376

CASE 20.3 CONTINUED focuses on “excessive” price and unequal bargaining power. Most of the litigants who have used UCC
2–302 successfully could demonstrate both an absence of meaningful choice and that the contract
terms were unreasonably favorable to the other party.

• The Ethical Dimension Why would the seller’s knowledge of the buyers’ limited resources
support a finding of unconscionability? Explain.

• The Legal Environment Dimension Why didn’t the court rule that the Joneses, as
adults, had made a decision of their own free will and therefore were bound by the terms of the con-
tract, regardless of the difference between the freezer’s contract price and its retail value?
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Concept Summary 20.1 reviews the concepts and
rules related to the formation of sales and lease con-
tracts that we have discussed in this chapter.
Contracts for the
International Sale of Goods
International sales contracts between firms or individ-
uals located in different countries may be governed by
the 1980 United Nations Convention on Contracts for
the International Sale of Goods (CISG). The CISG gov-
erns international contracts only if the countries of the
parties to the contract have ratified the CISG and if the
parties have not agreed that some other law will gov-
ern their contract. As of 2008, the CISG had been
adopted by seventy countries, including the United
States, Canada, Mexico, some Central and South
American countries, and most European nations.That
means that the CISG is the uniform international sales
law of countries that account for more than two-thirds
of all global trade.
Applicability of the CISG
Essentially, the CISG is to international sales contracts
what Article 2 of the UCC is to domestic sales contracts.
As discussed in this chapter, in domestic transactions
the UCC applies when the parties to a contract for a
sale of goods have failed to specify in writing some
important term concerning price, delivery, or the like.
Similarly, whenever the parties to international transac-
tions have failed to specify in writing the precise terms
of a contract, the CISG will be applied. Unlike the UCC,
the CISG does not apply to consumer sales,and neither
the UCC nor the CISG applies to contracts for services.
Businesspersons must take special care when draft-
ing international sales contracts to avoid problems
caused by distance, including language differences
and differences in national laws.The appendix follow-
ing this chapter (pages 383–386) shows an actual inter-
national sales contract used by Starbucks Coffee
Company. The contract illustrates many of the special
terms and clauses that are typically contained in inter-
national contracts for the sale of goods.Annotations in
the appendix explain the meaning and significance of
specific clauses in the contract. (See Chapter 52 for a
discussion of other laws that frame global business
transactions.)
A Comparison of
CISG and UCC Provisions
The provisions of the CISG, although similar for the
most part to those of the UCC,differ from them in some
respects. In the event that the CISG and the UCC are in
conflict, the CISG applies (because it is a treaty of the
national government and therefore is supreme—see
the discussion of the supremacy clause of the U.S.
Constitution in Chapter 4).
The major differences between the CISG and the
UCC in regard to contract formation concern the mir-
ror image rule, irrevocable offers, the Statute of Frauds,
and the time of contract formation. We discuss these
differences in the subsections that follow. CISG provi-
sions relating to risk of loss, performance, remedies,
and warranties will be discussed in the following chap-
ters as those topics are examined.
The Mirror Image Rule Under the UCC, a defi-
nite expression of acceptance that contains additional
terms can still result in the formation of a contract,
unless the additional terms are conditioned on the
assent of the offeror. In other words,the UCC does away
with the mirror image rule in domestic sales contracts.
Article 19 of the CISG provides that a contract can
be formed even though the acceptance contains addi-
tional terms,unless the additional terms materially alter
the contract. Under the CISG, however, the definition of
 377

CONCEPT SUMMARY 20.1

The Formation of Sales and Lease Contracts
Concept Description
OFFER AND ACCEPTANCE 1. Offer—
a. Not all terms have to be included for a contract to be formed.
b. The price does not have to be included for a contract to be formed.
c. Particulars of performance can be left open.
d. An offer by a merchant in a signed writing with assurances that the offer
will not be withdrawn is irrevocable without consideration (for up to three
months).
2. Acceptance—
a. Acceptance may be made by any reasonable means of communication; it
is effective when dispatched.
b. The acceptance of a unilateral offer can be made by a promise to ship or
by the shipment of conforming or nonconforming goods.
c. Acceptance by performance requires notice within a reasonable time;
otherwise, the offer can be treated as lapsed.
d. A definite expression of acceptance creates a contract even if the terms of
the acceptance modify the terms of the offer.
CONSIDERATION A modification of a contract for the sale of goods does not require consideration.
REQUIREMENTS UNDER 1. All contracts for the sale of goods priced at $500 or more must be in writing.
THE STATUTE OF FRAUDS A writing is sufficient as long as it indicates a contract between the parties
and is signed by the party against whom enforcement is sought.A contract is
not enforceable beyond the quantity shown in the writing.
2. When written confirmation of an oral contract between merchants is not
objected to in writing by the receiver within ten days, the oral contract is
enforceable.
3. Exceptions to the requirement of a writing exist in the following situations:
a. When the oral contract is for specially manufactured or obtained goods
not suitable for resale or lease to others and the seller or lessor has made
commitments for the manufacture or procurement of the goods.
b. If the defendant admits in pleadings, testimony, or other court proceedings
that an oral contract for the sale or lease of goods was made, then the
contract will be enforceable to the extent of the quantity of goods
admitted.
c. The oral agreement will be enforceable to the extent that payment has
been received and accepted or to the extent that goods have been
received and accepted.
PAROL EVIDENCE RULE 1. The terms of a clearly and completely worded written contract cannot be
contradicted by evidence of prior agreements or contemporaneous oral
agreements.
2. Evidence is admissible to clarify the terms of a writing in the following
situations:
a. If the contract terms are ambiguous.
b. If evidence of course of dealing, usage of trade, or course of performance
is necessary to learn or to clarify the intentions of the parties to the
contract.
378
a “material alteration” includes virtually any change in
the terms.If an additional term relates to payment,qual-
ity, quantity, price, time and place of delivery, extent of
one party’s liability to the other,or the settlement of dis-
putes, the CISG considers the added term a material
alteration. In effect, then, the CISG requires that the
terms of the acceptance mirror those of the offer.
Therefore, as a practical matter, businesspersons
undertaking international sales transactions should
not use the sale or purchase forms that they customar-
ily use for transactions within the United States.
Instead, they should draft specific forms to suit the
needs of the particular transactions.
Irrevocable Offers UCC 2–205 provides that a
merchant’s firm offer is irrevocable, even without con-
sideration, if the merchant gives assurances in a
signed writing. In contrast, under the CISG, an offer
can become irrevocable without a signed writing.
Article 16(2) of the CISG provides that an offer will be
irrevocable if the offeror simply states orally that the
offer is irrevocable or if the offeree reasonably relies
on the offer as being irrevocable. In both of these situ-
ations, the offer will be irrevocable even without a
writing and without consideration.
The Statute of Frauds As mentioned previously,
the UCC’s Statute of Frauds provision [UCC 2–201]
requires that contracts for the sale of goods priced at
$500 or more be evidenced by a written record signed
by the party against whom enforcement is sought.
Article 11 of the CISG, however, states that a contract of
sale “need not be concluded in or evidenced by writ-
ing and is not subject to any other requirements as to
form. It may be proved by any means, including
witnesses.” Article 11 of the CISG accords with the legal
customs of most nations,which no longer require con-
tracts to meet certain formal or writing requirements
to be enforceable.
Time of Contract Formation Under the com-
mon law of contracts, an acceptance is effective on
dispatch, so a contract is created when the accep-
tance is transmitted. The UCC does not alter this so-
called mailbox rule. Under the CISG, in contrast, a
contract is created not at the time the acceptance is
transmitted but only on its receipt by the offeror. (The
offer becomes irrevocable, however, when the accep-
tance is sent.) Article 18(2) states that an acceptance
by return promise “becomes effective at the moment
the indication of assent reaches the offeror.” Under
Article 18(3), the offeree may also bind the offeror by
performance even without giving any notice to the
offeror. The acceptance becomes effective “at the
moment the act is performed.” Thus,the rule is that it is
the offeree’s reliance, rather than the communication
of acceptance to the offeror, that creates the contract.
Special Provisions in
International Contracts
Language and legal differences among nations can
create special problems for parties to international
contracts when disputes arise. It is possible to avoid
these problems by including in a contract special pro-
visions relating to choice of language,choice of forum,
choice of law, and the types of events that may excuse
the parties from performance.
Choice of Language A deal struck between a
U.S. company and a company in another country fre-
quently involves two languages. One party may not
understand complex contractual terms that are writ-
ten in the other party’s language. Translating the
terms poses its own problems, as typically many
phrases are not readily translatable into another lan-
guage.To make sure that no disputes arise out of this
language problem, an international sales contract
should have a choice-of-language clause designat-
ing the official language by which the contract will
be interpreted in the event of disagreement. The
clause might also specify that the agreement is to be
translated into, say, Spanish; that the translation is to
be ratified by both parties; and that the foreign com-
pany can rely on the translation. If arbitration is
anticipated, an additional clause must be added to
indicate the official language that will be used at the
arbitration proceeding.
Choice of Forum As discussed in Chapter 19, a
forum-selection clause designates the forum (place,or
court) in which any disputes that arise under the con-
tract will be litigated. Including a forum-selection
clause in an international contract is especially
important because when several countries are
involved, litigation may be sought in courts in differ-
ent nations. There are no universally accepted rules
regarding the jurisdiction of a particular court over
subject matter or parties to a dispute, although the
adoption of the 2005 Choice of Court Convention
(discussed in Chapter 19’s Insight into the Global
Environment feature on page 347) should help resolve
certain issues. A forum-selection clause should indi-
cate the specific court that will have jurisdiction. The
 379

forum does not necessarily have to be within the geo-
graphic boundaries of either party’s nation.
Under certain circumstances, a forum-selection
clause will not be valid. Specifically, if the clause
denies one party an effective remedy,is the product of
fraud or unconscionable conduct, causes substantial
inconvenience to one of the parties to the contract,or
violates public policy, the clause will not be enforced.
Choice of Law A contractual provision designat-
ing the applicable law, called a choice-of-law clause,
is typically included in every international contract.At
common law (and in European civil law systems—see
Chapter 52),parties are allowed to choose the law that
will govern their contractual relationship, provided
that the law chosen is the law of a jurisdiction that has
a substantial relationship to the parties and to the busi-
ness transaction.
Under UCC 1–105, parties may choose the law that
will govern the contract as long as the choice is
“reasonable.”Article 6 of the CISG,however,imposes no
limitation on the parties in their choice of what law
will govern the contract, and the 1986 Hague
Convention on the Law Applicable to Contracts for the
International Sale of Goods—often referred to as the
Choice-of-Law Convention—allows unlimited auton-
omy in the choice of law.Whenever a choice of law is
not specified in a contract,the Hague Convention indi-
cates that the law of the country where the seller’s
place of business is located will govern.
Force Majeure Clause Every contract, and par-
ticularly those involving international transactions,
should have a force majeure clause. The meaning
of the French term force majeure is “impossible or irre-
sistible force”—sometimes loosely defined as “an act
of God.” Force majeure clauses commonly stipulate that
in addition to acts of God, a number of other eventual-
ities (such as governmental orders or regulations,
embargoes, or extreme shortages of materials) may
excuse a party from liability for nonperformance.

The Formation of Sales and Lease Contracts

Guy Holcomb owns and operates Oasis Goodtime Emporium, an adult entertainment
establishment. Holcomb wanted to create an adult Internet system for Oasis that would
offer customers adult theme videos and “live” chat room programs using performers at the club. On May
10, Holcomb signed a work order authorizing Thomas Consulting Group (TCG) “to deliver a working
prototype of a customer chat system, demonstrating the integration of live video and chatting in a Web
browser.” In exchange for creating the prototype, Holcomb agreed to pay TCG $64,697. On May 20,
Holcomb signed an additional work order in the amount of $12,943 for TCG to install a customized
firewall system. The work orders stated that Holcomb would make monthly installment payments to TCG,
and both parties expected the work would be finished by September. Due to unforeseen problems largely
attributable to system configuration and software incompatibility, completion of the project required more
time than anticipated. By the end of the summer, the Web site was still not ready, and Holcomb had
fallen behind in his payments to TCG. TCG was threatening to cease work and file a suit for breach of
contract unless the bill was paid. Rather than make further payments, Holcomb wanted to abandon the
Web site project. Using the information presented in the chapter, answer the following questions.

1. Would a court be likely to decide that the transaction between Holcomb and TCG was covered by the
Uniform Commercial Code (UCC)? Why or why not?
2. Would a court be likely to consider Holcomb a merchant under the UCC? Why or why not?
3. Did the parties have a valid contract under the UCC? Were any terms left open in the contract? If so,
which terms? How would a court deal with open terms?
4. Suppose that Holcomb and TCG meet in October in an attempt to resolve their problems. At that
time, the parties reach an oral agreement that TCG will continue to work without demanding full
payment of the past due amounts and Holcomb will pay TCG $5,000 per week. Assuming the
contract falls under the UCC, is the oral agreement enforceable? Why or why not?