an objection to the additional terms within a reasonable time period according to industry standards
  12. statute of frauds
    any sales contract for goods with a TOTAL value of $500 or more must be in writing

    • satisfied so long as the writing contains:
    • 1. quantity
    • 2. the signature of the party against whome enforcement is sought
    • 3. language that would allow a reasonable person to conclude that the parties intended to form a contract

    * a merchant who receives a signed confirmation memorandum from the other merchant will be bound by the memorandum just as it she had signed it, UNLESS she promply objects
  13. title
    title passes to the buyer at the time and the place the seller completes performance by making a physical delivery of the goods
  14. shipment contracts
    all contracts for goods are considered shipment contracts UNLESS the parties have agreed otherwise.

    The seller need to only deliver the goods to the "hands" of the carrier to achieve complete performance. then the title passes to the buyer.
  15. destination contracts
    require the seller to deliver the goods to a specified destination. Complete performance occurs when the goods have been tendered (delivery of the conforming goods- seller delivered what the buyer actually ordered) at the specified destination
  16. goods picked up by the buyer
    • if seller is a merchant:
    • - risk of loss held by the seller passes to the buyer only when the buyer takes physical possession of the goods

    • if seller is a non merchant:
    • - risk of loss held by the seller passes to the buyer on tender of the goods
Card Set
Law and Ethics 8- contracts for the sale of goods
Law and Ethics 8