BU315 - Ch. 8 Contracts for the Sale of Goods

Sales Contracts

Agreements to transfer title to real property or tangible assets at a given price; UCC only applies to Sale of Goods

Goods

Property that is tangible and movable from place to place (so not estates, for example)

Merchant

One who regularly engages in the sale of a particular good

Open Terms

Unspecified terms in a sales contract that do not detract from the validity of the contract, so long as the parties intended to make the contract and other specified terms give a basis for remedy in case of breach.

Quantity Contract

Based on what the supplier produces; a contract in which the buyer agrees to buy all the goods that the seller produces for a set time and at a set price and the seller may sell only to that one buyer. The quantity for the contract is the seller’s output.

Requirements Contract

Based on what the buyer needs; a contract in which the buyer agrees to buy whatever they need from the seller during a set period and the buyer may buy only from that one seller. The quantity for the contract is what the buyer requires.

Merchant’s Firm Offer

An offer in writing between merchants to buy or sell goods along with a promise without consideration to keep that offer for a stated amount of time or, if unstated, no longer than three months.

Purchase Order

A form commonly used in sales contracts as an offer from the buyer; contains pre-printed clauses along with blanks to accommodate the specifics of the transaction.

Acknowledgement Form

A form commonly used in sales contracts as an acceptance from the seller in response to a purchase order; contains pre-printed provisions and has blanks to accommodate the specifics of the transaction. Also referred to as an invoice.

Battle of the Forms

The conflict between the terms written into standardized purchase (offer) and acknowledgment (acceptance) forms that differ in that one form favors the buyer and the other the seller. The UCC attempts to broker a truce in this battle while keeping the contract of sale intact.

Nonmerchant Terms

If one of the parties in a sales contract is not a merchant, the contract is formed as originally offered. That is, the contract is considered accepted, but the additional terms are not part of the contract.

Merchant Transactions

If both parties are merchants, additional terms automatically become part of the enforceable contract unless one of the following conditions exists:

1. Contract doesn’t allow additional terms

2. Material change diverges from original offer

3. Industry Standards objection to additional terms

Knockout Rule

When a buyer and seller engage in a battle of the forms and different terms are exchanged, both the seller’s and buyer’s differing terms drop out and substitute UCC gap fillers complete the contract.

Sales Contract

A transfer of title (ownership) to goods for consideration— is under the UCC

Confirmation Memorandum

A written verification of an agreement. Under the statute of frauds section of the UCC, a merchant who receives a signed confirmation memorandum from another merchant will be bound by the memorandum just as if she had signed it, unless she promptly objects.

Risk of Loss

The risk of one party’s having to bear the loss due to damage, destruction, or loss of goods bargained for under a sales contract.

Title

legal term for right of ownership in a good. This is held when a party:

1. the good is tangible

2. the good is identified in the contract

Shipment Contract

“Seller has risk until shipped;” a contract in which the seller is required to send the goods to the buyer via a carrier. When the carrier receives the goods, the seller has fulfilled their duty and the buyer assumes title and bears the risk of loss.

Destination Contract

“Seller has risk until at destination;” A contract in which the seller is required to deliver the goods to a chosen destination and not just to the carrier. When the goods have been tendered to the destination, the seller’s fulfilled their duty and the buyer takes title and risk of loss.

Tender

An unconditional performance of the seller by delivering the purchased goods or otherwise making them available to the buyer.

FOB Point

“Title and risk of loss transfer over at the location specified when the goods get to the common carrier;” indicates where the seller must deliver goods. In the absence of a contract provision to the contrary, title and risk of loss pass to the buyer at this point.

Tender of Delivery

Seller’s obligation under which, for delivery of goods, tender occurs when the seller produces goods conforming to the contract and provides adequate notice of their delivery to the buyer.

Perfect Tender Rule

Rule that requires the seller to deliver their goods exactly as the contract requires in quantity, quality, and all other respects or risk the buyer’s lawful rejection of the goods.

Cure

The right of a seller to replace nonconforming goods before final contract performance is due. If nonconforming goods were delivered in good faith and were considered equal to or superior to what was ordered, the seller may cure after final contract performance is due if the buyer will not suffer injury.

Assurance

A pledge or guarantee that gives confidence to one party that the other party is able to complete performance under a contract.

Commercially Impractical

Rule applied by the UCC when a delay in delivery or nondelivery has been made impracticable by the occurrence of an unanticipated event so long as the event directly affected a basic assumption of the contract.

Installment Contract

A contract allowing delivery of goods and payments for goods at separate times, with the goods being accepted or rejected separately. A buyer can accept one installment without giving up the right to reject any additional installments that are nonconforming.

Breach

When one party has failed to perform her obligation under the contract. If the breach is material, the nonbreaching party is excused from his performance and can recover monetary damages.

Remedies

Judicial actions, which can be monetary or equitable, taken by courts that are intended to compensate an injured party in a civil lawsuit.

Rightful Rejection

The justified refusal to accept nonconforming goods under a sales contract. An immediate remedy provided by the UCC when all or part of the lot the seller delivers is nonconforming goods.

Cover

A nonbreaching buyer’s right to purchase substitute goods on the open market after a delivery of nonconforming goods from the original seller and to sue for the difference.

Specific Performance

A court order compelling the breaching party to perform as the contract states when monetary damages would be an insufficient remedy.

Revoking Acceptance

Remedy where the buyer, even after accepting the goods, can still revoke acceptance if the goods are nonconforming in a way that substantially affects their value and then notifies the seller of the revocation in a timely fashion.

Foreign Corrupt Policies Act (FCPA)

A federal criminal statute enacted principally to prevent corporate bribery of foreign officials in business transactions.

INCO Terms

Standardized contractual terms and designations used in international and some domestic sales contracts to avoid confusion due to language barriers and differing legal systems.