Formation of Sales and Lease Contracts
Article 2
Article 2 of the UCC applies to transactions in goods = UCC 2-102
- goods -- tangible things that are movable at the time of their identification in a sales contract
- scope of articles 2 -- applies to all sales contracts, whether they involve merchants or not
Scope of articles 2A
Article 2A of the UCC applies to personal property leases of goods
- lease -- a transfer of the right to the possession and use of the main goods for a set term in return for certain considerations
- parties to a lease:
- lessor -- person who transfers the right of possession and use of a good
- lessee -- person who acquires the right to possession and use of goods
- finance lease -- a three party transaction of the lessor, the lessee, and the supplier of the leased goods. The parties to a finance lease are:
- lessor -- acquirers title to the goods from the supplier and leases the goods to the lessee. often a bank or another creditor.
- lessee -- the person who acquires the right to possession and use of the goods
- supplier -- third party who supplies the goods. The supplier usually sells the goods to the lessor
Formation of Sales and Lease Contracts
Offer
Open terms. If the parties leave open a major term and a sales or lease contract, the UCC permits the following terms to be read into the contract:
- price term
- payment term
- delivery term
- time term
- assortment term
This is commonly called the gap filling rule.
Firm Offer Rule -- UCC rule which says that a merchant who makes an offer to buy, sell, or lease goods and assures the other party in a separate writing that the offeror will be held open can not revoke the offeror for the time stated, or if no time is stated, for a reasonable time.
Acceptance -- Accommodation shipment. This is the shipment that is offered to the buyer by the seller as a replacement for the original shipment when the original shipment cannot be filled. The buyer may either accept or reject the shipment.
Additional Terms Permitted
The UCC permits an acceptance of a sales contract to contain additional terms and still to act as an acceptance rather than a counteroffer in certain circumstances. The following UCC rules apply:
- one or both parties are not merchants.-- The additional terms are considered proposed additions to the contract. If the offeree's proposed terms are excepted by the offeror, they become part of the contract. If they are not accepted, the sales contract is formed on the basis of the terms of the original offer.
- both parties or merchants. -- That additional terms contained in the acceptance become part of the sales contract unless
- the offer expressly limits the excepted to the terms of the offer
- the additional terms materially alter the original contract
- the offeror notifies the offeree that he or she objects to the additional terms within a reasonable time after receiving the offeree's modified acceptance. There is no contract if the additional terms so materially alter the terms of the original offer that the parties cannot agree on the contract.
Statute of Frauds
The UCC Statute of Frauds requires contracts for the sale of goods costing I've hundred dollars or more the end lease contracts involving payments of $1000 or more to be in writing.
Exceptions to the Statute of Frauds -- The UCC recognizes the following exceptions to the Statute of Frauds where a sale or lease contract that is required to be in writing is enforceable even though it is not in writing:
- specially manufactured goods -- in these contracts, the goods are not suitable for sale or lease to others in the ordinary course of business and the seller or lessor has made either a substantial beginning of manufacture of the goods or commitments for their procurement
- admissions in pleadings or court -- a party admits in pleadings, testimony, or otherwise in court that he or she has entered into a contract
- part acceptance -- an oral sales or lease contract is enforceable to the extent to which the goods have been received and accepted by the buyer or lessee
Written Confirmation Rule
If both parties to a quarrel sales or lease contract are merchants, the Statue of Frauds requirements are satisfied if:
- one of the parties send a written confirmation of the sale to the other within a reasonable time after contracting
- the other merchant does not give written notice of an objection to the contract within 10 days after receiving confirmation
