8.1 The Nature and Origins of Sales Contracts

Sales contracts are a crucial part of business transactions, governed by both common law and statutory law. The Uniform Commercial Code (UCC) is a key set of model laws adopted by all states, with Article 2 specifically covering sales of goods.

The UCC applies to contracts for tangible goods, not services or real estate. It has relaxed formation requirements compared to common law, allowing for open terms and firm offers. The UCC also imposes a duty of good faith in contract performance and enforcement.

Key Features and Sources of Law for Sales Contracts

Key features of sales contract law

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• Sales contracts governed by combination of common law based on court decisions and precedents and statutory law based on laws passed by legislatures
• Uniform Commercial Code (UCC) set of model laws governing commercial transactions adopted with some variations by all 50 states and District of Columbia
  • Article 2 of UCC specifically governs contracts for sale of goods
• Key features of sales contracts under UCC include relaxed formation requirements compared to common law contracts implied warranties of merchantability and fitness for particular purpose buyer's right to inspect goods before acceptance seller's right to cure defective deliveries remedies for breach of contract such as damages and specific performance

Scope of the UCC

Goods vs services under UCC

• UCC applies to contracts for sale of goods (tangible movable personal property) but not services (intangible) or realty (real estate)
• Courts interpret edge cases to determine if contract falls under UCC using "predominant factor" test
  • If predominant purpose is sale of goods UCC applies (purchasing a car)
  • If predominant purpose is provision of services UCC does not apply (hiring a mechanic to repair a car)
• Contracts for sale of goods that become attached to real estate may be covered by UCC if goods can be severed from realty without causing material harm (purchasing a furnace for a house)
  • If goods cannot be severed without causing material harm contract is not covered by UCC (purchasing custom-built cabinets for a kitchen renovation)

Formation requirements for UCC sales

• Formation requirements for sales contracts under UCC less stringent than common law contracts
  • UCC only requires minimal level of definiteness and intent to contract
  • Contract does not need to specify all terms such as price place of delivery or time of performance
• UCC allows for open terms in sales contracts
  • Open price terms permit parties to agree to reasonable price at time of delivery (market price for wheat at harvest time)
  • Open delivery terms allow for delivery within reasonable time (shipment of goods within 30 days of order)
• UCC provides for firm offers in sales contracts
  • Firm offer is written offer signed by merchant giving assurance it will be held open
  • Firm offers irrevocable for stated time or if no time stated for reasonable period not exceeding three months (offer to sell goods at specific price valid for 60 days)
• UCC imposes duty of good faith in performance and enforcement of sales contracts requiring parties to act honestly and observe reasonable commercial standards of fair dealing (merchant must not deliberately understock popular items to drive up prices)

Contract Formation and Enforcement

Elements of contract formation

• Contract formation requires offer and acceptance between parties
• Consideration must be present, which is something of value exchanged between parties
• Statute of frauds requires certain contracts to be in writing to be enforceable (e.g., sale of goods over $500)

Interpretation and enforcement

• Parol evidence rule limits the use of external evidence to interpret a written contract
• Breach of contract occurs when a party fails to perform their obligations
• Damages are a common remedy for breach, compensating the non-breaching party for losses