Chapter 22 Nature and Forms of Sales

Question 1

Sources of contract law

Answer 1

Common law: contracts regarding real estate or services

Article 2 of the uniform commercial code: contracts regarding sale of goods

Question 2

Article 2

Answer 2

Section of the uniform commercial code the governs contracts for the sale of goods

Generally applies to both merchant and nonmerchant’s (though some sections apply only to merchants and hold them to special standards)

Question 3

A sale of goods

Answer 3

Per article 2: transfer of title to tangible personal property for a price

(Price can be money, exchange of property, performance of services)

Question 4

Parties to the sale of goods

Answer 4

Seller/ vendor: Person who owns the goods

Buyer/ vendee: person to whom the title is transferred

Question 5

Goods

Answer 5

Per the UCC: all forms of tangible personal property

Includes commodities

Both existing and future foods

Not covered:

• investment securities (Article 8 of the UCC)
• insurance policies, commercial paper (checks) and promissory notes (articles 3 and 4)
• real estate

Question 6

Existing goods

Answer 6

Goods that physically exist and are owned by the seller at the time of a transaction

Question 7

Future goods

Answer 7

Goods that exist physically but are not owned by the seller and goods that have not yet been produced (custom goods generally future goods)

Question 8

Transactions not covered by article 2

Answer 8

• bailment (only possession transfers, not title. Leases covered by section 2A of UCC)
• gifts (theoretically no price. Article 2 only covers transfers with a price)
• contracts for services (governed by common law)
• contracts for goods and services are classified by the dominant element of the contract. May have to compare cost of physical goods to cost of services to determine. Whichever is more expensive “dominates”

Question 9

Huzinec v. Six flags great adventure

Answer 9

• huzinec hit by a cellphone dropped by another passenger on six flags roller coaster and sustained serious injuries
• filed suit under UCC Article 2 for breach of implied warranty of merchantability
• six flags moved for dismissal as amusement park ticket not covered under article 2
• court agreed: Six flags ticket not a movable good but rather a contract to use of the rides/services of the employees

Question 10

Necessary elements for formation of sales contracts

Answer 10

Less rigid than contract law

• terms can be missing, as long as parties clearly intended to contract

Minimum terms:

• subject matter
• quantity (if not clearly just for a single item

Article 2 contains provisions covering the following if parties do not include them in their sale contract

• price
• delivery
• time for performance
• payment
• details of performance

Question 11

Merchants

Answer 11

Seller who deals in specific goods classified by the UCC

Some sections of Article 2 have different rules for merchants (who are expected to have special knowledge) and non-merchants

Question 12

Sales contract: offer

Answer 12

First step in formation of a sales contract under article 2

Question 13

Firm offer provision

Answer 13

Offer stated to be held open for a specified time, under the UCC, with respect to merchants

Merchant cannot revoke offer if:

• offer expresses an intention that it will be kept open
• offer is in writing
• order is signed by the merchant

Period of irrevocability not to exceed 3 months. If not stated irrevocable only for reasonable time

If exceed three months there must be consideration (becomes an options contract under common law contracts)

Question 14

Sales contract: acceptance of offer

Answer 14

Very flexible under UCC
“Any manner and by any medium that is reasonable under the circumstances”
(If offer specifies manner of acceptance that will hold)

Question 15

Mailbox rule and sales contracts

Answer 15

Mailbox rule applies not just when is the same method as for communication of Offer but for any time it is a reasonable method

Acceptance effective from when mail sent

Question 16

Mirror image rule

Answer 16

Common law contract rule on acceptance that requires language to be absolutely the same as the offer, unequivocal and unconditional

Under UCC acceptance may include terms that vary from the offer

Question 17

Additional terms in acceptance: sales with nonmerchants

Answer 17

Offeree may accept and acceptance creates a contract on the original terms even if additional term is suggested

Additional term then may or may not be accepted by other party

(Vs common law where suggested change in terms terminates original offer and creates a new offer to be accepted or not)

If propose additional terms without specifically accepting offer then no contract yet

Question 18

Additional terms in acceptance: sales with merchants

Answer 18

Additional terms sent back in an acceptance become part of the contract IF they do not materially alter the offer and the offeror does not object in a timely fashion

May add limitations “offer is limited to the terms”

If proposed term is material a contract is formed BUT the material addition does not automatically become part of the contract

Question 19

Battle of the forms

Answer 19

Merchants’ exchanges of invoices and purchase orders with differing boilerplate terms (contract details)

Question 20

Acceptance of additional terms

Answer 20

Offeror may expressly or by conduct agree to additional terms added by offeree. May agree orally or in writing. Or there may be acceptance in parties simply perform obligations under contract with knowledge term has been added

Question 21

When conflicting terms are proposed

Answer 21

If clear parties intend to be bound by contract UCC recognizes formation of contract. The terms cancel each other and are ignored. Contract consists of only parts of offer and acceptance that agree (governed by the applicable part of article 2)

Question 22

Defenses to formation of sales contracts

Answer 22

Same as common law defenses:

• fraud
• lack of capacity
• intentional misrepresentation
• undue influence/duress

Question 23

Unconscionable

Answer 23

Unreasonable. Not guided or restrained by conscience and often referring to a contract grossly unfair to one party because of the superior bargaining power of the other party

Court can refuse to enforce sales contract (or portions of contract) found to be unconscionable

Question 24

C9 ventures v. SVC-West LP

Answer 24

• SVC ordered helium tanks from C9 (had previously ordered the same)
• boilerplate text on C9 invoice that indemnifies C9 against any injuries/ damages beyond gross negligence
• C9 delivered late when guests of SVC presentation were in attendance. SVC did not sign invoice
• kid pulled over a tank and injured his hand
• SVC and C9 settled with family
• C9 filed cross complaint to enforce indemnification provision
• trial court found for C9, SVC appealed

Not governed under UCC as rental, not purchase. Additional terms only valid if SVC agreed to terms and they had not (not even in course of performance)

Even if governed under UCC as a material provision so does not become part of the contract unless accepted

Question 25

Cost plus

Answer 25

Method of determining the purchase price or contract price equal to the seller's or contractor's cost plus a stated percentage as profit

Question 26

Price in a sale of goods contract

Answer 26

Price may not be fixed, instead indicated how to be determined. (Such as a cost plus formula) In absence of any reference price will be "reasonable" price at the time of delivery of goods (market price) Per UCC one party may determine price but must act in good faith

Question 27

Output contract

Answer 27

Contract of a producer to sell its entire production (output) to buyer

Question 28

Requirements contract

Answer 28

Contract in which the buyer buys all its needs (requirements) from seller

Question 29

Condition of requirements or options contracts

Answer 29

1) parties must act in good faith 2) quantity offered or demanded must not be unreasonably disproportionate to prior output or requirements or stated estimate

Question 30

Infinite duration term on sales contract

Answer 30

With a continuing contract (ex one for periodic delivery of a good) with no time set for the life of the contract the contract runs for a "reasonable time" and may be terminated by notice from either party

Question 31

Modification of terms of a sales contract

Answer 31

An agreement to modify a contract for the sale of goods is binding even though the modification is not supported by consideration. Modification valid so long as agreement is voluntary

Question 32

Parole evidence rule

Answer 32

Rule that prohibits the introduction in evidence of oral or written statements made prior to or contemporaneously with the execution of a complete, final, and unambiguous contract documented by a writing or a record, unless there is a contract defense. "Four corners of the record" Requires everything parties want in the agreement is put in before they sign Parole evidence may be admitted to interpret contract terms or show what the parties meant. Does not prohibit proof of fraud/misrepresentation/other defenses in formation

Question 33

Course of dealing

Answer 33

Pattern of performance between two parties to a contract May be used to find what was intended by contract provisions/ to supply missing terms

Question 34

Usage of trade

Answer 34

Language or customs of an industry May be used in the interpretation of contract terms

Question 35

Bulk transfer law

Answer 35

Was article 6 of UCC, now repealed There is a revised version (alternative B) Protections afforded under UCC Article 9, secured transactions

Question 36

Form of sales contract

Answer 36

May be oral or written Some types must be evidence by record to be enforced Sale of goods over $500 must be evidenced by a record to be enforceable per statute of frauds

Question 37

Statute of frauds

Answer 37

Statute that, to present fraud through the use of perjured testimony, requires that certain kinda of contracts be in writing to be binding or enforceable

Question 38

Nature of record required

Answer 38

When a record is required does not need to be complete common law contract. Cab be simple record with only details required under UCC Article 2

Question 39

Terms included in record

Answer 39

Must indicate - that a sale or contract to sell has been made - the quantity of goods involved Anything further may be supplied by reference to UCC sections or shown by parole evidence

Question 40

Authentication

Answer 40

The sales contract record must be signed or authenticated by the person who is being held to the contact or by the authorized agent of that person. (many forms of authentication acceptable)

Question 41

Confirmation memorandum

Answer 41

A exception to statute of frauds signature requirement for the purpose of expediting transactions A letter, memo, or electronic document signed or authenticated by one of two merchant parties to an oral contract. Can be used to enforce a contract. Binds the non-signing merchant as well. If non-signing merchant does not object immediately the memo automatically takes effect in 10 days (must respond within ten days)

Question 42

Rosenfeld v. Basquiat

Answer 42

Rosenfeld purchased paintings from Basquiat On receiving her deposit he wrote the contract in crayon that indicated the paintings, stated the price, the deposit received, and the date and they both signed it She agreed to let him keep the paintings to show at exhibitions After his death his estate claimed no contract under statute of frauds (said that contract must include delivery date, which it did not) Original judgement for estate. Rosenfeld appealed. Appeal court judgment for Rosenfeld. The crayon written contract contained all the necessary information for the sale (date of delivery specification not necessary)

Question 43

Brooks peanut co v. Great southern peanut

Answer 43

Brooks peanuts set up contract with Great Southern Peanut via broker M&H without GSP knowing the buyer was brooks until after terms were accepted Agent for GSP evinced displeasure on finding out other party was Brooks but did not raise any objections until four months after a confirmation memo was sent signed by M&H agent. No contract or purchase order was issued but parties continued to communicate about contract as if it was going forward When GSP objected (four months later) they said that M&H was not authorized to confirm the sale or send the confirmation and that a condition precedent had not occured because GSP hadn't written a contract Trial court ruled GSP had a defense. Brooks appealed. Appeal judgment for Brooks - GSP and Brooks had previously done business confirmed solely by confirmations sent by M&H - confirmation memo contained all necessary information - Objection was not registered at the time the confirmation was received - parties continued to behave as if contract was in existence - so confirmation memo was sufficient evidence of a contract between the parties

Question 44

Purpose of writing/record

Answer 44

To indicate that there was an understanding or acknowledgement that there was a sale of goods So a letter from buyer to seller to complain about lack of delivery may be sufficient proof of contract

Question 45

Form of writings

Answer 45

- may be formal contract, bills of sale, letters, telegrams, emails, faxes, screen printed verifications As long as meet minimum formation standards and specify quantity May even be a group of separate communications if pieced together they have all information

Question 46

Effect of noncompliance with statute of frauds

Answer 46

Means contract cannot be enforced. Contract is still lawful and may be voluntarily performed by parties

Question 47

Specially manufactured goods exception

Answer 47

Sales contracts may be enforced without a written record if: the goods are specially made for the buyer and are unusual such that they are not suitable for sale in the ordinary course of the seller's business (nonresellable) manufacture or purchase must have progressed to the point beyond which materials could be otherwise used

Question 48

Receipt and acceptance exception

Answer 48

Sales contracts may be enforced without a written record if: It can be shown that goods were delivered by the seller and both received and accepted by the buyer Even for amounts over $500 If only partial receipt and acceptance contract may only be enforced for those goods accepted

Question 49

Payment exception to requirement for written record

Answer 49

Sales contracts may be enforced without a written record if: The buyer has made full payment If only partial payment a contract may be enforced for those goods for which the payment has been made and accepted (if for an indivisible good then partial payment may permit enforcement of entire oral contract)

Question 50

Admission exception for requirement of written record

Answer 50

Sales contracts may be enforced without a written record if: May be enforced against a party if that party admints in pleadings, testimony, or otherwise in court that a contract for sale was made. Only enforceable for quantity of goods admitted

Question 51

Grandoe corporation v. Gander mountain company

Answer 51

- Glove maker Grandoe and retailer Gander mountain had multi year relationship where gloves were purchase on the basis of an oral contract (per industry custom) - in 2007 Gander mountain tried to institute a vendor buying agreement saying oral contracts were for planning purposes only and they could not be bound to them. Sent to Grandoe VP but never acknowledged - series of meetings followed negotiating a deal for over 3million worth of gloves. Quantities orally approved by gander mountain rep. Some aspects of terms put forth in written records (Resource allowance contract) and signed - Grandoe manufactured most of the gloves but Gander mountain purchased less than $1 million with and said they wouldn't honor the oral agreement. - Grandoe sued for breach of contract. Jury found oral contract valid and awarded damages. Gander mountain appealed. Appeals court affirmed trial court judgement - no single written document dealt with all the issues and lacked agreement - since parties had relied on oral agreements in the past that past practice controlled the relationship

Question 52

Contracts for international sale of goods (CISG)

Answer 52

United Nations convention Uniform international contract code contracts for international sale of goods Automatically applies if buyer and seller have places of business in different countries that have ratified the convention but parties can agree to opt out of the convention Issues tend to be resolved through arbitration/alternative dispute resolution

Question 53

What CISG does not cover

Answer 53

- goods bought for personal, family, or household use | - contracts where obligation of party supplying good predominantly consists of labor/servivde

Question 54

Article 2A of the UCC

Answer 54

Codifies law for leases of tangible movable goods Applies to any action, regardless of form, that creates a lease for personal property or fixtures

Question 55

Lease

Answer 55

"a transfer of the right to possession and use of goods for a term in return for consideration" Agreement between owner of property and a tenant by which the former agrees to give possession of the property to the latter for payment of rent

Question 56

Types of leases

Answer 56

Consumer vs commercial | Finance vs non finance

Question 57

Consumer lease

Answer 57

Lease of goods for personal, family, or household use Made by merchant lessor regularly engaged in business of leasing /selling goods involved Lease made to a natural person States place individual caps on amount considered a consumer lease (must cover vehicles)

Question 58

Commercial lease

Answer 58

Aka nonconsumer lease Lease that does not satisfy the definition of a consumer lease

Question 59

Finance lease

Answer 59

Three party lease agreement in which there is a lessor, a leasee, and a supplier Customer (lessee) tells financier where to obtain what goods. Must approve terms of transaction between financier and supplier Financier (lessor) acquires goods and leases/subleases to customer. Becomes a paper channel between supplier and customer-lessee

Question 60

Form of lease contract

Answer 60

Must be evidence by a record if total payments under lease will be $1000 or more Record must be authenticated by the party against whom enforcement is sought Record must: - describe leased goods - state lease terms - indicate that a lease contract has been formed

Question 61

Warranties on leases

Answer 61

Except in case of finance leases lessor makes all usual warranties that are made by a seller in the sale of goods (Finance lease supplier makes warranties and they are passed from the lessor to the lesser who still has direct cause of action on them against the supplier regardless of lack of privity)

Question 62

Default on lease

Answer 62

Provisioned for in article 2A - if either lessor or lessee defaults other can seek enforcement by any available judicial or non-judicial procedure. - neither party entitled to notice of default or notice of enforcement - rights and remedies similar to seller in a sales contract. If lessee defaults lessor entitled to recover rent due, future rent, damages

Question 63

Wilson v. Huuuge inc

Answer 63

- Wilson brought class action suit against gambling company huuuge - company said that it was in their terms of use that arbitration had to be used - because huuuge failed to build in something that forced the user to look at/agree to the terms before use and the terms were not immediately placed in front of the user the arbitration clause was not enforceable - court case went forward

Question 64

Paramount contracting vs DPS industries

Answer 64

- In a bid for construction of runway improvements at an Airport Paramount included a quote from DPS for furnishing and delivering borrow dirt" at a price of 140/ truck load but exclusive of other necessary adjacent work - paramount awarded the project and contacts DPS about amount of dirt and number of trucks it would need - at this point DPS believed they had a contract and send a letter confirming the order - paramount did not respond to this or the next several letters - paramount eventually responded that they had not yet committed to the purchase and eventually purchased from another vendor - DPS sued for breach of contract - depends on if the $140/truck load is mostly for the dirt itself or mostly for the delivery - court ruled that it was primarily a sales contract for dirt (not services) and that there was a valid contract under UCC