Sales Contracts: Agreement, Consideration, and the Statute of Frauds

Formation of Agreement for Sale of Goods

The Uniform Commercial Code (UCC) allows a contract to be enforced based on:
- Past commercial conduct.
- Correspondence or verbal exchanges between the parties.
- Industry standards and norms.

If the seller is a merchant and promises in a signed writing to keep an offer for the sale of goods open for a period of time, under UCC Article 2 this action creates a firm offer that is irrevocable.
The firm offer will only last for the period of time stated in the offer.
If no time period for the offer to remain open is stated, it will stay open for a maximum of three months.
This offer is binding on the offeror even if the offeree has paid no consideration.

Sometimes merchants wish to engage in a sales transaction, but the parties overlook or are unsure about some key element of the contract (example, quantity, delivery, payment terms, or the price of the goods).
The missing provisions, known as open terms, are acceptable under the UCC if there is evidence the parties entered a contract and the other terms are sufficiently articulated to provide a basis for some appropriate remedy in case of breach.
The UCC’s approach toward open terms is an example of its gap-filling role; that is, the UCC fills gaps in the parties’ contract by providing a variety of answers based on what terms are missing.

General Rule: Quantity is a required term in contracts for the sale of goods (that is, necessary to create an enforceable sales contract).
Two Exceptions:
- Quantity may be an open term if the buyer agrees to purchase all the goods that a seller produces (known as an output contract).
- In the alternative, quantity may be an open term when the buyer agrees to purchase all or up to an agreed amount of what the buyer needs for a given period (known as a requirements contract).

Delivery: If the place of delivery is not specified in the contract, the buyer takes delivery at the seller’s place of business (that is, the seller is not responsible for delivery). Also, if no time of delivery is specified, the UCC provides for a reasonable time under the circumstances.
Payment: Payment is due at the time and place where the seller is to make delivery and may be made in any commercially reasonable form (such as a business check).
Price: The UCC requires the court to determine a reasonable price at the time of delivery, based on industry customs and market value.

The rules provided by UCC Article 2 for accepting an offer in a sales contract are not as rigid as the common law rules.
If an offeror does not clearly provide for a method of acceptance, the UCC allows an offeree to accept the offer in any reasonable manner.
Under the UCC, acceptance may still be effective even if the acceptance does not match the offer exactly.

Business frequently use preprinted forms to initiate or respond to an offer to sell a good, and these forms usually have some blanks for the negotiated terms unique to the transaction.
Normally, the offer takes the form of a purchase order from the buyer that contains preprinted clauses (which typically favor the buyer) and blanks that a purchase manager fills in with terms (example, shipment date, product information, quantity, etcetera).
The seller will then typically issue an acknowledgement form, also called an invoice, which also has preprinted provisions (typically favoring the seller) and blanks to accommodate the specifies of that transaction.
In some cases, one merchant proposes a certain term in the offering document (example, the purchase order), but the other merchant’s acceptance (example, the invoice or acknowledgement form) states a term that is different from the offer.
In such a case, most states use the knockout rule, under which the conflicting clauses knock each other out and neither clause becomes part of the contract; instead, the courts look to the UCC’s gap-filler provisions to supply the term.

Statute of Frauds: A legal requirement that certain contracts be in writing to be enforceable.
Under the UCC, any sales contract for goods valued at 500 or more must be in writing.

To satisfy the UCC statute of frauds requirement, the sales contract must contain the following in writing:
1. The quantity;
2. The signature of the party against whom enforcement is sought; and
3. Language that would allow a reasonable person to conclude that the parties intended to form a contract.
All other terms and conditional may be proved by testimony concerning oral agreements, past practices, and industry standards.
The UCC statute of frauds provides a relatively lenient rule for sales contracts between two merchants. A merchant who receives a signed confirmation memorandum from the other merchant will be bound by the memorandum just as if they had signed it, unless they promptly object. Also, the UCC recognizes electronic records and signatures in a sales transaction as valid.
- This means that the hard copies of documents with original signatures are not always necessary.
- Although the UCC does not require electronic transactions, it makes clear that a sales contract cannot be held unenforceable simply because it is in electronic form.