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Business Law

Principles and Practices

Goldman, A., & Sigismond, W. (2014). Business Law: Principles and Practices (9th ed.). So Western Cengage Learning.

Cengage Advantage Books

PRINCIPLES AND PRACTICES

Formation of Sales and Lease Contracts CHAPTER PREVIEW

The Legal Setting for a Sale of Goods Under the UCC

Basic Concepts and Terms Associated With Article 2 of the UCC

Formation and Development of the Sales Contract Under the UCC Offer Acceptance Consideration Statute of Limitations Statute of Frauds Enforceable Oral Sales Contracts

The Doctrine of Unconscionability Under the UCC

The Parol Evidence Rule Under the ucc Formation of the Lease Contract Under the UCC

Electronic Transactions-Forming and Enforcing Sales Contracts Online Enforcing Contracts Online Writing Requirement Signature Requirement Mistakes in Electronic Communications

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N A BUSINESS SETTING

This unit of four chapters examines contracts for the sale and leasing of goods

under Articles 2 and 2A of the Uniform Commercial Code (UCC). Article 2

governs the sale of goods. Article 2A governs the leasing of goods. The UCC,

also commonly referred to as the Code, is a group of statutes (actually there

are nine articles) governing commercial (business) transactions throughout

the United States. The study of the law of sales is a continuation of the study

of the common law principles of contracts except in those cases modified by

the Code. This introductory chapter discusses many of the key modifications

that Article 2 of the Code has made to the common law principles of contracts

to accommodate the needs of people dealing with one another in a modern

business world. Some of the greatest modifications have been made to the

rules of offer, acceptance, and consideration. In the latter part of this chapter,

there is a discussion of Article 2A (leasing) and electronic transactions dealing

with the formation and enforcing of contracts online.

Vedor Construction Co. entered into a contract to build a small shopping center for Johnson, a real estate investor. Johnson requested a special type of piping called polyvinyl be used during the construction process. Vedor purchased the piping through the H & R Walter Equipment Company, an international conglomerate, with the understanding that the piping was to be delivered directly to the construction site. With the shipment, H & R included an installation guide delivered to the individual responsible for directing the installation of the pipe. The installation guide included an express warranty that the pipe was free from defects in workmanship and materials. In addition, H & R set forth a limitation of liability clause stating there would be no liability except for breach of the express warranty and that H & R would be responsible only for resupplying a like quantity of non defective pipe. There would be no liability for any other damages. During construction, the pipeline developed more than sixty leaks. The only way these leaks could be repaired was to remove the defective joints and replace them with stainless steel sleeves. This would have required major reconstruction. Vedor Construction incurred more than $200,000 in repairs to the pipeline, and as a result, sued H & R. In court, H & R claimed that they were not liable for these repairs because of the limited liability clause. They claimed that they had a right under the Uniform Commercial Code (UCC) to include this limitation of liability clause in the contract and argued that the contract should be enforced. Vedor Construction argued that th is limitation of liability clause was unconscionable and that the court should refuse to enforce the contract.

Questions 1. Vendor Construction Co. claimed that the limited liability clause in the H & R

contract was unconscionable. What does the term unconscionable mean? 2. Does the court have the authority to override the limited liability clause if it

finds the clause to be unconscionable? Explain. 3. Who, in your opinion, has the better legal argument, Vendor Construction

Co. or the H & R Water Equipment Company? Explain .

The Legal Setting for a Sale of Goods Under the UCC

LEARNING OBJECTIVE~ Learn how the Uniform Commercial

Code (UCC) came into existence and what effect it

has had on common law contracts.

Uniform Commercial Code (UCC): uniform laws governing commercial transactions

The most common and most important business transactions deal with the sale o~ goods: clothing, computers, building materials, auto parts, food, boats, cars, of­ fice equipment, raw materials, and so forth. At first, sales transactions were goY­ erned strictly by common law principles, which varied considerably from state to state. Then came The Uniform Sales Act drafted by the National Conference o; Commissioners on Uniform State Law (NCCUSL) as an attempt to bring some uniformity to sales transactions. A large number of states did adopt this act; how­ ever, more reform was needed. Sales law remained rigid, formalistic, technical. complex, and unclear. It was not keeping pace with changes in society. Definitely outdated, its application seems almost foolish by today's standards. The NCCUSL recognized the need to have sales laws that reflected modern commercial reality with built-in flexibility when difficulties arise between parties engaged in busines transactions and developed a stronger group of uniform laws called the Uniform Commercial Code (UCC).

The UCC emerged as a very important comprehensive body of statute law­ simple, clear, modern, uniform, flexible, and written- to accommodate elec­ tronic commerce. It takes a commonsense approach and removes much of the formality found in the common law principles dealing with contracts. Even where the common law has not been replaced, it has been liberalized. You will find ref­ erences throughout the chapters indicating that common law has been borrowing from principles found in the UCC. You may ask whether the UCC is a state or federal law. While it is national in scope (i.e., applicable throughout the country . it has been adopted in whole or in part by all fifty states (Louisiana has not ad­ opted Article 2 and 2A) and the District of Columbia. Some states have departed from the recommended provisions and adopted statutes with variations or modi­ fications that would apply more to the business laws of their state. They can do this because the UCC is only a model code, and its provisions are not mandatory unless otherwise provided under the Code. Freedom of contract is a basic princi­ ple of the Code. To insure that the Code will apply, the parties might include a provision in their agreement stating that it is their intent that the UCC specifi­ cally will or will not apply to their transactions and hope that a court will enforce such a provision (if court action is required). However, if and when adopted by individual states, commercial organizations can conduct business across jurisdic­ tional boundaries knowing that the same rules will apply in each jurisdiction.

Basic Concepts and Terms Associated With Article 2 of the UCC

LEARNING OBJECTIVE~ Demonstrate a knowledge of the

basic concepts and terms associated with the UCC.

sale: contract that transfers title in goods from seller to buyer for a price

goods: tangible personal property

Article 2 of the UCC governs contracts for the sale of goods for any dollar amount. A sale, according to Section (UCC 2-106), is a contract that transfers ti­ tle (ownership) to goods from the seller (vendor) to the buyer (vendee, also known as the purchaser) for a consideration (price) . The price can be cash (or its equiva­ lent) or in other goods or services. Goods may be defined as all things (including specially manufactured goods) that are tangible and moveable (UCC 2-103. Tangible property is physically in existence-it can be touched. Movable prop­ erty means that the item can be carried from place to place and therefore is con­ sidered personal property. Excluded from the definition of movable would be rea,' property such as land and things attached to land, but it does include growin crops and timber to be cut as goods. Growing crops are included because they are intended for sale.

Also defined as goods are minerals (including gas and oil) and structures such as a shed if severance (separation) is to be made by the seller. If the buyer

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chant: one dealing regularly e sale of goods or having

: ial ized knowledge of goods

erchant: casual or occasional

is to sever the minerals or structures from the land, these items are not goods, but real property, and any sale would be governed by real property law, not the UCC. Other "things attached" to realty but capable of severance without sub­ stantial harm to the land are considered goods regardless of who severs them. For example, a portable heater attached to a wall only by means of bolts could be considered goods, whereas a bathtub would be considered a part of the real property because its removal would do substantial damage to the walls and floor. Also defined as goods are money that is bought and sold as a commodity (e.g., Confederate dollar bills), the unborn young of animals (because they are intended for resale), and items specially manufactured for a buyer (special orders).

The term goods does not include intangible (not physical) personal property (e.g., shares of stock or rights to real property that has only conceptual existence). An example of intangible property would be your right to the income from a trust fund that had been set up to provide money for you to go to college.

In a mixed sale transaction (where you are also purchasing a service), for example, purchasing a pool, the price of which includes the service to install it, the UCC provides no direction for deciding cases. The courts therefore de­ cide the issue on a case-by-case basis after searching for an answer to the ques­ tion "was the dominant purpose of the transaction to provide goods or services?" Courts have held that the UCC applies if the "dominant purpose" of the transaction is to provide goods rather than services. It is really a balanc­ ing test. In the pool example, you could argue that the transaction falls under the UCC because you really wanted a pool and not the service. Here is another example:

Johnson entered the Henry Hudson Memorial Hospital for the purpose of having a pacemaker installed. The pacemaker was defective, causing injury to johnson. Johnson sued the hospital under Article 2 of the UCC for breach of warranty. She claimed that the hospital was a supplier of a good subject to Article 2 of the UCC.

In this case, a court would most likely rule against Johnson. The primary function of a hospital is to provide medical services. It does not routinely stock pacemakers or sell them to the general public. Implanting the pacemaker was part of the professional service provided to Johnson. Therefore, the hospital was not liable for breach of warranty under the UCC because the UCC did not apply.

The UCC, Article 2, applies to all sellers and buyers of goods, whether they are merchants or nonmerchants. In a few limited provisions of Article 2, how­ ever, some special rules apply solely to sales contracts between merchants (i.e., transactions in which both the seller and buyer are merchants because of a mer­ chant's expertise in commercial transactions). Two such areas of importance are firm offers and contract modifications. A merchant is a person who either deals regularly in the sale of goods involved in the sales contract (e.g., a retailer, a wholesaler, or a manufacturer) or professes by occupation to have specialized knowledge of these goods (e .g., a purchasing agent for a large corporation). In short, the merchant is a professional, a commercial expert, so to speak, com­ pared with the nonmerchant, who is an occasional or casual seller.

joseph A. Bank, owner of a large retail clothing store, purchased 150 suits from ]eness Clothing Manufacturers. Bank and ]eness are both merchants because, as a retailer (Bank) and a manufacturer (]eness), they both deal regularly in the sale of goods.

North sold a used DVD recorder to a close friend. In this case, North is nonmerchant or occasional seller.

Formation and Development of the Sales Contract Under the UCC

LEARNING OBJECTIVE~ Explain how sales contracts are

formed under the UCC and some fundamental principles that shape

the course of sales contract law.

------ -- A sales contract must contain the same essential elements as other contracts: of­ fer and acceptance, consideration, competent parties, and legal purpose. In gen­ eral, the rules that apply to basic contract law also apply to sales contracts; in some areas, however, the UCC modifies those rules as they relate to sales oi goods. The individuals who developed the UCC believed that the "old law" no longer met the needs of modern business practices.

Under the UCC, it is now far easier to form a binding sales contract. For ex­ ample, the "mirror-image" rule discussed in Chapter 7 no longer applies under the Code. The mirror-image rule, under basic contract law, states that the accep­ tance of an offer cannot legally add, alter, omit, or change any terms in the offer. This rule, which tended to obstruct the formation of a contract, has been re­ placed by a rule that is more practical and reduces delay in forming a contract. This change alone is better suited to the special needs of merchants who are in the daily business of trading in goods. More important, however, is that the Code allows a contract to be enforced as long as the parties really intended to make the contract, even in cases in which essential terms- such as those specify­ ing price, quantity, place and time for delivery, and terms of payment-are for some reason missing. The Code states that the contracting parties can add these terms at a later time. If the parties do not add the necessary terms, other provi­ sions of the Code will determine a fair price or the proper place for delivery an payment. The UCC rules are so practical that, as mentioned earlier, many courts have even applied some of these modern principles to nonsales transactions un­ der the common law.

To offset these relaxed rules, the Code insists on two conditions that the par­ ties cannot waive or disclaim. First, the parties to the contract must perform their obligations in good faith (honestly) , without manipulating contract terms rc take advantage of another party, especially when misunderstandings arise or when unforeseen events occur. Second, if the parties to the contract are of un­ equal bargaining power- such as in a contract between a merchant (a profes­ sional) and a consumer (a nonprofessional or inexperienced person, who may know very little about the goods being purchased)- the dominant party mus~ avoid being unfair in dealings with the other party. In other words, the UCC holds merchants to a higher standard than ordinary persons, insisting on honest; and reasonable commercial standards of fair dealing in the trade. If unfairness occurs, a court could refuse to enforce the contract because it is unconscionable. Unconscionable contracts were discussed in Chapter 10.

The sections that follow and the remaining chapters in Part 3 discuss in more detail the important areas in which the UCC has modified common la\' contracts.

Offer Under common law, the terms of a contract must be definite (i .e., able to ascer­ tain its essential terms), but under the UCC, a sales contract will not fail for in­ definiteness even if some of the terms (e.g., price or quantity) are left open (UCC 2-204; 2A-204). These terms could be negotiated later if both parties were com­ fortable with the arrangement. The key to this rule, however, is that the contrac: must be definite enough for the court to identify the agreement and conclude tha~ the parties at least intended to make a contract. Without such an identification. the court could neither enforce the contract nor make an appropriate award for damages (with reasonable certainty) if the contract is breached. If necessary, the courts will fill in the missing terms by applying the various rules found in the Code (UCC 2-305-UCC 2-311). Note that under the common law, an agreemen: with vague or missing terms would have been thrown out by the courts.

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Sands, the owner of a winery, signed an agreement with the Pensack Corp. to purchase some new machinery for her business. Before she could take delivery, the machinery first needed some modifications to fit it into a specific location at the winery. The modification would take approximately two weeks. Some of the details relating to delivery and payment were left blank, to be filled in prior to delivery. When the equipment was ready, Sands received a call from the manager at Pensack informing her that the equipment was ready for delivery. Sands said, "Never mind. I have gone elsewhere to purchase the equipment at a lower price." Pensack, who sued Sands for the expense of preparing the equipment for delivery, should be successful in spite of the fact that some of the details of the contract were missing. The court will likely reason that the conduct of both the parties showed an intent to contract.

For ordinary contracts, an offeree must pay the offeror consideration to keep an offer open for a specified time (called an option contract) unless, as in some states, the offer is in writing (discussed in Chapter 7). Otherwise, an offer can be revoked at any time before it is accepted. The option contract, however, keeps the offeror from revoking the offer for the period of time specified in the option. The Uniform Commercial Code modifies this rule and distinguishes between mer­ chants and nonmerchants. The UCC provides that if an offer by a merchant to buy or sell goods is made in a signed writing that gives assurance to keep an of­ fer open, the offer is firm (UCC-205). (Note: It is necessary that the offer be both written and signed; a signature includes an e-signature or any mark used as a person's signature). In other words, the offer cannot be revoked during the time stated, even if no consideration is paid by the offeree. If consideration is paid by the offeree, then an option contract arises and not a merchant's firm offer. The time stated in a firm offer, however, may not exceed three months. If no time is stated, the offer remains open for a reasonable time but for no longer than three months (UCC 2-205). (Note: Only the offeror need be a merchant under this rule.)

On July 1, Johnson of Listwood Motors offers to sell a Porsche to Schwartz for $50,000. Johnson signs a written assurance to keep the offer open until August 1. On July 20, Johnson sells the Porsche to another interested buyer for $55,000. On July 31, Schwartz tenders the $50,000 for the car. Johnson would be liable to Schwartz for the breach of contract because Johnson cannot furnish the car as agreed in his firm offer.

An agreement to keep an offer open more than three months is not binding unless supported by consideration. If consideration is furnished, the agreement becomes an option contract because one party is paying to keep the offer open for an extended time.

If the written firm offer is actually a form contract supplied by the offeree, the offeror must also sign a separate firm offer assurance. This procedure ensures that the offeror knows about the offer. It might be that a firm offer is "buried" someplace in the offeree's form contract, and the offeror may not see it and sign unaware that it contains a firm offer.

Acceptance In many cases, both parties to the contract are merchants, and they are carrying on business over a long distance. Section 2-204 of the UCC states that when the offeror does specify a means of acceptance, an offer to make a contract for the sale of goods shall be construed as inviting acceptance by any means of commu­ nication that is reasonable under the circumstances to show agreement, including those made orally, in writing, or by conduct of both parties. (This is also one way that acceptance may occur under the common law of contracts.)

The acceptance is effective when properly sent (UCC 2-206- 2A-206). This rule holds unless the offeror specifies the method by which acceptance must be made, making this means the only one that is legally acceptable.

On February 8, the Barrons and Lippson Corporation sent a letter offering to sell Bundy, owner of Bundy's Clothing Fashion Barn, a new line of men's sport shirts at a considerably reduced introductory price. The letter stated that the offer would be good until February 20. When Bundy received the letter on February 10, he immediately sent a telegram of acceptance. Because an employee of the telegraph company failed to send the telegram, however, the telegram never reached the Barrons and Lippson Corporation's home office. Since Bundy used a commercially reasonable means of acceptance, a valid contract was formed on February 10 when he sent the telegram. If Bundy wished (provided he had proof that the telegram was sent), he could legally demand that Barrons and Lippson send the merchandise according to their offer.

You may recall from the study of common law contracts in Part 2 of the text , if the offer is accepted by an improper means of communication, normally it is considered a counteroffer rather than an acceptance. (This will not happen under the UCC.)

The Code even permits acceptance of an offer by performing rather than by communicating. The UCC states, for example, that an offer to buy goods (the buyer initiates the offer) can be treated as though a unilateral contract offer has been made. The seller can accept such an offer either by shipping the goods to the buyer or by treating the offer as a bilateral contract offer and promptly commu­ nicating to the offeror a promise to ship the goods (UCC 2-206). This section of the Code resolves the problem caused by an ambiguous offer in which the offeree was unable to determine whether the offeror wanted a return promise or an act . The Code says that the offeree can use either method of acceptance.

The Code goes one step farther and states that the seller, if he or she chooses, may promise to ship or actually ship conforming (meets the standards set down by the contract) or nonconforming (substitute) goods (UCC 2-206). A shipment of nonconforming goods is simultaneously regarded both as an acceptance (and therefore results in a contract) and as a breach of contract for which the buyer may pursue appropriate remedies. The seller, however, may, within a reasonable amount of time, clearly notify the buyer that the shipment is nonconforming and that it is offered only as an accommodation or as a favor to the buyer. In this case, the ship­ ment constitutes only a counteroffer, and the buyer is free to accept or reject the goods. If the buyer decides to use the nonconforming goods, there is a contract.

Wiggins, the owner of Lasting Treasures, a craft store, ordered one hundred 36-inch grapevine wreaths from Star Vineyards. Star Vineyards shipped one hundred 40-inch wreaths, the only size in stock, knowing that Wiggins needed wreaths immediately for an upcoming craft show. Star then notified Wiggins that the 40-inch wreaths were sent as an accommodation. This shipment of 40-inch wreaths is not an acceptance but a counteroffer. A contract will result only if Wiggins accepts the 40-inch wreaths.

In this example, if Star Vineyards ships one hundred 40-inch wreaths instead of one hundred 36-inch wreaths and fails to notify Wiggins that a substitute wa made as an accommodation, Star Vineyard's shipment acts as both an acceptance of Wiggins's offer and a breach of contract. Wiggins now has the right to sue Star Vineyards for an appropriate amount of money damages.

Under the common law, an offeree who is required to accept by completing the act requested (unilateral request) must notify the offeror of performance only if the offeror would not otherwise know the act is being completed. In this con­ text, the UCC applies a stricter rule, stating that if the beginning of a requested

performance (e.g., beginning to manufacture and/or ship the goods) is a reason­ able method of acceptance, the offeree must notify the offeror of such beginning within a reasonable time. An offeror who is not reasonably notified of acceptance may treat the offer as having lapsed before acceptance (UCC 2-206).

Anderson, in New York City, placed an order for parts for his car with the Zee-Bart Co. in Boston. Three months went by, but Anderson did not hear from Zee-Bart. Anderson then bought the parts elsewhere. Finally, after the fourth month, the parts arrived from Zee-Bart. At this point, Anderson would have the right to reject the parts Zee-Bart sent; four months generally would be considered an unreasonable length of time.

As mentioned earlier, the UCC eliminates the mirror image rule and replaces it with a rule that is more practical because of the way merchants do business to­ day. Because of this concept, however, there is no longer the single-document structured contract. A purchase order containing very unusual terms could be construed as part of the contract if a vendor does not carefully review all the fine print on the order. Agreements are made by exchanges of written forms: The of­ feror spells out his or her needs in a purchase order, and the offeree accepts the order and promises delivery with a confirmatory memorandum. Each business drafts its own standard form containing terms that serve its own best interests. The terms on the separate forms , however, often do not agree. Hence, the ques­ tion arises: Is performance measured by the offeror's terms or the offeree's terms (which include modifications)? This situation is referred to as the "battle of the forms." To resolve this battle, the Code provides a solution under Section 2-207. When both parties are merchants, new or additional terms will not destroy ac­ ceptance, as would be the case under the common law's mirror image rule, but will automatically become part of the contract without further consent of the of­ feror unless (1) the offerror expressly gives notice to the offeree limiting accep­ tance to the terms of the offer, (2) the offeror gives notice to the offeree within a reasonable time rejecting the new terms, or (3) the new terms materially alter the contract (e.g., a big change in price or some other unreasonable element of surprise).

The Merkle Company, a wholesaler of hardware supplies, using its own purchase order, offered to sell Benson, buying coordinator for a retail hardware outlet in a different city, a variety of tools at a special price. Benson immediately returned an acceptance in the form of a confirming memo. In the memo was a request that the Merkle Company pay the freight charges, which were determined to be reasonable. No objection was made to Benson's request by the Merkle Company. Because both parties were merchants, and because none of the UCC exceptions applied, the freight charges would automatically be paid for by the Merkle Company as part of the original contract.

It is best to get on the bandwagon and take advantage of the "battle of the forms" options proposed by the Code, that is, to respond and expressly reject or object to any undesirable terms of sale or propose different ones. Sending pur­ chase orders that only acknowledge the material and pricing, but were otherwise silent, certainly constitutes an acceptance of a supplier's proposal and cannot be a counteroffer proposing a sale with no terms. Simply telephoning a supplier and verbally requesting shipment of materials, as often happens, also constitutes an acceptance of a supplier's proposal and would not be a counteroffer. Even terms limiting the seller's liability may be included in an initial offer and will become a part of the contract unless the buyer expressly objects. If you wish, you could make your response or confirmation conditional on an agreement to the addi­ tional or different terms. For example, a buyer could respond to a quote by stat­ ing, "I will agree to this only if you remove your limitations of liability and extend your payment terms to 90 days instead of 60." This would not be an

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acceptance. This is a counteroffer, and there would be no contract unless the ad­ ditional or different terms are accepted.

If one or both parties are nonmerchants, the courts will not automatically uphold the new terms. When requested by a nonmerchant, any additional term are simply offers for inclusion in the contract. The offeror (party receiving the writing with the proposals) can then choose to accept these proposals (offers) or reject them. Whether these provisions are accepted would be governed by the usual rules of offer and acceptance. So if the offeror accepts the proposals, they are part of the contract; if not, the contract is formed according to the terms of the original offer submitted by the original offeror (UCC 2-207).

Consideration Under common law rule a change in an existing contract must be based on con­ sideration. This rule also applies to both sales and lease contracts. Under the UCC, the parties must still exchange consideration; however, an agreement mod­ ifying a contract for the sale of goods needs no consideration to be binding (UCC 2-209; 2A-208). The Code treats the change in the contract as a matter of good faith rather than a matter of consideration; that is, the court considers what i fair to the parties involved. If, however, the statute of frauds requires the contracr to be in writing or the contract itself prevents changes to the contract that are nor in writing, any modifications without consideration made to that contract musr also be in writing to be enforceable (UCC 2-209- 2A-208).

Statute of Limitations Under ordinary contract law, an action for breach of contract must be broughr within six years of the time of the breach. Under the UCC, however, an action for breach of a sales contract must be started within four years of the breach. The parties to a sales contract may agree to reduce this four-year period to as little as one year but may not agree to extend it beyond four years (UCC 2-725). Once the periods of limitation are over, no lawsuit can legally be initiated.

Merkle, a frequent shopper at Grand's Specialty Store, received a rain check for an advertised sale item after Grand's supply of the product ran out. The rain check was in writing and stated that the item would be offered to the customer at the advertised sale price for an unspecified period of time. A Grand employee signed the rain check. When Merkle returned to the store one month later to purchase the item, the store re­ fused to honor the rain check. Using Article 2 of the Uniform Commercial Code (UCC) as your guide, answer the following questions.

Questions 1. Was the store correct in not honoring this rain check? Why or why not? 2. Did Merkle wait too long to cash in on this rain check? 3. Could Grand's Specialty Store claim that the rain check was not valid because

Merkle gave no consideration?

Statute of Frauds A contract for the sale of goods may be oral or written. The statute of frauds pro­ vision of the UCC, however, states that sales contracts for goods priced at $500 or more, and lease contracts requiring total payments of $1,000 or more, musr be in writing to be legally enforceable in a court of law (UCC 2-201-2A-201). The party who is liable for performance of the contract must sign it, although ir is a good idea for both parties to sign.

Bray signed an order for a stove and refrigerator for $600 from Modern Kitchens Appliance Store to be delivered the next day. When the stove was delivered, Bray refused to accept it, claiming he had

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changed his mind. Because the agreement was in writing as required and was signed by Bray, Bray is legally obligated to accept and pay for the stove.

The UCC has greatly relaxed the statute of frauds requirement of the written memorandum as evidence of a sale. One important element is intent to form a contract. Then there is the requirement of "some writing" - a check, a letter, an invoice, an order blank, and so on-as evidence that a contract for the sale of goods has taken place. Another essential term of the sale, the quantity, must be in the writing. The contract is not enforceable beyond the quantity shown in the writing. In case of a lawsuit, other essential terms of the transaction (e .g., price or the time and place of payment or delivery) that are in dispute, but that are not included in the writing, can be proved by oral testimony.

Enforceable Oral Sales Contracts The UCC allows some exceptions to the written requirements of the Statute of Frauds (UCC 2-201; 2A-201). Oral contracts for the sale of goods for $500 or more will, if proved, be enforced as described in the following situations.

Buyer Receives and Accepts the Goods An oral contract for the sale or lease of goods will be enforced if the buyer or les­ see both receives and accepts all the goods. "Receipt of goods" means that the buyer physically takes possession of them. "Acceptance of goods" means that the buyer indicates, by words or actions, an intention to become the owner.

Johnson made an oral contract with a dealer to buy a used tractor for $1,500. The tractor was to be delivered on a Monday, and Johnson was to pay for it on Thursday. The tractor was delivered on Monday as agreed, and Johnson accepted it but then refused to pay for it on Thursday, claiming he was not bound by the oral contract. Because Johnson received and accepted the goods, he is liable.

An oral contract will also be enforced if the buyer or lessee receives and ac­ cepts part of the goods. The oral contract will be enforced only for the portion of the goods actually received and accepted by the buyer or lessee. If the goods cannot be separated, the entire contract is unenforceable.

Baylor read in the newspaper that Rudnick Furniture Store was having a summer furniture sale. She telephoned the store and ordered a patio table and chairs for $800 and two family room chairs for $350 each, for a total of $1,500. She had looked at these items in the store a few days earlier. Rudnick agreed to deliver the items. When the items arrived, Baylor decided to accept and pay for only the patio table and chairs. Baylor is legally obligated to pay for only the patio table and chairs.

Buyer Makes Full Payment The entire oral contract is enforceable if the buyer or lessee makes full payment for the goods under the terms of the sales contract.

Cobb orally agreed to purchase a used snowmobile from the Arctic Cat Snowmobile Company and paid $1,500 cash. When the snowmobile was delivered the next day, Cobb refused to accept it and demanded the return of her $1,500. She claimed that because the agreement was not in writing, she was not bound to accept the snowmobile. Cobb was liable, however, because she had paid for the snowmobile in full.

Buyer Makes a Part Payment on the Goods An oral contract is binding if the buyer or leasee makes a part payment on the goods. The contract is enforceable, however, only for those goods covered by the

part payment. If the goods cannot be separated, the oral contract cannot be en­ forced against the buyer.

Bono made an oral contract to purchase an iPad and a wireless printer together on sale for $825 from Century Wireless. She had enough cash saved to make a part payment of $650, the cost of the iPad. The printer was temporarily out of stock because of the huge sale taking place at Century Wireless. Bono did, however, take the iPad at the time of the sale. Bono later changed her mind and decided to wait until later to purchase the printer and keep only the iPad that was already paid for. Century Wireless insisted that Bono was obligated to take the iPad and the printer together under the store's sale pricing policy. Because the contract was oral, Bono was liable only for the iPad that she had already paid for. She was not liable for the price of the printer.

The courts have ruled that an oral contract for the sale of goods consisting of a single item is binding when the buyer makes a down payment (Lockwood v. Smigel, 96 Cal. Rptr. 289).

Sacco offered to sell her used Rolls-Royce to Ruff for $20,000. Ruff accepted the offer and paid Sacco $1,000 as a down payment. The balance was to be paid upon delivery of the car. Sacco never delivered the car but instead sold it to someone else. Ruff sued for damages for breach of an oral contract. Sacco would be liable.

Specially Manufactured Goods An oral contract for goods to be specially manufactured for the buyer or obtained for a particular lessee is enforceable. The contract is enforceable, however, only if (1) the goods to be manufactured are not suitable for resale or lease to others in the regular course of the seller's or lessor's business and (2) the seller or lessor before re­ ceiving notice that the buyer did not want them made a substantial beginning on the manufacture of the goods or made commitments for the manufacture of the goods. This rule protects the seller or lessor who would have to absorb the loss if the buyer did not take the goods. Goods made to a buyer's or lessor's specifications or im­ printed with the buyer's or lessor's name generally cannot be resold to others.

The Realty Door Company, a manufacturer of custom exterior doors, orally contracted with Spoleta Contractors to design and build custom $3,000 outside aoors for a new house that Spoleta was building. After Realty had completed substantial work on the doors, Spoleta advised Realty to cancel the contract. Realty, however, finished the doors and shipped them to Spoleta. Spoleta refused to accept delivery, claiming that the contract cannot be enforced because it was not in writing as required by the statute of frauds. Nevertheless, Spoleta is liable; the doors were custom made for him, they were not suitable for sale to others in the ordinary course of the seller's (Realty Door Company) business, and Realty had made a substantial beginning of their manufacture before receiving a notice of repudiation from Spoleta.

An oral contract is not enforceable if the contract is completely executory­ that is, if the terms of the contract have not been carried out- when notice of re­ pudiation is received from the buyer. If Spoleta had canceled the order before Realty Door Company had started to manufacture the doors, the oral contract would not be enforceable.

Admission in Court of an Oral Contract If a person being sued admits in court (on the witness stand) that an oral contract for the sale or lease of goods was in fact made, the contract will be enforced. En­ forceability, however, is limited to the quantity of goods admitted.

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You orally agreed to buy a set of encyclopedias for $800 from the Educational Book Company. Delivery of the books by the company and payment by you were to take place on a certain date. On that date, the books were delivered but you refused to accept them. The company could not win in a suit against you unless you admitted in open court that the oral contract for the encyclopedias was actually made.

Written Confirmation Between Merchants The written confirmation between merchants rule is one of the few special rules within Article 2 of the UCC that applies only to the sale of goods and only be­ tween merchants. The rule states that if two merchants make an oral agreement, the statute of frauds requirement is satisfied if one of them sends a written con­ firmation of the oral agreement to the other merchant. The merchant receiving the confirmation must give written notice of objection to this confirmation within ten days after receiving it. If the receiving merchant does not give written notice within that time, the contract will be enforceable, even though the receiv­ ing merchant has not signed anything.

Cavanna, a North Carolina merchant who sells women's apparel, placed a telephone order for ten dozen hats from PSI, a wholesaler in New York City. PSI sent Cavanna a signed invoice for the hat order (written confirmation), giving details of their oral agreement. If Cavanna does not send PSI a written objection to the contents of this invoice within ten days of receipt of the invoice, the oral (telephone) contract will be enforceable.

Answer True (T) or False (F) . 1. Freedom of contract is a basic principle of the UCC. T 2. Money bought and sold as a commodity is included in the

defin ition of goods. T 3 . An item attached to real property is considered goods if it can be

removed easily. T 4. The "mirror image" rule has been incorporated into the UCC. T 5 . Under the UCC, a change in an existing contract must be based on

consideration . T

F

F

F F

F

he Doctrine of Unconscionability Under the UCC

LEARNING OBJECTIVE 1:] Indicate the significance of the

doctrine of unconscionability under the UCC.

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Section 2-302 covers the doctrine of unconscionability. This section is intended to make it possible for the courts to act directly on the unconscionability of con­ tracts or clauses in contracts they find to be unfair or unethical. It is a contract that no mentally competent person would enter into and that no fair and honest person would accept. Under basic contract law (common law principles), the par­ ties to a contract were considered equals; if the contract turned out to be unfair to one party (generally, the consumer), this consumer had no recourse at law. He or she had agreed to the terms, and that was that. Courts of equity very often re­ fused to grant relief of an unconscionable contract. Now, under the Code, courts, using normal legal processes, can deal directly with such problems and can exer­ cise discretion that traditionally belonged to equity courts. The basic test is whether, in the light of the commercial background and the commercial needs of the particular case, the clauses are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract. If the con­ tract or any part of it is deemed unconscionable at the time it was made, the court

can (1) refuse to enforce the contract, (2) enforce the contract minus the uncon­ scionable clause or clauses, or (3) limit the application of any unconscionable clauses to avoid an unconscionable result. Courts take action when they deter­ mine that during contract negotiations there has been unequal bargaining power, harshness or one-sidedness, or whether one of the parties self-imposed clauses without negotiating the content of these clauses with the other party.

Typically, the courts have held unconscionable contracts that involve unedu­ cated consumers who are placed in a position of having unequal bargaining power, as for example a contract in which the seller is in a position to impose his or her will on a consumer who would not have contracted if he or she had known all the facts. Too often, this consumer is a person who speaks little English and cannot read, let alone understand the language of a standard form contract. This person often pays an excessive price (two or three times greater than the average retail price elsewhere) or agrees to waive certain basic rights such as the right to sue in the event of dissatisfaction with a product. Another example of unequal bargaining power might occur when a large international company or a con­ glomerate imposes its will on another small town or city company during nego­ tiations involving the buying and selling of goods.

The Parol Evidence Rule Under the UCC

LEARNING OBJECTIVE ~ Recall the parol evidence rule

under common law, its reaffirmation under the

UCC, and the changes made by the Code.

course of dealing: conduct between parties that took place prior to a specific dispute

course of performance: way in which a particular transaction has been carried out

usage of trade: standard custom or widely accepted practice in a particular occupation that can be applied to a dispute

Recall the parol evidence rule that was discussed in Chapter 11. According to this rule, when a contract has been put in writing as the final expression of agree­ ment between the parties, parol evidence-evidence of an oral agreement made prior to or at the time of signing the written agreement-cannot be presented in court to change or add to the terms of this written agreement. Parol evidence can be presented in court to give meaning or add clarity to unclear language. The UCC reaffirms this basic contract law rule, along with the exceptions noted in Chapter 11, but the Code goes beyond these exceptions. For example, the courr will not allow evidence of contradictory terms. It further states that when a writ­ ten sales contract made in today's modern business world is in dispute, the con­ tract should be interpreted in light of surrounding circumstances.

Evidence is allowed from three sources: course of dealing, course of perfor­ mance, and usages of trade (UCC 2-202; 2A-202) . A course of dealing refers to any conduct that took place between the parties prior to the present dispute (e.g .. a series of agreemen,ts showing a pattern of dealings between the parties) and that can be followed to interpret their wording in the present disputed agreement (UCC 1-205). A course of performance refers to the way in which a particular transaction has been carried out (UCC 2-208). Repeated acts-such as the accep­ tance without objection of several deliveries of goods that do not technically meet the requirements of the disputed contract-may be sufficient to help a court decide what the parties actually intended. A usage of trade refers to a standard custom or a widely accepted practice in a particular occupation that can be applie to the disputed contract (UCC 1-205). For example, customary practice in the farm produce business may be to state in the sales contract a reasonable estimate rather than an exact number of each fruit and vegetable to be purchased.

Formation of the Lease Contract Under the UCC

LEARNING OBJECTIVE ~ Determine how lease contracts are

formed under the UCC.

Some people and companies prefer to lease personal property rather than buy. Leasing today is very common, especially for automobiles, furniture, and equip­ ment to help maintain home properties. Because of the popularity of leasing, uni­ form laws were needed to govern leasing transactions. The parties to a lease contract are governed by Article 2A of the UCC, which governs all leases (e.g. , au­ tomobiles, furniture, hand tools, or industrial equipment). Many of the Article _

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ease: rental agreement for real or :.:·sonal property

essor: landlord; owner of goods

-assee: tenant; renter of goods

rules governing sales law carry over to Article 2A, lease law, with some variation in these rules because of the difference between a sale (a transfer of ownership) and a lease (a transfer of possession). Article 2A defines a lease as a transfer of possession and use of goods {tangible personal property) for a certain period of time by a lessor (owner) to a lessee (renter) based on a consideration, with the ex­ pectation that the goods will be returned to the owner at the end of the lease term.

Article 2A recognizes two types of leases: consumer leases and finance leases. A consumer lease is made by a lessor who regularly engages in the busi­ ness of making leases and is made to a lessee for personal, family, or household usage (e.g., renting an automobile, furniture, or hand tools). Total lease pay­ ments must be less than $25,000 (UCC 2A-103). A finance lease is a special type of lease generally involving three parties instead of two. The lessor's primary function in a finance lease is to provide financing to the lessee for a lease of goods provided by the supplier. For example, under a finance lease arrangement, a manufacturer supplies goods pursuant to the lessee's instructions or specifica­ tions. The lessor will then either purchase those goods from the supplier or act as the lessee in leasing them from the supplier. In turn, the lessor will lease or sub­ lease the goods to the lessee. A business leasing heavy equipment is an example of a finance lease.

Parties to a lease, like the parties to a sale, are classified as merchants or non­ merchants. Leases may also be subject to the rules providing for firm offers. Pro­ tections are provided for a lessee in the ordinary course of business through warranties similar to those given under Article 2. Another protection arises if a court finds that a lease or a clause in a lease was unconscionable at the time it was made. In this case, the court may refuse to enforce the lease or clause that is unconscionable (U CC 2A -10 8-Unconscionability).

The statute of frauds states that a lease contract is not enforceable by way of action or defense unless the total payments {excluding options for renewal or op­ tions to purchase the goods) to be made are less than $1,000 or there is a writing to indicate that a lease contract has been made between the parties to describe the goods leased and the lease term (UCC 2A-201).

Electronic Transactions-Forming and Enforcing Sales Contract Online

LEARNING OBJECTIVE ~ Explain how sales contracts are

formed electronically and how they differ from

contracts formed on paper.

The fundamentals of contract law as expressed in the Uniform Commercial Code (UCC) provide a strong basis for transacting business online and for handling many of the issues raised by the application of traditional principles of law to on­ line contracts. The Uniform Commercial Code, as passed, has relaxed the rules of traditional contract law, making it easier to apply the Code to online transac­ tions. In addition, the Uniform Electronic Transactions Act and the Federal Elec­ tronic Signatures and National Commerce Act provide that electronic contracts and signatures are not to be denied legal enforceability simply because they are in electronic form. This places them on par with paper agreements. Further, new laws have been created to apply to situations in which existing laws do not ade­ quately address contract issues peculiar to the online world. Basically, the only difference between contracts formed on paper and those formed on the Internet is that individuals contracting with each other on the Internet are never face to face and sometimes may be in different countries.

Contracts are formed daily by companies doing business with their vendors and with consumers who shop online for computers, treadmills, clothing, jew­ elry, compact discs, books, and many other types of goods. Both businesses and consumers bank online, while many travelers purchase their airline tickets di­ rectly from the airlines and make hotel reservations directly with the hotel rather than process their request through a travel agency.

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Enforcing Contracts Online Contracts can arise electronically (online) in numerous ways as long as the par­ ties have the intent to form a contract. Offers and acceptances may be exchanged by e-mail; Web site (goods advertised online); electronic data interchange (EDI), where computers "talk to each other"; or by a combination of electronic commu­ nication with traditional faxes, human involvement (oral discussion by phone), or written communication. Many contracts involve e-mails between the offeror and the offeree or a click-on agreement in which the offeree clicks "Yes" or "Agree to Terms" (or some similar phrase) on the computer screen to an e-mail offer made by the offeror. For example, you send a person an e-mail that reads, "I will sell you my computer hard drive and printer for $1,500," and that person responds with an e-mail stating that she will buy the items at the offered price. The electronically transmitted offer and acceptance resulted in a contract by ex­ tending the principles of law learned earlier in this chapter and in the chapter on offer and acceptance (Chapter 7), even though all the terms in the contract have not been read. The offeree must understand or have reason to understand, how­ ever, that the "click" signified acceptance. On the other hand, if a company al­ lows customers to place orders online, that company should ensure that the terms and conditions of the contract are set out on the Web site. Generally, any contract for goods or services should address: the description of goods or services being supplied; the price and payment structure; the delivery details, including the time, place, and who is responsible for delivery; the rights of parties to terminate the contract; and limitation of liability provisions.

A principle of contract law learned was that a contract including an offer and acceptance may be formed in any manner sufficient to show agreement. Such agreements can be made orally, in writing, or by conduct of the parties that rec­ ognizes the existence of a contract. The courts will say that there is no reason an electronically transmitted offer such as an e-mail should not meet this require­ ment. Another principle of contract law learned was that an offer may be ac­ cepted by any reasonable method of communication. The courts' interpretation of this principle is that acceptance by e-mail, as well as any other form of elec­ tronic message, or by conduct such as "clicking" a button fits the definition of any reasonable method of communication. Both of these principles are an influ­ ence of the UCC being applied to traditional common law contract situations. Under the UCC, these same principles apply to such cases. For example, Mar­ vin's Stationary Outlet, a retail store, purchased paper supplies (goods) for his business from Gateway Stationary Wholesale House through an online ordering system. After placing his order online, including entering the amount of the transaction, he clicked the box stating, "Agree to the conditions in this offer." The click amounted to an acceptance.

Disputes have surfaced regarding the formation of contracts online in spite of the preceding statement that electronic contracts have the same enforceability as paper transactions. For example, it is sometimes unclear in an online agree­ ment whether the offeree voluntarily assented to the terms contained in the offer. Under these circumstances, it is best for an offeror as master of the offer to be specific about how he or she wishes the offeree to accept and when the accep­ tance becomes effective. Of course, the first rule should be that the seller's Web site display the full contract to make the potential offeree aware of its terms An­ other suggestion would be for the offeror to be sure to give the offeree a clear choice between accepting and rejecting the offer and clearly state what consti­ tutes an acceptance or a rejection. Still another choice would be for the offeree to require a reformation of the offer by the offeror asking for more clarity and hav­ ing the offeror resend it to the offeree. Sometimes, back-and-forth requests fo r clarity on the Internet cause more confusion as to what was offered and whether or not there was an acceptance that would lead to a legal contract. All parties in­ volved in any commercial transaction or messaging activity online need to have

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confidence that communications they send reach their destination without being changed in any way.

Like the mirror image rule, the mailbox rule has given way to technology. Recall the mailbox rule from Chapter 7 indicating that acceptance of an offer re­ sults as soon as it is deposited with the communicating agency by the offeree. With the advent of a contract being formed electronically, the need for the mail­ box rule becomes obsolete since electronic acceptances when sent are communi­ cated instantly to the offeror. Other forms of instantaneous communications that render the mailbox rule obsolete are faxes and in certain cases e-mails.

Writing Requirement Electronic communications using a tangible medium are acceptable as a writing requirement. The courts will accept telegraphed messages, telexes, Western Union Mailgrams, and faxes, but not such mediums as communications on chat lines or electronic bulletin boards (unless printed out) or even e-mails kept in a computer log.

Signature Requirement A key issue facing the parties who are forming a contract online is the verifica­ tion of e-signatures in order to reduce the risk of fraud and claims of unauthor­ ized use of an e-signature. The digital signature method described in Chapter 11 is a common method employed by the parties to a contract, especially a seller and a buyer. Another common form is a "smart card," which stores digital informa­ tion about the signer and may be used to verify a person's identity. Companies having a concern about fraud can purchase the services of a security firm to ver­ ify e-signatures.

Mistakes in Electronic Communications Mistakes in electronic transmission can and do occur. Two common reasons are human error, such as keyboarding in the wrong information, or a programming error, such as a flaw in a computer program. Both errors result in the recipient receiving information that is different from what was sent. How mistakes are handled will depend on (1) whether the party receiving the wrong information would be harmed if the contract was declared void, (2) whether it would be harmful to hold the person receiving the wrong information accountable, or (3) the stage of the contract when the mistake was discovered.

Fill in the blanks to complete each statement. 1. A contract that is so extremely unfair to one of the parties as to "shock the

conscience" of the court is said to be ___ _ 2. If a person being sued admits in court (on the witness stand) that an oral

contract for the sale of goods of $500 or more was in fact made, the contract is _ _ _ _

3. evidence can be presented in court to give meaning or add clarity to unclear language in a contract.

4. A lawsuit for breach of a sales contract must be brought within ___ _ years.

5. Under Article 2 of the UCC, some rules dealing with the sale of goods applied only between ___ _

Key Points in Chapter • • • Laws relating to the sale of goods (sales law) have their or­ igin in the common law principles of contracts. Article 2 of the Uniform Commercial Code (UCC), however, which governs sales law, has made changes that meet the needs of merchants and consumers who deal with one another contractually in a modern business world. The UCC has removed many of the technical requirements that existed under the common law. A sales contract may be made in any manner sufficient to show that the parties intended to be bound, even though essential terms such as price, quantity, place and time for delivery, and terms of payment are missing. To offset these relaxed rules, however, the Code does insist that the parties perform in good faith (honestly) and that the dominant party deals fairly with the other party to the sales transaction.

The UCC defines a sale as a contract that transfers ownership of goods from the seller (vendor) to the buyer for a price. Goods are defined as tangible personal prop­ erty-something movable. The term goods does not in­ clude intangible (not physical) personal property, such as shares of stock.

Article 2 generally applies to all sellers and buyers, whether they are merchants or nonmerchants. In a few limited provisions of Article 2, some special rules apply only to sales contracts between merchants. A merchant is a professional. A nonmerchant is a casual seller.

Article 2 of the UCC has made substantial modifica­ tions to contracts under the common law in the areas of offer and acceptance and consideration.

An action for breach of contract under the Code must be commenced within four years of the breach. The par­ ties can agree in their contract to reduce this period to not less than one year, but cannot extend it beyond four years.

Under the UCC statute of frauds, most contracts for the sale of goods costing $500 or more must be in writ­ ing to be enforceable. The UCC allows some exceptions to the written requirements of the statute of frauds.

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course of dealing

course of performance

goods

lease

lessee

lessor

Questions and Problems for Discussion

1. Which of the following contracts would be handled by common law and which would fall under Article 2 of the Uniform Commercial Code (UCC)? a. A written contract to purchase an old,

handcrafted desk for $650 from a private party. b. An oral contract to purchase a Vera Bradley

book bag for $150.

Under the Code, courts can now deal directly with unconscionable contracts, that is, contracts that are unfair in a court of law. Before the Code, the unethica~ behavior of merchants, which is the basis of unconsciona­ bility, was handled in an indirect way in equity court.

The Code reaffirms the parol evidence rule and its exceptions under the common law, but has noted excep­ tions of its own. The Code broadens the type of evidence that may be introduced to help interpret (but not change disputed contracts. It allows evidence based on widely accepted practices in a particular occupation and on dealings between the parties at various times either be­ fore or after the disputed contract was made.

Some people and companies prefer to lease good rather than purchase them. If so, the parties to the lease will be governed by Article 2A of the UCC. Leasing in­ volves a transfer of possession, whereas a sale involves a transfer of ownership {title) under Article 2 of the UCC.

The Uniform Electronic Transaction Act and the Federal Electronics Signatures and National Commerce Act have placed electronic (e-contracts) on a par with pa­ per agreements by stating that electronic contracts and signatures are not to be denied legal enforceability simply because they are in electronic form. If a signature be­ comes necessary to satisfy the statute of frauds, the mer­ chant seller and the consumer buyer should work out the method by which an electronic signature may be substi­ tuted for a manual signature.

Because disputes have surfaced regarding the forma­ tion of contracts online, certain precautions should be taken to ensure that offerors and offerees create offers and acceptances that clearly protect themselves against these disputes. The objective is to end up with a clear le­ gal contract that will satisfy the contracting parties and meet the test of any court action.

merchant

nonmerchant

sale

Uniform Commercial Code (UCC)

usage of trade

c. An oral contract to have your hair styled in which expensive hair products will be used on your hair.

d. A written contract to purchase a heater from a dealer to be installed by the buyer in his home.

2. Jamison Computer Sales Store orders 150 computer desks. The supply company shipped 150 printer

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stands. Does the shipment amount to an acceptance of the offer or a counteroffer?

· How does the UCC change the effect of the common law requirement that the terms of a contract be definite?

- Assume that seller A sends B, the buyer, a form offering to sell certain goods. B returns a form accepting the offer. The two forms do not agree on every point. Do A and B have a contract under Article 2? Why or why not?

- Bell, purchasing agent for the Hiram Paint Company, mailed a purchase order to the ABC Can Company requesting 50,000 new paint cans. The order form contained, among others things, a condition stating, "The buyer may reject any defective goods within twenty days of delivery." The ABC Can Company sent a return letter confirming the order. The letter contained a condition stating, "An objection to goods shipped must be made in writing within five days of receipt of the goods." On the eighth day after receipt of the shipment of cans, Bell filed an objection to 5,000 cans he stated were defective. Is this objection legally valid?

6. The R & R Door Co. (R&R), a manufacturer of custom interior and exterior doors, orally contracted with Rolland to design and build custom interior doors for Rolland's new house at a price of $1,500 per door or a total cost of $6,000 for four doors. After R&R had competed substantial work on the doors, Rolland changed his mind and decided against custom doors because of the price. He so advised R&R of his decision and stated that he would not take delivery of the custom-built doors. Nevertheless, R&R finished the small amount of work that had to be done and delivered the doors to Rolland. Rolland claimed that he was not legally bound to take the doors since the contract was not in writing as required by the statute of frauds. Is Rolland correct? On May 2, Mavrick orally contracted with the Target Appliance Center to buy for $475 a TV for his new apartment. Mavrick and the Target salesperson both agreed that delivery would be made on July 2 . On May 10, Mavrick phoned Target and requested that the delivery date be

ases for Review

1. Ralston Purina contracted to buy soybeans from McNabb. Poor weather damaged most of the soybeans, making it impossible for McNabb to deliver his crop by the deadline date. Ralston Purina agreed to modify the contract, without additional consideration, to allow delivery at a later date. When McNabb still could not deliver by the

moved to June 2 . The Target salesperson agreed with this request. On June 2 Target failed to deliver the TV to Mavrick's apartment because of a shortage in the warehouse. The Target salesperson then informed Mavrick that it would now deliver the TV on July 2 as originally agreed. Mavrick insists that Target has breached its contract with him. Target contends that its agreement to deliver on June 2 was not binding. Is Target's contention correct?

8. On May 2, BenFonte Hardware sent Cooper Industries a signed purchase order that stated, in part, the following: "Ship for May 8 delivery 300 Model B-W socket wrenches at current dealer price. Terms 2/10/30." Cooper received BenFonte's purchase order on May 4. On May 5, Cooper discovered that it had only 200 Model B-W socket wrenches and 100 model B-Z socket wrenches in stock. Cooper shipped the Model B-W and Model B-Z wrenches to BenFonte without any explanation concerning the shipment. The wrenches were received by BenFonte on May 8. Is Cooper's shipment an acceptance of BenFonte's offer or a counteroffer?

9. Cole, a retail auto parts dealer, needed some parts quickly. He sent a telegram to Veterans Wholesale Auto Parts, requesting that the necessary parts be sent immediately. Two days later, Cole followed up with a telephone call to Veterans. Five weeks later, the parts arrived, but Cole rejected them, claiming that they arrived too late. Cole had made other arrangements. Veterans sued Cole for breach of contract. Was Cole liable for breach of contract?

10. Colonial, a manufacturer of custom exterior doors and windows, verbally contracted with Crista Contractors to design and build a custom door for a house that Crista had built in a very exclusive tract. After Colonial had completed substantial work on the door, Crista informed Colonial that the house had been destroyed by fire and that Crista was canceling the contract. Nevertheless, Colonial finished the door and shipped it to Crista, who refused to take delivery. Crista contends that the contract cannot be enforced because it violated the statute of frauds for not being in writing. Is Crista's contention correct?

-- ------------------- new deadline date, Ralston Purina sued for breach of contract based on the new deadline date. McNabb admitted damages but claimed that Ralston Purina, an experienced purchaser of soybeans, was not acting in good faith when it modified the contract, knowing that the price would rise as the result of the crop failure. McNabb

therefore contended that the modification was not good and that the measure of damages claimed by Ralston Purina should be based not on the price as of the new deadline date but on the price of soybeans as of the date McNabb originally agreed to furnish the soybeans but failed to do so. Do you agree? (Ralston Purina Co. v. McNabb, 381 F. Supp. 181)

2. Auburn Plastics sent a letter to CBS offering to manufacture molds that CBS used to make parts for toys. The letter offer stated that CBS had fifteen days to accept or the option would lapse and that if CBS did accept the offer and required delivery of the molds, there would be a 30 percent charge for services. CBS waited four months to respond to the offer. It sent a purchase order for the molds but included a condition that CBS had the right to demand delivery of the molds from Auburn Plastics at any time without payment of the service charge. Auburn accepted the offer through an acknowledgment form but stated that the service charge would apply. When CBS demanded immediate delivery of its order, Auburn refused to deliver the molds unless CBS paid the 30 percent charge for services. CBS then obtained an order directing the sheriff to seize the molds. Did CBS have the right to do that? (CBS, Inc. v. Auburn Plastics, Inc., 413 N.Y.S.2d 50)

3. Pittsley contracted with Hilton Contract Co. to install carpeting at her home for a price of $4,400, of which $700 was paid to the installers. Pittsley complained to Hilton about poor installation. After Hilton fixed the installation, Pittsley was still not happy but refused to allow Hilton to return to try again. Instead, she sued for rescission of the contract and for the return of the $3,400 she had previously paid on the contract plus damages. Hilton countersued for the balance due. The lower court judge would not allow rescission, claiming that the breach was not material and awarded her $400 in damages for the poor installation but ordered her to pay the balance due on the rug. Do you agree with the judge's decision (Idaho Court of Appeals, 875 P.2d 232).

4. St. Charles Cable TV, which was building a new cable television system, contacted Eagle

Comtronics, Inc. by phone and agreed to buy several thousand descrambler units for its cable system. The descramblers were shipped to St. Charles along with a sales acknowledgment form containing terms and conditions of the sale. St. Charles made partial payment for the descramblers before discovering that some of the units were defective. Eagle accepted a return of the defective units. St. Charles then attempted to return all the units, asking that they be replaced by a newer model. When Eagle refused to replace all the old descramblers, St. Charles stopped paying Eagle. Eagle sued for breach of contract, but St. Charles claimed that no valid contract existed between the parties. Was St. Charles correct? (St. Charles Cable TV v. Eagle Comtronics, Inc., 687 F. Supp 820)

5. Barron owned and operated a sod farm. Edwards orally agreed to purchase Barron's entire sod crop for $300. Before the sod was removed, Barron notified Edwards that he had changed his mind and further stated that because the sod was part of the real estate, the oral agreement was invalid under the statute of frauds. Edwards sued for breach of contract, stating that the sod was personal property (goods) because it could easily be removed without doing damage and that the oral contract was valid. Was Edwards correct? (Barron v. Edwards, 45 Mich. App. 210)

6. Lewis orally agreed to sell Hughes a house trailer for $5,000 cash. Shortly after the oral agreement was made, Hughes informed Lewis that he would not pay the full $5,000 in cash. He wanted to pay it over a period of time or to pay Lewis $3,500 immediately in full settlement. Lewis sued for breach of the oral contract. Hughes contended that an oral contract for a sale of goods of $500 or more was not binding under the statute of frauds unless it was in writing. During the trial, however, Hughes repeatedly testified that he had informed Lewis that he would purchase the mobile home for $5,000 cash. In these circumstances, should Lewis be awarded damages suffered as a result of the breach of the oral contract? (Lewis v. Hughes, 276 Md. 247, 346 A.2d 231)