Note
Studied by 39 people
Business Law CH20 S2025 LEW
Unit Four: Domestic and International Sales and Lease Contracts
The Uniform Commercial Code
History of the UCC
Sales law varied significantly across states, lack of uniformity.
introduced in 1951 to create uniform laws, widely adopted by states.
Purpose: To simplify and streamline commercial transactions.
Comprehensive Coverage of the UCC
The UCC treats the entire commercial transaction for the sale/payment of goods as a single legal occurrence, covering:
Article 1: General Provisions (definitions & principles)
Article 2: Sales and Lease of Goods contract
Articles 3-5: Payment mechanisms (checks, EFTs)
Article 7: Documents of title (bills of lading, warehouse receipts, shipment)
Article 9: security for balance owed
The Scope of Articles 2 & 2A
Coverage of Articles 2 (sales) & 2A (lease)
Article 2: Governs sales contracts, specifying duties and obligations.
Article 2A: Covers lease agreements.
Flexibility exists; parties can agree on different terms.
Sale and Common Law Elements
Agreement: Offer and acceptance are needed.
Consideration: Value exchanged to support agreements.
Capacity: Parties must be legally competent.
Legality: Purpose must be lawful
Modification of Common Law:
Article 2 modifies some common law rules for sales contracts but remains subject to common law where not modified.
General Rule: UCC takes precedence over conflicting common law.
What Constitutes Goods
Must be tangible and movable property
Mixed Contracts (includes goods and services)
Predominant-Factor Test: Used to determine if a contract mainly involves goods or services.
Courts classify primarily goods contracts under UCC, regardless of services included.
Merchant Definition
Regularly deals in the goods involved.
Holds expertise in practices or goods related to the transaction.
Employs intermediaries, thus acquiring merchant status.
Special Standards: Merchants must adhere to higher standards under Article 2.
Article 2A—Leases
Definition of Lease Agreement (does not apply to land/building)
Lease agreement – An agreement in which one person (the lessor) agrees to transfer the right to the possession and use of property to another person (the lessee) for a period of time in exchange for rental payments.
Lessor – A property owner who allows others to use their property in exchange for payment.
Lessee – A person who pays for the use or possession of another’s property.
Formation of Sales and Lease Contracts
Modifications to Common Law
Common law: A clear offer plus a clear acceptance equals a contract.
UCC: In business sales, even if it's unclear when, a contract can still be made based on what was said or done.
UCC alters rules:
Allows for missing terms; as long as the intent to contract exists and basis for remedy is reasonable.
Uses Open Term Provisions to fill gaps in contract
if too many important facts are missing, UCC may decide there wasn’t intent to form a contract
Open Price & Delivery Terms
Prices and delivery methods can be implied based on reasonable standards.
Timeframes for performance may be inferred as reasonable in absence of specification.
The buyer can tender payment using any commercially normal or acceptable means, such as check or credit card.
If the seller demands payment in cash, the buyer must be given a reasonable time to obtain it.
The buyer normally takes delivery at the seller’s place of business.
Other Open Terms
Open contract duration: either party can terminate ongoing contractual arrangement with reasonable notice
Shipping: seller can make arrangements in good faith
Assortment: buyer can specify assortment
Open Quantity Terms
Contracts generally require specified quantity to be enforceable, with exceptions:
Requirements Contracts: Buyer commits to buying all or a stated amount.
Output Contracts: Seller pledges to sell all or stated amounts produced.
Merchant’s Firm Offer
Common law: offer can be revoked at any time before acceptance (unless option contract)
Firm offer: Merchants can provide irrevocable offers without consideration for set periods (max 3 months).
Acceptance of Offer
General Acceptance Rules
Acceptance can occur by reasonable means; UCC allows for nonconforming goods as acceptance if stated as an accommodation.
Common law Mirror Image Rule: terms of acceptance closely match offer
UCC permits contracts even if acceptance terms differ from the offer.
Relationship of merchants affects handling of additional terms:
Original offer standards apply to non-merchants.
Additional terms automatically become part of contracts between merchants unless…
original offer expresses limited acceptance terms
new terms significantly alter the offer
objection to terms within reasonable time
Conditioned Acceptance: offerees response is not acceptance if it alters terms and claims these new terms must be accepted
Contract by Conduct: Under the UCC, if both parties act like there’s a contract, then a contract exists, even if their written documents don't show it.
Consideration
Common law:Consideration is usually something of value each party agrees to give or do in a contract. Under common law, all contracts, including sales and leases, need this exchange to be valid.
The UCC: if you want to change a contract, you don't always need to offer something new of value. But, these changes must be made honestly and sometimes need to be in writing to count, especially if the original contract says so or if the change is big enough to require it by law.
Statute of Frauds
Requirements
Contracts must be written for enforceability if:
Sale contracts over $500.
Lease contracts over $1,000.
Writing must indicate intent and be signed
For sales contracts, you need the quantity of goods shown in the writing.
For leases, the writing must reasonably identify and describe the goods leased and the lease term..
Merchant-Specific Rules
Merchants can make an oral agreement official by one merchant sending a written confirmation with a signature to the other within a reasonable time. The recipient must object in writing within ten days if they disagree, or else the agreement stands, even without their signature.
Exceptions:
Specially Made Goods: An oral contract is valid if the goods are custom-made and not resellable, and the maker has started making or planning them.
Admissions: If a party admits in court there was a contract, it's enforceable.
Partial Performance: If payment or goods have been exchanged and accepted, the contract is valid.
Major Differences between Contract Law and Sales Law
Comparison chart identifies distinct areas where UCC diverges from common contract law:
Generally, sales law allows open terms under intentions of forming a contract whereas contract law requires all material terms.
Different handling of modifications and irrevocable offers.
Unconscionability
An unconscionable contract is extremely unfair. Under the UCC, a court can:
Not enforce it.
Remove the unfair part and enforce the rest.
Adjust the unfair terms to make it reasonable.
CISG
International sales contracts may follow the 1980 United Nations CISG if both countries involved have ratified it and no other law is agreed upon. CISG covers most global trade but doesn't apply to consumer sales, unlike the UCC.
Key Differences Between CISG and UCC
Mirror Image Rule:
UCC: Doesn't require offer and acceptance to match exactly.
CISG: Acceptance must match the offer exactly.
Writing Requirement:
UCC: Sales over $500 need a written contract.
CISG: No written proof needed; any evidence works.
Exclusions & Clauses:
CISG doesn't cover consumer sales.
Add clauses in contracts to manage disputes:
Forum-Selection Clause: Chooses the court for disputes.
Choice-of-Law Clause: Specifies which law governs the contract.
Choice-of-Language Clause: Sets the contract's language.
Force Majeure Clause: Covers nonperformance in extraordinary events.