CHAPTER 16 Formation of the Sales Contract:
Contracts for Leasing Goods
INTRODUCTION : The Uniform Commercial Code (UCC) has been adopted in whole or in all part in all
states. It has been adopted in order to modernize the law relating to a variety of commercial transactions,
including sales, leasing of goods, banking, negotiable instruments (such as checks and negotiable
promissory notes), secured transactions, and documents of title.
T HE SCOPE OF ARTICLE 2: UCC Article 2 governs sale of goods.
A sale is a transaction in which a seller passes title (ownership) to a buyer for a price. The price may
be any type of consideration, including payment of money or exchange of goods or services. Goods are
movable personal property, but do not include most forms of intangible property, such as money,
investment securities (stocks and bonds), promissory notes, accounts receivable, and trademarks. State
statutes oftentimes exempt certain transaction (e.g., sale of blood) from sales coverage for reasons of public
policy. Article 2 governs sales between merchants (e.g., persons who deal in the type of goods being sold)
and nonmerchants, and it governs sales of new and used goods. All parties are required to act in good faith
and to cooperate with each other. Merchants must also act in a commercially reasonable manner.
FORMING THE SALES CONTRACT : Sales contracts are basically formed in the same manner as other
contracts except: 1) less formalities are required for sales contracts and 2) some special rules apply,
especially if merchants are involved. For example, an acceptance may vary from the exact terms of the
offer and yet still form a contract. Also, the courts may uphold a contract even if not all terms have been
set forth as long as 1) the parties intended to contract and 2) there is a way to determine the essential terms.
A seller may accept a purchase offer that requests prompt shipment by 1) promptly shipping the goods,
2) promptly shipping nonconforming goods, or 3) notifying the buyer that goods will be shipped.
Standard Form Contracts: UCC § 2-207 states that an acceptance may form a contract even if its
terms are not exactly the same as the offer. In this case, these general rules apply in most situations:
1) an acceptance cannot add or change terms if nonmerchants are involved; and 2) if both parties are
merchants, then the acceptance can add minor, standard (not important) terms if the buyer has not or
does not object and the offer is not expressly stated to be limited to its terms.
Firm Offers: A firm offer is 1) an offer to buy or sell goods 2) made by a merchant 3) in a signed
writing 4) which promises that the offer will not be revoked. A firm offer cannot be revoked for the
time stated (not to exceed 3 months) and, if no time is stated, it cannot be revoked for a reasonable
time. A firm offer is binding even if the offeree does not give consideration to keep the offer open.
Statute of Frauds: A contract for the sale of goods for $500 or more must be evidenced by a writing to
be enforceable. The writing must: 1) be signed by the party who is using the Statute of Frauds as a
defense; 2) indicate that a contract has been made; and 3) state the quantity of goods involved. If both
parties are merchants and one merchant sends the other merchant a sufficient writing confirming the
contract, then the confirmation is binding on the merchant receiving it if the merchant does not object to
it in writing within 10 days from its receipt.
UCC § 2-201(3) provides that a writing is not required if the goods must be specially made and
cannot be resold to another buyer and the seller has substantially started making the goods. Also, a
sales contract is enforceable to the extent: 1) the defendant admits in legal proceedings that a contract
existed, 2) the goods have been delivered and accepted, or 3) the price has been paid and accepted.
99 When interpreting a sales contract, terms are determinedin the following order of pref1)ence:
express terms, 2) course of performance (repeated performances under the present contra3)),
course of dealing (repeated performances under past contracts between the same parties)4)and
usage of trade (trade customs).
The parol evidence rule prohibits contradicting the terms a final, complete written sales contract
(i.e., totally integrated contract) by using evidence of prior oral statements or writings. But any
contract can be explained or supplemented by additional evidence, such as paroe.evidenc
SPECIAL RULES UNDER ARTICLE 2: A contract is unconscionable if it is grossly unfair to one party. A
court that finds a contract unconscionable may refuse to enforce the contract, refuse to enforce any
unconscionable clauses, or limit the application of any unconscionable clause to avoid any unfair result.
Open Terms: If the parties do not state a term in a sales contract, then the court may supply the
missing term by referring to certain "gap-filling" provisions of the UCC that supply most missing
terms. See UCC §§ 2-305 to 2-309.
Options: Article 2 leaves some decisions, such as product mix and shipping arrangements, to the option
of the buyer or seller.
Cooperation: Failure to cooperate or interference with a party’s performance can be treated as a
breach of contract or excuse for delayed performance.
T HE SCOPE OF ARTICLE 2A : UCC Article 2A governs contracts for the lease of goods in nearly all states.
Article 2A applies to "any transaction, regardless of form, that creates a lease."
C ONTRACTS FOR LEASING GOODS : Many of the provisions of Article 2A are the same or similar to those
stated in Article 2 relating to the sale of goods. Leases are generally classified as consumer leases or
finance leases. It also recognizes an “installment lease” contract. A lease of goods for $1,000 or more
must be evidencedby a writing to be enforceable.
C ONTRACTS FOR THE SALE OF G OODS IN AN INTERNATIONAL S ETTING
Roughly 60 countries have ratified the United Nations Convention on Contracts for the International Sale
of Goods, the CISG, which is the controlling law for international sale-of-goods contracts when: 1) the
contract is between firms from different countries that have ratified the CISG; or 2) the contract designates
that it is governed by the law of a particular country that has ratified the CISG.
SCOPE OF THE CISG
While the CISG and UCC Article 2 are similar in numerous ways, important differences include: 1) the
CISG generally does not apply to the sale of goods intended for personal or household use; 2) validity-of-
the-contract issues, such as the requirement of consideration, are to be determined by applicable national
law (not the CISG); 3) the CISG states that an acceptance is effective when it reaches the offeror; and
4) the CISG specifically states that oral contracts for the sale of goods are enforceable.
STUDY HINTS FOR NRW CASE STUDIES
The following study hints may be helpful when resolving the NRW case studies.
NRW Review the scope of both UCC Article 2.
16.1 Do not overlook the fact that two or more areas of law may be crucial to NRW’s business.
NRW Explore the advantages that NRW may gain in using a standard form contract.
16.2 Consider UCC § 2-207 and the textbook materials dealing with the battle of the forms.
NRW Review the material on cooperation of parties. Remember that sometimes the best business
16.3 decision is not to fully assert one’s legal rights.
100 REVIEW OF KEY TERMS AND CONCEPTS
Select the term or concept that best matches a definition or statement set forth below. Each term or concept
is the best match for only one definition or statement.
Terms and Concepts
a. Accommodation f. Firm offer k. Parol evidence rule
b. Chose in action g. Investment security l. Requirements contract