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T]|APTER 18

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65The object great
is ofthelaw to enc0urage t cOmmerce.t
l7 f . C)harrrbre,39-\823 jurist) (British

CHA P TE R O UI T I NE .THE THE SCOPE UCC OF

L E A RI { |1 { G 0 B t E CT t V t S

TO AFTER READINC CHAPTER, SHOULD ABLE THIS YOU BE ANSWERFOLLOWING THE QUESTIONS: OF 2-SALES -THESCOPEARTICLE I OF 2A-LEASES How do Article 2 anclArticle 2A of the UCC differl -THESCOPEARTICLE Wl-rattypesof transactions doeseach article coverl .THE FORMATION OF SALES AND LEASE CONTRACTS 2 Wrat is a merchant'sfirm offer? .CONTRACTS FOR THE 5 If an offereeincludes additional or differentterms INTERNATIONAL GOODS in an acceptance, a contractresult? so,what SALE OF will If
l-rappens theseterrns? to 4 Article 2 and Article 2A of tlie UCC both define severalexceptions tl-re to writing requirementsof the Statr-rte Frauds.What are theseexceptions? of 5 Wrat law governscontractsfor the irrternational saleofgoods?

s the chapter-opening quotationstates, object of the law is to encorlrage the comlrrerce. This is particularly tme with respect the Unifonn CornmercialCode (UCC). The to UCC facilitates commercialhansactions making the lawsgoverning by sales and leasecontractsuniforrl, clearer, simpler,and more reaclily that applicable the numerousdifficulties to can arisech-rring such transactions. Recallfrom Chapter I that the UCC is one of many uniform (rnodel)actsdraftecl the National Conferenceof Comrnissioners Uniforr-rState by on Lawsand submittedto tl.restates adoption.Once a statelegislaturehasadopteda uniforrr for act, the act becomesstahrtorylaw in that state.Thus, when we b:rn to salesand leaseconhacts,we nlove awayfrom common law principles and into the areaof statutorylaw. We open this cl-iapter with a discussion the generalcoverage the UCC and its sigof of nificance asa legal landrlark. We ther-r look at the scopeof the UCCt Article 2 (on sales) and Article 2A (on leases) a backgror-rnd the focus of tl'rischapter,which is the foras to mation of contractsfor the sale and leaseof goods.Becauseintemational salestransactions are increasingly comnonplace in the business worlcl,we concluclethis chapterwith an exarnination the United NationsConvention on Contractsfor the InternationalSale of of Coods (CISG). which soverns international sales contracts.

426 l!EiI[@

AND SALES LEASE CONTRACTS

The UCC attemptsto provide a consistentand integratedframeworkof rules to deal with all phases ordinarilyarisingin a commercialsales leasetransaction from startto finish. For or example,consicler following events, of which may occur during a singlehansaction: the all

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427 EUEmtr
Article 2 and Ariicle 2A of I A contractfor the saleor lease goodsis formedand executed. transaction. all aspects tl-ris of of the UCC provide rules governing a Tlrc transactionmay irtt,olve payment-by check,electronicfund transfer,or other 2 Article 4 (on bank depositsand collecnegotiableinstruments), Article 3 (or-r tnedns. and Article 5 (on lettersof credit) cover this part tions),Article 44 (on ftrlrd transfers), of the transaction. receiptthat cotters goodswhen The transactionmay intolve a bill of lading or a warehouse Article 7 (on documentsof title) dealswith this subject. theyare shippedor stored. 4 The transactionmay intolve a demandby the selleror lenderfor someform of security coversthis part of securedtransactions) balanceowed. Article 9 (or-r for the remairLing the transactior-r. ! 'fhe UCC has been adopted ir-rwhole or in part by all of tl-restates.lBecauseof its we intportancein the areaof commercial transactions, presentthe UCC as this chapter's page. in the Law featureon the followir-rg Landmark

THE FORMATION OF AND CONTRACTS SALES TEASE

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Legal Cornell University's also Institute lnformation the offers full textof at the UCC

.\rticle Z of the UCC governssalescontracts, or contractsfor the saleof goods.To facilitate SALES CONIRACT goods for Article 2 modifiessomeof the common law contractrequirements A contract the saleof transactions, cornmercial of underwhichthe ownership goods in in that were snrnmarized Chapter B and discussed detail in Chapters9 through 15.To to from a seller a buyer is transfened the the extentthat it hasnot beenrnodifiedby the UCC, however, commou law of contracts for a price. is In contracts. general,the rr-rle that when a UCC provisionaddresses alsoappliesto sales when the UCC is silent,the common law governs. the a certain issue, UCC governs; Article 2, you shoulclkeep hvo points in rnind. First, Article 2 dealswith In regardto or it the sale of goods; does not deal with real property (real estate),services, intangible If involvesgoods,the UCC governs. and bonds.Thus, if a dispr,rte propertysuch asstocks the or services, cornmon law applies.The relationshipbetweengenreal it ir-ivolves estate eral contract law ancl the law governingsalesof goods is illustrated in Exhibit l8-l on page 429. Second, in sotne instances,the rules may vary quite a bit, depending on ri hether the buyer or the selleris a merchant.We look now at how the UCC definesthree irrportant ternrs:sd/e,goods,and merchantstatus.

ls Wh at a S ale ?
of The UCC definesa saleas "the passing title fevidenceof ownership]from the sellerto SAtE from of Thepassing title to property for br-ryer a price" IUCC 2-106(1)]. The price may be payablein cash (or its eqr,riva- the sellerto the buyerfor a price. tl-re o l e n t) o r in ot lr ergood s r s e rv i c e s . TANGIBLE PROPERTY

Ar What eG ood s ?

existence that hasphysical Property by and can be distinguished the A of sense touchor sight. caris property; patentrightis a tangible of as To be characterized a good,the iterr-r propertymust be tangible,and it must be movable. property. intangible Tangible property hasphysicalexistence-it can be touched or seen.Intangible propertyPROPERTY INTANGIBTE and bonds,patentsand copyrights,and ordinarycontract rights-has such ascorporatestocks that cannotbe seenor Property 2. only conceptually, and thus doesnot come under A-rticle A movableitem can be touchedbut exists only conceptualexistence and bonds, stocks suchas corporate is excludedfrom Article 2' carriedfrom placeto place.Hence, real estate patents and and copyrights, ordinary in detern'riningwhether the obiect of a contract is Two issuesoften give rise to disputes contractrights.Article2 of the UCC property. thus whether futicle 2 is applicable.One problem hasto do with goodsassociated doesnot governintangible goodsar-rd

with real estate, stch as crops or timber, and the other concernscontractsinvolving a combination oFgoodsand services.
Articles2 and 2A, however has l. Louisiana not adopted

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428 I@

AND CONTRACTS SALES LEASE

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-j Of all the attempts produce uniformbody of to a in laws relating commercial to transactions the or UnitedStates, none has beenas comprehensive Code(UCC). successful the UniformCommercial as pr T h e O ri g i ns of the U C C TheU C C as the brai nchi l of w i l l i amA . S chnader , esiw d dent of the National Conference Commissioners UniformStateLaws(NCCUSL). of on involved the in The drafting the UCCbeganin 1945.The most significant of individual project Law School. was its chiefeditor,KarlN. Llewellyn the Columbia of University Llewellyn's intellect, continuous madethe firstversion efforts, and abilityto compromise years, UCC in the of the UCC-completed 1949-a legallandmark. Overthe next several was substantially accepted virtually by everystatein the nation. Periodic Changesand Updates Various articles and sections the UCCare periodiof callychanged supplemented clarify to new ruleswhen or certain rulesor to establish in renderthe existing inapplicable. examFor changes business customs UCCprovisions ple, because the increasing of importance leases goodsin the commercial of context, of Article2A governing leases was addedto the UCC. clarify rightsof parties comTo the to particularly fund transfers, 44 Articles mercial electronic fund transfers, Article was issued. instruments bankingrelationships, 3 and4, on negotiable and underwent significant revision the 1990s. in Because otherchanges business of in and in the law,the NCCUSL has recommended repealof Article6 (on bulk transfers), the Article6 offering revised a to thosestates that prefernot to repealit. The NCCUSL alsorevised Article9, coverhas ing secured transactions. revised The Article which has beenadoptedby all of the 9, states, be discussed lengthin Chapter will at 25. By periodically revising the UCC'sorticles, the NCCUSL been oble to adapt itsprovisionsto changing business hos customsond proctices.UCCprovisionsgoverning salesand leasecontroctshave olso been extendedto contractsformed in the online environment. To locateinformotion on the web concerningthe (Jniform CommerciolCode,go to this tex* Web site at select"Chopter | 8." ond click on "URLsfor Landmorks."

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liEli|lnmm Althoughthe UCChas withoutmany beenwidelyadopted havemodified changes, states to someof the details suittheir particular needs.

Goods Associatedwith Real Estate Gooclsassociatecl with real estateoften fall within the scopeof Article 2. Section2-i07 provides followingmlcs: the I A cor-rtract the sale of mineralsor the like (including oil ancigas)or a stnrcture for (suclr as a building) is a contract for the saleof goodsif sererdnce, separation, lo is or rnadeby th.eseller.lf thc buyer is to sever(separate) mincrals or stnrcturefrorr be the land, the contractis considered be a saleof real estate tl-re by to governecl tlrc principles of real property law, not the UCC. 2 A saleof growingcrops(suchas potatoes, carrots, wheat,anclthe likc) or timber to be cnt is consideredto be a contractfor the saleof goodsregardless who seyers of them.

429 ffiffiffig

OF FORMATION THE CONTRACTS AND SALES LEASE

contractlaw and statutorylaw betweengeneral the illustrates relationship Thisexhibitgraphically are contracts not Sales for (UCCArticles2 and 2A) governingcontracts the sale and leaseof goods. law contract by governedexclusively Article2 of the UCCbut are also governedby general and has not been modifiedby the UCC' it whenever is relevant

Law Contract General

NonsalesContracts (contracts the outside UCC, for primarily contracts services and for real estate)
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CommonLaw Relevant by Not Modified the UCC

Contracts forthe of andLease Goods Sale Law Statutory (UCC 2 Articles and2A')

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TEST lvithout niaterialharnr tcr PREDOMINANT-FACTOR to Other "tliings attachecl" rcalty but capableof severatrce A test courtsuseto determine thent.Z"l'hings attachecl"that of regardless who severs goocls thc lancl arJconsiclerecl for is whethera contract primarily the saleof goodsor for the saleof lvithout harrn to realtycoulclincluclestrchitens as a portablehcatcr,a arc sevcr:rble services. retnovalof orle of in:r rcst:trtrartt.'l'hus, rvilclowair colclitioler i1 a house,and stools 'l'hc test is lvhcther rcruovalwill a salc of goocls. thesethings woulclbe consiclerecl Sunflowersin bloom. DoesArticle 2 harm to thc real propertl to which thc iten-ris irttachecl. ca.,ses.tbstontial

:rrlclserinvolving contractsil rvhich goocls Goods and ServicesCornbined In czrses blood is I'br courtshavercacheddiffercntresults. instance, providirtg are combilcd, 'iccs or cluringan operationa "salc of goocls" the to a patient ''pcrformance :r rleclicalservice"? Sornecourtssayit is a of the Becartse IJCC doesnot it is a service. gootl;otherssay thc to such cluestions, courtsgenerall,v providethe artswers irse the predominant-factor test to detcrrninc whethcr :l contractis prinarily for the saleof goodsor for the saleof is Tliis cletennin:rtion important becausethe :en,ices.3 providedttnder a tnixed conto services LICC wili appl;t tract that is preclominantlyfor goocls,even though the
hcre because ihe rvord has nurrterous the Iern firLttres 2. Thc Ll(lC irvoicls delinitions. A fixture is anvthing so firnrlv or permanentlr'attached to iand or to a buildinq as to becortre a part of it Once personal proPerb bccones a tirture, it is governeclbl real estate lau'. See Chapter'1'l' "sale of 3. UCIC 2-l l+( I ) does stipulate that serving food or drinks is a goocls"for plrrposes of the implied warranh of me rchantabilitl, as u'rll be il c l i s c u s s e r n Ch a p te r 2 1 .1 'h e UCIC also specifiesthatselling unbor r t animal s and rarc coins qualifics as a "sale of goods "

of the UCCopply to the soleof sunflower seedsto o snack-foods compony?Why or why notT Commons) (Delphine Menard/Creative

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SAIES LEASE AND CONTRACTS

majority of courtstreat services being excludedby the UCC. In other words,if a court as decidesthat a mixed contract is primarily a goodscontract, any dispute,even a dispute over the services portion, will be decided under the UCC. Likewise,any disagreerr-rent over a predominantlyservices contractwill not be decidedusing the UCC, even if the dispute involvesthe goodsportion ofthe contract. If an entire business, including a truck and its equipment,is sold,but the contractdoes not specifywhat portion of the saleprice relatesto tl-re goods,doesArticle 2 of the UCC still apply to tl-re trar-rsaction? That wastl-remain issuein the following case.

AppellateCourt of lllinois,FourthDistrict,579lll.App.3d 581,885 N.E.2d 7ll (2008).

was BACKGROUND FACTS trailerin his name.CeneJannusch paidto attendtwo AND

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Gene Martha and Jannusch ran

Festival Foods, which providedconcessions eventsaround at lllinois and Indiana. Theyowneda truck,a trailer, freezers, roasters, chairs, tablet a fountainservice, signs, and lighting. Lindsey and LouannNaffziger were interested buyingthe in concessions Theymet with the Jannusches business. and orallyagreedto a priceof 9150,000. paid The Naffzigers down with the balance comefrom a bankloan. to $10,000 Theytook possession the equipmentand beganto use it of immediately Festival in Foodsoperations variousevents, at eventhough GeneJannusch kept the titlesto the truck and

eventswith the Naffzigers provideadviceabout runningthe to operation. Aftersix events, and at the end of the outdoor season, Naffzigers the returned truckand all the the equipmentto its storagelocationand wanted out of the deal. Theysaidthe business not generate much incomeas did as they expected. Jannusches The suedthe Naffzigers the for balance price. due on the purchase Thetrialcourtheldthat the UniformCommercial governed casebut the Code(UCC) that there was not enoughevidence show that the parties to had a sufficient meetingof the mindsto form a contract. The Jannusches appealed.

l N T H EW0 RDS F THEC0URT Chorles J . RE Y NA RD, J u d g e P re s id in g . 0 ...
Defendants lthe Naffzigers] argue the UCC should not apply because this case involvesthe sale of a business ratl-rer than just the sale of goods.The "preclorrinantpurpose" test is trsecl cleterminewhether a contractfor both the saleof goodsand the rento dition of services falls within the scopeof Article 2 of the UCC. Defendantsargue that nothing was said in the contract about allocating a price for good will, a covenantnot to compete,allocatinga price for the equiprnent,how to release liens, what would happen if there was no loar-r approval,and other issues. Defendants arguetheseare essential terrnsfor the saleof a business and the Internal RevenueService requiresthat partiesallocate the salesprice. "None of these items were even discussed much less agreed to. There is r-rotan enforceableagreementwhen there are so many essential tern-rs missing.""A contract may be enforcedever-r tl-rough some contract terms may be missingor left to be agreedtrpon, but if the essential terms are so uncertain that there is no basisfor clecidingwhetl'rer the agreementl'ras been kept or broken, there is no contract." The essential termswere agreed upon in this case. The purchase price was$150,000, and the items to be transfelredwere specified.No essential terms remained to be agreed upon; the only action rernaining was the perforrnanceof the contract. Defendantstook possession the items to be transferred of and used them as their own. "Rejectionof goods must be within a reasonable time after their deliveryor tender.It is ineffectiveunlessthe buyerseasonably notifiesthe seller."IUCC 2-602(l)l Defendantspaid $10,000of the pur-

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OF THE FORMATION CONTRACTS AND SATES LEASE

l CASEs.l -Cont inued were disappointedin the incorne from the events chaseprice. The fact that defendants added.] of with the existence a contract.lEmphasis is thev operated not inconsistent "the partieshave very differentviews about what transpired tn" ttirt court noted that that the parties in the course of the coltract-forrnationdiscussions."It is not necessary of the contract;the parties'condttctmay as sharea subjectiveunderstanding to the tern'rs inclicatean agreementto the teims. The conduct ir-rthis caseis clear. Partiesdiscussing the saleofgold, do not transferthosegoodsand allow them to be retainedfor a substantial period" before reaching agreement. Defendants replaced equipment, reported of and paid Gene for his tirne and expenses,all which is inconsistent i'rco*., paicltaxes, An "pursuing buying the business." agreementto were only *,ith the icleathat defendants here. clearly more than tl-rat but there was is an r.nake agreernent not an agreement, x x x f6. parties',gr."-.nt could have been fleshedor-rt with additionalterms,but to termswere agreedupor-r. the essential fNaffziger]admittedthere wasan agreement purmaking an oral agreebut chaseFestivalFoodsfor $t 5O,OO-O could not recall specifically sufficientto constitutea contractfor saleInay ment on any partictrlardate."An agreement be fonncl even tlio.rgh the rnoment of its making is undetermined'" IUCC 2-704Q)1 was it Retuming the goods the end of the season not a reiectionof plaintiffs' offerto sell; it wrrs bredchof contract' IEniphasisadded.] d priceof $l 50,000 for We conclude there was an agreementto sell FestivalFoocls the judgmelrt circuit court's breachedthat agreement.We reversetl-re and that clefenclants with this opinion. and remand for the entry of an order consistent

the court rtre ANDREMEDY appeals reversed DECISI0N
of decision the trial court,findingthat a contracthad been it' had formedunderthe UCCand that the Naffzigers breached was in the goods,not the Ihe primaryvalue of the contract and the on agreed a price; the valueof the business; parties Theyhad no right of took possession the business. Naffzigers to returnit.

DIFFERENT? WERE IF WHAT THEFACTS
thot the controcthod stated thot the truck Suppose otherequipmentwere worth $5o,oo0 ond the goodwill ond

thot Would hove was volueof the business worth$Ioo,ooo. Whyor whynot? of the outcome thiscose? chonged

@

ls Who a Merchant?
trarxactionsbetweenall -\rticle 2 governsthe saleof goodsin general.It appliesto sales however,the UCC presumestl'rat of instances, buyersani sellers.In a limited ,-rurrrblr they pos on ought to be in-rposecl tnerchantsbecause standards ..rtrin specialbusiness apply to the do Such standarcls r-rot expertise.4 ,.r, , ,.lrtiu.ly high degreeof commercial out (a or or casual inexperilnceJseller br-ryer "consuner").Section2-104 sets threeways c s in wh i ch m er c lt ant t at u s a n a ri s e : of dealsin goods the kind involved in lhe salescontract. I A merchant is a person wl-ro o, a retailer, a wholesaler, a manufactureris a merchant of those goodssoldin Thus, for a the business.A merchant for one type of goods is not necessarily merchant another type. For example,a sportingequipment retailer is a merchant when selling tennis racketsbut not when selling a used computer'
corfirmatory firn offers, of rlealprincipallywith the Statute Frauds, only to merchants corn'fhesespecial busilesspractices rulesreflectexpedient modifications. an{ warrantres, contract -.1hryr"*t"""h"*pply r'emorandums, laterin ihis chapter' They will be discussed setting. in nonlv known to merchants the commercial

Legal University's Cornell offers Institute lnformation as to access the UCC online
enacted in severalof the statesat

452 IINiIIIE
MERCHANT

SALES LEASE AND CONTRACTS

A person who is engaged the in purchase saleof goods. and Under the UCC, person a who dealsin goodsof the kind involved the in sales contract who holdsherself or or himself as having or out skill knowledge peculiar the practices to or goodsinvolved the transaction. in

A merchantis a personivho, by occr:pation, holds hirnselfor herselfout as having knowledgear-rd skill Llniqueto the practicesor goodsinvoived in the transaction. Notc tl'ratthis broad definitior-i rnay incluclebanksor rlniversities merchants. as A personwho entploys merclTdnt d broker,ctgent, other intermediary d. ds or has tl-rcstatus of merchantin that transaction. I{encc, if a "gentlernan f:rnner"who orclinarily doesnot run the farm hiresa brokerto purchase sell livestock, farmcr is considor the ereda merchantin thc transactiot'r. In summary, pcrsonis a merchant when she or he, actingin a rriercantile a capacity, or tisesan expertise specificallyrelatecl the goodsbeing sold.Nevertl'reless, to tl-re Posscsses distinctionbetweenrncrchants and nonmerchants not :llways is clear-cut. For example, statecourtsappearto be split on whetherfarmersshoulcl considered be rr-ierchants.5 In somestates, farmers consiclerecl are nicrchants because they sell prodr-rcts livestock or on a rcgular basis.hr other states, courtshavc held that the drafters the UCC did not of intend to incluclefarners as rnerchants.

lucc2-'r041.

LEASE UnderArticle of the UCC, 24 a transfer the rightto possess of and usegoodsfor a periodof time in exchange payment. for LEASE ACREEMENT In regard the leaseof gooos, to an agreement whichone person in (the lessor) agrees transfer rightto to the the possession useof property and (the lessee) to anotherperson in exchange rentalpayments. for l-EssoR A person who transfers right the to the possession useof goods and to anotherin exchange rental for paymenrs. TESSEE A person who acquires rightto the the possession useof another's goods and payments. in exchange rental for

A compony offering leasesfor outomobiles.All such leasesore governed by Article 24 of the UCC. Whot leosesare not govetned by the (5. UCC? Jones/Creative Commons)

In the pastfcw clec:rdes, leases personal of property(goods) havebecon.re increasingly commolr. In this context,a leaseis a tr:rnsfer the right to posscss Llse of and goodsfor a periocl of tirnc iu exchangefor pavn.rent. Article 2A of the UCC was createdto fill the need for Llniform gtriclelincs tl.risarea.Article 2A coversaly transactionthat creirtes le:rseof in a goocls, wcll assubleases goocls as of to IUCC ZA-102,2A-l0l(l Xk)]. Exceptthat it applies leases, rathcrthan sales, goocls, of Articlc 2A is esse ntially a repetitionof Article 2 :rncl varics orrlyto reflectcliffcrences ltetweensales (Note that Article 2A is not anclle:rse transactions. 'l'he concertrecl lvith lcases realproperty, of suchaslanclor btrilclings. lawsgovernirgthcsc typesof tr:rnsactions be exarriinecl Chapter 4,f.) will in

D e f i n i t i o n a le a se r e e m e n l of Ag
Article 2A clefincsa leaseagreement zrs lessorancl lessee's a betrgain with respectto the leascof goods,as fotrnclin thcir l:rr.rguagc as implied by otlier clrcullrarrcl starlccs, including colrrseof clcalingar.rd usageof traclcor collrseof performa n ce i U C C 2A -103(l )(k)| .A l essori s one w ho transfershe ri g ht t o t lie i possession useof goodsunclcra leaseILJCCZA-103(1)(p)]. lessee onc :urd A is who accluires right to thc tcmporarypossession use of goocls the and uuclera leasef UCC 2A-103(1)(o)]. othcr rvorcls, lessee the partywho is leasing L-r the is the gooclsfrorn tlie lcssor.Article 2A applies to all types of leasesof goocls, including comrrerci:rllcases and consllmerleases. Specialrules apply to ceriain typcsof leases, holvever, inclucling conslrnlcr leases and fin:rnceleases.

€ o nsu mlera se s e
Aconsumer /erl.se involves three clements: a lcssor (l) who regularly irr engages t}'rebusiness leasingor sclling; (2) a lessee(exceptar-r of organization) rvho lcases goods"primarily for :r personal, the fan-rily, househoidpurpose"; or ;rnd (3) total leasep:rlanents that are lessthan a cloilar amount set by statestatute 'lb protection consumers, for ccrtain proILICC 2A-103(1)(e)1. ensurespecial visiot-is Article 2A applyonly io consumer of leases. example, For onc provision states that a constlncr may recover attorneys'fees a court finds that a tcrm rn if a consrlmer lcasecontractis unconscionableUCC 2A-108(a)(a)]. f
5 . Se e thecorrrt'sdi scussi onofthi si ssuenR .F'.C utni nghant& C o.y.D ri scol l ,7Mi sc .3d234,7(X ) N.YS.2 d368(200t).

455 EIEKtr

THE FORMATION OF CONTRACIS sAtE5 IEASE AND

leas Fi nanc e es
from goods The lessor buysor leases a and involves lessor, lessee, a supplier. a .\finance /ease 2A-103(t)(g)] Typically,in a thern to the lessee or supplierand leases subleases the IUCC finance lease, the lessor is simply financing the hansaction. lrEIIfrFIElsrl Marlin Marlin's bank agrees a Corporationwantsto lease cranefor use in its coltshuctionbusiness. the equipmentfrom ]ennco, Inc., and leasethe equipment to Marlin. In this purchase to and Marlin is the lessee, )ennco is the supplier.E the sihration, bank is the lessor-financer, obligationsunder a com2A, unlike ordinary contract law, makesthe lessee's Article finance leaseirrevocableand independentfrom the financer'sobligationsIUCC mercial must perform and continue to make leasepayments l\-407]. In other words,the lessee if the leased equiprnent turns out to be defective.The lesseemust look almost ei'en entirely to the supplier for warranties.

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Article 2 and Article 2A of the UCC and leasecontracts, of In regardto the formatior-r sales to though, that parties sales ways.Retnember, rulesin several law cor-rtract modify colrnlon whatevertenns they wish. The UCC cornesinto play only are free to establish conhacts that '*hen the partieshave failed to provide in their contractfor a contir-rgency later gives The UCC makesthis clear time and again by using such phrasesas rise to a dispute. "unlessthe partiesotherwiseagree"or "absenta contraryagreementby the parties."

0ffet
In generalcontractlaw, the rnoment a definite offer is rnet by an unqualified acceptance, corthe transactions, verbal exchanges, a binding contractis formed. In commercial sales and respondence, actionsof the partiesmay not revealexactlywhen a binding contractual it underthe UCC, is a sufficientto constitr-rte contractcan [E[H that an agreement Tl-reUCC states obligatiol arises. the actions the parties of erist even if the rnoment of its making is undeterminedIUCC 2-204(2), 2A-204(2)). whetherthey that determine
intended form a contract. to

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Open Terms Renernber from Chapter 9 that under the common law of contracts,an for be ott-err-r-rust definite enor-rgh the parties (and the courts) to ascertainits essential that a salesor leasecontract will terns when it is accepted.In contrast,the UCC states even if one or more terms are left open aslong as (l) tlie parties lot fail for inclefiniteness to certain basisfor the cor-rrt iltended to rlake a contract and (2) there is a reasonably grantan appropriate rernedyIUCC 2-204(3),2A-204G)1. computer to tiExAMFCrBA Mike agrees leasefrorn Compr-rQuika highly specialized representatives a leaseagreement sign nork station.Mike and one of CompuQuik's sales that leavessome of the details blank, to be "worked out" the following week, when the leasingmanagerwill be back fron-rher vacation.In the rneantime,CornpuQuik obtains and equipment from one of its sr-rppliers spendsseveraldaysrnodifyingthe the necessary she Mike's needs.When the leasingmanagerretLrrns, calls Mike and equipment to sr-rit tells him that his work station is ready.Mike sayshe is no longer interestedin the work for station,as he has Arrangedto leasethe sarnetype of eqr-ripment a lower price from anotherfirm. CompuQuik suesMike to recoverits costsin obtaining and modifying the before the court is whether the partieshad an enforceequipment, and one of the issues able contract.The court will likely hold that they did, basedon their intent and conduct, despitethe "blanks" in their written agreement.E the Relativeto the common law of conlracts,the UCC has radicallylessened requireof ment of definiteness terms. Keep in mind, though, that the more terms left open, the lesslikelv it is that a court will find that the partiesintended to form a contract.

454 IIEIIT@

AND CONTRACTS SALES LEAsE

a Open Price Term. If the partieshave not agreedon a price, the court will detern-iine " re a s o n i rb lp ri c e at the ti me for del i ver.r" e 1U C C Z-305rI r . If ej tl rerfhe l l rye r or t lr e the selleris to determine price,the price is to be fixed(set)in goodfaith IUCC 2-]05(2)). of con-rUnder the UCC, goodfaith meanshonestyin fact and the observance reasonable of in r-r'rercial of standards fair clealing the trade IUCC 2-103(l)(b)]. The concepts good the reesondbleness permeatethe UCC. Son-retimes, price fails to be faith and commercial tl're fixed through the fault of one of the parties.In that sitr-ration, other party can treat the and Merri c k ent er or pri c o n tra c t s c a n c e l ed [i x a reasorrabl e ce. l rrxnrvrpTr P erez a r8.t into a contract for the sale of unfir-risl-red cloorsand agreethat Perezwiil deterrninethe contractas cancelecl to the price. Perezrefuses specify price.Merrick can eithertreattl"re o r s e ta re a s o n a b lpri ce f U C C 2-305(3)1. e E to Are openprice termsfoir if the seller olways seems get the betterdeal? In saleslaw, it will set to leave the priceterm open and to statethat the seller is acceptable a contract for price. Such fixing of an open price term must be done in good faith, however. the gasoline open Inc., consistently the priceterm for delivered left Consequently, when Sunoco, states,a questionarose as to whether the companywas actingin in hruenty-trruo different in good faith.The contracts to allowedSunoco set the pricepayable any mannerit wished. zonesfor 1,180dealers. formulathat resulted 414 pricing in Sunoco created complicated a prices pricezones. were set differently adjacent for Sometimes, than Theyargued that rather in sued. A numberof gasoline dealers NewYorkand NewJersey business prices good faith,Sunoco priceto controlthe dealers' in was manipulating the setting were not the the lt activities. Reviewing facts, courtdid not agree. ruledthat the pricedifferentials partl'The "generally on Sunoco's to arbitraryunreasonable, capricious or conduct attributable was with lesscompetition charged higherprices markets in courtfoundthat the factthat Sunoco "bad motivesor intention," system.Ratherthan actingwith simplythe resultof a capitalist of for Sunoco simplytook advantage marketconditions its own benefit.6

ult
is terttrs,p:ryt't'tcrt cltreat Open Payment Tenn. When p:rrtiesdo not specilyperyment The buyer buyeris to receive gooclstlCC 2*l I0(a)l. thc tinreanclplaceat wliich tl're the I c:ur tenclerpaynrent using :tny cormrercizrllynorrral or acceptablel'neans,such :rs a the or carcl. the seilerdem:rnds If paymentin cash,howcver, buyer tnttstbe checl< creclit inrportantwheu givcn a reasonable time to obtain it IIJCC 2-5ll(2)]. This is especi:rlly tl-rccontractstates definite erndfinal tirne for perforrnance. a
liliNInEFII The common taw maketheir requires that the parties termsdefinitebeforethey havea general contract. UCC The applies to commercial standards makethe definite. termsof a contract

the Open Delivery Tenn. When no deliveryterrnsare specifiecl, buyer nonnally takes If delivery the seller's at placeof business IUCC 2-308(a)1. the sellerhasno placeof busiboth ness, seller's residence used.When goodsare locatecl someotherplacear-rd is in the parties know it, deliveryis n-rade there.If the tirne for shipmentor deliveryis not clearli tirne for performance in contract,the court lvill infer a "reasonable" specified the sales

lucc 2-3oe(1)].
performDuration of an Ongoing Contract. A singlecontractn'rightspecifysuccessive ancesbut not indicatehow long the parties are requiredto deal with each other.In this Principlesof contractualrelationsl-rip. situation, either party may terminate the ongoir-rg notification beforeterminagood faith and sounclcommercial practicecall for reasonable
(tr D Pa.2005)

Inc.,6. Callahanv. Sunoco,

F.Supp.2d -

o" *Tffi*^* AND CONTRACTS sALE5 LEASE
time to seeka substitutearrangement tion, however,to give the other party reasonable

(l)l ucc z-l0e(2),

Options and Cooperation Regarding Performance. When the contract contemplates the the arrangements, sellerl-ras doesnot specifythe sl'ripping of shiprner-rt the goodsbr-rt in in faith, usingcommercialreasonableness the right to make thesearrangements goocl s itu a ti o n IUCC 2- ] l I l. Wlren a salescontract on'ritsterms relating to the assortmertof goods,the buyer can one to Petry the assortrnent. ITEXAMFLE-tsA Dmgs, Inc., agrees pr.rrchase thousand specify a corne ir-r varietyof colors, frorn Marconi'sDental Supply.The toothbmshes toothbrushes but the contractdoesnot specif, color. Petry,the buyer, has the right to take six hurdred ntust exercise l-rundred greenonesif it wishes.Pctry,l'rowever, and for-rr blue toothbrushes in reasonablenessmakingits selection goodfaith and cornmerciai IUCC 2-3 lll. E will a Open Quantity Tern. Norrlally, if the partiesclo not specifya qr-rar-rtity,cor-rrt is tl-rere alrnostno way to deterThis is because have no basisfor deterrnininga rernecly. a quantity of goodsfor someoneto buy (wl'rereas mine objectivelywl'ratis a reasonable price for particulargoodsby lookingat the determinea reasonable court can oblectively and involvingrecluirements two the market).Nevertl'reless, UCC recognizes exceptions contractsUCC 2-306(I)1. or.rtput I to to In a requirements contract, the buyer agrees purchaseand the seller agrees sell I BE needs reqr-Lires. or I TEXAMPLE U rnpqua amount of what the br-ryer all or up to a statecl

REeulRE[fiENrs coNrnAcr in a Anagreementwhich buyer

to The withAl Garcia. ca''ery agrees pur.ho[ fr-* Cn'rJ'u., :E::::[ |:iiTi:: il'ri::H, forms co'tract a Can'ery

needs the airount what buyer of all to anclGarciaagrees sell to the cannery, of the greeubeansthat the canncryneedsor requires' in duringthe summerof 2010.E There is irnplicitconsideration a reqtrirements or requires in givesup the right to buy grecn the contractbecause buyer (the cannery, tliis sitr-ration) a other seller,and this forfeitedright creates legal detriment (that is, cottbeansfrorn ar.ry world anclare rtormally contractsare common in the br,rsiness Recl,rirernents sideratior-r). to to In enforceable. contrast,if the buyer prornises purchaseonly if the buyer wishes do the reserves right to buy the goodsfrom someoneother than the seller, so,or if the br-ryer by and is the prornise ill.rsory(withoutconsicleration) unenforceable eithcr party.T to to In an output contract, the selleragrecs sell and tfre buycr agrees buy all or up to ourPurcoi{rRAcr a in Anagreementwhich seller trEiAMFiTr&ClAl Garcia forms a contract a statedarnount of what tl-reseller prodtLces.

r,rd to Garcia agrees sellto thecarr,-r"ry, th".r,r,..r'y*;.r; rrithU*ipq'aCa'nery.
on frorn Garcia, all of the beansthat Garcia proclr-rccs his farrn during the sumpr-rrchase forfeitsthe right to scli goodsto the sellercssentially mer of 2010. tr Again, because in anotherbuyer,there is implicit considcration an output contract. The and outpttt contracts. The UCC inposes a goodfaith limit(ttion on recluirements or quantityunder such contractsis the amount of requirements the amount of output that or a occursdr-rring normal production year.The actual quantitypurcl-iased solclcannot be to unreasonablydisproportionate norrnal or comparable prior requirementsor output

i;l""T:i::'["r1i?Hflruffin,
produces. of whattheseller

i u c c 2 -1 0 6 1 .
allowsa open,the UCC lf you leavecertaintermsof a salesor leaseeontract be this can sometimes advantageous terms.Although courtto supplythe missing it {to establishthat a contractexisted,for instance), can alss be a maior a lf disadvantage. you fail to state a price in your contractoffer,for exarnple, priceby lookingat the marketpriceof similar courtwill imposea feasonable your standardpricefor Thus,insteadof receiving goodsaf the time af delivery.
Ba n 7 S ee, f orex a n p l e , I n r e A n c l n r Gla ssCo n ta in e r Co r p .,3 1 5 kr .7 6 5 ( N{.D Fl a.2006)

EmmrTffl 456
SATES LEASE AND CONTRACTS

you will receive pricewhen the the goods, what a court considers reasonable a goodsare delivered. When drafting contractsfor the sale or leaseof goods,make surethat the contract clearlystatesany termsthat are essential the bargain, to particularlyprice.lt is often better to establishthe terms of your own contra€ts ratherthan to leaveit up to a courtto determine what termsare reasonable after a disputehas arisen.

tr
Merchant's Firm Offer Under corlrnon law contract principles, an offer can be revokedat any tin'rebefore acceptance. The major comrron law exception is an option contract(discussed Chapter 9), in which the offereepaysconsideration the offeror's in for irrevocableprorniseto keep the offer open for a statedperiod. The UCC creates second a exceptionfor firm offersrnadeby a rnerchantto sell, buy, or leasegoods. FIRM OFFER A firm offer arises when a merchant-offeror in the givesdssurances a signedwriting tl-rat An offer(by a merchant) that is offer will remain open. The merchant'sfirm offer is irrevocablewithout the necessity of irrevocable withoutthe necessity considerationb the statedperioclor, if no definite period is stated,a reasonable for period of consideration a statedperiod for tsZ (neitlrerperiod to exceedtlrree months) IUCC 2-205,2A-205). ITExAMPLE Osaka,a of time or, if no definiteperiodis stated, a reasonable for time (neither used-car letter to Saucedoon fanuary I stating,"l havea used2009 Sr-rzuki dealer,writesa periodto exceed threemonths). A SX4 or the lot that I'll sell you for $11,000 any tirne beh.veen now and January 31."This firm offerby a merchant mustbe in writingand mustbe signed by writing creates firm offer, and Osakawill be liable for breach if he sellsthe Suzuki SX4 a the offeror. to sorneone other than SaucedobeforeJantrary E 31. It is necessary that the offer be botb written and signedby the offeror.e When a firnr offer is contained in a form contract preparedby the offeree,the offeror rnustalso sign a separate assrlrance the firrn offer.'fhis requirerr.rent of ensures that the offeror is awareof the offer.For instance,an offereemight respondto an initial offer by sencling own fon'n its contract containing a clausestatingtliat the offer will remain open for three months. If the firm offer is buried amid copiotrslanguagein one of the pagesof the offeree's fornr contract,the offeror may inaclvertently sign the contractwithout realizing that it conterins a finn offer,thus clefeating purposeof the mle-which is to give effectto a rnerchant's the cleliberate intent to be bounclto a finn offer.

Acceptance
The followir-rg subsections exarrinethe UCC's provisions governing acceptance. you As will see,acceptance an offerto buy, sell,or lease of goodsgenerally rray be made in anr' reasonable manner ar-rcl any reasonable by nre:rns. Methods of Acceptance The generalcolrmon law rule is that an offerorcan specif,,or authorize,a particuiar rreans of acceptance, n'rakingthat rnethod the only one effective for contractforrnation.Even an unar-rthorized hoil. rneansof communication is effective, tssl ever,aslong asthe acceptance received the specifiecl is by cleadline. Irrxnrvtpt-e Janel "Answerby fax witliin offersto sell her Hurrmer H2 to Arik for $24,000.'l'he offer states, five days."If Arik sendsa letter, ar-rcl receives within five days,a valid contract is it Janel formed, nonetheless. El

8. [{theoffereepaysconsideration,thenanoptioncontract(notarnerch:rnts{irmoffer)is{ortred. 9. Signed includes ary synbol executed or adopted by a party lvitli a present intentiol to authenticrte a u ritirg 201( 39) ].Ac onpl etes i gnatur ei s notr equi r ed.T her efor e,i ni ti al s ,ai hum bpr i nt,atr adenane,or any rn a ; i IUCC] used in lieu ofa written signature will suffice, regarclless ofits location on the document.

4r7 EIlEmtr

THE FORMATION OF AND 5ALE5 LEASE CONTRACTS

offeror doesnot specifya meansof acceptance, the Means. Wl-rentl-re .\ny Reasonable acceptance can be made by any meansof communication that is reaUCC providestl-rat the under the circumstances sonable IUCC 2-206(l),2A-206(l)]. This broadens common law rules concerning authorizecl means of acceptance. (For a review of the of see 9.) relatingto mode and timeliness acceptance, Cl-rapter requirements The UCC's ruleson Anodyne Corporation sendsBethlehem lndustriesa letter offering to lTlltllMlill lrExAMFfEltB5I illustrate meansof acceptance lease$1,000 worth of postagemeters.The offer statesthatAnodyne will keep the offer The the UCC's flexibility. rules open for only ten daysfrom the date of the letter. Beforethe ten dayselapse,Betl-rlehern to havebeenadapted new forms such of communication, as faxes sendsAnodyne an acceptanceby fax. Is a valid contract formed? The answer is yes, and onlinecommunications. reasonable medium of acceptance underthe by acceptance faxis a commercially because transmissionof the fax, which Acceptance is effective on Betl-rlehern's circumstances. occurredbeforethe offer lapsed.[l Promiseto Ship or Prompt Shipment. The UCC permits a seller to acceptan offer to buy goods"either by a prompt promiseto ship or by the prompt or current shipment of goodsare goods goods"IUCC 2-206(l)(b)] Conforming or cor.rforrning nonconforming that accord with the contract'sterms; nonconforminggoodsdo not. Tl're seller'sprompt to both an acceptance shipmentof nonconforminggoodsin response the offer constitutes i a contract) and a breachof that contract. (within a reasonarble amount of time) SEASONABLY This rule doesnot applyif the sellerseasonably time periodor, that the nonconformingshipment is offeredonly asan accommodation, Withina specified the rrotifies br-ryer within a if no periodis specified, or as a favor. The notice of accornmodationmust clearly indicate to the buyer that the reasonable time. shipment does not constitute an acceptanceand that, therefore,r-rocontract has beer-r
IOrlT1eO.

tsJ6l McFarrell Pharrlacyordersfive cases Johnson Johnson3-by-5-inch of & IrExdmFiE of gauzepadsfrom HaldersonMedical Supply,Inc. If Haldersonshipsfive cases Xeroforrr of the gauzepadsinstead, shipmentactsasboth an acceptance McFarrell'soffer 3-by-5-inch and a breachof the resultingcontract.McFarrell rray slle Haldersonfor any appropriate pacls being are If, damages. however,HaldersonnotifiesMcFarrell that the Xeroformgar-rze Haldersonhas only Xeroform padsin stock-the shippedds dl1dccommodation-becar-rse not A will a shipmentwill constitr-rte counteroffer, an acceptance. cor-rtract be forrnedonly gauzepads.[l the if McFarrell accepts Xeroforn'r offer Communication of Acceptance Under the comnron law, becausea r-rnilateral invites acceptanceby a performance,the offeree neecl not notify the offeror of perforbeginningthe know about it. In other worcls, rnanceunlessthe offerorwould not otherwise The UCC is tnore stringentthan the performanceis an in'rpliedacceptance. requested common law in this regard.Under the UCC, if the offeror is not notified within a reasonable time that the offereehas acceptedthe contractby beginning performance,ihen the offerorcan treatthe offerashaving lapsedbeforeacceptance IUCC 2-206(2),2A-206(2)1. on trExAMptFtJ-ttlLee writesto Pickwick Bookstore Monday, "Pleasesendrne a copy New CollegeDictionaryfor $25.55,C.O.D.," and signsit, "Lee." Pickwick of Webster's Lee When the book arrives, but doesnot ship the book for four weeks. the receives request because Lee rejectsit, claimingthat it hasarrivedtoo late to be of value.In this situation, that had heard nothing from Pickwick for a month, he wasjustified in assr-rming the store did not intend io deliver the book. Lee could considertfiat the offer had lapsedbecause of the length of time Pickwick delayedshiprnent.E Additional Terms Under the common lau if Alderman makesan offer to Beaie, and makessome slight modification to the terms Beale in turn acceptsbut in the acceptance

l'IITTTilT'.tTl 458

CONTRACTS SAtES LEASE AND

of the offer, there is no contract. Recail from Chapter 9 that the so-calledmirror image exactlymatch thoseof the offer.The UCC rule requiresthat the terms of the acceptance with tl'remirror image rule. Generaily,the UCC takestl-reposition that if the dispenses of response indicatesa definiteacceptance the offer, a contract is formed et,enif offeree's additional or different terms from those contained in the offer the acceptance incltLdes The answerto this question to IUCC 2-207(l)]. What happens theseadditionalterms? in the depencls, part, on whetl-rer partiesare non[Ierchants or merc]rants. (or Rules When One Party or Both Parties Are l,{onmerchants. If or-re both) of the paroffer the contract is formed accordingto the terrnsof the origir-ral ties is a nonmerchant, to submittedby the original offeror and not accorclir-rg the additional terms of the accept812lTolsenoffersin writing to sell his laptop comtance f UCC 2-207(Z)1. fiExAMPtE and printer to Valdezfor $650.Valdezfaxesa reply to Tolsenstating,"l acceptyour pr,rter offerto purchase your laptopand printerfor $650.I wouldlike abox of laserprinterpaper price." Valdez has given to and two extra toner cartriclges be included in the purcl'rase 'lblsen a definite expression acceptance(creatinga contract),even tl'ror,rgh accepthe of :rn tance also sttggests added tern'rfor the offer. BecauseTolsen is not a merchant, tl're to legally obligatecl and a additional term is n-rerely proposal(sr-rggestion), Tolsen is r-rot compiy with that term. E the merchants, additional between RulesWhen Both PartiesAre Merchants. In contracts lirn(l) beconre part of the contractunless the originalofferexpressly termsautomatically alter the its acceptarrce the tern'rs the offer, (2) the new or changed termsmaterial/), to of periocl tenns within a reasonable contract,or (3) the offerorobjectsto the new or char-rged 2-207(2).|. of tirr.re fUCC tl-rat only:r cottrtcan decide. :rlteration frequently question is a Wh:rt constitutes rnaterial a or involvesno unre2rsonable elernentof surprise hardshipfor Generally,if the moclification did the offeror,the cotrrt will holcl that the moclification not materiallyalter the coutract. frExAMPtE-tsmWoolf has orcleredureat fiorr 'l-upman sixty-fourtimes over a hvo-year period.Each time, Woolf placedthe orderoverthe phone,and'l-upmanrnaileda confirmation forrn, and then an invoice,to Woolf.'lupman's confirmationform alrd invoice have If always incluclecl arbitrationcleruse. Woolf placcsanotherorclerand fails to pay for the ar terni-the arbitrationprovisior-r-didnot meat,the court will like\, l6ld that the aclclitional by not havebeen surprised the term. El \4bolf shoulcl rnaterially alter the contractbecause change in contraci law" In the following case,the court explainsthe "revoh-rtionary terms. catrsed the UCC's principleson additional by

55, AppellateDivision, 393 N.J.Super. 922 A.zd 782 (2OO7). Superior Court of New Jersey, la*librarr,rutgers.edu/rcarch-rhttrta

the on EACHGNCIUNU FACTS calculator which Myroncouldengrave namesof its AilII Sun Coast Merchandise that firm,designs and sellsproducts a Corporation, California items.Myron businesses distribute promotional as firm,askedSunabouta flip-top a Corporation, NewJersey
type "Sun Coast"in DECISIONS" section, THEN.J. COURTS a. ln the "SEARCH ln the box, and clickon "Search!" the result,clickon the casename to access t he ooin i o n .

to ln 2000,Myronbegan submit customers. December referred purchase orders about400,000of what the parties for the In to as "Version calculators. April2001,Sun redesigned l" terms fliptop. Overthe nextfew weeks,the partiesdiscussed ll" 4 for makingand shipping millionof the "Version By beforethe Christmas season. May 27, Myron calculators dates.Two days delivery had faxedfour orderswith specific and askedMyronto schedule later, Sunannounced delaved a

459 GIEEE
cr$,_4;,t#fl'ffi -s;ip$ilt;i1t+unldir
orders.Unwillingto agreeto the new dates, submit revised The partiesattemptedto Myrondid not honorthis request. Finally, Sun filed a the negotiate issuebut were unsuccessful. Myron,claiming, statecourt against suit in a New Jersey The court entereda among other things,breachof contract.

THE FORMATION OF SALES TEASE AND CONTRACTS

judgmentin Sun's favor. appeal a stateintermediate On to that the appellate court,Myronargued, amongotherthings, judge's instruction the jury regarding to Sun's claimwas inadequate.

. J.A.D. Appellate Divisionl 0t It{ THt WORDS IHE COUnT . . FtsHER, ludse,
**ttl.

when a party's The era when a valid, binding contractcould only come into existence acceptancemirrored the other party's offer ended with the adoption of the Uniform Commercial Code (UCC). The UCC alteredthe common law approach,finding it to be inconsistent with the modern realitiesof commerce.* * * Article 2 of the UCC radically law and expandedour conceptionofa contract.The heart ofthis revolutionalteredsales Annotated (N.J.S.A.)] change in contract law can be found in lNew )erseyStatutes ary that "lal definite versionof UCC 2-207(l)1,which declares l2A:Z-207(1) lNew Jersey's expression acceptance a written confirmation which is sent within a of or and seasonable as terms additionalto or difreasonable time operates an acciptance even though it states is made conditional ferent from thoseofferedor agregdupon, unlessacceptance expressly to the additionalor differentterms."No longerare communicatingpartiesleft to on assent perfectlymeetsthe termsof an offer, but insteadthe existence debatewhetherdn acceptdnce may be basedon wordsor conduct, which need not minor an offer, so of a binding contract Iong as they revealthe parties'intention to be bound. lEmphasisadded.] Consideringthat the UCC permitsthe formation of a contractby way of conduct that and notwithstandingthe suggesrevealsthe parties'understandingthat a contract exists, or even non-conforming terms, the complex of communications tion of additional that neither can the formation of a contract be behveen [Sun and Myron] demonstrates a resolution of the existing factual disputesand the confirmed or foreclosedwithout weighing of the significanceof the parties'convolutedcommunications. * * xt In short,it is conceivable-and the jury could find-that the parties'inability to agree the on certain terms reveals lack of an intent to be bound; in other words,that their commere negotiationsthat never ripened into a contract. By the munications constitr-rted sametoken, the iury could find that a contract was formed despitea failure or an inabilcoupled with ity to agreeon all terms.N.].S.A. l2A:2-207(2)providesthat an acceptance preclude the formation of a the proposalof new or different terms does not necessarily contract. In such a circumstanco,* * x the new or different terms proposedby the offeree part of the contract* * 'c fEmphasisadded.] fcouldl become All thesequestionsrequired that the factfinder analyzethe meaning and significance basedupon the legal frameworkprovided by the UCC. t*._Oit,j.r'communications '' '( "r"ltl" x The trial judge correctly determinedthat the [contentionsabout] contract fori' * * * * * raisedfact questions be decidedby the to iury

In describingfor the jury what it takesfor the partiesto form a binding contract,the judgestated: offer.If terms not an acceptance is ofthe original to an A proposal accept offeron anydifferent is in to termsareproposed response the offer,the response not an accepany new or different n is thatproposal. C A S E1 8 . 2 - C o n t i n u e s e x t pa g e A but a tance, rather counteroffer. counteroffer a newofferby the partymaking

440 IINIIT@

SATES LEASE AND CONTRACTS

C A SE1 8.2 -Con tinu ed

the offerfor thereto be to The newoffermustin turn be agreed by the partywho rnade original an accePtance. mirror As we have aireadyexplained,the UCC doesnot require that a party'sresponse or different an offer to result in a binding contract.The offereemay proposeadditional having the responseviewed as a non-binding counteroffer. terms without necessarily terms may be found to constitr-rte proposalof additionalor cor-rflicting Instead,an offeree's to and the other or different terms viewed as rrere proposals modify the an acceptance, contractthus forn-red. The judge's misstatementin this regard was hardly harrnless* * * . In describing that a contractwasformed, the judge providedthe lury with errowhen the law recognizes neous instructionsthat struck directly at the heart of the case.

intermediate DECISI0N ANDREMEDY state rhe
to that courtconcluded the judge'sinstruction the appellate jury with respect the questionof whetherSun and Myron to was "fundamentally flawed" and had formed a contract "provided guidance the jury'sresolution the of for insufficient the the issues." this basis, court reversed lower court's On judgmentand remanded case a new trial. the for

A F 0 RCRI T I CA tNA I . Y S I $ - S o ci a l
principles to COn si d e f a t 10fi epptying the correct
the foctsin this case.how would vou have decidedthe issue? Explain.

lll

of Conditioned on Offeror's Assent. Regardless rrerchant status,the UCC provides ifit cannot be construedasan acceptance containsadditional that the offeree's expression or different terms that are explicitly conclitionedon the offeror'sassentto those terms | U C C 2 _ 2 0 7 (l ) ].mP hi 1i psofferstosel l H r-rndert650potrndsofturkey "l thighsat a specified price and with specified deliveryterms.Hundert responds, accept yotrr offer for 650 poundsof turkey thighs on the conditionthat you give me ninety daysto but as a counpay for them." Hundert's response will be construednot as an acceptance teroffer,which Philips rnay or may not accept.E AdditionalTerms May Be Stricken. The UCC providesyet another option for dealing that conduct by Section2-207Q) states witlr conflictingterms in the parties'writings. the ofa contract is sufficientto establisha contract both partiesthat recognizes existence for the sale of goodseven though the writings of the partiesdo not otherwiseestablisha contract.In this situation,"the terms of the particular contractwill consistof thoseterms terms incoron which the writings of the partiesagree,togetherwith any supplementary Act." In a disputeover contractterms,this proporatedunder any other provisionsof tl-ris vision allowsa court sirnply to strike from the contract those terms on which the parties do not agree. IrExAMFtEltsTtSMTMarketing ordersgoodsover the phone from Brigg Sales,Inc., which ships the goodswith an acknowledgmentform (confirming the order) to SMT. a SMT accepts and paysfor the goods.Tl-reparties'writingsdo not establish contract,but there is no questionthat a contract exists.If a disputearisesover the terms, such as the extent of any warranties,UCC 2-207(3) providesthe governingrule. El The fact that a merchant'sacceptancefrequently contains additional terms or even of terms that conflict wiih tl-rose the offer is often referredto as the "battle of the forms." Altl-roughthe draftersof UCC 2-207 triedto eliminate this battle, the problem of differare particularlywhen contracts based ing contracttermsstill arises commercial settings, in confirmation forms. on the merchants'forms, such as order forms ar-rd

IililtrE]ffinEfif The UCCrecognizes dealis a contract that a proposed if, in commercial understanding, the dealhasbeenclosed.

glmu 44r (onsideration
law rr-rle that a contractrequirescor-rsideration appliesto sales l'ie comn.ron also and lease Unlike the commot-tlaw, however,the UCC doesnot require a contract mod: ntracts. by .::iaiion to be sr-rpported new consideration. agreement An modifyir-rg contractfor the a or lease of goods "needs no Consideration be binding" IUCC 2*209(1), i."ie to

THE FORMATION OF AND SALES LEASE CONTRACTS

_\-r08(r)1.

\lodifications Must Be Made in Good Faith Of course, contractn'rodification a mustbe tsrolAllied.Inc..agrees lease new recreirr .rglrt goodfaith IUCC l-203] ITExAMPLE to a ,:onal vehicle (RV) to Louise for a statedrnonthly payment.Sr-rbsequently, a suddenshift :. the marketmakesit difficult for Allied to lease new RV to Louiseat tl'recontractprice the .'.rthout sufferinga loss.Allied tells Louise of the situation,and she agrees p.y nt'trd.lito leaseof the RV. Later Louise reconsiders .,,nal sum for tl-re and refuses pay more than to :ire original price. Under the UCC, Louise's promiseto moclifythe contractneedsno con,:leration to be binding. Hence, she is bounclby the nodified contract.El Ir.rtlris example,a shift in the marketis a good faith reasonfor contract modification. i\hat if tl-rere really was no shift in the market, however,ancl Allied knew tl-ratLouise ::eededto leasethe new RV ir-nmecliately reftrsed cleliverit unlessshe agreedto pay but to . higher price?This attempt at extortionthrough moclificatior-r without a legitir-nate cornreason .nercial would be ineffective because would violatethe clutyof goodfaith.Allied it '.'.oulcl be permitted to enforcethe higher price. not \\hen Modification without Consideration Requiresa Writing In some situations, an to modify a sales lease or contractwithout consideration mtrstbe in writing to be -igreelrent If enforceable. the contractitselfprohibits:rny changes the contractunlessthey are in a to .igneclwriting, for instance,then only those changesagreecl in a signed writing are to If enforceable. a consttmer(nonmerchar-rt br-ryer) dealir-rg is with a rrerchant and the merthe chant supplies forn that containsa prohibition against oral rnodification, corlslurer the rnrrst sign a separate acknowledgment such a clauseIUCC 2-209(2),2h-208(2)]. of Also, under Article 2, any modification that bringsa sales contractr-rnder Statuteof the rnustusually be in writing to be enforceable. Fraucls Thus, if an oral contract for the sale of goodspriced at $400 is modified so that the contractgoodsare now priced at $600, the modification must be in writing to be enforceable tl-re IUCC 2-209Q)]. (This is because UCC's Statute of Fraudsprovision,as you will read shortly,requiresa written record of for sales contracts goodspriced at $500 or more.)If, however, buyer accepts the delivery of the goods after the modification, he or she is bouncl to the $600 price [UCC (Unlike Article 2, Article 2A doesnot saywhethera lease rnodified 2-201(l)(c)1. as r-reeds the Statuteof Frauds.) to satisfii

Statute Frauds of
The UCC containsStatuteof Fraudsprovisions coveringsales and leasecontracts. Under provisions,salescontractsfor goods priced at $iOO or more and lease contracts nT:ilW,lli|'il tt has been proposed tl-rese that the UCCbe revised to requiring paymentsof $1,000 or more must be in writing to be enforceable[UCC eliminate Statute Frauds. the of 2-201(1),2A-201(l)].(Note that theselow threshold amountsmay eventually raised.) be Sufficiency of the Writing The UCC has greatly relaxedthe requirementsfor the sufficiencyof a writing to satisf,the Statuteof Frauds. writing or a memorandumwill be sufA ficient as long as it indicates that the partiesintendedto form a contractand as lor-rg it is as signedby the parly (or agentof the party-see Chapter 28) against whon'renforcementis sought.The contractnorrnallywill not be enforceable beyondthe quantityof goodsshown

442 III$F5{:r'Irl

SALES LEASE AND CONTRACTS

For All in the writing, however. other termscan be provedin court by oral testimony. leases, reasonably identift and describe goodsleased and the ieaseterm. the writing must the Special Rules for Contracts between Merchants Once again,the UCC providesa special rule for merchants.l0Merchants can satisfythe requirementsof a writing for the Statute of Frauds if, after the partieshave agreed orally, one of the merchantssendsa signed written confirmation to the other merchant. The communication must indicate and the merchant receivingthe confirmation must have reathe terms of the agreement, the son to know of its contents.Unlessthe merchantwho receives confirmation giveswritten notice of objection to its contentswithin ten daysafter receipt,the writing is sufficient againstthe receiving merchant, even tl'roughshe or l-rehas not signed anything IUCC

2-20t(2)1.
Alfonso is a merchant-buyer Cleveland.He contractsover the telein lrExAMptFrsr?-l phone to purchase$6,000worth of spareaircraftpartsfrom Goldstein,a merchant-seller in New York City. Two dayslater, Goldstein sendsa written confirmation detailing the it. terms of the oral contract,and Alfonso subsequently receives If Alfonso doesnot notif, Goldstein in writing of his objection to the contentsof the confirmation within ten days against enforcement the of receipt.Alfonso cannot raisethe Statuteof Fraudsasa defense ofthe oral contract. E Note that the written confirmation need not be a traditional paper document with a handwritten signature.Courts have held that an e-mail confirming the order and including the company'styped name was sufficient to satisfu the UCC's Statuteof Frauds.For a discussionof a case involving this issue,see this chapter'sAdapting the Law to the O nline Environmentfearure. An ortison creates specially o "bowlwithino bowl"out designed of onepiece of cloy.If o restouront orollycontrocted with the ortison to cteotelwentyof the speciolly designed bowlsfor usein its business, a priceof $800,would at the controcthave to be in writingto be enforceoble? or whynot? Why (APPhotofliVide Photos) World Exceptions In addition to the specialrules for merchants, UCC definesthree excepthe An tions to the writing requirements the Statuteof Frauds. oral contractfor the saleof of goodspriced at $500 or more or the leaseof goodsinvolving total paymentsof $1,000or in more will be enforceable discussed despitethe absence a writing in the circumstances of Theseexceptions otherwaysin and the following subsections IUCC 2-201(3),2h-201(4)]. law which sales differsfrom seneralcontractlaw are summarizedin Ihe ConcebtSummary on page444. Specially Manufactured Goods. An oral contract is enforceableif (1) it is for goodsthat are speciallymanufacturedfor a particularbuyer or speciallymanufac(2) or tured or obtainedfor a particularlessee, thesegoodsare not suitablefor resale business, and (3) the leaseto othersin the ordinarycourseof the seller's lessor's or hassubstantially the selleror lessor started manufacture goodsor has made comto mitmentsfor their manufactureor procurement.In this situation,once the selleror lessor has taken action, the buyer or lessee cannot repudiatethe agreementclaiming the Statuteof Fraudsas a defense. for draperies her new boutique. Womach orderscustom-made IiExdMpiEtsJs-] manufacThe price is $6,000,and the contract is oral. When the merchant-seller tures the draperiesand tendersdelivery to Womach, she refusesto pay for them even though the iob has been completedon time. Womach claims that she is not liable becausethe contract was oral. Clearlv. if the unique stvleand color of the
rule to (urder Article 2); theLe no corresponding that applies is 10. Note that this rule applies only to sales (underArticle 2A).According the comments leases to accompanying UCC 2A-201 (Article2As Siatuteof "the numberofsuch transactions Frauds), "behveen the merchants" provision wasnot includedbecause involvingleases, opposed sales, thoughtto be modest." as to was

445rfm

IHE FORIVIATION OF AND CONTRACTS SALES LEASE

lt I alty. .colltr:rcts requlre a ' . f ull , ,.-,1 _ji:l \\ntrng to sailsn ilre

while arc fornrs cotntmtnication of telegr:uls all ir-rtangible on theyarc bcingtransrnittecl. \Mrether:rn e-nail is printecl ":rn it obserupapcror savecl :l server, remains objectively ol As Statute Fraucls. morc of a ablc ancltaneiblerecorcl sr.rch conlirnatiou exists." that :rre -rndnlorecontracts writingcloes necessarily not lneana Additionally,signecl a :r.gotiated orallyor through is appliecl. In a pieceof papcrto rvl-ricli signature physically arises the ;-rnai1, question thc attaclirnent, consisting ietteron oFa thiscase, c-rnail e-m:lilcoln-,. kr u'hether dni,,|. tl.l prcsident's typecl comp:ury letterhead with the conrpany c:rn ::runications ftrlfill the '.,, "signature," sufficient. Finally,statir-rg e-mailwasat-t that was rnent.'fhis riting require meantveLy little. rnethodof cornmurrication involving tcxtileuercherttdis- inappropriate a at :))ue\\,as the heartof a case 'lbrrantr'r'ould l.rave provethat the parties' to prior course and ,irgcolnp:rny itssupplier. usage tl.re in apparelinclrstryrarely of clealing and tracle involved e-rnails. courtfoundthat therewasevidence T'he Contract? There Enforceable an Was to tl.re contrary.a the hrclcecl,conrtin a subsequent involving apparel a case Blzlk International Corporatior"tcontt:tcted to btly ntllrerotls re:rsonir-rgallow a breachof cot.tto inclustry appliedthe sarne :;.rirsof jcans frorn 'lhrr:rnt Apparel Group for a total price on tractclairn to so forw:udbasecl :rn e-mailcoufiruration. bctwccr.rthc 'f arouncl !12million. After a seriesof clisptrtcs alleged that LLC, a clothingrnaker, GreatWhite Bear, solclthe je:rnsto a thircl party at a liigher -onrpanies,'lirrrant LLC, had agr:eecl purchirse to clf Bazaksuecl for breacl.r cotrtract.'farrant claimecl that Mervyns, :-.rice. $l1.7 nrillionin rnillion from the cornpany. Afterplacing only Xi2.3 there rvasno signecl clothir-rg :hc contractwas not enforceableltecaltse '.,. Mervynsinforr.necl GreatWhite Bearthat it woulcl in orclers, riting. a nloreorders. not placezrny GreatWhite Bearfilecl lawsuit, .\lthough the parties never clrervup :r r.vrittencontr;rct, the thatan e-niailconfirmation between two uerclainring ltr of :hcr did engagein a series e-mail traustnissiotrs. oue, 'fhe to charts u'assLrfficicnt satisftthe Statuteof F'ratrds. a Blzak provicleddetailsofthe purchaseanclattachecl letter recluiretrents as rrr its orvu colnpuurvstationery. Bazak clairneclthat this courtagreed, notingthat "thcrcale ro rigicl ivritins."b to the f6rm or contJntof ir cor.rfirutittorv the :-nrail constitrrtcclr written cotrfirmation that satisficcl
dis:rgrccd, arguittgthat (I)bec:iuse :tatute of Frar-rds.'larrant is electronic,it cannot qualify as a -,n c-mail tr:ursrrrissior.t '.rnttcn confirrnatiorrof the agreenrent; thc c-nail rvastrot (Z) u rittcn urenrorandum bctu'een nrerch:rntsbec:rttseit u,:ts -r ancl (3) using c-rriailrvasuot an appropriate :rot signccl; in :ncansof corrrmLrrrication thc apparelinclustrv.
{, : l: ll.: \

A S WHS F 0 RCRI T I CA t NA I Y S I A re t h e re o n y t r a d e s for in environment which WJ.c$or industries todoy's
e-moil confirmotion would be inoppropriote? Explain.

Communications BozaklnternotionalCorp.v. ToffantApporel Group,378 F.SuPp.2d Rules Favor E-Mail in of TheCourt a.
200s). 377 (S.D.N.Y Evctt argurnents. ag:rinst of '[hn:rnt's all I hc courtr-uled "intangible nressages," still qu:rli- b. GreatWhiteBeor, LLCv. Mervyns,LLC,-F.Supp.2d -,2oo7 WL they rvere ihoughthe e-nrails 'l'he coitrtpointecl that f:rres, (S"D.N.Y 2oo7). 129s747 out telexes, :rnd lrccl writings. as

that Wom:rchis liablc to make it irrrprob:rble thc scllcrcan find anotlierbtrr,er, -:,rperics beginning in tlanufactr.iring . c sellcr.Note that thc sellerurusthar,crnaclca sr.ibstaritial (Herc, the nranufircture conw:rs item prior to the buver'srepucliation. . .c sltecialized of of tlic Of cor-rrse, court rnuststill bc convincedby evidence the ter-rns ilrc oral : eted.) -'l tl tra c t lel . \dmissions. An oral contract for thc sale or leasc of goods is enforceableif thc par\, or testimonv, of rvhom enforcement the contractis soughtadmitsin pleaclirrgs, ,,gainst ,iher court proceedir-rgs a contract for sale."l'as rliade. h-rthis situatiott,the contr:rct that it eventhor-rgh r,vas oral, but enforceabilih will be limitecl to tl'requan'.ill be enforceabie .rh of soodsadmitted.

444 tlNilillflf,

CONTRACTS SALES LEASE AND

between Contract Lawand Sales law Maior Differences
C ON T R A C TtAW S A LE StA W if Openterms are acceptable, partiesintended but to form a contract, the contractis not enforceable beyondquantityterm. Additional termswill not negateacceptance conditional is unlessacceptance made expressly terms. on assent the additional to Modification does not requireconsideration. firm offers(without consideration). Merchants' Writingis requiredonly for the saleof goods is of $500 or more,but contract not enforceable can Merchants beyondquantityspecified. the by satisfy requirement a confirmatory theiragreement. evidencing memorandum Exceptions: goods. l. Specially manufactured 2. Admissionsby party againstwhom enforcementis sought. performance. 3. Partial

Te Conlract rms

must containall material terms. Contract

Accepla nre

Mirrorimageruleapplies. additional lf terms are addedin acceptance, counteroffer created. is Modification requires consideration. (with consideration). Optioncontracts All material termsmustbe included the in writing.

(onlracl Modif ication lrrevocable Offers Statute Frauds of Requirements

Lane ancl Byror"r negoti:rte:rn agrcenent over the telcphone. During l&19-l lffiExAMplE requests clelivery gallonsof gasolineand a the negotiations, f,erne a price for five hunclrecl Byror repliesthat the price woulcl sep:rratc price for sevenhunclredgallons of garsoline. fivc hunclredgallons.Byron honestly be the s:rrne, $3.50 per gallon. L:rne orally orclers sevenhunclrecl thert believesthat L:rne orclerecl gallonsanclter-rclers arrount. Lzrnerefuses ancl gallons,ancl Byron suesfor breach. In his pleaclings the shipnent of sevenhunclrecl Lzrneadnits that an oral conh:rctwasrrercle, only for five hurclreclgallons. but testimorry, Bec:ruse Lane achnits existence the or:rl contract,Lane cannot plead the Statuteof the of 'fhe contractis enforce:rble, Fraudsasa defense. howevcr,only to the extentof the quan(five hundred gallons).@ tity aclnrittecl

nHfifffiFT:nn An admission can including be madein documents, internal memosand employee reports, that may be obtained priorto trial. duringdiscovery

i[ Partial Performance. An or:rl contractfor the saleor leascof goodsis enforceable pay'l'his is the havebeenreceivecl acceptecl. arrcl nrent hasbeen madeanclaccepted goocls or "partial performance"exception.The oral contractwill be enforcecl leastto the exter-rt at took place. tlrat perforrnance actualllt tB,rEAllan orally contractsto leaseto Opus Enterprises thor,rsand chairsat a trEXAMPl-l Allan a check one-day Beforedelivery, Opus sends a concert. $2 eachto be useddr,rring for $1,000,which Allan cashes. Later,when Ailan aitenpts to deliverthe chairs,Optrs reftrses deiivery,claiming the St:rtuteof Frar-rds :r clefenseand demandsthe return of as , the Allan can enforce oral contract its $1,000. Under the UCC's partialperfonrancerr-rle, hundrecl chairs for the $1,000 accepteci. Simiiarly, if Opus by ter-rder delivery of five of had made no paynent but haclacceptecl deliveryof five hundred chairsfrom Allan, tl-ie payrnent the the oral contract wouid havebeenenforceable against Opus for $ 1,000, lease due for ihe five hundred chairsdelivered.@

445 EIEHU

THE FORMATION OF SALES LEASE AND CONTRACTS

E Pa rol v idenc e
If the partiesintendeclthe terms set forth in the contract as a complcte and fir-ialexpresthen the terrls of tl-rccontract cannot be contradictedby eviof sior-r their agreen-ient, As in or oral agrecnients. discr-rssed dence of any prior agreements contemporaneous the law is known ttsIhc parolevidence rule.If, howevet, writChapter 13,this principleof on ing contains only sorneof the terrnsthat the partiesagreecl ancl not others,then the contract is r-iotftrlly integratecl. When a court finds that the terms of tlie agreerncntare not fully integrated,then thc additional tenns to cxplain or supplement the conrt nay allow eviclenceof consistent 'l'l-ie rn:ryalso:rllowthe parties submit eviclertce to of court ternrsstatedin thc contract. performance the contract was clnly when of courseof dealing, tLsage trade, and courseof partially ir-rtegrated ILICC 2-202, 2A-202). A court will not under any crrcumstalrces terms(this is aisothe rulc that coltradictsthc stated to allow the parties subrnitevidence coinlllon law of contracts). under tl-re Undcr tlic UCC, the rle:rniug of :l.ry agreeCourse of Dealing and Usage of liade of and by tlreir actions,must be interpreted by nrent, evidencecl the languergc the parrties hr a pr:rcticcs and other surrouncling circumst:rnces. interpreting in light of conrnrercial that between the agreeureut, court will assuu.re the corlrseof prior clcaling conrmercial usagcof traclewere taken into accouut when the agreen.rent the partiesancl the ger.rererl rrasohrasecl. OF actionsand communications bctween COURSE DEATING of A courseof dealing is a secprence previotrs betuveen parties the Priorconduct a the partiesto a particul:rr tr:rnsactionthat establishes comr-nonbasisfor their ttnclera to a contract that establishes is to of stancling IUCC 1-205(l)l A courseof clealing restricted the secprence concluct common basis their for understanding. previotrs the agreement. to the betrveen particsin their transactiotrs Usageof trade is defined as ary practiceor rnethoclof dealing having such rcgularity USAGE TRADE OF in of oi observance a place, vocation, or tr:rde as to justify :ru expect:rtiontl-ratit will be Anypractice method dealing or of having suchregularity observance in express terms with respect tlie trar.rs;rction questionIUCC 1-205(2)1.'l'he to observecl vocation, tradeas to or in a place, courseof dealingor r.rsage traclc of will be cotrstrued justifyan expectation it will be of au agreenentand an applicable that When such a constructionis with each other wheneverreasonable. to to bc consistent observed with resDect the in transaction question. itr terrrts the agreernent prevailIUCC 1-205(4) rvill howevcr, express the tntedsondble, l.
OF concluctthat occursunder the €OURSE PERFORMANCE Course of Performance A course of performance is tl-re that occurs underthe Theconduct know bestwhat they tire terms of a particular agreement.Presurnably, partiesthernselves agreement. termsof a particular actuallyundertakenunclertheir and the collrseof pcrforrnance nreantby their worcls, indicates whatthe Such conduct parties an agreement intended it to is agreement the bcst indicationof what they rneantIUCC 2-208(l), 2A-207(l)1. to L rrrn b eC o rrrp a rri o rrtrrrcw i l l r B arl yrnol e scl l B arrytttore to mean. r c ts rE trExA - M ptB : t l f ur r so rr' s a specified number of "two-by-fours."Tlie lun'rber in fact does not measllre agrees deliverthe lumto by'{ inchesbut rat}reriZ inchesby 3%inches.fanson's I ir-rches the without objection,accepts lurnber in the firstthree and ber in five deliveries, Barryn-rore, do On deliveries. the fourth delivery,however,Barrymoreobjectsthat the hvo-by-for-rrs not in measllre2 inchesby 4 inches.The courseof perforrnance this transactiot't-thatis, the three deliveries without objection under the agreement-is tact that Barryrnoreacceptecl actuallymeans" l% by 7/.."Janson's that relevantin detern'rinimg here the ternt two-by-four by need not be exactly2 inchesby 4 ir-rcl'res applyingusage can alsoprovethat two-by-fours can, for example,show that in previous or oi trade,courseof prior dealir-rg, both. Janson's lumber witl-rout objection.In addition,fanson's took I%-by-7]Linch Barryn-iore kansactions, are trade,hvo-by-fours commonly lZ inchesby 3%incl-ies. E can shorvthat in the h-rmber

for rules of constnLction interpreting conRules of Construction The UCC provicles collrseof dealing, and usageof tracleare to tracts.Erpressterms, courseof perforrnance,

446mtr@

CONTRACTS AND SATES LEASE

When such a coustrttcbe construedtogetherwhen they do not contradictone another' terms' however,tle following order of priority controls:(l) express tion is unreasorr"rbl", trade IUCC l-205(4)' of (2) courseof p"rfor-",'tce, (3jcourse of delli"g, andl+1 usage

(Z)1. z-2o\(z),2A-207

bilitY n U consciona
contractis one that is so unfair and one in As discussed Chapter ll, an unconscionable to enforce it. The UCC allowsthe cor-rrt evaluate to sideclthat it woulcl be unreasonable and if the court deemsit to have been uncona contractor any clausein a contract, enforce the contract' at scior-rable tl're time it was made, the court can (l) refuse to or clause, (3) Iimit without the unconscionable of (2) enforcethe remaincler the contract clausesto avoid an unconscionableresult f UCC of the applicatio,'r ,rry unconscionable application of the 2-302,2A-l0B]. The following lanchnark case illustratesan early provisions' UCCk ttnconscionabili$

Corp, v, Credit fonm $fat

m**nffiil

t*n

264 (1969)' County,59 Misc2d 189,298 N'Y'S'2d SuoremeCourtof New YorK Nassau

f,tr$filf f;t*tt

AN H IS T OR IC A TD rn SETTING the ECONOMIC

sixthcentury Romancivil low allowed the courtsto rescindo if controct the morketvolue of the goods that were the subiect equaled lessthqn holf the controd price' This of the contract sameratio hosoppeared over the last forty yeors in many to in cases which courtshove found contractclauses be thotthe price under UCC2-302 on the ground unconscionable Mostof the litigonts who hove used UCC2-302 wos excessive. who were poor or othervvise hove been consumers successfully In ot a disodvontage. a Connecticutcase,for example,the court held thot a controctrequiring o personwho was poor to totaling $l ,248 for o televisionset thot make poyments The retoiledfor $499 wos unconscionoble.a sellerhod not told price' ln a New Yorkcose,the court thebuyer the full purchose 17o 183, Conn'Supp' 416A'2d (1979)' v. a. Murphy McNomaro,36

consumerto hetd thot a controctrequiring o Spanish-speoking totoling neorly $l ,l50 for o freezerthot poyments moke rhe thon $350 wos unconscionoble'b for wholesoled less did was in English,and the solesperson not tronslote controct or exploin it"

the rhe AND BACKGROUND FACTS Joneses,plaintiffs,
for a agreedto purchase freezer $900 as the resultof a charges home.Taxand financing ,ilurp"rron't visitto their was At trial,the freezer the raised total priceto $1,439.69' $300' retailvalueof approximately foundto havea maximum totaling $619'88' made payments who had The plaintiffs, broughta suit in a New Yorkstatecourt to havethe purchase underthe UCC' unconscionable declared contract 757 26,274N'Y's2d (1966); 52 Corp. b. Frostifresh v. Reynoso, Misc'2d 946(1967)' 119, 54 of on rev'd issue damages, Misc.2d 281N'Y'S'2d

, l N T HE W O RDS 0 F T H E C O U R T . . . s o / w AcH rLE Rrusti ce' the court to find, as a matter of law, that ;r..a," ttZ-3[Zof the UCC] authorizes and it was t-t-rade," at a contract or a clauseof a contract was "urrconscionable the time tl-reobjectionable the *por so fi,-r,tir-rg court n-rayrefuseto enforce the contract, excise * result' * * of the cla.se to avoiclan unconscionable clauseor fi-ii ifr" ,pplication **** ,. x * The questionwhich preser-rts itself is whether ot not, under the circumstances of a freezlr unit having a retail value of $100 for $900 ($1,439'69 of this case,the sale * * * tax) iiunconscionable as a matter of law' incluclingcredit chargesancl $lB sales * * * The nratfieriratical behveen$300,which presumablyincludesa reasonclisparity weight' ancl $900, which is exorbitanton its face, carriesthe greatest able profit margir-r, I i I

447 ElMmtr
1 CASE 8. 3- Cont inue d * x x The alone exceedby rnore than $ 100 the retail value of the freezer. Credit cl'rarges '.en limited fir-rancial purcl-raser, known to the sellersat the time of the resolrrces the of x x x the to .ale.is entitlecl weightir-r balanc". * * * The defendanthas alreadybeen amply compensated. accordancewith the In to :tatute, the application of the payment provision should be lir-r-ritecl amourttsalready :.lid by the plaintiffs and the contract be reforrnedand amended by changing the payactuallyso paiclby the plaintiffs. to :rents called for tl-rerein equal the amount of payn-rer-rt

OF THE FORMATION AND CONTRACTS SALES LEASE

rne held the D EC ISI0 ANDRE ME DY court that N
and reformedthe contractso was not enforceable contract were required. that no furtherpayments

unconscionoble-an opproach thot focuseson "excessive"price ond unequol borgaining power.

the f'fo;! fnis eorly cose illustrotes opprooch thot mony courtstodoy toke when deciding whether o solescontroctis

ltt

tAW 0N IMPACT THISCASE T0DAY'S 0F

WEBSITESTo|ocote informotion theweb on RELEVANT goto decision, this v. credit corp. concerningJonesstar fhe
text's Websife of www.cengage.(om/blaqblt,seled "Chopter for | 8," ond then clickon "lJRLs Londmorks!'

@

in locertecl different cottutries Intemation:rlsalescontractsbetween firrrs or ir-rdivicluals by rre governecl the l9B0 United Nations Convetrtiotron Contractsfor the International of (CISG).'fhe CISG govemsintenrational contracts only if the cottntries Saleof Goocls the partiesto the contract have ratified the CISG ancl if the partieshave not agreedthat by .onre other law will govern their contract.As of 2009, the CISG had been aclopted Canada,Mexico, someCentral and South the :clenty conntries,inch,rding UniteclStates, Er:ropeannations.This meansthat tl-reCISG is the ur-ri.\nrerican countries,and r-nost law of countriesaccountinqfor tnore than two-thirdsof all global sales rcrrr internatior-ral irade.

of t Applic abilit y h e( l S G
the Essentially, CISG is to internationalsalescontractswhat Article 2 of the UCC is to the in As domesticsalescontracts. discussecl this chapter,in domestictransactions UCC applieswhen the partiesto a contractfor a saleof goodshave failed to specifuin writing sone important term concerningprice, delivery,or the like. Similarly,wheneverthe parject preciseterms of a contractfor failed to specifuin writing tl-re tiessr-rb to the CISG I'rave the CISG will be applied.Unlike the UCC, the CISC does the internationalsaleof goods, and neiiher the UCC nor the CISG appliesto contractsfor not apply to consumersales, services. sales contrachto avoid carewhen draftinginternational must Businesspersons takespecial and inch-rdir-rg language differences varyingnationallaws.The by problemscaused distance, sales conhactused an exhibit locatedwithin this chaptershows actualinternational fold-or-rt termsand clauses illustrates many of the special The fold-or,rt CoffeeCon'rpany. br.starbucks in Annotations the for contracts the saleof goods. that arefpically containedin international (See in clauses the contract. of meaningand significance specific exhibitexplaintl-re fblcl-out trar-rsactions.) lawsthat frame global business of Chapter 46 for a discussion otl-rer

ffi

The full text of the CISGis available online at the Pace Institute of UniversitySchool ol Larn/s Law.Go to lnternational Commercial

448 EiIi!@

CONTRACTS SALES TEASE AND

Pr a A C o m p a r i so n o f CISGn dUCC o visio n s
To read an in-deptharticle of the provisions comparing go the CISC and the UCC, to Oberman.htnl.

The provisions the CISG, althoughsimilar for the most part to thoseof the UCC, differ of In mentionedsomeof thesedifferences. the We frorn them in certainrespects. havealready for exampie,we pointed out that the featurein Chapter I 3 on page 77), l)eyondOur Borders Under Article 1l of the CISG, an of CISG doesnot include any Statr-rte Fraudsprovisions. by contractdoesnot needto be evidenced a writing or to be in any particinternational sales ular form. to betweenthe UCC and the CISC with respect conWe look here at soinedifferences out diflerences tract formation. In tl-refollowing chapters,we will continue to point between the CISG and the UCC as they relate to the topics covered.These topics remedics, and lvarranties. include risk of loss,performance, betrveenthe UCC and the CISG have to do with offers.For differences Offers Son're evenwithout considfirrn offer is irrevocable, that a merclrant's instance, UCC provides the under the CISC, an assurances a signedwriting.In contrast, in eration,if the rnerchantgives withouta signedwriting. futicle 16(2)of the CISG provides offer can become irrcvocable orally that the offer is simply states if that an offer will be irrevocable thc rnerchant-offeror In reasonably rclicson the offerasbeingirrevocable. both ofthese irrevocable iftlie offeree or cvcn rvithouta writing and without consideration. tl-re situations, offerwill be irrevocablc the is Anothcr difference that,ur-icler UCC, if thc price term is left open,the court wili "a price at the tirne for clelivery"|UCC Z-lil5(l)1. Under the cletermine rcasonable for or thc price term niust be specified, at leastprovisions its specificaCISG, however, will norrnallyno contretct exist. othcrwise, tion must be included in the agreernent; Acceptances L,iketlCC 2-207, the CISG providestl'rata contractcan be formed evetr terms terms,unlessthe :rclclitional containsaclclitional though the acceptarrcc materially alter tlie coutract. Under the CISG, however,the clefinitionof a "rnaterialalteration"inclucles virtuallyany changein the ternrs.If an aclclitional price, title anci place of clelivery, terin relatesto paymcnt, quality, c1u:rntity, the of liability to the other,or the settlernent clisputes, CISC extcntof onc party's term a "material alteration."In effect, then, thc CISC the consiciers acldecl mirror thoseof the offer. requiresthert terns of the acceptance the on Under is the Additionally, uncler UCC, an acceptance effective dispatch. the the CISC], however,a contractis not createduntil the offerorreceives ts the (The offer bccornesirrevocable, however,whcr.r acceptattce acccpt:rnce. by that acceptance perto sent.) Also,in contrast thc UCC, the CISG provides . offerorbe notified of the perforrrance forrnancedoesnot requirc that tl-re

Supposethat the owner of this foctory, a IJ.S.firm, offers to sell o Germon compony o certoin number of boxes for a set price. The parties the discuss offer on the phone, ond the U.S.firm orally ogrees to keep the offer open for o period of time but foils to send written ossurances of the offer. Would the offer be Would revocobleunder the UCC? it be revocobleunder the CISG? Exploin the different opprooches. (Courtesy SemoBoxCompany) of

of Sales lease and Contracts The Formation
"to of Group(CCG) delivera workingprototype a owns Consulting GuyHolcomb of the integration live customer chat system, demonstrating Oasis and operates for In Emporium, video and chattingin a Web browser." exchange creating Goodtime On prototype, to pay CCG Holcombagreed an adultentertainment the $64,697. May work orderin the amountof 20, Holcomb signed additional an establishment. The firewallsystem. for to for Holcombwantedto createan adult Internetsystem Oasis 912,943 CCG installa customized "[ive"chat would make monthly work ordersstatedthat Holcomb adulttheme videosand that would offercustomers the payments CCC, to and both partiesexpected installment at usingperformers the club.On May 10, room programs Due to unforeseen work would be finishedby September. Crossroads Holcomb signed work orderauthorizing a

449 EIIEEtr

I|ttrtrtf^Hlll^trtftr**.
largely attributable system to configuration and :'roblems 2 Woulda courtbe likelyto consider Holcomb merchant a incompatibility, completionof the projectrequired :c#tlvare underthe UCC? Why or why not? By the -ore time than anticipated. the end of the summer, 5 Did the parties havea validcontract underthe UCC? Explain. and Holcomb hadfallenbehindin rtreb was stillnot ready, site to CCG was threatening cease to :e payments CCG. work and 4 Suppose that Holcomb and CCCmeet in October an in of unless bill was paid.Rather the a suitfor breach contract attemptto resolve their problems. that time,the parties At 'e Holcomb wantedto abandon :an makefurtherpayments, the reachan oralagreement CCG that will continue work to presented the Using information the in lrreb siteproject. withoutdemanding payment the past-due full of amounts questions. the :dpter, answer following and Holcomb will payCCC that $5,000per week.Assuming the contract fallsunderthe UCC, the oralagreement is that the transaction | [l'oulda courtbe likelyto decide enforceable? or whv not? Whv Holcomb and CCG was covered the Uniform by between Code(UCC)? Whyor why not? Commercial

(ourseof dealing 445 of 445 course performance firm offer 456 ietangible Woperty 427 ilcaseq52 452 agreement lcase

Iessee 452 lessor452 merchant 452 output contract 455 predominant-factor 429 test requirements contract 455

sale 427 salescontracl 427 seasonably 457 property 427 tangible usage trade ++s of

The Scope of the UCC (See pages 426-427.)

The UCCattemptsto providea consistentuniform,and integrated frameworkof rulesto deal with all phases ordinarilyorisingin a commercial salesor leasetransadion, includingcontract formation,passage title and riskof loss,performance, of paymentfor goods, remedies, goods,and secured warehoused transactions. Article2 governscontracts the saleof goods (tangible, for movablepersonalproperty). The common law of contracts also appliesto salescontracts the extentthat the common law has to not been modifiedby the UCC. there is a conflictbetweena common law rule and the UCC, lf the UCCcontrols. Article2A governs contracts the leaseof goods.Except for that it appliesto leases, insteadof sales, goods,Article24 is essentially repetitionof Article2 and variesonly to reflect of a differences behneensalesand leasetransactions. 1. Offera. Not all terms haveto be includedfor a contract be formed (only the subjectmatterand to quantityterm must be specified). b. The pricedoes not haveto be includedfor a contrad to be formed. c. Particulars performance be left open. of can d. A written and signedoffer by a merchant,covering periodof three monthsor less,is a irrevocable without paymentof consideration. 2. Acceptoncea. Acceptance may be made by any reasonable meansof communication; is effective when it dispatched.
(Continued)

ffte Scope of Articfe 2-Sales (See pages 427-452.) fhe Scope of Article 2A-Leases (See pages 432-433.) Offer and Acceptance (Seepages433-440.)

450MiI@

CONTRACTS AND SATES LEASE

Offer and AcceptanceContinued

goods, by b. An offercan be accepted a promiseto ship or by prompt shipmentof conforming by goodsif not accompanied a noticeof or by prompt shipmentof nonconforming accommodation. the time; otherwise, offer requiresnoticewithin a reasonable by c. Acceptance performance can be treatedas lapsed. createsa contracteven if the terms of the acceptance d. A definite expressionof acceptance are varyfrom those of the offer,unlessthe variedterms in the acceptance expressly assentto thoseterms. on the offeror's conditioned

Consideration page (See 441.) under Requirements the'statuteof Frauds (Seepages441-444.)

for of A modification a contract the saleof goodsdoes not requireconsideration. for L All contracts the saleof goods pricedat g500 or more must be in writing.A writing is sufficient whom a as long as it indicates contractbetweenthe partiesand is signedby the partyagainst beyondthe quantityshown in the writing' enforcementis sought.A contractis not enforceable 2. When written confirmationof an oral contractbetween merchanb is not objectedto in writing within ten days,the contractis enforceable. by the receiver of to 3. Exceptions the requirement a writing existin the followingsituations: to for goodsnot suitable resale others, manufactured a. When the oral contractis for specially the startedto manufacture goods. and the sellerhas substantially that an oral or testimony, other court proceedings b. Whenthe defendantadmitsin pleadings, to will be enforceable the the contract of goodswas made.ln this case, for contract the sale extentof the quanti$ of goodsadmitted. and to will be enforceable the extentthat paymenthas been received c. The oral agreement by and accepted by accepted the selleror to the extentthat the goodshavebeen received the buyer.

Rule Parol Evidence (Seepages445*446.)

by worded written contractcannotbe contradicted and completely L The terms of a clearly oral or of evidence prior agreements contemPoraneous agreements. the to is 2. Evidence admissible clarify terms of a writing in the followingsituations: terms are ambiguous. a. lf the contract to is of b. lf evidence courseof dealing,usageof trade,or courseof performance necessary to of the intentions the parties the contract. learnor to clarify

Unconscionability (Seepages446-447.)

contractis one that is so unfairand one sidedthat it would be unreasonable An unconscionable at to to enforceit. lf the court deemsa contract havebeen unconscionable the time it was made, clause (2) the court can (l) refuseto enforcethe contract, refuseto enforcethe unconscionable to clauses avoidan of or of the contract, (3) limit the application any unconscionable result. unconscionable for on are salescontracts governedby the UnitedNationsConvention Contracts the lnternational of Saleof Coods(CISC)-ifthe countries the partiesto the contracthaveratifiedthe International CISC(and if the partieshavenot agreedthat some other law will governtheir contract). what Article2 of the UCCis to domestic salescontracts is the Essentially, CISG to international havefailedto specifyin writingthe partieswho are subjectto the CISG Whenever salesconiracts. will be applied. saleof goods,the CISG for precise terms of a contract the international

for Contracts the Sale lnternational of Goods (Seepages 447-448.)