\

T]|APTER
18
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$ftk*rdL*cmfin*ffffi

65The object
great CHA P TE R O UI T I NE L E A RI { |1 { G 0 B t E CT t V t S
.THESCOPE
OFTHE UCC AFTER READINC THISCHAPTER, YOUSHOULD BEABLE TO
ofthelawisto ANSWER THE FOLLOWING QUESTIONS:
-THESCOPE
OFARTICLE
2-SALES
enc0urage I How do Article 2 anclArticle 2A of the UCC differl
t -THESCOPE
OFARTICLE
2A-LEASES
cOmmerce.t .THEFORMATION
OFSALES
Wl-rattypesof transactionsdoeseach article coverl

f . C)harrrbre,
l7 39-\823 ANDLEASE
CONTRACTS 2 Wrat is a merchant'sfirm offer?
(Britishjurist)
.CONTRACTS
FORTHE 5 If an offereeincludes additional or differentterms
INTERNATIONAL
SALEOFGOODS in an acceptance,will a contractresult?If so,what
l-rappens
to theseterrns?

4 Article 2 and Article 2A of tlie UCC both define

severalexceptionsto tl-rewriting requirementsof
the Statr-rte
of Frauds.What are theseexceptions?

5 Wrat law governscontractsfor the irrternational

saleofgoods?

s the chapter-openingquotationstates,the object of the law is to encorlragecomlrrerce.

This is particularlytme with respectto the Unifonn CornmercialCode (UCC). The
UCC facilitatescommercialhansactionsby making the lawsgoverningsalesand leasecon-
tractsuniforrl, clearer,simpler,and more reaclilyapplicableto the numerousdifficultiesthat
can arisech-rringsuch transactions.Recallfrom Chapter I that the UCC is one of many uni-
form (rnodel)actsdrafteclby the National Conferenceof Comrnissioners on Uniforr-rState
Lawsand submittedto tl.restatesfor adoption.Once a statelegislaturehasadopteda uniforrr
act, the act becomesstahrtorylaw in that state.Thus, when we b:rn to salesand leasecon-
hacts,we nlove awayfrom common law principles and into the areaof statutorylaw.
We open this cl-iapterwith a discussionof the generalcoverageof the UCC and its sig-
nificance asa legal landrlark. We ther-rlook at the scopeof the UCCt Article 2 (on sales)
and Article 2A (on leases)as a backgror-rnd to the focus of tl'rischapter,which is the for-
mation of contractsfor the sale and leaseof goods.Becauseintemational salestransac-
tions are increasinglycomnonplace in the businessworlcl,we concluclethis chapterwith
an exarninationof the United NationsConvention on Contractsfor the InternationalSale
of Coods (CISG). which sovernsinternationalsalescontracts.

The UCC attemptsto provide a consistentand integratedframeworkof rules to deal with all
426l!EiI[@ phasesordinarilyarisingin a commercialsalesor leasetransactionfrom startto finish. For
ANDLEASE
SALES CONTRACTS example,consiclerthe following events,all of which may occur during a singlehansaction:
r
II
I
427
EUEmtr
THE
FORMATION
OF
ANDTEASE
SALES CONTRACTS

I A contractfor the saleor leaseof goodsis formedand executed.Article 2 and Ariicle 2A

of the UCC provide rules governingall aspectsof tl-ristransaction.
2 Tlrc transactionmay irtt,olvea payment-by check,electronicfund transfer,or other
tnedns.Article 3 (or-rnegotiableinstruments),Article 4 (on bank depositsand collec-
tions),Article 44 (on ftrlrd transfers),and Article 5 (on lettersof credit) cover this part
of the transaction.
ffi
CornellUniversity's
lnformation
Legal
Institute also
! The transactionmay intolve a bill of lading or a warehousereceiptthat cottersgoodswhen offersthe full textof
the UCCat
theyare shippedor stored.Article 7 (on documentsof title) dealswith this subject.
4 The transactionmay intolve a demandby the selleror lenderfor someform of security
for the remairLingbalanceowed. Article 9 (or-rsecuredtransactions)coversthis part of
the transactior-r.
'fhe UCC has been adopted ir-rwhole or in part by all of tl-restates.lBecauseof its
intportancein the areaof commercial transactions,we presentthe UCC as this chapter's
Landmark in the Law featureon the followir-rgpage.

.\rticle Z of the UCC governssalescontracts, or contractsfor the saleof goods.To facilitate SALES CONIRACT
goods
cornmercialtransactions, Article 2 modifiessomeof the common law contractrequirements A contractfor the saleof
underwhichthe ownershipof goods
that were snrnmarizedin Chapter B and discussedin detail in Chapters9 through 15.To is transfenedfrom a sellerto a buyer
the extentthat it hasnot beenrnodifiedby the UCC, however,the commou law of contracts for a price.
alsoappliesto salescontracts.In general,the rr-rleis that when a UCC provisionaddresses
a certain issue,the UCC governs;when the UCC is silent,the common law governs.
In regardto Article 2, you shoulclkeep hvo points in rnind. First, Article 2 dealswith
the sale of goods;it does not deal with real property (real estate),services,or intangible
propertysuch asstocksand bonds.Thus, if a dispr,rte involvesgoods,the UCC governs.If
it ir-ivolvesreal estateor services, the cornmon law applies. The relationshipbetweengen-
eral contract law ancl the law governing sales of 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 seller is a merchant. We look now at how the UCC definesthree
irrportant ternrs:sd/e, goods, and merchant status.

Wh atls a S ale ?
The UCC definesa saleas "the passingof title fevidenceof ownership]from the sellerto SAtE
Thepassingof title to propertyfrom
tl-rebr-ryerfor a price" IUCC 2-106(1)]. The price may be payablein cash (or its eqr,riva- the sellerto the buyerfor a price.
l e n t) o r in ot lr ergood so r s e rv i c e s . TANGIBLE PROPERTY
Propertythat hasphysicalexistence
WhatAr eG ood s ? and can be distinguished by the
senseof touchor sight.A caris
To be characterizedasa good,the iterr-rof propertymust be tangible,and it must be movable. tangibleproperty;a patentrightis
intangibleproperty.
Tangible property hasphysicalexistence-it can be touched or seen. Intangible property-
INTANGIBTE PROPERTY
such ascorporatestocksand bonds,patentsand copyrights,and ordinarycontract rights-has Propertythat cannotbe seenor
only conceptualexistenceand thus doesnot come under A-rticle2. A movableitem can be touchedbut existsonly conceptually,
is excluded from Article 2' suchas corporatestocksand bonds,
carriedfrom placeto place.Hence, real estate patentsand copyrights, and ordinary
Two issuesoften give rise to disputes in detern'riningwhether the obiect of a contract is contractrights.Article2 of the UCC
goodsar-rdthus whether futicle 2 is applicable.One problem hasto do with goodsassociated doesnot governintangibleproperty.
with real estate, stch as crops or timber, and the other concernscontractsinvolving a com-
bination oFgoodsand services.

l. Louisianahasnot adoptedArticles2 and 2A, however

-i

428I@
ANDLEASE
SALES CONTRACTS

-j Of all the attemptsto producea uniformbody of

laws relatingto commercialtransactionsin the
UnitedStates,none has beenas comprehensive or
successful as the UniformCommercialCode(UCC).
,;s

I T h e O ri g i ns of the U C C TheU C Cw as the brai nchi l of

liEli|lnmm Althoughthe UCChas
beenwidelyadoptedwithoutmany
changes,stateshavemodified
someof the detailsto suittheir
particular
needs.
dent of the NationalConference of Commissioners
d w i l l i amA . S chnaderpr, esi-
on UniformStateLaws(NCCUSL).
The draftingof the UCCbeganin 1945.The most significant individualinvolvedin the
projectwas its chiefeditor,KarlN. Llewellynof the ColumbiaUniversity Law School.
Llewellyn's intellect,continuousefforts,and abilityto compromisemadethe firstversion
of the UCC-completed in 1949-a legallandmark.Overthe next severalyears,the UCC
was substantially acceptedby virtuallyeverystatein the nation.

Periodic Changesand Updates Variousarticlesand sectionsof the UCCare periodi-

callychangedor supplemented to clarifycertainrulesor to establishnew ruleswhen
changesin businesscustomsrenderthe existingUCCprovisions inapplicable.
Forexam-
ple, becauseof the increasing importanceof leasesof goodsin the commercialcontext,
Article2A governingleaseswas addedto the UCC.To clarifythe rightsof partiesto com-
mercialfund transfers,particularlyelectronicfund transfers,Article44 was issued.Articles
3 and4, on negotiableinstruments and bankingrelationships, underwentsignificant
revisionin the 1990s.Becauseof otherchangesin businessand in the law,the NCCUSL
has recommended the repealof Article6 (on bulk transfers),
offeringa revisedArticle6
to thosestatesthat prefernot to repealit. The NCCUSL hasalsorevisedArticle9, cover-
ing securedtransactions. The revisedArticle9, which has beenadoptedby all of the
states,will be discussedat lengthin Chapter25.

By periodically revising the UCC'sorticles,

the NCCUSLhos been oble to adapt itsprovisionsto changing businesscustomsond
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."

Goods Associatedwith Real Estate Gooclsassociatecl with real estateoften fall within
the scopeof Article 2. Section2-i07 providesthe followingmlcs:
I A cor-rtract for the sale of mineralsor the like (including oil ancigas)or a stnrcture
(suclr as a building) is a contract for the saleof goodsif sererdnce,or separation,is lo
be rnadeby th.eseller.lf thc buyer is to sever(separate)the mincrals or stnrcturefrorr
tl-reland, the contractis consideredto be a saleof real estategoverneclby tlrc principles
of real propertylaw, 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
of who seyersthem.
 429ffiffiffig
OF
FORMATION
THE
CONTRACTS
ANDLEASE
SALES

illustrates
Thisexhibitgraphically betweengeneralcontractlaw and statutorylaw
the relationship
(UCCArticles2 and 2A) governingcontractsfor the sale and leaseof goods.Salescontractsare not
governedexclusivelyby Article2 of the UCCbut are also governedby generalcontractlaw
wheneverit is relevantand has not been modifiedby the UCC'

NonsalesContracts
(contractsoutsidethe UCC,
GeneralContractLaw primarilycontractsfor services
and for real estate)
riiglult;itio 6:,itrl)1i:i:it!r1i:i 1rt:l!:Fl:iilrlllrr rilttlifF*li l$r!!ri

RelevantCommonLaw
Not Modifiedby the UCC
ltl
Contracts
forthe
SaleandLeaseof Goods
StatutoryLaw
(UCCArticles2 and2A')

lvithout niaterialharnr tcr PREDOMINANT-FACTOR TEST

I Other "tliings attachecl"to rcalty but capableof severatrce
"l'hings A test courtsuseto determine
thc lancl arJconsiclereclgoocls of
regardless who severs thent.Z attachecl"that
whethera contractis primarilyfor
arc sevcr:rblelvithout harrn to realtycoulclincluclestrchitens as a portablehcatcr,a the saleof goodsor for the saleof
rvilclowair colclitioler i1 a house,and stoolsin:r retnoval
rcst:trtrartt.'l'hus, of orle of services.
a salc of goocls. 'l'hc test is lvhcther rcruovalwill
thesethings woulclbe consiclerecl
ca.,ses.tbstontialharm to thc real propertl to which thc iten-ris irttachecl. Sunflowersin bloom. DoesArticle 2
of the UCCopply to the soleof
sunflower seedsto o snack-foods
Goods and ServicesCornbined In czrsesinvolving contractsil rvhich goocls:rrlclser- compony?Why or why notT
are combilcd, courtshavercacheddiffercntresults.I'br instance,is providirtgblood (DelphineMenard/CreativeCommons)
'iccs
to a patient cluringan operationa "salc of goocls"or the
''pcrformanceof :r rleclicalservice"?Sornecourtssayit is a
gootl;otherssayit is a service.Becartse the IJCC doesnot
providethe artswers to such cluestions,thc courtsgenerall,v
irse the predominant-factor test to detcrrninc whethcr :l
contractis prinarily for the saleof goods or for the saleof
:en,ices.3Tliis cletennin:rtion is important because the
LICC wili appl;t to services provided ttnder a tnixed con-
tract that is preclominantlyfor goocls,even though the

2. Thc Ll(lC irvoiclsthe Iern firLttreshcre because ihe rvord has nurrterous
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
c l i s c u s s e ri nl 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 "
450t!ililtttf,
SAIES
ANDLEASE
CONTRACTS

majority of courtstreat servicesas being excludedby the UCC. In other words,if a court
decidesthat a mixed contract is primarily a goodscontract, any dispute,even a dispute
over the servicesportion, will be decided under the UCC. Likewise,any disagreerr-rent
over a predominantlyservicescontractwill not be decidedusing the UCC, even if the dis-
pute 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-regoods,doesArticle 2 of the UCC
still apply to tl-retrar-rsaction?
That wastl-remain issuein the following case.

AppellateCourt of lllinois,FourthDistrict,579lll.App.3d581,885 N.E.2d7ll (2008).

ANDFACTS trailerin his name.CeneJannuschwas paidto attendtwo

BACKGROUND
.jlW",-i GeneandMartha
Jannusch
ran
FestivalFoods,which providedconcessions at eventsaround
lllinoisand Indiana.Theyowneda truck,a trailer,freezers,
roasters,chairs,tablet a fountainservice,signs,and lighting.
Lindseyand LouannNaffzigerwere interestedin buyingthe
concessions business.Theymet with the Jannusches and
orallyagreedto a priceof 9150,000.The Naffzigers paid
$10,000down with the balanceto comefrom a bankloan.
Theytook possessionof the equipmentand beganto use it
immediatelyin FestivalFoodsoperationsat variousevents,
eventhough GeneJannuschkept the titlesto the truck and
eventswith the Naffzigersto provideadviceabout runningthe
operation.Aftersix events,and at the end of the outdoor
season,the Naffzigersreturnedthe truckand all the
equipmentto its storagelocationand wanted out of the deal.
Theysaidthe business did not generateas much incomeas
they expected.The Jannusches suedthe Naffzigers for the
balancedue on the purchaseprice.Thetrialcourtheldthat
the UniformCommercial Code(UCC)governedthe casebut
that there was not enoughevidenceto show that the parties
had a sufficientmeetingof the mindsto form a contract.The
Jannusches appealed.

l N T H EW0 RDS0 F THEC0URT... Chorles J . RE Y NA RD, J u d g e P re s id in g .

Defendants lthe Naffzigers] argue the UCC should not apply because this case
involvesthe sale of a businessratl-rerthan just the sale of goods.The "preclorrinantpur-
pose" test is trseclto cleterminewhether a contractfor both the saleof goodsand the ren-
dition of servicesfalls 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-rapproval,and other issues.Defendants
arguetheseare essentialterrnsfor the saleof a businessand 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
essentialtern-rsmissing.""A contract may be enforcedever-rtl-roughsome contract terms
may be missingor left to be agreedtrpon, but if the essentialterms are so uncertain that
there is no basisfor clecidingwhetl'rerthe agreementl'rasbeen kept or broken, there is no
contract."
The essential termswere agreedupon in this case.The purchaseprice was$150,000,
and the items to be transfelredwere specified.No essentialterms remained to be agreed
upon; the only action rernaining was the perforrnanceof the contract. Defendantstook
possession of the items to be transferredand used them as their own. "Rejectionof goods
must be within a reasonabletime after their deliveryor tender.It is ineffectiveunlessthe
buyerseasonably notifiesthe seller."IUCC 2-602(l)l Defendantspaid $10,000of the pur-
 411nffftTrtn
THE OF
FORMATION
CONTRACTS
ANDLEASE
SATES

CASEl s.l -Cont inued

chaseprice. The fact that defendantswere disappointedin the incorne from the events
thev operatedis not inconsistent with the existenceof a contract.lEmphasisadded.]
tn" ttirt court noted that "the partieshave very differentviews about what transpired
in the course of the coltract-forrnationdiscussions."It is not necessarythat the parties
may
sharea subjectiveunderstandingasto the tern'rsof the contract;the parties'condttct
inclicatean agreementto the teims. The conduct ir-rthis case is clear. Partiesdiscussing
the saleofgold, do not transferthosegoodsand allow them to be retainedfor a substan-
tial period" before reaching agreement. Defendants replaced equipment, reported
i'rco*., paicltaxes,and paid Gene for his tirne and expenses,all of which is inconsistent
*,ith the icleathat defendantswere only "pursuing buying the business." An agreementto
r.nakean agreernentis not an agreement,but there was clearly more than tl-rathere.
x x x f6. parties',gr."-.nt could have been fleshedor-rtwith additionalterms,but
the essentialtermswere agreedupor-r.fNaffziger]admittedthere wasan agreementto pur-
chaseFestivalFoodsfor $t 5O,OO-O but could not recall specificallymaking an oral agree-
ment on any partictrlardate."An agreementsufficientto constitutea contractfor saleInay
be fonncl even tlio.rgh the rnoment of its making is undetermined'" IUCC 2-704Q)1
Retuming the goodsit the end of the season was not a reiectionof plaintiffs' offerto sell; it
wrrsd bredchof contract' IEniphasisadded.]
We conclude there was an agreementto sell FestivalFooclsfor the
priceof $l 50,000
and that clefenclants breachedthat agreement.We reversetl-re circuit court'sjudgmelrt
and remand for the entry of an order consistentwith this opinion.

ANDREMEDY
DECISI0N the
courtreversed
rtreappeals WEREDIFFERENT?
WHATIF THEFACTS
decisionof the trial court,findingthat a contracthad been Supposethot the controcthod stated thot the truck
formedunderthe UCCand that the Naffzigers had breachedit' ond otherequipmentwere worth $5o,oo0 ond the goodwill
Ihe primaryvalue of the contractwas in the goods,not the wasworth$Ioo,ooo.Wouldthothove
volueof the business
valueof the business; the partiesagreedon a price;and the chonged the of thiscose?Whyor whynot?
outcome
Naffzigerstook possessionof the business.Theyhad no right
to returnit.
@

Whols a Merchant?
trarxactionsbetweenall
-\rticle 2 governsthe saleof goodsin general.It appliesto sales
buyersani sellers.In a limited ,-rurrrblr of instances,however, the UCC presumestl'rat
Legal
CornellUniversity's
..rtrin specialbusinessstandardsought to be on
in-rposecl tnerchantsbecause they pos
offers
Institute
lnformation
,.r, , ,.lrtiu.ly high degreeof commercial Such
expertise.4 standarclsdo r-rot
apply to the to the UCCas
onlineaccess
casualor inexperilnceJselleror br-ryer (a "consuner"). Section2-104 setsout threeways enacted in severalof the statesat
in wh i ch m er c lt ants t at u sc a n a ri s e :

I A merchant is a person wl-rodealsin goodsof the kind involved in lhe salescontract.

Thus, a retailer, a wholesaler,o, a manufactureris a merchant of those goodssoldin
for
the business.A merchant for one type of goods is not necessarilya merchant
another type. For example,a sportingequipment retailer is a merchant when selling
tennis racketsbut not when selling a used computer'

only to merchantsrlealprincipallywith the Statuteof Frauds,firn offers,corfirmatory

an{ contractmodifications. 'fhesespecialrulesreflectexpedientbusilesspracticescorn-
r'emorandums,warrantres,
-.1hryr"*t"""h"*pply
nonlv known to merchantsin the commercialsetting.They will be discussed laterin ihis chapter'
452IINiIIIE
SALES
ANDLEASE
CONTRACTS
MERCHANT
A personwho is engaged in the
purchaseand saleof goods.Under
the UCC,a personwho dealsin
goodsof the kind involvedin the
salescontractor who holdsherself
or himselfout as havingskillor
knowledgepeculiarto the practices
or goodsinvolvedin the transaction.
lucc2-'r041.
LEASE
UnderArticle24 of the UCC,a
transferof the rightto possess and
usegoodsfor a periodof time in
exchange for payment.
LEASE ACREEMENT
In regardto the leaseof gooos,an
agreement in whichone person(the
lessor)agreesto transferthe rightto
the possession and useof property
to anotherperson(the lessee)in
exchange for rentalpayments.
l-EssoR
A personwho transfers the right
to the possession and useof goods
to anotherin exchange for rental
paymenrs.
TESSEE
A personwho acquires the rightto the
possession and useof another's goods
in exchange for rentalpayments.
A compony offering leasesfor
outomobiles.All such leasesore
governed by Article 24 of the UCC.
Whot leosesare not govetned by the
UCC?(5. Jones/Creative Commons)
A merchantis a personivho, by occr:pation,holds hirnselfor herselfout as having
knowledgear-rdskill Llniqueto the practicesor goodsinvoived in the transaction.Notc
tl'ratthis broad definitior-irnay incluclebanksor rlniversitiesas merchants.
A personwho entploysd.merclTdntds d broker,ctgent,or other intermediaryhas tl-rcsta-
tus of merchantin that transaction.I{encc, if a "gentlernanf:rnner"who orclinarily
doesnot run the farm hiresa brokerto purchaseor sell livestock,the farmcr is consid-
ereda merchantin thc transactiot'r.
In summary,a pcrsonis a merchant when she or he, actingin a rriercantilecapacity,
Posscssesor tisesan expertisespecificallyrelateclto the goodsbeing sold.Nevertl'reless,
tl-re
distinctionbetweenrncrchantsand nonmerchantsis not :llwaysclear-cut.For example,
statecourtsappearto be split on whetherfarmersshoulclbe consideredrr-ierchants.5 In
somestates,farmersare consiclerecl nicrchantsbecausethey sell prodr-rcts or livestockon
a rcgular basis.hr other states,courtshavc held that the draftersof the UCC did not
intend to incluclefarners as rnerchants.
In the pastfcw clec:rdes, leasesof personalproperty(goods)havebecon.reincreasinglycom-
molr. In this context,a leaseis a tr:rnsferof the right to posscssand Llsegoodsfor a periocl
of tirnc iu exchangefor pavn.rent.Article 2A of the UCC was createdto fill the need for
Llniform gtriclelincsin tl.risarea.Article 2A coversaly transactionthat creirtesa le:rseof
goocls, aswcll assubleases of gooclsIUCC ZA-102,2A-l0l(l Xk)]. Exceptthat it appliesto
leases,rathcrthan sales,of goocls,Articlc 2A is essentially a repetitionof Article 2 :rnclvarics
orrlyto reflectcliffcrences ltetweensalesanclle:rsetransactions.(Note that Article 2A is not
concertrecl lvith lcasesof realproperty,suchaslanclor btrilclings. 'l'he lawsgovernirgthcsc
typesof tr:rnsactions will be exarriineclin Chapter 4,f.)
D e f i n i t i oonf a le a seAg r e e m e n l
Article 2A clefincsa leaseagreement zrsa lessorancl lessee'sbetrgainwith respectto the
leascof goods,as fotrnclin thcir l:rr.rguagc arrclas implied by otlier clrcullr-
starlccs,including colrrseof clcalingar.rdusageof traclcor collrseof perfor-
ma n ce i U C C 2A -103(l )(k)| .A l essori s one w ho transfers i he ri g ht t o t lie
possession :urduseof goodsunclcra leaseILJCCZA-103(1)(p)].A lesseeis onc
who accluiresthe right to thc tcmporarypossession and use of gooclsuuclera
leasef UCC 2A-103(1)(o)].L-rothcr rvorcls, the lesseeis the partywho is leasing
the gooclsfrorn tlie lcssor.Article 2A applies to all types of leasesof goocls,
including comrrerci:rllcasesand consllmerleases.Specialrules apply to cer-
iain typcsof leases,holvever,incluclingconslrnlcrleasesand fin:rnceleases.
€ o nsu mle
e ra se s
Aconsumer/erl.se involvesthree clements:(l) a lcssorwho regularlyengagesirr
t}'rebusinessof leasingor sclling; (2) a lessee(exceptar-rorganization)rvho
lcasesthe goods"primarily for :r personal,fan-rily,or househoidpurpose";;rnd
(3) total leasep:rlanentsthat are lessthan a cloilar amount set by statestatute
ILICC 2A-103(1)(e)1. 'lb ensurespecialprotectionfor consumers,ccrtain pro-
visiot-is
of Article 2A applyonly io consumerleases. For example,onc provision
statesthat a constlncr may recoverattorneys'fees if a court finds that a tcrm rn
a consrlmerlcasecontractis unconscionablef UCC 2A-108(a)(a)].
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).
 455EIEKtr
THEFORMATION
OF
sAtE5ANDIEASE
CONTRACIS

Fi nancleas
e es
.\finance /easeinvolvesa lessor,a lessee,and a supplier.The lessorbuysor leasesgoodsfrom
the supplierand leasesor subleases thern to the lesseeIUCC 2A-103(t)(g)] Typically,in a
finance lease, the lessor is simply financing the hansaction. lrEIIfrFIElsrl Marlin
Corporationwantsto leasea cranefor use in its coltshuctionbusiness.Marlin's bank agrees
to purchasethe equipmentfrom ]ennco, Inc., and leasethe equipment to Marlin. In this
sihration,the bank is the lessor-financer, Marlin is the lessee,and )ennco is the supplier.E
Article 2A, unlike ordinary contract law, makesthe lessee'sobligationsunder a com-
mercial finance lease irrevocable and independent from the financer'sobligationsIUCC
l\-407]. In other words, the lessee must perform and continue to make leasepayments
ei'en if the leased equiprnent turns out to be defective.The lesseemust look almost
entirely to the supplier for warranties.

In regardto the formatior-rof salesand leasecontracts,Article 2 and Article 2A of the UCC

modify colrnlon law cor-rtract rulesin severalways.Retnember,though, that partiesto sales
conhacts are free to establish whatevertenns they wish. The UCC cornesinto play only
'*hen the partieshave failed to that later gives
provide in their contractfor a contir-rgency
I

makes this clear time and again by using such phrasesas

I
I
rise to a dispute. The UCC
"unlessthe partiesotherwiseagree"or "absenta contraryagreementby the parties."

lI 0ffet
In generalcontractlaw, the rnoment a definite offer is rnet by an unqualified acceptance,
a binding contractis formed. In commercial salestransactions,the verbal exchanges,cor-

II respondence, and actionsof the partiesmay not revealexactlywhen a binding contractual

obligatiol arises.Tl-reUCC statesthat an agreementsufficientto constitr-rtea contractcan [E[H
erist even if the rnoment of its making is undeterminedIUCC 2-204(2), 2A-204(2)).
underthe UCC,it is
the actionsof the parties
that determinewhetherthey
intendedto form a contract.
i Open Terms Renernber from Chapter 9 that under the common law of contracts,an
be definite enor-rghfor the parties (and the courts) to ascertainits essential
I ott-err-r-rust

I
I
terns when it is accepted.In contrast,the UCC statesthat a salesor leasecontract will
lot fail for inclefinitenesseven if one or more terms are left open aslong as (l) tlie parties
iltended to rlake a contract and (2) there is a reasonablycertain basisfor the cor-rrtto
i grantan appropriaterernedyIUCC 2-204(3),2A-204G)1.
I
i
tiExAMFCrBA Mike agreesto leasefrorn Compr-rQuika highly specializedcomputer
nork station.Mike and one of CompuQuik's salesrepresentatives sign a leaseagreement
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
the necessaryequipment from one of its sr-rppliers and spendsseveraldaysrnodifyingthe
equipment to sr-ritMike's needs.When the leasingmanagerretLrrns,she calls Mike and
tells him that his work station is ready.Mike sayshe is no longer interestedin the work
station,as he has Arrangedto leasethe sarnetype of eqr-ripmentfor a lower price from
anotherfirm. CompuQuik suesMike to recoverits costsin obtaining and modifying the
equipment, and one of the issuesbefore the court is whether the partieshad an enforce-
able contract.The court will likely hold that they did, basedon their intent and conduct,
despitethe "blanks" in their written agreement.E
Relativeto the common law of conlracts,the UCC has radicallylessenedthe require-
ment of definitenessof 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.
454IIEIIT@
ANDLEAsE
SALES CONTRACTS

Open Price Term. If the partieshave not agreedon a price, the court will detern-iinea
" re a s o n i rb lperi c e at the ti me for del i ver.r"
1U C C Z-305rI r . If ej tl rerfhe l l rye r or t lr e
selleris to determinethe price,the price is to be fixed(set)in goodfaith IUCC 2-]05(2)).
Under the UCC, goodfaith meanshonestyin fact and the observanceof reasonablecon-r-
r-r'rercialstandardsof fair clealingin the trade IUCC 2-103(l)(b)]. The conceptsof good
faith and commercialreesondbleness permeatethe UCC. Son-retimes, the price fails to be
fixed through the fault of one of the parties.In that sitr-ration, tl'reother party can treat the
c o n tra c ta s c a n c e l edor [i x a reasorrablpri r8.t P erezand Merri c k ent er
e ce. l rrxnrvrpTr
into a contract for the sale of unfir-risl-red cloorsand agreethat Perezwiil deterrninethe
price. Perezrefusesto specifythe price.Merrick can eithertreattl"recontractas cancelecl
e ce f U C C 2-305(3)1.E
o r s e ta re a s o n a b lpri

Are openprice termsfoir if the seller olways seemsto get the betterdeal? In saleslaw, it
is acceptable for a contractto leavethe priceterm open and to statethat the sellerwill set
the price. Such fixing of an open price term must be done in good faith, however.
Consequently, when Sunoco,Inc.,consistently leftthe priceterm for deliveredgasolineopen
in hruenty-trruodifferent states, a question arose as to whether the companywas actingin
good faith.The contracts allowed Sunoco to set the pricepayablein any mannerit wished.
Sunococreateda complicated formula that resulted in 414 pricingzonesfor 1,180dealers.
Sometimes, prices were set differently for adjacent price zones.
A numberof gasoline dealersin NewYorkand NewJerseysued.Theyarguedthat ratherthan
setting pricesin good faith,Sunocowas manipulating the priceto controlthe dealers'business
activities.
Reviewing the facts,the courtdid not agree.lt ruledthat the pricedifferentials
were not
attributableto "generally arbitraryunreasonable, or capriciousconduct on Sunoco's partl'The
courtfoundthat the factthat Sunocochargedhigher prices with
in markets less competitionwas
simplythe resultof a capitalistsystem.Ratherthan actingwith "bad motivesor intention,"
Sunocosimplytook advantage of marketconditionsfor its own benefit.6

ult

Open Payment Tenn. When p:rrtiesdo not specilyperymentterttrs,p:ryt't'tcrtis cltreat

thc tinreanclplaceat wliich tl'rebuyeris to receivethe gooclsI tlCC 2*l I0(a)l. The buyer
c:ur tenclerpaynrent using :tny cormrercizrllynorrral or acceptablel'neans,such :rs a
checl<or creclitcarcl.If the seilerdem:rndspaymentin cash,howcver,the buyer tnttstbe
givcn a reasonable time to obtain it IIJCC 2-5ll(2)]. This is especi:rllyinrportantwheu
tl-rccontractstatesa definite erndfinal tirne for perforrnance.

liliNInEFII The common taw
requiresthat the partiesmaketheir
termsdefinitebeforethey havea
The UCCappliesgeneral
contract.
commercial standards to makethe
termsof a contractdefinite.
Open Delivery Tenn. When no deliveryterrnsare specifiecl,the buyer nonnally takes
deliveryat the seller'splaceof businessIUCC 2-308(a)1.If the sellerhasno placeof busi-
ness,the seller'sresidenceis used.When goodsare locateclin someotherplacear-rdboth
partiesknow it, deliveryis n-radethere.If the tirne for shipmentor deliveryis not clearli
specifiedin the salescontract,the court lvill infer a "reasonable"tirne for performance
lucc 2-3oe(1)].
Duration of an Ongoing Contract. A singlecontractn'rightspecifysuccessive perform-
ancesbut not indicatehow long the partiesare requiredto deal with each other.In this
situation, either party may terminate the ongoir-rgcontractualrelationsl-rip.Principlesof
good faith and sounclcommercial practicecall for reasonablenotification beforetermina-

6. Callahanv. Sunoco,Inc.,- F.Supp.2d- (tr D Pa.2005)

 o"*Tffi*^*
AND
sALE5 LEASE
CONTRACTS

tion, however,to give the other party reasonabletime to seeka substitutearrangement

(l)l
ucc z-l0e(2),
Options and Cooperation Regarding Performance. When the contract contemplates
shiprner-rt of the goodsbr-rtdoesnot specifythe sl'rippingarrangements,the sellerl-rasthe
right to make thesearrangements in gooclfaith, usingcommercialreasonableness in the
s itu a ti o nIUCC 2- ] l I l.
Wlren a salescontract on'ritsterms relating to the assortmertof goods,the buyer can
specifythe assortrnent.ITEXAMFLE-tsA one thousand
PetryDmgs, Inc., agreesto pr.rrchase
toothbrushesfrorn Marconi'sDental Supply.The toothbmshescorne ir-ra varietyof colors,
but the contractdoesnot specif, color. Petry,the buyer, has the right to take six hurdred
blue toothbrushesand for-rrl-rundredgreenonesif it wishes.Pctry,l'rowever,ntust exercise
goodfaith and cornmerciaireasonableness in makingits selectionIUCC 2-3 lll. E

Open Quantity Tern. Norrlally, if the partiesclo not specifya qr-rar-rtity, a cor-rrtwill
have no basisfor deterrnininga rernecly.This is becausetl-rereis alrnostno way to deter-
mine objectivelywl'ratis a reasonablequantity of goodsfor someoneto buy (wl'rereasa
court can oblectivelydeterminea reasonable price for particulargoodsby lookingat the
market).Nevertl'reless, the UCC recognizestwo exceptionsinvolvingrecluirements and
or.rtputcontractsI UCC 2-306(I)1.
In a requirements contract, the buyer agreesto purchaseand the seller agreesto sell REeulRE[fiENrs
coNrnAcr
I TEXAMPLEI BE U rnpqua Anagreementin whicha buyer
all or up to a stateclamount of what the br-ryerneedsor reqr-Lires.
to pur.ho[ fr-* Cn'rJ'u., :E::::[ |:iiTi:: il'ri::H,
Theca''ery agrees
Can'eryformsa co'tractwithAl Garcia.
anclGarciaagreesto sell to the cannery,all of the greeubeansthat the canncryneedsor airountof whatthebuyerneeds
requiresduringthe summerof 2010.E There is irnplicitconsideration in a reqtrirements or requires'
contractbecausethe buyer (the cannery,in tliis sitr-ration)givesup the right to buy grecn
beansfrorn ar.ryother seller,and this forfeitedright createsa legal detriment (that is, cott-
Recl,rirernents
sideratior-r). contractsare common in the br,rsiness world anclare rtormally
enforceable.In contrast,if the buyer prornisesto purchaseonly if the buyer wishesto do
so,or if the br-ryerreservesthe right to buy the goodsfrom someoneother than the seller,
the prorniseis ill.rsory(withoutconsicleration) and unenforceable by eithcr party.T
In an output contract, the selleragrecsto sell and tfre buycr agreesto buy all or up to ourPurcoi{rRAcr
trEiAMFiTr&ClAl Garcia forms a contract Anagreement in whicha seller
a statedarnount of what tl-reseller prodtLces.
rrithU*ipq'aCa'nery.Garcia
agrees r,rdth".r,r,..r'y*;.r;
to sellto thecarr,-r"ry, i;l""T:i::'["r1i?Hflruffin,
on his farrn during the sum-
frorn Garcia, all of the beansthat Garcia proclr-rccs
pr-rrchase of whatthesellerproduces.
mer of 2010. tr Again, becausethe sellercssentiallyforfeitsthe right to scli goodsto
anotherbuyer,there is implicit considcrationin an output contract.
The UCC inposes a goodfaith limit(ttion on recluirementsand outpttt contracts.The
quantityunder such contractsis the amount of requirementsor the amount of output that
occursdr-rringa normal production year.The actual quantitypurcl-iasedor solclcannot be
unreasonablydisproportionateto norrnal or comparable prior requirementsor output
i u c c 2 -1 0 6 1 .

lf you leavecertaintermsof a salesor leaseeontractopen,the UCCallowsa

courtto supplythe missingterms.Althoughthis can sometimesbe advantageous
{to establishthat a contractexisted,for instance),it can alss be a maior
disadvantage. lf you fail to state a price in your contractoffer,for exarnple,a
courtwill imposea feasonablepriceby lookingat the marketpriceof similar
goodsaf the time af delivery.Thus,insteadof receivingyour standardpricefor

Ba
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 n kr .7 6 5 ( N{.D Fl a.2006)
15
456EmmrTffl
SATES
ANDLEASE
CONTRACTS

the goods,you will receivewhat a court considersa reasonable pricewhen the

goodsare delivered.When drafting contractsfor the sale or leaseof goods,make
surethat the contractclearlystatesany termsthat are essentialto the bargain,
particularlyprice.lt is often better to establishthe terms of your own contra€ts
ratherthan to leaveit up to a courtto determinewhat termsare reasonable after
a disputehas arisen.

FIRMOFFER
An offer(by a merchant)that is
irrevocable withoutthe necessity
of consideration for a statedperiod
of time or, if no definiteperiodis
stated,for a reasonable time (neither used-cardealer,writesa letter to Saucedoon
periodto exceedthreemonths).A
firm offerby a merchantmustbe
in writingand mustbe signedby
the offeror.
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(discussedin Chapter 9), in which the offereepaysconsiderationfor the offeror's
irrevocableprorniseto keep the offer open for a statedperiod. The UCC createsa second
exceptionfor firm offersrnadeby a rnerchantto sell, buy, or leasegoods.
A firm offer ariseswhen a merchant-offerorgivesdssurances in a signedwriting tl-ratthe
offer will remain open. The merchant'sfirm offer is irrevocablewithout the necessityof
considerationbfor the statedperioclor, if no definite period is stated,a reasonableperiod
(neitlrerperiod to exceedtlrree months) IUCC 2-205,2A-205). ITExAMPLE tsZ Osaka,a
"l
fanuary I stating, havea used2009 Sr-rzuki
SX4 or the lot that I'll sell you for $11,000any tirne beh.veen now and January31."This
writing createsa firm offer, and Osakawill be liable for breach if he sellsthe Suzuki SX4
to sorneoneother than SaucedobeforeJantrary31. E
It is necessarythat the offer be botb written and signedby the offeror.eWhen a firnr
offer is contained in a form contract preparedby the offeree,the offeror rnustalso sign a
separateassrlranceof the firrn offer.'fhis requirerr.rent
ensuresthat the offeror is awareof
the offer.For instance,an offereemight respondto an initial offer by senclingits own fon'n
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'sfornr
contract,the offeror may inaclvertentlysign the contractwithout realizing that it conterins
a finn offer,thus clefeatingthe purposeof the mle-which is to give effectto a rnerchant's
cleliberateintent to be bounclto a finn offer.

Acceptance
The followir-rg
subsections exarrinethe UCC's provisionsgoverningacceptance. As you
will see,acceptanceof an offerto buy, sell,or leasegoodsgenerallyrray be made in anr'
reasonablemanner ar-rclby any reasonablenre: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 rneansof communication is effective,hoil.
ever,aslong asthe acceptanceis receivedby the specifiecl cleadline.Irrxnrvtpt-etssl Janel
offersto sell her Hurrmer H2 to Arik for $24,000.'l'he offer states,"Answerby fax witliin
five days."If Arik sendsa letter, ar-rcl
Janel receivesit within five days,a valid contract is
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
IUCC] 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
used in lieu ofa written signature will suffice, regarcllessofits location on the document.
 4r7EIlEmtr
THE
FORMATION
OF
ANDLEASE
5ALE5 CONTRACTS

.\ny ReasonableMeans. Wl-rentl-reofferor doesnot specifya meansof acceptance,the

UCC providestl-ratacceptancecan be made by any meansof communication that is rea-
sonableunder the circumstancesIUCC 2-206(l),2A-206(l)]. This broadensthe com-
mon law rules concerning authorizecl means of acceptance. (For a review of the
requirements relatingto mode and timelinessof acceptance, seeCl-rapter9.)
lrExAMFfEltB5I Anodyne Corporation sendsBethlehem lndustriesa letter offering to lTlltllMlill The UCC'sruleson
meansof acceptance illustrate
lease$1,000 worth of postagemeters.The offer statesthatAnodyne will keep the offer Therules
the UCC'sflexibility.
open for only ten daysfrom the date of the letter. Beforethe ten dayselapse,Betl-rlehern havebeenadaptedto new forms
sendsAnodyne an acceptanceby fax. Is a valid contract formed? The answer is yes, of communication, suchas faxes
and onlinecommunications.
becauseacceptance by faxis a commerciallyreasonable medium of acceptance underthe
circumstances.Acceptance is effective on Betl-rlehern's transmissionof the fax, which
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
cor.rforrning or nonconforminggoods"IUCC 2-206(l)(b)] Conforminggoodsare goods
that accord with the contract'sterms; nonconforminggoodsdo not. Tl're seller'sprompt
shipmentof nonconforminggoodsin responseto the offer constitutesboth an acceptance
i a contract) and a breachof that contract.
(within a reasonarble
This rule doesnot applyif the sellerseasonably amount of time) SEASONABLY
a specifiedtime periodor,
rrotifiesthe br-ryerthat the nonconformingshipment is offeredonly asan accommodation, Within
if no periodis specified,
within a
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.
IrExdmFiEtsJ6l McFarrell Pharrlacyordersfive casesof Johnson& Johnson3-by-5-inch
gauzepadsfrom HaldersonMedical Supply,Inc. If Haldersonshipsfive casesof Xeroforrr
3-by-5-inchgauzepadsinstead,the shipmentactsasboth an acceptanceof McFarrell'soffer
and a breachof the resultingcontract.McFarrell rray slle Haldersonfor any appropriate
damages.If, however,HaldersonnotifiesMcFarrell that the Xeroformgar-rze paclsare being
shippedds dl1dccommodation-becar-rse Haldersonhas only Xeroform padsin stock-the
a counteroffer,not an acceptance.A cor-rtract
shipmentwill constitr-rte will be forrnedonly
if McFarrell acceptsthe Xeroforn'rgauzepads.[l

Communication of Acceptance Under the comnron law, becausea r-rnilateraloffer

invites acceptanceby a performance,the offeree neecl not notify the offeror of perfor-
rnanceunlessthe offerorwould not otherwiseknow about it. In other worcls,beginningthe
requestedperformanceis an in'rpliedacceptance.The UCC is tnore stringentthan the
common law in this regard.Under the UCC, if the offeror is not notified within a reason-
able time that the offereehas acceptedthe contractby beginning performance,ihen the
offerorcan treatthe offerashaving lapsedbeforeacceptanceIUCC 2-206(2),2A-206(2)1.
trExAMptFtJ-ttlLee writesto Pickwick Bookstoreon Monday, "Pleasesendrne a copy
of Webster's New CollegeDictionaryfor $25.55,C.O.D.," and signsit, "Lee." Pickwick
receivesthe requestbut doesnot ship the book for four weeks.When the book arrives,Lee
rejectsit, claimingthat it hasarrivedtoo late to be of value.In this situation,becauseLee
had heard nothing from Pickwick for a month, he wasjustified in assr-rming that 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
Beale in turn acceptsbut in the acceptancemakessome slight modification to the terms
458l'IITTTilT'.tTl
ANDLEASE
SAtES CONTRACTS

of the offer, there is no contract. Recail from Chapter 9 that the so-calledmirror image
rule requiresthat the terms of the acceptanceexactlymatch thoseof the offer.The UCC
dispenseswith tl'remirror image rule. Generaily,the UCC takestl-reposition that if the
offeree'sresponseindicatesa definiteacceptanceof the offer, a contract is formed et,enif
the acceptanceincltLdesadditional or different terms from those contained in the offer
IUCC 2-207(l)]. What happensto theseadditionalterms?The answerto this question
depencls,in part, on whetl-rerthe partiesare non[Ierchants or merc]rants.

Rules When One Party or Both Parties Are l,{onmerchants. If or-re(or both) of the par-
ties is a nonmerchant,the contract is formed accordingto the terrnsof the origir-raloffer
submittedby the original offeror and not accorclir-rg to the additional terms of the accep-
tance f UCC 2-207(Z)1.fiExAMPtE t812lTolsenoffersin writing to sell his laptop com-
pr,rterand printer to Valdezfor $650.Valdezfaxesa reply to Tolsenstating,"l acceptyour
offerto purchaseyour laptopand printerfor $650.I wouldlike abox of laserprinterpaper
and two extra toner cartriclgesto be included in the purcl'raseprice." Valdez has given
'lblsen a definite expressionof acceptance(creatinga contract),even tl'ror,rgh the accep-
tance also sttggests :rn added tern'rfor the offer. BecauseTolsen is not a merchant, tl're
additional term is n-rerelya proposal(sr-rggestion), and Tolsen is r-rotlegally obligateclto
compiy with that term. E

RulesWhen Both PartiesAre Merchants. In contractsbetweenmerchants,the additional

termsautomatically beconrepart of the contractunless(l) the originalofferexpressly lirn-
its acceptarrceto the tern'rsof the offer, (2) the new or changed termsmaterial/),alter the
contract,or (3) the offerorobjectsto the new or char-rged tenns within a reasonableperiocl
of tirr.refUCC 2-207(2).|.
Wh:rt constitutes a rnaterial:rlterationis frequentlya questiontl-ratonly:r cottrtcan decide.
Generally,if the moclificationinvolvesno unre2rsonable elernentof surpriseor hardshipfor
the offeror,the cotrrt will holcl that the moclificationdid 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 confirma-
tion forrn, and then an invoice,to Woolf.'lupman's confirmationform alrd invoice have
alwaysinclucleclar arbitrationcleruse. If Woolf placcsanotherorclerand fails to pay for the
meat,the court will like\, l6ld that the aclclitional terni-the arbitrationprovisior-r-didnot
rnateriallyalter the contractbecause\4bolf shoulclnot havebeen surprisedby the term. El
In the following case,the court explainsthe "revoh-rtionarychange in contraci law"
catrsedby the UCC's principleson additionalterms.

55, 922 A.zd 782 (2OO7).

SuperiorCourt of New Jersey,AppellateDivision,393 N.J.Super.
la*librarr,rutgers.edu/rcarch-rhttrta

AilII FACTS calculatoron which Myroncouldengravethe namesof its

EACHGNCIUNU
Sun CoastMerchandise customers. ln December2000,Myronbeganto submit
a California
Corporation, firm,designsand sellsproductsthat purchaseordersfor about400,000of what the partiesreferred
distributeas promotionalitems.Myron
businesses to as "Versionl" calculators.
In April2001,Sun redesignedthe
a NewJerseyfirm,askedSunabouta flip-top
Corporation, fliptop. Overthe nextfew weeks,the partiesdiscussedterms
for makingand shipping4 millionof the "Versionll"
a. ln the "SEARCH THEN.J.COURTS DECISIONS" section,type "Sun Coast"in calculatorsbeforethe Christmasseason.By May 27, Myron
the box, and clickon "Search!"ln the result,clickon the casename to access had faxedfour orderswith specificdeliverydates.Two days
t he ooin i o n . later,Sunannounceda delavedscheduleand askedMyronto
 459GIEEE
THE
FORMATION
OF
ANDTEASE
SALES CONTRACTS

cr$,_4;,t#fl'ffi
-s;ip$ilt;i1t+unldir
submit revisedorders.Unwillingto agreeto the new dates, judgmentin Sun'sfavor.On appealto a stateintermediate
Myrondid not honorthis request.The partiesattemptedto appellatecourt,Myronargued,amongotherthings,that the
negotiatethe issuebut were unsuccessful.Finally,Sun filed a to the jury regarding
judge'sinstruction Sun'sclaimwas
suit in a New Jerseystatecourt againstMyron,claiming, inadequate.
among other things,breachof contract.The court entereda

It{ THt WORDS0t IHE COUnT. . . FtsHER,

J.A.D.
ludse,Appellate
Divisionl
**ttl.

The era when a valid, binding contractcould only come into existencewhen a party's
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
inconsistentwith the modern realitiesof commerce.* * * Article 2 of the UCC radically
alteredsaleslaw and expandedour conceptionofa contract.The heart ofthis revolution-
ary change in contract law can be found in lNew )erseyStatutesAnnotated (N.J.S.A.)]
l2A:Z-207(1)lNew Jersey's versionof UCC 2-207(l)1,which declaresthat "lal definite
and seasonable expressionof acceptanceor a written confirmation which is sent within a
reasonabletime operatesasan acciptance even though it statesterms additionalto or dif-
ferent from thoseofferedor agregdupon, unlessacceptanceis expresslymade conditional
on assentto the additionalor differentterms."No longerare communicatingpartiesleft to
debatewhetherdn acceptdnceperfectlymeetsthe termsof an offer, but insteadthe existence
of a binding contract may be basedon wordsor conduct, which need not minor an offer, so
Iong as they revealthe parties'intention to be bound. lEmphasisadded.]
Consideringthat the UCC permitsthe formation of a contractby way of conduct that
revealsthe parties'understandingthat a contract exists,and notwithstandingthe sugges-
tion of additional or even non-conforming terms, the complex of communications
behveen [Sun and Myron] demonstratesthat neither can the formation of a contract be
confirmed or foreclosedwithout a resolution of the existing factual disputesand the
weighing of the significanceof the parties'convolutedcommunications.
* xt *
In short,it is conceivable-and the jury could find-that the parties'inability to agree
on certain terms revealsthe lack of an intent to be bound; in other words,that their com-
munications constitr-rtedmere negotiationsthat never ripened into a contract. By the
sametoken, the iury could find that a contract was formed despitea failure or an inabil-
ity to agreeon all terms.N.].S.A. l2A:2-207(2)providesthat an acceptancecoupled with
the proposalof new or different terms does not necessarilypreclude the formation of a
contract. In such a circumstanco,* * x the new or different terms proposedby the offeree
* *
fcouldl becomepart of the contract 'c fEmphasisadded.]
All thesequestionsrequired that the factfinder analyzethe meaning and significance
t*._Oit,j.r'communications basedupon the legal frameworkprovided by the UCC.

x The trial judge correctly determinedthat the

'' '( [contentionsabout] contract for-
* * * raisedfact questionsto be decidedby the i' * *
iury
"r"ltl"
In describingfor the jury what it takesfor the partiesto form a binding contract,the
judgestated:

A proposal to acceptan offeron anydifferenttermsis not an acceptance ofthe originaloffer.If

any new or differenttermsareproposed in response to the offer,the responseis not an accep-
A counteroffer
tance,but rathera counteroffer. is a newofferby the partymakingthatproposal. C A S E1 8 . 2 - C o n t i n u e sn e x t pa g e
440IINIIT@
SATES
ANDLEASE
CONTRACTS

C A SE1 8.2 -Con tinu ed The newoffermustin turn be agreedto by the partywho rnadethe originalofferfor thereto be
an accePtance.
As we have aireadyexplained,the UCC doesnot require that a party'sresponsemirror
an offer to result in a binding contract.The offereemay proposeadditional or different
terms without necessarilyhaving the responseviewed as a non-binding counteroffer.
Instead,an offeree'sproposalof additionalor cor-rflictingterms may be found to constitr-rte
an acceptance,and the other or different terms viewed as rrere proposalsto modify the
contractthus forn-red.
The judge's misstatementin this regard was hardly harrnless* * * . In describing
when the law recognizesthat a contractwasformed, the judge providedthe lury with erro-
neous instructionsthat struck directly at the heart of the case.

ANDREMEDY
DECISI0N intermediate
rhestate AtNA I . Y S I $ - S o ci a l
F 0 RCRI T I CA
appellatecourtconcludedthat the judge'sinstruction to the COn si d e f a t 10fi epptying the correctprinciplesto
jury with respectto the questionof whetherSun and Myron the foctsin this case.how would vou have decidedthe issue?
had formed a contractwas "fundamentallyflawed" and Explain.
"providedinsufficient guidancefor the jury'sresolutionof the
issues."On this basis,the court reversedthe lower court's
judgmentand remandedthe casefor a new trial.

lll

Conditioned on Offeror's Assent. Regardlessof rrerchant status,the UCC provides

that the offeree'sexpressioncannot be construedasan acceptanceifit containsadditional
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
thighsat a specifiedprice and with specifieddeliveryterms.Hundert responds, "l accept
yotrr offer for 650 poundsof turkey thighs on the conditionthat you give me ninety daysto
pay for them." Hundert's responsewill be construednot as an acceptancebut as a coun-
teroffer,which Philips rnay or may not accept.E

IililtrE]ffinEfif The UCCrecognizes
that a proposeddealis a contract
if, in commercial
understanding,
the dealhasbeenclosed.
AdditionalTerms May Be Stricken. The UCC providesyet another option for dealing
witlr conflictingterms in the parties'writings.Section2-207Q) statesthat conduct by
both partiesthat recognizesthe existenceofa contract is sufficientto establisha contract
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
on which the writings of the partiesagree,togetherwith any supplementaryterms incor-
poratedunder any other provisionsof tl-risAct." In a disputeover contractterms,this pro-
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.
SMT acceptsand paysfor the goods.Tl-reparties'writingsdo not establisha 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
terms that conflict wiih tl-roseof the offer is often referredto as the "battle of the forms."
Altl-roughthe draftersof UCC 2-207 triedto eliminate this battle, the problem of differ-
ing contracttermsstill arisesin commercial settings,particularlywhen contractsare based
on the merchants'forms, such as order forms ar-rdconfirmation forms.
 44rglmu
THE
FORMATION
OF
ANDLEASE
SALES CONTRACTS

(onsideration
l'ie comn.ronlaw rr-rlethat a contractrequirescor-rsideration
alsoappliesto salesand lease
: ntracts.Unlike the commot-tlaw, however,the UCC doesnot require a contract mod-
.::iaiion to be sr-rpported
by new consideration.An agreementmodifyir-rga contractfor the
i."ie or lease of goods "needs no Considerationto be binding" IUCC 2*209(1),
_\-r08(r)1.
\lodifications Must Be Made in Good Faith Of course,a contractn'rodificationmustbe
- .rglrtirrgoodfaith IUCC l-203] ITExAMPLE tsrolAllied.Inc..agreesto leasea new recre-
,:onal vehicle (RV) to Louise for a statedrnonthly payment.Sr-rbsequently, a suddenshift
:. the marketmakesit difficult for Allied to leasethe new RV to Louiseat tl'recontractprice
.'.rthoutsufferinga loss.Allied tells Louise of the situation,and she agreesto p.y nt'trd.li-
.,,nal sum for tl-releaseof the RV. Later Louise reconsidersand refusesto pay more than
:ire original price. Under the UCC, Louise'spromiseto 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-rerereally was no shift in the market, however,ancl Allied knew tl-ratLouise
::eededto leasethe new RV ir-nmecliately but reftrsedto cleliverit unlessshe agreedto pay
. higher price?This attempt at extortionthrough moclificatior-r without a legitir-natecorn-
.nercialreasonwould be ineffectivebecauseit would violatethe clutyof goodfaith.Allied
'.'.oulclnot be permitted to enforcethe higher price.

\\hen Modification without Consideration Requiresa Writing In some situations,an

-igreelrentto modify a salesor leasecontractwithout considerationmtrstbe in writing to be
enforceable.If the contractitselfprohibits:rny changesto the contractunlessthey are in a
.igneclwriting, for instance,then only those changesagreeclto in a signed writing are
enforceable.If a consttmer(nonmerchar-rt br-ryer)is dealir-rg
with a rrerchant and the mer-
chant suppliesthe forn that containsa prohibition againstoral rnodification,the corlslurer
rnrrstsign a separateacknowledgmentof such a clauseIUCC 2-209(2),2h-208(2)].
Also, under Article 2, any modification that bringsa salescontractr-rnderthe Statuteof
Frauclsrnustusually be in writing to be enforceable.Thus, if an oral contract for the sale
of goodspriced at $400 is modified so that the contractgoodsare now priced at $600, the
modificationmust be in writing to be enforceableIUCC 2-209Q)]. (This is becausetl-re
UCC's Statute of Fraudsprovision,as you will read shortly,requiresa written record of
salescontractsfor goodspriced at $500 or more.)If, however,the buyer acceptsdelivery
of the goods after the modification, he or she is bouncl to the $600 price [UCC
2-201(l)(c)1.(Unlike Article 2, Article 2A doesnot saywhethera leaseasrnodifiedr-reeds
to satisfiithe Statuteof Frauds.)

of Frauds
Statute
The UCC containsStatuteof Fraudsprovisionscoveringsalesand leasecontracts.Under
tl-reseprovisions,salescontractsfor goods priced at $iOO or more and lease contracts nT:ilW,lli|'il tt has been proposed
that the UCCbe revisedto
requiring paymentsof $1,000 or more must be in writing to be enforceable[UCC eliminatethe Statuteof Frauds.
2-201(1),2A-201(l)].(Note that theselow thresholdamountsmay eventuallybe raised.)

Sufficiency of the Writing The UCC has greatly relaxedthe requirementsfor the suffi-
ciencyof a writing to satisf,the Statuteof Frauds.A writing or a memorandumwill be suf-
ficient as long as it indicatesthat the partiesintendedto form a contractand as lor-rgas it is
signedby the parly (or agentof the party-see Chapter 28) againstwhon'renforcementis
sought.The contractnorrnallywill not be enforceablebeyondthe quantityof goodsshown
442III$F5{:r'Irl
SALES
ANDLEASE
CONTRACTS
An ortison createso specially
designed"bowlwithino bowl"out
of onepiece of cloy.If o restouront
orollycontroctedwith the ortison
to cteotelwentyof the speciolly
designedbowlsfor usein its
business,at a priceof $800,would
the controcthave to be in writingto
be enforceoble? Whyor whynot?
(APPhotofliVideWorldPhotos)
in the writing, however.All other termscan be provedin court by oral testimony.For leases,
the writing must reasonablyidentift and describethe goodsleasedand the ieaseterm.
Special Rules for Contracts between Merchants Once again,the UCC providesa spe-
cial 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
the terms of the agreement,and the merchant receivingthe confirmation must have rea-
son to know of its contents.Unlessthe merchantwho receivesthe confirmation giveswrit-
ten 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.
lrExAMptFrsr?-l Alfonso is a merchant-buyerin Cleveland.He contractsover the tele-
phone to purchase$6,000worth of spareaircraftpartsfrom Goldstein,a merchant-seller
in New York City. Two dayslater, Goldstein sendsa written confirmation detailing the
terms of the oral contract,and Alfonso subsequentlyreceivesit. If Alfonso doesnot notif,
Goldstein in writing of his objection to the contentsof the confirmation within ten days
of receipt.Alfonso cannot raisethe Statuteof Fraudsasa defenseagainstthe enforcement
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 includ-
ing the company'styped name was sufficient to satisfuthe UCC's Statuteof Frauds.For
a discussionof a case involving this issue,see this chapter'sAdapting the Law to the
O nline Environmentfearure.
Exceptions In addition to the specialrules for merchants,the UCC definesthree excep-
tions to the writing requirementsof the Statuteof Frauds.An oral contractfor the saleof
goodspriced at $500 or more or the leaseof goodsinvolving total paymentsof $1,000or
more will be enforceabledespitethe absenceof a writing in the circumstancesdiscussed in
the followingsubsections IUCC 2-201(3),2h-201(4)].Theseexceptions and otherwaysin
which saleslaw 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-
tured or obtainedfor a particularlessee,(2) thesegoodsare not suitablefor resaleor
leaseto othersin the ordinarycourseof the seller'sor lessor'sbusiness,and (3) the
selleror lessorhassubstantiallystartedto manufacturethe goodsor has made com-
mitmentsfor their manufactureor procurement.In this situation,once the selleror
lessorhas taken action, the buyer or lesseecannot repudiatethe agreementclaim-
ing the Statuteof Fraudsas a defense.
IiExdMpiEtsJs-]Womach orderscustom-madedraperiesfor her new boutique.
The price is $6,000,and the contract is oral. When the merchant-sellermanufac-
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 that appliesto
10. Note that this rule appliesonly to sales(urder Article 2); theLeis no corresponding
leases(underArticle 2A).Accordingto the commentsaccompanying UCC 2A-201 (Article2As Siatuteof
Frauds),the "behveenmerchants"provisionwasnot includedbecause"the numberofsuch transactions
involvingleases, asopposedto sales,wasthoughtto be modest."
 445rfm
IHEFORIVIATION
OF
ANDLEASE
SALES CONTRACTS

lt I alty' . .colltr:rcts
. requlre a telegr:ulsarc all ir-rtangible fornrsof cotntmtnication while
f ull , ,.-,1
_ji:l \\ntrng to sailsn ilre theyarc bcingtransrnittecl. \Mrether:rn e-nail is printeclon
Statuteof Fraucls. As morc papcror savecl ol :l server,it remains":rnobjectivelyobseru-
-rndnlorecontracts:rre ablc ancltaneible recorclthat sr.rch a conlirnatiou exists."
:r.gotiatedorallyor through Additionally, a signecl writingcloesnot necessarily lneana
;-rnai1,the questionarises pieceof papcrto rvl-ricli a signature is physically appliecl.In
-,. kr u'hethere-m:lilcoln- dni,,|.
tl.l
this case, thc c-rnail attaclirnent, consisting oFa ietter on
::runications c:rnftrlfill the comp:uryletterheadwith the conrpanyprcsident's typecl
'.,,riting requirernent.'fhis "signature,"wassufficient.Finally,statir-rg that e-mailwasat-t
:))ue\\,asat the heartof a caseinvolvinga tcxtileuercherttdis- inappropriaternethodof cornmurrication meantveLylittle.
,irgcolnp:rny and itssupplier. 'lbrrantr'r'ouldl.raveto provethat the parties'prior course
of clealingand tracleusagein tl.reapparelinclrstryrarely
involvede-rnails. T'hecourtfoundthat therewasevidence
WasTherean Enforceable Contract?
to tl.recontrary.a
Blzlk International Corporatior"tcontt:tcted to btly ntllrerotls hrclcecl,a conrtin a subsequent caseinvolvingthe apparel
:;.rirsof jcans frorn 'lhrr:rnt Apparel Group for a total price inclustryappliedthe sarnere:rsonir-rg to allow a breachof cot.t-
'f arouncl !12million. After a seriesof clisptrtcs bctwccr.r thc tract clairn to so forw:ud basecl on :rn e-mailcoufiruration.
-onrpanies,'lirrrant solcl the je:rnsto a thircl party at a liigher Great White Bear, LLC, a clothing rnaker, allegedthat
:-.rice.Bazaksuecl for breacl.rclf cotrtract.'farrant claimecl that Mervyns,LLC, had agr:eecl to purchirse $l1.7 nrillionin
:hc contractwas not enforceableltecaltsethere rvasno signecl clothir-rg from the cornpany. Afterplacingonly Xi2.3rnillion
'.,.riting. in orclers,Mervynsinforr.necl GreatWhite Bearthat it woulcl
.\lthough the parties never clrervup :r r.vrittencontr;rct, not placezrnynloreorders.GreatWhite Bearfilecla lawsuit,
:hcr did engagein a seriesof e-mail traustnissiotrs. ltr oue, clainringthatan e-niailconfirmationbetweenthe two uer-
Blzak provicleddetailsofthe purchaseanclattachecla letter charts u'assLrfficicnt to satisftthe Statuteof F'ratrds. 'fhe
rrr its orvu colnpuurvstationery. Bazak clairneclthat this courtagreed,notingthat "thcrcale ro rigiclrecluiretrents as
:-nrail constitrrtcclr written cotrfirmation that satisficclthe to the f6rm or contJntof ir cor.rfirutittorv ivritins."b
:tatute of Frar-rds.'larrant dis:rgrccd,arguittgthat (I)bec:iuse
is electronic,it cannot qualify as a
-,n c-mail tr:ursrrrissior.t {, : l: ll.: \
'.rnttcn confirrnatiorrof the agreenrent;(Z) thc c-nail rvastrot
WHS F 0 RCRI T I CAAt NA I Y S I A
S re t h e re o n y t r a d e s
-r u rittcn urenrorandum bctu'een nrerch:rntsbec:rttseit u,:ts WJ.c$or industries
in todoy'senvironment for which
:rot signccl;ancl (3) using c-rriailrvasuot an appropriate e-moil confirmotion would be inoppropriote? Explain.
:ncansof corrrmLrrrication in thc apparelinclustrv.

TheCourtRulesin Favorof E-MailCommunicationsa. BozaklnternotionalCorp.v. ToffantApporel Group,378 F.SuPp.2d

I hc courtr-uledag:rinstall of '[hn:rnt'sargurnents.Evctt 377 (S.D.N.Y
200s).
ihoughthe e-nrailsrvere "intangible nressages,"theystill qu:rli- b. GreatWhiteBeor, LLCv. Mervyns,LLC,-F.Supp.2d -,2oo7 WL
lrcclaswritings.'l'he coitrtpointeclout that f:rres,telexes,:rnd 129s747(S"D.N.Y2oo7).

-:,rpericsmake it irrrprob:rble that thc scllcrcan find anotlierbtrr,er,Wom:rchis liablc to

. c sellcr.Note that thc sellerurusthar,crnaclca sr.ibstaritial
beginning in tlanufactr.iring
. .c sltecializeditem prior to the buver'srepucliation.(Herc, the nranufircturew:rscon-
: eted.)Of cor-rrse,tlic court rnuststill bc convincedby evidenceof the ter-rnsof ilrc oral
-'l tl tra c t lel
.

\dmissions. An oral contract for thc sale or leasc of goods is enforceableif thc par\,
,,gainstrvhom enforcementof the contractis soughtadmitsin pleaclirrgs, testimonv,or
that a contract for sale."l'asrliade. h-rthis situatiott,the contr:rct
,iher court proceedir-rgs
oral, but enforceabilih will be limitecl to tl'requan-
'.ill be enforceabieeventhor-rghit r,vas
.rh of soodsadmitted.
444tlNilillflf,
ANDLEASE
SALES CONTRACTS

betweenContractLawand Saleslaw
Maior Differences
C ON T R A C TtAW S A LE StA W
ConlractTerms Contractmust containall materialterms. Openterms are acceptable, if partiesintended
to form a contract,but the contractis not
enforceablebeyondquantityterm.

Accepla
nre Mirrorimageruleapplies.lf additional Additionaltermswill not negateacceptance
terms are addedin acceptance, unlessacceptance is made expresslyconditional
counterofferis created. on assentto the additionalterms.
(onlracl Modificationrequiresconsideration. Modificationdoes not requireconsideration.
Modification
lrrevocable
Offers Optioncontracts(with consideration). Merchants'firm offers(without consideration).

Statuteof Frauds All materialtermsmustbe includedin the Writingis requiredonly for the saleof goods
Requirements writing. of $500 or more,but contractis not enforceable
beyondquantityspecified.Merchantscan
satisfythe requirementby a confirmatory
memorandumevidencing theiragreement.
Exceptions:
l. Speciallymanufacturedgoods.
2. Admissionsby party againstwhom
enforcementis sought.
3. Partialperformance.

lffiExAMplE l&19-lLane ancl Byror"rnegoti:rte:rn agrcenent over the telcphone. During

the negotiations,f,ernerequestsa cleliveryprice for five hunclreclgallonsof gasolineand a
sep:rratcprice for sevenhunclredgallons of garsoline. Byror repliesthat the price woulcl
be the s:rrne,$3.50 per gallon. L:rne orally orclersfivc hunclredgallons.Byron honestly
believesthat L:rne orclereclsevenhunclreclgallonsanclter-rclers thertarrount. Lzrnerefuses
the shipnent of sevenhunclreclgallons,ancl Byron suesfor breach. In his pleaclingsancl
testimorry,Lzrneadnits that an oral conh:rctwasrrercle,but only for five hurclreclgallons.
Bec:ruseLane achnitsthe existenceof the or:rl contract,Lane cannot plead the Statuteof
Fraudsasa defense.'fhe contractis enforce:rble,howevcr,only to the extentof the quan-
tity aclnrittecl(five hundred gallons).@

nHfifffiFT:nn An admissioncan
be madein documents, including
internalmemosand employee
reports,that may be obtained
duringdiscovery priorto trial.
Partial Performance. An or:rl contractfor the saleor leascof goodsis enforceablei[ pay-
nrent hasbeen madeanclacceptedor gooclshavebeenreceivecl 'l'his is the
arrclacceptecl.
"partial performance"exception.The oral contractwill be enforceclat leastto the exter-rt
tlrat perforrnanceactualllt took place.
trEXAMPl-l tB,rEAllan orally contractsto leaseto Opus Enterprisesa thor,rsand chairsat
$2 eachto be useddr,rringa one-day concert. Before delivery,Opus sendsAllan a check
for $1,000,which Allan cashes.Later,when Ailan aitenpts to deliverthe chairs,Optrs
reftrsesdeiivery,claiming the St:rtuteof Frar-rds , and demandsthe return of
as :r clefense
its $1,000.Under the UCC's partialperfonrance rr-rle,
Allan can enforcethe oral contract
by ter-rderof delivery of five hundrecl chairs for the $1,000 accepteci.Simiiarly, if Opus
had made no paynent but haclacceptecltl-iedeliveryof five hundred chairsfrom Allan,
the oral contractwouid havebeenenforceable againstOpus for $ 1,000,the leasepayrnent
due for ihe five hundred chairsdelivered.@
 445EIEHU
THE
FORMATION
OF
ANDLEASE
SALES CONTRACTS

Pa rolE v idenc e
If the partiesintendeclthe terms set forth in the contract as a complcte and fir-ialexpres-
sior-rof their agreen-ient,then the terrls of tl-rccontract cannot be contradictedby evi-
dence of any prior agreementsor contemporaneous oral agrecnients.As discr-rssed in
Chapter 13,this principleof law is known ttsIhc parol evidence rule.If, howevet, the writ-
ing contains only sorneof the terrnsthat the partiesagreeclon 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
conrt nay allow eviclenceof consistentadditional tenns to cxplain or supplement the
ternrsstatedin thc contract.'l'l-iecourt rn:ryalso:rllowthe partiesto submit eviclertce of
courseof dealing, tLsageof trade, and courseof performance when the contract was clnly
partially ir-rtegratedILICC 2-202, 2A-202). A court will not under any crrcumstalrces
allow the partiesto subrnitevidencethat coltradictsthc statedterms(this is aisothe rulc
under tl-recoinlllon law of contracts).

Course of Dealing and Usage of liade Undcr tlic UCC, the rle:rniug of :l.ry agree-
nrent, evidenceclby the languergcof the parrtiesand by tlreir actions,must be interpreted
in light of conrnrercialpr:rcticcsand other surrouncling circumst:rnces. hr interpretinga
conrmercialagreeureut, the court will assuu.re that the corlrseof prior clcalingbetween
usagcof traclewere taken into accouut when the agreen.rent
the partiesancl the ger.rererl
rrasohrasecl.
A courseof dealing is a secprence of previotrsactionsand communicationsbctween COURSE OFDEATING
Prior conduct betuveenthe parties
the partiesto a particul:rr tr:rnsactionthat establishesa comr-nonbasisfor their ttncler-
to a contractthat establishes a
stanclingIUCC 1-205(l)l A courseof clealingis restrictedto the secprence of concluct commonbasisfor their
betrveenthe particsin their transactiotrs previotrsto the agreement. understanding.
Usageof trade is defined as ary practiceor rnethoclof dealing having such rcgularity USAGE OFTRADE
oi observancein a place, vocation, or tr:rde as to justify :ru expect:rtiontl-ratit will be Anypractice or methodof dealing
observecl in questionIUCC 1-205(2)1.'l'heexpressterms
with respectto tlie trar.rs;rction havingsuchregularity of observance
in a place,vocation,or tradeas to
of au agreenentand an applicablecourseof dealingor r.rsage of traclcwill be cotrstrued justifyan expectationthat it will be
to bc consistentwith each other wheneverreasonable. When such a constructionis observedwith resDect to the
tntedsondble, howevcr,the express terrrtsitr the agreernent rvill prevailIUCC 1-205(4)l. transaction in question.

Course of Performance A course of performance is tl-reconcluctthat occursunder the €OURSE OFPERFORMANCE

Theconductthat occursunderthe
terms of a particular agreement.Presurnably,tire partiesthernselvesknow bestwhat they
termsof a particularagreement.
nreantby their worcls,and the collrseof pcrforrnanceactuallyundertakenunclertheir Suchconductindicates whatthe
agreementis the bcst indicationof what they rneantIUCC 2-208(l), 2A-207(l)1. partiesto an agreementintendedit
E: t l f ur r so rr'Lsrrrn b eC
trExA - M ptr B c o rrtrrrcw
r o rrrp a rri to scl l B arrytttore to mean.
tsi l l r B arl yrnol e
a specified number of "two-by-fours."Tlie lun'rber in fact does not measllre
I ir-rchesby'{ inchesbut rat}reriZ inchesby 3%inches.fanson'sagreesto deliverthe lum-
ber in five deliveries,and Barryn-rore, without objection,acceptsthe lurnber in the firstthree
deliveries.On the fourth delivery,however,Barrymoreobjectsthat the hvo-by-for-rrs do not
measllre2 inchesby 4 inches.The courseof perforrnancein this transactiot't-thatis, the
tact that Barryrnoreaccepteclthree deliverieswithout objection under the agreement-is
relevantin detern'rinimg that here the ternt two-by-fouractuallymeans" l% by 7/.."Janson's
can alsoprovethat two-by-fours need not be exactly2 inchesby 4 ir-rcl'res by applyingusage
oi trade,courseof prior dealir-rg, or both. Janson'scan, for example,show that in previous
kansactions,Barryn-ioretook I%-by-7]Linchlumber witl-routobjection.In addition,fanson's
can shorvthat in the h-rmbertrade,hvo-by-fours are commonly lZ inchesby 3%incl-ies.E

Rules of Construction The UCC proviclesrules of constnLctionfor interpreting con-

tracts.Erpressterms, courseof perforrnance,collrseof dealing, and usageof tracleare to
446mtr@
CONTRACTS
ANDLEASE
SATES

When such a coustrttc-

be construedtogetherwhen they do not contradictone another'
however,tle following order of priority controls:(l) expressterms'
tion is unreasorr"rbl",
l-205(4)'
(2) courseof p"rfor-",'tce, (3jcourse of delli"g, andl+1 usageof trade IUCC
(Z)1.
z-2o\(z),2A-207
bilitY
Unconsciona
As discussed in Chapter ll, an unconscionable contractis one that is so unfair and one
sideclthat it woulcl be unreasonableto enforce it. The UCC allowsthe cor-rrtto evaluate
a contractor any clausein a contract, and if the court deemsit to have been uncon-
scior-rableat tl're time it was made, the court can (l) refuse to enforce the contract'
without the unconscionable clause,or (3) Iimit
(2) enforcethe remainclerof the contract
clauses to avoid an unconscionable result f UCC
the applicatio,'rof ,rry unconscionable
case illustrates an early application of the
2-302,2A-l0B]. The following lanchnark
UCCk ttnconscionabili$provisions'

Corp,
fonmv,$fatCredit
264 (1969)'
m**nffiil SuoremeCourtof New YorK NassauCounty,59 Misc2d 189,298 N'Y'S'2d

t*n
f,tr$filf H IS T OR ICAANTD hetd thot a controctrequiring o Spanish-speokingconsumerto
f;t*tt ECONOMIC SETTINGrnthe moke poymentstotoling neorly $l ,l50 for o freezerthot
wholesoledfor lessthon $350 wos unconscionoble'brhe
sixthcentury Romancivil low allowed the courtsto rescindo
controctwas in English,and the solespersondid not tronslote
controctif the morketvolue of the goods that were the subiect
or exploin it"
of the contractequaled lessthqn holf the controd price' This
sameratio hosoppeared over the last forty yeors in many theplaintiffs,
ANDFACTSrheJoneses,
BACKGROUND
casesin which courtshove found contractclausesto be agreedto purchasea freezerfor $900 as the resultof a
unconscionable under UCC2-302 on the ground thotthe price ,ilurp"rron't visitto theirhome.Taxand financingcharges
wos excessive.Mostof the litigonts who hove used UCC2-302 raisedthe total priceto $1,439.69' At trial,the freezerwas
successfullyhove been consumerswho were poor or othervvise foundto havea maximum value
retail of approximately $300'
ot a disodvontage.In a Connecticutcase,for example,the who had
The plaintiffs, made payments totaling $619'88'
court held thot a controctrequiring o personwho was poor to broughta suit in a New Yorkstatecourt to havethe purchase
make poymentstotaling $l ,248 for o televisionset thot contractdeclaredunconscionable underthe UCC'
retoiledfor $499 wos unconscionoble.a The sellerhod not told
thebuyer the full purchoseprice' ln a New Yorkcose,the court 52 Misc'2d26,274N'Y's2d757(1966);
Corp.v. Reynoso,
b. Frostifresh
54 Misc.2d
rev'don issueof damages, 946(1967)'
119,281N'Y'S'2d
183,416A'2d17o(1979)'
Conn'Supp'
a. Murphyv.McNomaro,36

l N T HE W O RDS 0 F T H E C O U R T . . . s o / w AcH rLE Rrusti

, ce'

I i I the court to find, as a matter of law, that

;r..a," ttZ-3[Zof the UCC] authorizes
it was t-t-rade," and
a contract or a clauseof a contract was "urrconscionableat the time
the court n-rayrefuseto enforce the contract, excisetl-reobjectionable
*por so fi,-r,tir-rg *
result' * *
clauseor fi-ii ifr" ,pplication of the cla.se to avoiclan unconscionable
****
,. x * The questionwhich preser-rts itself is whether ot not, under the circumstances
of this case,the sale of a freezlr unit having a retail value of $100 for $900 ($1,439'69
* *
of law' *
incluclingcredit chargesancl $lB salestax) iiunconscionable as a matter
* * * The nratfieriraticalclisparitybehveen$300,which presumablyincludesa reason-
the greatestweight'
able profit margir-r,ancl $900, which is exorbitanton its face, carries
 447
ElMmtr
THE OF
FORMATION
ANDLEASE
SALES CONTRACTS

CASE1 8. 3- Cont inue d

* x x The
Credit cl'rargesalone exceedby rnore than $ 100 the retail value of the freezer.
'.en limited fir-rancialresolrrcesof the purcl-raser,
known to the sellersat the time of the
x x x
.ale.is entitleclto weightir-rthe balanc".

* * * The defendanthas alreadybeen amply compensated.In accordancewith the

:tatute, the application of the payment provision should be lir-r-ritecl
to amourttsalready
:.lid by the plaintiffs and the contract be reforrnedand amended by changing the pay-
actuallyso paiclby the plaintiffs.
:rents called for tl-rereinto equal the amount of payn-rer-rt

D EC ISI0 AND
N RE ME DY heldthatthe
rnecourt unconscionoble-an opproach thot focuseson "excessive"price
contractwas not enforceableand reformedthe contractso ond unequol borgaining power.
that no furtherpaymentswere required.
RELEVANT WEBSITESTo|ocote on theweb
informotion
ltt IMPACT0F THISCASE0N T0DAY'StAW concerning
fheJones goto this
v.starcreditcorp.decision,
f'fo;! fnis eorly cose illustrotesthe opprooch thot mony text's Websife of www.cengage.(om/blaqblt,seled "Chopter
courtstodoy toke when deciding whether o solescontroctis | 8," ond then clickon "lJRLsfor Londmorks!'

Intemation:rlsalescontractsbetween firrrs or ir-rdivicluals locerteclin different cottutries

rre governeclby the l9B0 United Nations Convetrtiotron Contractsfor the International
Saleof Goocls(CISG).'fhe CISG govemsintenrationalcontractsonly if the cottntriesof
the partiesto the contract have ratified the CISG ancl if the partieshave not agreedthat
.onre other law will govern their contract.As of 2009, the CISG had been acloptedby
:clenty conntries,inch,rdingthe UniteclStates,Canada,Mexico, someCentral and South
.\nrerican countries,and r-nostEr:ropeannations.This meansthat tl-reCISG is the ur-ri-
saleslaw of countriesaccountinqfor tnore than two-thirdsof all global
rcrrr internatior-ral
irade.

ofyt h e( l S G
Applic abilit
Essentially,the CISG is to internationalsalescontractswhat Article 2 of the UCC is to
domesticsalescontracts.As discussecl in this chapter,in domestictransactionsthe UCC
applieswhen the partiesto a contractfor a saleof goodshave failed to specifuin writing
ffi
The full text of the CISGis
availableonline at the Pace
sone important term concerningprice, delivery,or the like. Similarly,wheneverthe par- UniversitySchool ol Larn/sInstitute of
ject to the CISG I'ravefailed to specifuin writing tl-repreciseterms of a contractfor
tiessr-rb lnternationalCommercialLaw.Go to
the internationalsaleof goods,the CISG will be applied.Unlike the UCC, the CISC does
not apply to consumersales,and neiiher the UCC nor the CISG appliesto contractsfor
services.
Businesspersons musttakespecialcarewhen draftinginternationalsalescontrachto avoid
problemscausedby distance,inch-rdir-rg languagedifferencesand varyingnationallaws.The
exhibit locatedwithin this chaptershowsan actualinternationalsalesconhactused
fold-or-rt
br.starbucksCoffeeCon'rpany. illustratesmany of the specialtermsand clauses
The fold-or,rt
that arefpically containedin internationalcontractsfor the saleof goods.Annotationsin the
fblcl-outexhibitexplaintl-remeaningand significanceof specificclausesin the contract.(See
Chapter 46 for a discussionof otl-rerlawsthat frame global businesstrar-rsactions.)
448EiIi!@
ANDTEASE
SALES CONTRACTS

To read an in-deptharticle
comparingthe provisionsof
the CISCand the UCC,go to
Oberman.htnl.
A C o m p a r i so
o f nCISG Pr o visio n s
a n dUCC
The provisionsof the CISG, althoughsimilar for the most part to thoseof the UCC, differ
frorn them in certainrespects.We havealreadymentionedsomeof thesedifferences. In the
l)eyondOur Bordersfeaturein Chapter I 3 on page 77), for exampie, we pointed out that the
CISG doesnot include any Statr-rte of Fraudsprovisions.Under Article 1l of the CISG, an
internationalsalescontractdoesnot needto be evidencedby a writing or to be in any partic-
ular form.
We look here at soinedifferencesbetweenthe UCC and the CISC with respectto con-
tract formation. In tl-refollowing chapters,we will continue to point out diflerences
between the CISG and the UCC as they relate to the topics covered.These topics
include risk of loss,performance,remedics,and lvarranties.

Offers Son'redifferencesbetrveenthe UCC and the CISG have to do with offers.For

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
discussthe 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
revocobleunder the UCC?Would
it be revocobleunder the CISG?
Exploin the different opprooches.
(Courtesy of SemoBoxCompany)
instance,the UCC providesthat a merclrant'sfirrn offer is irrevocable,evenwithout consid-
eration,if the rnerchantgivesassurances in a signedwriting.In contrast,under the CISC, an
offer can become irrcvocablewithouta signedwriting. futicle 16(2)of the CISG provides
that an offer will be irrevocableif thc rnerchant-offeror simply statesorally that the offer is
irrevocableor iftlie offereereasonably rclicson the offerasbeingirrevocable.In both ofthese
situations,tl-reofferwill be irrevocablccvcn rvithouta writing and without consideration.
Anothcr differenceis that,ur-icler the UCC, if thc price term is left open,the court wili
"a
cletermine rcasonableprice at the tirne for clelivery"|UCC Z-lil5(l)1. Under the
CISG, however,thc price term niust be specified,or at leastprovisionsfor its specifica-
tion must be included in the agreernent; othcrwise,norrnallyno contretct will exist.
Acceptances L,iketlCC 2-207, the CISG providestl'rata contractcan be formed evetr
though the acceptarrcccontainsaclclitionalterms,unlessthe :rclclitional terms
materially alter tlie coutract. Under the CISG, however,the clefinitionof a
"rnaterialalteration"incluclesvirtuallyany changein the ternrs.If an aclclitional
terin relatesto paymcnt, quality, c1u:rntity, price, title anci place of clelivery,
extcntof onc party'sliability to the other,or the settlernentof clisputes,
the CISC
consiciersthe acldeclterm a "material alteration."In effect, then, thc CISC
requiresthertthe terns of the acceptancemirror thoseof the offer.
Additionally,unclerthe UCC, an acceptance is effectiveon dispatch.Under
the CISC], however,a contractis not createduntil the offerorreceivesthe
acccpt:rnce.(The offer bccornesirrevocable,however,whcr.rthe acceptattcets
sent.)Also,in contrastto thc UCC, the CISG providesthat acceptance by per-
forrnancedoesnot requirc that tl-reofferorbe notified of the perforrrance.

andleaseContracts
of Sales
TheFormation

GuyHolcombowns ConsultingGroup(CCG)"to delivera workingprototypeof a

and operatesOasis customerchat system,demonstrating the integrationof live
GoodtimeEmporium, video and chatting a in Web browser."In exchangefor creating
an adultentertainment the prototype,
Holcombagreed to pay CCG$64,697.On May
establishment. 20, Holcombsignedan additional work orderin the amountof
Holcombwantedto createan adult Internetsystemfor Oasis 912,943for CCGto installa customized firewallsystem.The
that would offercustomersadulttheme videosand "[ive"chat work ordersstatedthat Holcomb would make monthly
room programsusingperformers at the club.On May 10, installmentpayments to CCC,and both partiesexpectedthe
Holcombsigneda work orderauthorizing Crossroads work would be finishedby September. Due to unforeseen

:'roblemslargelyattributableto systemconfigurationand
completionof the projectrequired
:c#tlvareincompatibility,
-ore time than anticipated.Bythe end of the summer,the
rtrebsitewas stillnot ready,and Holcombhadfallenbehindin
:e paymentsto CCG.CCGwas threateningto ceasework and
'e a suitfor breachof contractunless
the bill was paid. Rather
:an makefurtherpayments, Holcombwantedto abandonthe
lrrebsiteproject.Usingthe informationpresented in the
:dpter, answerthe followingquestions.
| [l'oulda courtbe likelyto decidethat the transaction
betweenHolcomband CCGwas coveredby the Uniform
Commercial Code(UCC)? Whyor why not?
449EIIEEtr
I|ttrtrtf^Hlll^trtftr**.
2 Woulda courtbe likelyto considerHolcomba merchant
underthe UCC?Why or why not?
5 Did the partieshavea validcontractunderthe UCC?Explain.
4 Supposethat Holcomband CCCmeet in Octoberin an
attemptto resolvetheir problems.At that time,the parties
reachan oralagreement that CCGwill continueto work
withoutdemandingfull paymentof the past-dueamounts
and Holcombwill payCCC$5,000per week.Assumingthat
the contractfallsunderthe UCC,is the oralagreement
enforceable? Whv or whv not?

(ourseof dealing 445 Iessee452 sale 427

courseof performance445 lessor452 salescontracl 427
firm offer 456 merchant452 seasonably457
ietangibleWoperty 427 outputcontract455 tangibleproperty 427
ilcaseq52 predominant-factor
test 429 usageof trade ++s
lcaseagreement452 requirements
contract455

The Scope of the UCC The UCCattemptsto providea consistentuniform,and integratedframeworkof rulesto deal
(See pages 426-427.) with all phasesordinarilyorisingin a commercialsalesor leasetransadion,includingcontract
formation,passageof title and riskof loss,performance,remedies,paymentfor goods,
warehousedgoods,and securedtransactions.

ffte Scope Article2 governscontractsfor the saleof goods (tangible,movablepersonalproperty).The

of Articfe 2-Sales common law of contractsalso appliesto salescontractsto the extentthat the common law has
(See pages 427-452.) not been modifiedby the UCC.lf there is a conflictbetweena common law rule and the UCC,
the UCCcontrols.
fhe Scope Article2A governscontractsfor the leaseof goods.Exceptthat it appliesto leases,insteadof
of Article 2A-Leases sales,of goods,Article24 is essentiallya repetitionof Article2 and variesonly to reflect
(See pages 432-433.) differencesbehneensalesand leasetransactions.

Offer and Acceptance 1. Offer-

(Seepages433-440.)
a. Not all terms haveto be includedfor a contractto be formed (only the subjectmatterand
quantityterm must be specified).
b. The pricedoes not haveto be includedfor a contrad to be formed.
of performancecan be left open.
c. Particulars
d. A written and signedoffer by a merchant,coveringa periodof three monthsor less,is
irrevocablewithout paymentof consideration.
2. Acceptonce-
a. Acceptancemay be made by any reasonablemeansof communication;it is effectivewhen
dispatched.

(Continued)
450MiI@
CONTRACTS
ANDLEASE
SATES

Offer and Acceptance- b. An offercan be acceptedby a promiseto ship or by prompt shipmentof conforminggoods,
Continued or by prompt shipmentof nonconforminggoodsif not accompaniedby a noticeof
accommodation.
c. Acceptanceby performancerequiresnoticewithin a reasonabletime; otherwise,the offer
can be treatedas lapsed.
d. A definite expressionof acceptancecreatesa contracteven if the terms of the acceptance
varyfrom those of the offer,unlessthe variedterms in the acceptanceare expressly
conditionedon the offeror'sassentto thoseterms.

Consideration A modificationof a contractfor the saleof goodsdoes not requireconsideration.

(Seepage441.)

Requirements under L All contractsfor the saleof goods pricedat g500 or more must be in writing.A writing is sufficient
the'statuteof Frauds as long as it indicatesa contractbetweenthe partiesand is signedby the partyagainstwhom
(Seepages441-444.) enforcementis sought.A contractis not enforceablebeyondthe quantityshown in the writing'
2. When written confirmationof an oral contractbetween merchanb is not objectedto in writing
by the receiverwithin ten days,the contractis enforceable.
3. Exceptionsto the requirementof a writing existin the followingsituations:
a. When the oral contractis for speciallymanufacturedgoodsnot suitablefor resaleto others,
and the sellerhas substantiallystartedto manufacturethe goods.
b. Whenthe defendantadmitsin pleadings,testimony,or other court proceedingsthat an oral
contractfor the saleof goodswas made.ln this case,the contractwill be enforceableto the
extentof the quanti$ of goodsadmitted.
c. The oral agreementwill be enforceableto the extentthat paymenthas been receivedand
acceptedby the selleror to the extentthat the goodshavebeen receivedand acceptedby
the buyer.

Parol EvidenceRule L The terms of a clearlyand completelyworded written contractcannotbe contradictedby

(Seepages445*446.) evidenceof prior agreementsor contemPoraneous oral agreements.
2. Evidenceis admissibleto clarifythe terms of a writing in the followingsituations:
a. lf the contractterms are ambiguous.
to
b. lf evidenceof courseof dealing,usageof trade,or courseof performanceis necessary
learnor to clarifythe intentionsof the partiesto the contract.

Unconscionability An unconscionable contractis one that is so unfairand one sidedthat it would be unreasonable
(Seepages446-447.) to enforceit. lf the court deemsa contractto havebeen unconscionable at the time it was made,
the court can (l) refuseto enforcethe contract,(2) refuseto enforcethe unconscionable clause
of the contract,or (3) limit the applicationof any unconscionable clausesto avoidan
unconscionable result.

Contractsfor the lnternationalsalescontractsare governedby the UnitedNationsConventionon Contractsfor the

lnternationalSale InternationalSaleof Coods(CISC)-ifthe countriesof the partiesto the contracthaveratifiedthe
of Goods CISC(and if the partieshavenot agreedthat some other law will governtheir contract).
(Seepages447-448.)
the CISGis to internationalsalescontractswhat Article2 of the UCCis to domestic
Essentially,
salesconiracts.Wheneverpartieswho are subjectto the CISGhavefailedto specifyin writingthe
preciseterms of a contractfor the internationalsaleof goods,the CISGwill be applied.