Formation of the Contract ----How the UCC changes the common law

The UCC recognizes the existence of a contract whenever the parties act as if they have an agreement. In comparison to common law, the UCC requirements are rather flexible and open. It gives the parties great flexibility in deciding between themselves how a contract will be formed and performed. In this section we’ll check how the UCC provisions change the effect of the general common law principles of contracts.

I. OFFER1. Open terms • With the existence of some open terms, will

a sales contract fail for indefiniteness? ---- No. (1) The UCC has lessened the common law

requirements for definiteness of essential terms in contracts of sale.

(2) The Code provides numerous open-term provisions to cope with the indefiniteness.

• Under what conditions may the UCC recognize a failure of a sales contract for indefiniteness?

(1) The parties have no intent to make a contract.

(2) There is not a reasonably certain basis for the court to grant an appropriate remedy.

(As a general rule, if the quantity term is left open, the courts will have no basis for determining a remedy.)

• Open Terms Open Price Term

Open Payment Term

Open Delivery Term

Duration of an Ongoing Contract

Options and Cooperation Regarding Performance

…

Open price terms1. How can the court determine the price if

there is no fixed price in the contract?---- a reasonable price at the time for

delivery2. If the price cannot be fixed due to the

fault of one of the parties, how should another party do?

---- (1) fix a reasonable price himself (2) treat the contract as conceled

Open payment terms

If there is open payment term (Parties do not specify payment terms), how should the payment be made under this contract? ( when and where)

---- Payment is due at the time and place at which the buyer is to receive the goods.

Open delivery terms

If no delivery terms are specified, where and when can the buyer take delivery?

(1) Normally speaking, the place of delivery is at the seller’s place of business.

(2) If the seller has no place of business, the place of delivery is the seller’s residence.

(3) When goods are located in some other special place and both parties know it, delivery is made there.

• Output and Requirements (needs) contract In an output contract, one party is bound to sell its

entire output of particular goods and the other party is bound to buy that output.

( the seller the buyer ) output In an requirements contract, the quantity of goods is

based on the needs (requirements) of the buyer. ( the seller the buyer ) requirements (needs) In determining the quantity of goods to be produced

or taken concerning an output or needs contract, the rule of good faith applies.

2. Merchant’s firm offer The Code makes a major change to the

common law rules governing the revocability of offers by recognizing the concept of a firm offer.

Under the regular contract principles of common law, an offer can be revoked any time before acceptance.

The major common law exception is an option contract.

The UCC makes another exception---- Merchant’s firm offer.

• An option contract is a separate contract in which an offeror agrees not to revoke her offer for a stated time in exchange for some valuable consideration.

The offeree has no obligation to accept the offeror’s offer; in effect, she has merely purchased the right to consider the offer for the stated time without fear that the offeror will revoke it.

e.g., Martin offers Berry to sell his house for $150,000. Martin gives Berry a 30-day option to purchase his house in exchange for $100. Are there any legal effects if Berry pays the $100 or if Berry never, in fact, pays the $100?

A. Berry has got the right to consider the offer for the stated time (30 days).

B. Martin may revoke his offer at any time.

• What is a firm offer under the UCC

Under the UCC, not all offers for the sale of goods qualify as firm offers. To be a firm offer, an offer must be made by a merchant in a signed writing which contains assurances that the offer will be held open and not revoked. The main legal nature of a firm offer is irrevocable for the time stated in the offer. If no time is stated, it is irrevocable for a reasonable time. Regardless of the terms of the offer, the outer limit on a firm offer’s irrevocability is three months.

. An offer for the sale of goods that fails to satisfy these three requirements is governed by the general common law rule and revocable at any time prior to acceptance.

II. ACCEPTANCE Acceptance of an offer generally may

be made in any reasonable manner and by any reasonable means.

1. Methods of Acceptance (1) The common law rule---- the particular means

specified by the offeror The UCC----any means of communication

reasonable under the circumstances, even if the acceptance is not received within the designated time.

(2) Under the UCC, an acceptance of an offer to buy goods for current or prompt shipment can be made:

A. By prompt shipment of the goods to the buyer (The common law method of acceptance.)

B. By a promise to ship the goods to the buyer (The commercial practice of seller to send promises to ship conforming goods is taken as acceptance.)

C. By shipping nonconforming goods

(This shipment constitutes both an acceptance (contract) and a breach if the seller does not give the buyer a notification of nonconformity of goods.)

2. Additional terms(1) How does the common law deal with

additional terms? The mirror-image rule of offer-to-acceptance(2) How does the UCC deal with additional

terms?A. If the offeree’s response indicates a definite

acceptance of the offer, a contract is formed regardless of additional terms included in the acceptanc, unless ______________________

(the modifications are subject to /conditional upon the offeror’s assent.)

B. Whether additional terms can become part of the contract:

a.When the seller or the buyer is a nonmerchant, ___________________________________

----the modified terms do not become part of the contract, and the contract is formed on the offeror’s terms.

b. When both the seller and the buyer are merchants,__

----between merchants, the additional terms automatically become part of the contract unless…

III. CONSIDERATION

1. The common law rule----contract modification must be supported by new consideration.

2. The UCC----any agreement modifying a contract needs no consideration to be binding.

(1)Modifications must be made in good faith.

(2)When modification without consideration requires a writing.

IV. Statute of Frauds

1. What is Statute of Frauds provision about?

2. Written confirmation between merchants

3. Relaxed requirement (exceptions)